1. INDIA BUDGET
2016-17
Page 1 of 13 Understand the Tax Proposals in detail at www.accretivesdu.tax
ACCRETIVE SDU
ACCRETIVE SDU

2. INDIA BUDGET
2016-17
Page 2 of 13 Understand the Tax Proposals in detail at www.accretivesdu.tax
ACCRETIVE SDU
PREFACE
“Champions are made from something they have deep inside of them - a
desire, a dream, a vision. We have a desire to provide socio-economic
security to every Indian, especially the farmers, the poor and the vulnerable;
we have a dream to see a more prosperous India; and a vision to ‘Transform
India’”.
We resonate the spirit of the Honourable Finance Minister.
Corporate India is increasingly making a mark in the global economy. It is
important to assess the tax policy direction and the announcements as the
new tax year sets in. In this backdrop, the key tax proposals are discussed
in this Communique.
Tax Contours of India Budget 2016
1. Socio-economic objectives
The Government has announced its tax proposals in the backdrop of
the following objectives:
 Balancing the fiscal deficit target of 3.5% of the GDP, with the
growth requirements in a tough global economic outlook
 Removing poverty and inequality from the society
 Tax certainty and improved administration
2. India’s tax competitiveness globally
The Economic Survey published by the Government emphasizes that the
tax rates in India are lower than several other countries and there is a need
to increase the Tax to GDP ratio which currently is at 16.7% as compared
to China 19.4%, USA 25.4%, Brazil 33.4% and Russia 34.8%.
Comparison of tax rates across Countries
Source: Times of India | 29.02.2016

3. INDIA BUDGET
2016-17
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3. Key reforms – the pipeline
Taxation of the Digital Economy – Emergence of the ‘Internet Tax’:
The digital economy has increasingly raised fears of income producing
countries not receiving a share of their revenues, since the transactions
are not attributable to any physical presence in their jurisdictions.
India is among the early countries to consider levying a tax on digital
transactions. A new tax called the ‘Equalisation Levy’ is proposed to be
introduced in the Finance Bill.
Goods & Services Tax (GST): There was no reference to GST in the
Budget Speech of the Finance Minister (FM). He has also not
announced any strong rate or procedure rationalisations to align with
the GST model law
Cross-border taxation: With Indian companies increasingly becoming
global, Indian regulations are increasingly aligning with the
international frameworks and India’s commitment to the action plans
of the Base Erosion and Profit Shifting (BEPS) initiative of the G20
countries and OECD is reflected in the proposals. However regulations
pertaining to the foreign tax credits and controlled foreign corporation
which were expected, does not find any mention by the FM.
4. PM’s flagship programme ‘Make in India’ and ‘Start-up India’
The tax proposals carry specific mention of the Prime Minister’s
flagship programmes. There are a few incentives and ease in
administrative procedures proposed to provide impetus to these
programmes.
5. Tax anti-avoidance measures
In order to unearth black money in the domestic market, the
Government has introduced a limited period compliance window for
domestic taxpayers to clear their past transgressions by declaring their
undisclosed income and paying 45% of such income.
A tax collection of 1% at source is proposed on sale of vehicles in excess
of Rs. 10 lacs and on transactions involving cash payments for goods or
services exceeding Rs. 2 lacs.
The Government has reiterated its commitment to implementing the
General Anti-Avoidance Regulations (GAAR) with effect from
01.04.2017. Additionally, in line with its commitment to the BEPS
initiative of the G-20 countries and the OECD, it has introduced the
transfer pricing country by country reporting requirements, applicable
to MNC groups with revenues in excess of Euro 750 million.
6. Missing links in the fine print
 In the Budget Speech, the FM has clarified that the period of
holding for shares of an unlisted company, for it to qualify as long-
term capital asset would be reduced from 3 years to 2 years.
However, there are no amendments to effect the same in the
Finance Bill.
 The Equalisation Levy, which is intended to be a ‘tax on income’ of
the non-resident entity is proposed to be introduced. This could
pose challenges for the non-resident to claim a credit for the taxes
or a more favourable position (if available) under the Double Tax
Avoidance Agreement.

4. INDIA BUDGET
2016-17
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Tax Proposals… some perspectives
In the following part of this communique, we have provided our comments
on tax proposals on the following:
1. Snapshot of Tax Rates
2. Emerging taxes - the new levies
3. Providing impetus to growth – New tax reliefs
4. Sector specific reliefs
5. Other rationalisation measures
6. Personal taxes
and moving towards ‘Taxpayer Service’ …
1. Snapshot of Tax Rates
There are not significant changes in the tax rates.
During the last year, the Government had announced that in four years,
the base corporate tax rates would be lowered to 25% and the tax
exemptions, phased out. In this backdrop, the following were proposed:
 A reduced corporate tax rate of 29% plus surcharge and cess for
relatively small enterprises i.e. companies with turnover not
exceeding Rs 5 crore (in the financial year ending March 2015).
 New manufacturing companies incorporated on or after 01.03.2016 to
be given an option to be taxed at 25% plus surcharge and cess
provided they do not claim profit or investment linked tax reliefs.
 Phase-out of the tax reliefs with the following guiding principles:
a. Profit-linked, investment-linked and area-based deductions will
be phased out for both, corporate and non-corporate tax payers.
b. Provisions having a sunset date will not be modified to advance
the sunset date. Similarly the sunset dates provided in the Act will
not be extended.
c. In case of tax incentives with no terminal date, a sunset date of
31.03.2017 will be provided either for commencement of the
activity or for claim of benefit depending upon the structure of
the relevant provisions.
d. There will be no weighted deduction with effect from 01.04.2017.
Consequently, the tax relief under the Special Economic Zone Scheme,
accelerated depreciation (presently capped at 40%), weighted
deductions for scientific research and development, et al, will be
phased out.

5. INDIA BUDGET
2016-17
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2. Emerging Taxes - the New Levies
Equalisation Levy – a NEW tax for online advertising payouts
In the digital world, global businesses could earn income from activities in
a country without having a physical presence in the consumption or
income-producing country (in this case, India). In order to address the
leakage of revenues, a new levy is proposed at the rate of 6% of the
aggregate amount of consideration receivable by a non-resident for
specified services.
This levy would apply on business – to – business (B2B) transactions. For
now, the levy is proposed on consideration for online advertising, provision
of digital advertising space, or any facility or services for the purpose of
online advertising.
The levy is proposed to be introduced as a separate chapter in the Finance
Bill, with an administrative mechanism for filing of statements by the payer
entities and scrutiny thereof. In order to ensure effective compliance,
safeguard provisions, interest, penalty and prosecution in case of defaults
are also proposed.
Additional tax on dividend in the hands of shareholder
Presently, shareholders are exempted from income tax on dividend
received and Dividend Distribution Tax (DDT, 15%) is charged on the
company declaring dividend. Consequently, the dividend paid to rich and
the not-so-rich shareholders is subjected to the same rate of tax. To
address this inequity, income tax of 10% is proposed to be charged on a
shareholder receiving dividend exceeding Rs. 10 lacs per annum, on gross
basis. The rates are excluding surcharge and cess.
Infrastructure Cess
Effective, 1 March 2016, a new ‘Infrastructure Cess’ has been introduced
on manufacture of motor vehicles, ad valorem, without CENVAT benefit.
The Cess is levied at 4% on large motor vehicles and at 2.5% on smaller
vehicles. Motor vehicles driven by Petrol, LPG and CNG will be liable to this
cess at 1%.
Krishi Kalyan Cess
A new ‘Krishi Kalyan Cess’ is proposed to be introduced at 0.5% of the value
of all taxable services. Consequently, the effective rate of Service tax and
cess payable on the value of services would increase to 15% (including
Swachh Bharat Cess at 0.5%).
Service tax would be payable on all services received from the Government:
Effective 01.04.2016, all services received from the Government (such as
auctioning of spectrums etc, advertisement services and non-statutory
functions) would be liable to Service tax under reverse charge mechanism.
Hitherto, only specified (‘support’) services were taxable. Suitable
legislative changes have been proposed.

6. INDIA BUDGET
2016-17
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3. Providing Impetus to Growth – New Tax Reliefs
Taxation of Income from 'Patents'
In order to encourage indigenous research and development activities, a
concessional tax rate of 10% (plus surcharge and cess) is proposed on
income from patents, effective financial year 2016-17. The key highlights
are:
 income should be by way of royalty and not complete transfer of a
capital asset
 the patent must be developed and registered in India
 the taxpayer must be a resident of India
 the taxpayer must be the ‘true and first inventor’ of the invention
 no expense deductions would be allowed against the royalty income
 Minimum Alternative Tax (MAT) will be applicable on such income
Tax incentive for employment generation
With a view to extend employment generation incentive to all sectors, a
deduction of 30% of employee cost on account of additional recruitments,
subject to prescribed conditions, is proposed. Among other conditions, the
amount eligible for relief will be in respect of cost incurred on any
employee whose total emoluments are less than or equal to Rs. 25,000 per
month.
4. Sector Specific Reliefs
Incentives for Promoting Housing for All
A complete deduction of the profits of a taxpayer developing and building
affordable housing projects is proposed, subject to certain conditions:
 the housing project is approved by the competent authority between
01.06.2016 and 31.03.2019
 the project is completed within a period of three years from the date
of approval
 the built-up area for commercial establishments does not exceed 3%
of the aggregate built-up area
 the project is on a plot of land measuring 1,000 or more square meters
in a metro, 2,000 square meters in case of other cities
 the size of the residential unit is not more than 30 square meters in
case of a metro, 60 square meters in case of other cities
 minimum Alternative Tax (MAT) will be applicable on such income
An additional deduction of upto Rs. 50,000 per annum is proposed in
respect of interest on loan from any financial institution taken for
residential house property. This is with a view to incentivise first-home
buyers availing home loans (not exceeding Rs. 35 lacs) and would continue
till the complete repayment of loan. This would be applicable for loans
sanctioned between 01.04.2016 and 31.03.2017.
This deduction will be in addition to the current limit of Rs. 2 lakhs provided
for a self-occupied house property.

7. INDIA BUDGET
2016-17
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Tax Incentives for Start-ups
 A 100% deduction of the profits derived from the eligible business
shall be available to a start-up company. This relief can be claimed for
3 consecutive years out of a period of 5 years beginning from the year
of incorporation, at the option of the start-up. The eligible start-up
should satisfy the following conditions, among others:
- be engaged in a business involving innovation development,
deployment or commercialization of new products, processes or
services driven by technology or intellectual property
- the company is incorporated after 01.04.2016 and before
01.04.2019
- total turnover in any of the five years does not exceed Rs. 25
crores
- the company holds a certificate from the prescribed Board
 Long term capital gains upto Rs. 50 lacs is proposed to be exempted
from tax if the proceeds from the long term capital gains are invested
in units of specified funds (start-up fund of funds as may be notified
by the Central Government) with a lock-in period of 3 years.
 Further, it is proposed that long term capital gains arising on account
of transfer of a residential property shall not be charged to tax if such
capital gains are invested in subscription of more than 50% share-
holding of an eligible start-up company and the company invests the
same in acquisition of new (prescribed) assets.
Relief from DDT paid by SPV in case of Business Trust i.e. Real Estate
Investment Trust or Infrastructure Investment Trust
An exemption from DDT is proposed in respect of dividend declared,
distributed or paid by a downstream Special Purpose Vehicle (SPV) to the
business trust, subject to satisfaction of certain conditions.
Others
Other incentives in the sectors involving International Financial Service
Centres, Storage of crude oil, Diamond trading in special notified zones and
the Power sector are notified.

8. INDIA BUDGET
2016-17
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5. Other rationalisation measures
 POEM: The concept of deeming a foreign company to be a resident in
India if the place of effective management in that year is in India was
introduced in the previous year. This residency test has been deferred
by a year and will not apply from financial year 2016-17.
Further, proposals are made to enable notification of provisions
clarifying the implementation of the POEM rule and transitional
mechanisms (i.e. applicability of various provisions such as set-off of
losses, depreciation, withholding tax, etc.) in the year in which the
foreign company is deemed to be a resident.
 Non-compete fee: The tax treatment for non-compete fee earned in
relation to 'not carrying out any profession' would be similar to the
law as applicable for ‘not carrying out a business activity’. Accordingly,
non-compete fee would be taxable as business income or capital gains
depending upon the contractual arrangement.
 Investment allowance: Investment allowance at the rate of 15% is
available to a company on investments made in new assets (plant and
machinery) exceeding Rs. 25 crores in a year subject to the condition
that the acquisition and installation has to be done in the same
previous year. The dual condition of acquisition and installation is
proposed to be relaxed. The allowance would be available even if the
new plant or machinery is acquired and installed in different previous
years, provided installation happens before 31.03.2017. This
amendment would be applicable retrospectively from the financial
year 2015-16.
 MAT: It is clarified, that foreign companies who are not required to be
registered in India or do not have a permanent establishment in India
are excluded from the purview of MAT. This amendment is proposed
with retrospective effect from financial year 2000-01.
 Make in India: Various changes to the duty rates have been effected.
We believe that these changes are with a view to give a boost to the
manufacturing sector and curb imports:
- import duties on industrial solar water heaters, primary
aluminium products is increased, making imports more
expensive
- import of PCBs and PPCBs, which were hitherto exempt from
duty are now liable to SAD
- import duties on machinery for manufacture of various electrical
equipment and instruments is reduced, to promote import for
machinery and boost domestic manufacture
- complete exemption is provided for import of parts and
components for manufacture of mobile phones, routers,
broadband modems, set top boxes and various other products to
promote domestic manufacture
 Interest on delay in payment of Service tax: The rate of interest on
delay in payment of Service tax is proposed to be rationalised at a
uniform rate of 15%. A higher rate of 24% is proposed to be applied
on Service tax collected but not remitted.
The period-based slab rate of interest at 18%, 24% and 30% as
currently applied is proposed to be done away with.

9. INDIA BUDGET
2016-17
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 Enhancement of normal period of limitation under Service tax and
Central Excise: Currently, the normal period of limitation for
verification of records by the Service tax and Central Excise authorities
is 18 and 12 months, respectively. This period is proposed to be
increased to 30 months and 24 months, respectively.
We believe, this is a step towards GST. We anticipate that, under GST
law, the normal period of limitation would be between 36 and 60
months.
 Prosecution under Service tax: Currently, for certain offences where
the amount involved exceeds Rs. 100 lacs, prosecution may be
launched against specified directors or other officers of the company.
Acceding to the demand of the trade and industry and with a view to
reduce harassment in genuine cases, the threshold is proposed to be
increased to Rs. 200 lacs.
Further, it is proposed to restrict the initiation of prosecution only to
cases where the tax is collected but not remitted. In case of disputes
over maintenance of books of accounts or absence of prescribed
documentation for claim of CENVAT credits, initiation of prosecution
is proposed to be restricted.
6. Personal Taxes
 There is no proposal for change in the base tax rates and slabs.
 Surcharge is proposed to be increased to 15% from 12% for taxpayers
with income over Rs. 1 Crore.
 An additional tax rebate of Rs. 3000 is proposed for taxpayers with
income equal to or less than Rs. 5 lacs
 Individual taxpayers proposed to be granted Rs. 60,000 (currently, Rs.
24,000) per annum towards ‘Payment of house rent’. This would be
applicable for employees who do not receive HRA.
 Registered Provident Fund, Superannuation Fund and National
Pension Scheme: In order to encourage taxpayers to invest in annuity
schemes and bring the tax treatment of the various social security
schemes at par, the following are proposed:
- Currently, the terminal benefits from registered provident or
superannuation funds is exempt from tax subject to certain
conditions. Now, the withdrawal of accumulated balance from
these funds, attributable to contributions made on or after
01.04.2016, by an employee would be exempt in the hands of the
employee only up to 40% of such accumulated balance.

10. INDIA BUDGET
2016-17
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The Finance Ministry through a press release subsequent to the
Budget Speech, has clarified that all contributions and interest
accrued to employee provident fund (EPF) before 01.04.2016,
will not attract any tax on withdrawal. Withdrawal of principal
amount contributed to EPF after 01.04.2016 would also remain
exempt from any tax. It is only the interest on contributions made
after 01.04.2016 which will be taxed. The new tax regime would
not apply to employees who are with the statutory wage limit of
Rs. 15000 per month.
- Currently, employer provident fund contribution up to 12% of
employee’s salary is exempt in the hands of the employee. Now,
contribution made by the employer to RPF in excess of 12% of
employee’s salary or in excess of Rs 1.5 lac, whichever is less
would be liable to tax in the hands of the employee.
- The exemption threshold limits for the contribution made by the
employer to the superannuation fund has been increased from
Rs. 1 lac to Rs. 1.5 lac.
- Any fund transferred from the provident / superannuation fund
to the National Pension Scheme will be exempt from tax.
MOVING TOWARDS ‘TAXPAYER SERVICE’ …
Efficiency in administration
Presumptive tax to minimise compliance requirements for small taxpayers
 The threshold for applicability of presumptive taxation for small
businesses is proposed to be raised to Rs. 2 Crores from the current
Rs. 1 Crore. However, certain additional conditions are prescribed.
Among others, such taxpayers would be required to pay advance tax
(in a single payment) on or before the 15th
March of the relevant
financial year.
 A simplified presumptive taxation is proposed to be introduced for
non-corporate tax payers (excluding LLPs) earning professional
income. The taxable income (presumptive) would be at 50% of the
gross receipts and would be subject to the condition that the gross
receipts do not exceed Rs. 50 lacs in the previous year.
Rationalisation of withholding tax provisions
 Under the existing provisions, where a person received any sum or
income on which tax was liable to be deducted, and such person did
not furnish a PAN, tax was liable to be deducted at the higher rate.
Acknowledging the compliance burden it is proposed that the
requirement would not apply to a non-resident in respect of any
payment other than interest on bonds, subject to such conditions as
may be prescribed.

11. INDIA BUDGET
2016-17
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 In order to rationalise the withholding tax rates and base for
withholding tax provisions, the existing threshold limit for deduction
of tax at source and the rates of deduction of tax at source for various
transactions are proposed to be revised with effect from 01.06.2016.
Rationalisation in administrative provisions
 Various measures are proposed to expeditiously finalize the income
tax proceedings.
 Interest on refunds is proposed to be granted on self-assessed income
tax. Further, additional interest is also proposed at the rate of 3% in
case of delay beyond the prescribed time limit.
 Time limits have been proposed for disposing the applications seeking
reduction / waiver of interest / penalty / immunity from penalty
proceedings under the income tax provisions.
 Penalty provisions have been rationalised to reduce the discretionary
powers of the tax officers. The penalty range has also been
rationalised as 50% to 200% vis-à-vis the erstwhile 100% -300% of the
tax amount.
 A complete immunity from penalty and prosecution is proposed in
certain situations, under the Income tax provisions.
 Benefit of payment of service tax on receipt basis and quarterly
remittance, currently applicable only to partnership firms and
individuals, is proposed to be extended to One Person Companies.
Extensive use of technology
 The digitisation of processes within the Department has further
increased. Scrutiny of Income Tax returns in the 7 metros is proposed
to be done in an e-environment.
 The Customs Department proposes to shift physical control
mechanisms at a customs bonded warehouse to record based control.
This would be supported by enabling technology.
 Various rationalisation measures are proposed for moving to an e-
environment.
Reduction in Litigation and dispute resolutions
 Under the Transfer Pricing regulations, it is proposed that no appeal
shall be filed by the Assessing Officer against the directions issued by
the Dispute Resolution Panel.
 Direct Tax Dispute Resolution Scheme, 2016 and an Indirect Tax
Dispute Resolution Scheme, 2016 are proposed to be introduced. It is
expected to bring down litigations pending at the first appellate
authority (Commissioner (Appeals)). The Direct Tax Dispute
Resolution Scheme is additionally expected to cover disputes arising
from retrospective amendments.
 With a view to clear the backlog of cases pending before the Tribunal,
11 new benches of Customs, Excise and Service Tax Appellate Tribunal
(CESTAT) are proposed to be set-up. The location and the jurisdiction
of such benches is awaited.

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2016-17
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Our interactive platform DIA, in collaboration with experts,
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Document date: 02.03.2016
The views expressed and the information provided in this newsletter are of general nature and are not intended to address the circumstances of any particular
individual or entity. Further, the above content should neither be regarded as comprehensive nor sufficient for making decisions. Although we endeavour to
provide accurate and timely information, there is no assurance or guarantee in this regard. Do not act on the information or views provided in this publication
without appropriate professional advice. Accretive will not be responsible for any loss arising from any actions taken or to be taken or not taken by anyone
based on this publication.
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