India's government on Wednesday announced a 10-year tax holiday to new investors, who begin generation, distribution and transmission of power till March 31, 2017, increased personal income tax exemption limit from Rs 2 lakh to Rs 2.5 lakh for individual taxpayers and Rs 2.5 lakh to Rs 3 lakh for senior citizens, import duty concessions for manufacturing sector, tax incentives for all kinds of bonds, raised excise duty on tobacco products by 72 percent and facility of Advance Rulings for resident taxpayers.
In his budget speech (2014-15), Finance Minister Arun Jaitley also announced measures to facilitate taxpayers along with excise duty concession for local sectors. Indian authorities have enabled resident taxpayers to obtain an advance ruling in respect of their income tax liability and also enlarged the scope of the Income-tax Settlement Commission.
As a measure of passenger facilitation, it is proposed to increase free baggage allowance from Rs 35,000 to Rs 45,000. To encourage exports of readymade garments it is proposed to increase the duty-free entitlement for import of trimmings, embellishments and other specified items from 3 percent to 5 percent of the value of their exports. A High Level Committee has been set-up to interact with trade and industry on a regular basis and ascertain areas where clarity in tax laws is required. Presently, tax demand of more than Rs 4 lakh crore is under dispute and in litigation before various courts and appellate authorities for which legislative and administrative changes are proposed to reduce litigation.
To augment low cost long-term foreign borrowings for Indian companies, it is proposed to extend the eligible date of borrowing in foreign currency from June 30, 2016 to June 30, 2017 for a concessional tax rate of 5 percent on interest payments. It is also proposed to extend this tax incentive to all types of bonds instead of only infrastructure bonds.
In order to provide incentivize to smaller entrepreneurs, it is proposed to provide investment allowance at the rate of 15 percent to a manufacturing company that invests more than Rs 25 crore in any year in new plant and machinery. This benefit will be available for three years ie for investments up to March 31, 2017.
Under service tax regime, radio taxis have been brought under service tax. Bio-medical waste disposal exempted from service tax. Indian Tour Operators serving foreigners to tour outside India exempted from service tax. Service Tax for broadcast and online advertisements; print advertisements exempted.
To provide a fillip to the capital goods, consumer durables and automobile sectors, and given the commitment to revive economic growth, excise duty concessions were extended beyond June 30, 2014 for a period of 6 months up to December 31, 2014. To incentivize expansion of processing capacity and domestic production, it is proposed to reduce the excise duty on specified food processing and packaging machinery from 10 percent to 6 percent. The footwear industry in SME sector has been given a tax relief by reducing excise duty from 12 to 6 percent on footwear of specific retail price.
To develop renewable sources of energy, it is proposed to exempt from excise duty EVA sheets and solar back sheets and specified inputs used in their manufacture; solar tempered glass used in the manufacture of solar photovoltaic cells and modules; flat copper wire for the manufacture of PV ribbons for use in solar cells and modules; machinery and equipment required for setting up of a project for solar energy production; forged steel rings used in the manufacture of bearings of wind operated generators and machinery and equipment required for setting up of compressed biogas plants (Bio-CNG).
In order to provide relief to small and marginal taxpayers and senior citizens, it is proposed to increase personal income tax exemption limit by `50,000 that is, from `2 lakh to `2.5 lakh in the case of individual taxpayers who are below the age of 60 years. Similarly, it is proposed to raise the exemption limit from `2.5 lakh to `3 lakh in the case of senior citizens.
The concessional rate of tax at 15 percent on dividends received by Indian companies from their foreign subsidiaries has resulted in enhanced repatriation of funds from abroad. He said he proposes to continue with this concessional rate of 15 percent on foreign dividends without any sunset date. This will ensure stability of taxation policy.
To facilitate manufacturing sector, it is proposed to reduce the basic customs duty (BCD) on fatty acids, crude palm stearin, RBD and other palm stearin, specified industrial grade crude oils from 7.5 percent to Nil for manufacture of soaps and oleo-chemicals; crude glycerin from 12.5 percent to 7.5 percent and crude glycerin used in the manufacture of soaps from 12.5 percent to Nil; steel grade limestone and steel grade dolomite from 5 percent to 2.5 percent; battery waste and battery scrap from 10 percent to 5 percent; coal tar pitch from 10 percent to 5 percent and specified inputs for manufacture of spandex yarn from 5 percent to Nil.
In order to encourage new investment and capacity addition in the chemicals and petrochemicals sector, it is proposed to reduce the basic customs duty on reformate from 10 percent to 2.5 percent; on ethane, propane, ethylene, propylene, butadiene and ortho-xylene from 5 percent to 2.5 percent; on methyl alcohol and denatured ethyl alcohol from 7.5 percent to 5 percent; and on crude naphthalene from 10 percent to 5 percent.
India has imposed basic customs duty at 10 percent on specified telecommunication products that are outside the purview of the Information Technology Agreement; exempt all inputs/components used in the manufacture of personal computers from 4 percent special additional duty (SAD); impose education cess on imported electronic products to provide a parity between domestically produced goods and imported goods and exempt 4 percent SAD on PVC sheet and ribbon used for the manufacture of smart cards.
In the case of Mutual Funds, other than equity oriented funds, the capital gains arising on transfer of units held for more than a year is taxed at a concessional rate of 10% whereas direct investments in banks and other debt instruments attract a higher rate of tax. This allows a tax arbitrage opportunity. This arbitrage has hardly benefited retail investors as their percentage is very small among such Mutual Fund investors. With a view to removing this tax arbitrage, it is proposed to increase the rate of tax on long term capital gains from 10 percent to 20 percent on transfer of units of such funds. It is also proposed to increase the period of holding in respect of such units from 12 months to 36 months for this purpose.
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