Kpmg Budget Highlights

KPMG IN INDIA

Budget 2008 Highlights TA X

Foreword

The Indian economy has moved decisively to a higher growth phase. Till a few years ago, there was still a debate among informed observers about whether the economy had moved above the 5 to 6 percent average growth seen since the 1980s. There is now no doubt that the economy has moved to a higher growth trajectory, with growth in Gross Domestic Product (GDP) at market prices exceeding 8 percent every year since 2003-04. The projected economic growth rate of 8.7 percent for 2007-08 is in line with this trend. The drivers of growth continue to be services and manufacturing, which are estimated to grow at 10.7 percent and 9.4 percent, respectively. The Indian growth story, in recent times, has been an absorbing and inspiring tale. The Indian economy—thanks to the Government’s policies, India’s demographic profile as well as globalisation—is poised to record another year of high growth. Inclusive growth however, encompassing the weaker sections of society, remains a challenging task. The Economic Survey presented before the Parliament on 28 February 2008 has identified the following as important priorities: a) Achieving double digit growth through additional reforms b) Controlling of inflation, managing liquidity arising from the surge of capital inflows and coping with appreciating rupee through fiscal/policy measures, and c) Achieving better Balance of Payments by keeping the current account deficit in check. Against this backdrop, the Finance Minister, P. Chidambaram presented the Budget 2008 before the Indian Parliament on 29 February 2008. As per the Budgeted figures, the fiscal deficit is estimated at 3.1 percent of the GDP (as compared to 3.3 percent for the previous year) and the revenue deficit is estimated at 1.4 percent (as compared to 1.5 percent for the previous year). The FM is confident that he will meet his target of annual reduction of 0.5 percent in the revenue deficit. However, because of the conscious shift in expenditure on health, education and the social sectors, the government may need one more year to eliminate the revenue deficit completely.

The Budget brings in relief to small and marginal farmers by introducing a scheme of debt waiver and debt relief. Infrastructure sector is the top priority for the Finance Minister and the Budget has made significant allocations towards improving the infrastructure of the country. Power, roads and irrigation are some which are considered as highly important for the development of the country and the economy as a whole. The summary that follows highlights the salient features of the Finance Bill 2008, in terms of direct and indirect taxes. Unless otherwise indicated, the proposed amendments relating to direct taxes will apply from assessment year 2009-10 and the tariff amendments relating to Central Excise and Customs Duties will apply from 1 March 2008.

Table of Contents

Direct Tax

1

Corporate Tax

1

Personal Tax

4

Fringe Benefit Tax

5

Other Tax Provisions

6

Indirect Tax

11

Service Tax

11

Customs Duty

15

Central Excise

17

Central Sales Tax

19

Goods and Services Tax

19

1

Direct Tax Corporate Tax • There are no changes in the tax rates, surcharge and education cess. • Expenses for outsourcing research and development to an eligible approved scientific research company will qualify for weighted deduction of one and one-fourth times. However, the company rendering such services will not be eligible to claim weighted deduction. • Deduction for specified preliminary expenses, which are incurred after the commencement of business for an extension of an undertaking or setting-up of a new unit also made available to service sector over a period of five years. • Payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque or account payee bank draft, in excess of INR 20,000 will be chargeable to tax. • Where a taxpayer was exempt from tax in earlier years preceding the year when his income is chargeable to tax, written down value of the asset in such year will be the actual cost of the asset less depreciation provided in the books of account in earlier years. For this purpose, revaluation of asset and depreciation thereon has to be ignored. The said amendment will retrospectively apply from assessment year 2003-04. • Conversion of Foreign Convertible Exchangeable Bonds (FCEBs) into shares or debentures of any company will not be treated as transfer for the purpose of capital gains. The cost of acquisition of such shares or debentures will be price at which FCEBs were acquired. These amendments will apply retrospectively from the assessment year 2008-09. • Tax benefits will not be available to an undertaking engaged in refining of mineral oil if it begins refining after 31 March 2009. • Tax holiday extended to undertaking engaged in operating and maintaining new hospital located anywhere in India, other than an excluded area, for a consecutive period of five years, subject to fulfillment of certain conditions. • Tax holiday extended to undertaking engaged in the business of hotel located in specified districts having a World Heritage Site for a consecutive period of five years, subject to fulfillment of certain conditions.

2

• Rate of tax increased from 10 percent to 15 percent on short term capital gains arising from the transfer of equity shares in a company, or units of an equity oriented fund, where such transfer is chargeable to securities transaction tax. • ’Book profit’ to be increased by deferred tax and provision thereof: Dividend Distribution Tax (DDT); tax on distributed income to unit holders; interest chargeable under income-tax law; surcharge levied by Central Acts; education cess on income-tax; and secondary and higher education cess on income-tax, if debited to profit and loss account, for the purpose of Minimum Alternate Tax (MAT). The said amendment will retrospectively apply from assessment year 2001-02. • Domestic company will not have to pay DDT on dividend distributed to its shareholders to the extent of dividend received from its subsidiary if: - subsidiary has paid DDT on such dividend received and - such domestic company is not a subsidiary of any other company A company would be subsidary of another company if such company holds more than half in nominal value of equity share capital of the company. • A new tax called Commodities Transaction Tax (CTT) is introduced. It is to be levied on transaction of purchase or sale in a recognised association of : - option in goods - option in commodity derivative or - any other commodity derivative. CTT is proposed to be levied at the rate given in table below: Taxable commodities transaction

Value of taxable commodities transaction

Rate of tax applicable

Payable by

Sale of an option in goods Option Premium or an option in commodity derivative

0.017 percent

Seller

Sale of an option in goods Settlement price or an option in commodity derivative, where option is exercised

0.125 percent

Purchaser

Sale of any other commodity derivative

0.017 percent

Seller

Sale price

3

The provisions with regards to collection and recovery of CTT, furnishing of returns, assessment procedure, chargeability of interest, levy of penalty, filing of appeal, etc. have also been provided. The Central Government will notify a date for levy of CTT. CTT would be eligible for tax deduction provided income from taxable Commodities transactions is included under the head profits and gains of business and profession. • Currently, Security Transaction Tax (STT) is payable by the seller at the rate of 0.017 percent on sale of derivatives in a recognized stock exchange. The revised STT rates on sale of derivates are tabulated below: Taxable securities transaction

Value of taxable securities transaction

Rate of tax applicable

Payable by

Sale of an option in Option Premium securities

0.017 percent

Seller

Sale of an option in Settlement price securities, where option is exercised

0.125 percent

Purchaser

Sale of futures in securities

0.017 percent

Seller

Sale price

The above amendment will apply from 1 June 2008. STT would be eligible for tax deduction provided income from taxable securities transactions is included under the head profits and gains of business and profession. Consequently, tax rebate for STT is withdrawn. • The Finance Act, 2006 had introduced an additional condition for the provident funds to receive or retain recognition. The fund of an establishment to which the specified provisions of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, (EPF Act) applied and which was also exempt there under could avail/continue with the recognition. The recognition granted to existing funds was to be withdrawn if such funds did not satisfy the additional condition on or before 31 March 2007.

4

The time limit for complying with the new condition for an existing fund of an establishment was extended to 31 March 2008. This time limit has been further extended to 31 March 2009. All the new funds of an establishment would also be required to satisfy conditions for recognition. It has also been clarified that the additional conditions will not apply to existing recognized funds which have been exempted from the operation of the EPF Act by the Central Government.

Personal Tax • There are no changes in the personal tax rates • Basic exemption limit increased from INR 110,000 to INR 150,000. Income tax slabs altered. The comparative slabs are as under: Current Slabs (INR)

Proposed Slabs (INR)

Rate of tax

Up to 110,000

Up to 150,000

Nil

110,001–150,000

150,001 – 300,000

10 %

150,001–250,000

300,001 – 500,000

20 %

250,001 and above

500,001 and above

30 %

• Basic exemption limit for resident women below 65 years of age increased from INR 145,000 to INR 180,000. • Basic exemption limit for resident individuals aged 65 years or more increased from INR 195,000 to INR 225,000. • Rate of tax increased from 10 percent to 15 percent on short term capital gains arising from the transfer of equity shares in a company, or units of an equity oriented fund, where such transfer is chargeable to securities transaction tax. • There are no other changes in the tax rates, surcharge and education cess.

5

• Transfer of capital asset by a senior citizen in a transaction of reverse mortgage under a scheme made and notified by the Central Government would not be regarded as a transfer and would not attract capital gains tax. Any amount received as a loan either in lump sum or in installments under such scheme would be exempt from income tax. The said amendments will apply from assessment year 2008-09. • Investments made as a five year time deposits in an account under the Post Office Time Deposit Rules, 1981 and in an account under the Senior Citizen Savings Scheme Rules, 2004 are eligible for deduction under section 80C within the overall ceiling limit of INR 100,000. Amount withdrawn (including accrued interest to the extent not previously taxed) from such deposits before the expiry of five years from the date of deposit, would be taxable in the financial year of withdrawal. If such amount is received by the nominee or legal heir of the individual on the death of such individual, the amount so received by such nominee or legal heir shall not be liable to tax. However, the interest included in such amount which has not been previously taxed, shall be liable to tax. This amendment will apply from assessment year 2008-09. • Additional deduction will be allowed to an individual up to INR 15,000 for payment (through any mode other than cash) of health insurance premium of parents (whether dependent or not). In cases where either of the parents is a senior citizen, an additional deduction would be allowed up to INR 20,000. The deduction of upto INR 15,000 with respect to the payment of health insurance premium of self, spouse and dependent children continues.

Fringe Benefit Tax (FBT) • Any expenditure incurred on or payment through non-transferable pre-paid electronic meal card usable only at eating joints or outlets is excluded from levy of FBT. • Any expenditure incurred on or payment made for following purposes to be excluded from the category of ’employee welfare’ for the purpose of valuation of fringe benefits: - crèche facility for the children of the employee; - sponsoring a sportsman being an employee; and - organising sports events for employees.

6

• Any expenditure on or payment made for maintenance of any accommodation in the nature of a guest house shall be excluded from the levy of FBT. • The valuation of expenditure on or payment for festival celebrations to be reduced from 50 percent to 20 percent. • It has been clarified that fringe benefits will include securities offered under an employee stock option plan or scheme where the employee stock options have been granted. This amendment will apply from assessment year 2008-09. • FBT recovered by the employer from the employees with respect to allotment/ transfer of specified security or sweat equity shares shall be deemed to be tax paid by such an employee. The deeming provisions shall apply only to the extent to which the amount of recovery relates to the value of fringe benefits provided to such employee. The employee shall not be entitled to any refund or credit out of such deemed payment of tax against tax on any other income or any other tax liability in India. The said amendments will apply from assessment year 2008-09.

Other Tax Provisions • Dematerialisation of tax deducted at source (TDS)/ tax collected at source (TCS certificates (i.e. non-requirement of furnishing TDS/ TCS certificates) has been deferred till 1 April 2010. • Authority has been granted to the Central Board of Direct Taxes (CBDT) to frame rules detailing the procedure for giving credit to tax payers for any TDS/TCS. • Clarificatory amendment introduced to provide that a person failing to deduct tax would also be deemed to be an assessee in default. Currently, the tax payer is treated to be in default where on withholding, he does not deposit the tax in time. The amendment is to be effective retrospectively from 1 June 2003. • Tax would not be required to be withheld from interest payable on securities issued by a company in dematerialised form and listed on a recognised stock exchange in accordance with Securities Contracts (Regulations) Act, 1956. The amendment is to be effective from 1 June 2008.

7

• Association of persons and body of individuals, required to deduct tax on sums payable to contractors and sub-contractors from 1 June 2008. • Payments made to non-residents require furnishing of a chartered accountant certificate and an undertaking by the payer confirming appropriate withholding of taxes for remittance. The payer would now also be required to file necessary information relating to such payments in a manner and form to be prescribed by CBDT. The amendment is to be effective from 1 April 2008. • Due date for filing of corporate tax returns and income-tax returns of persons either whose accounts are required to be audited or is a working Partner of a Firm whose accounts are required to be audited has been advanced to 30 September instead of 31 October. Consequently, the relevant due date for filing a FBT return, transfer pricing report and other supporting documents would also stand advanced to 30 September. The amendment is to be effective from 1 April 2008. Similar amendment made under the Wealth-tax Act. • Two-stage assessment of returns re-introduced. Initial stage assessment would require computerised processing (without any human interface) which would make adjustments for any arithmetical error or incorrect claims based on information apparent in the return. The amendment is to be effective from 1 April 2008. • An assessment order which is subject matter of an appeal can be reopened for assessing / reassessing any income which is believed to have escaped assessment other than those matters involved in the appeal. The amendment is to be effective from 1 April 2008. Similar amendment made under the Wealth-tax Act. • The tax officer has been empowered to extend the period of furnishing of special audit report under Section 142(2A). The amendment is to be effective from 1 April 2008. • Non-service of notice or service of notice in an inappropriate manner would not be considered as valid grounds for objecting to any proceedings of assessment or reassessment if the tax payer appears in such proceedings or co-operated in any enquiry related to such proceedings. The amendment is to be effective from 1 April 2008. Similar amendment made under the Wealthtax Act.

8

• Notice for scrutiny assessment to be served on the tax payer within a period of 6 months from the end of the financial year in which the return is furnished instead of 12 months from the end of the month of filing return under the existing provision. The amendment is to be effective from 1 April 2008. • Retrospective amendment introduced with effect from 1 April 1989 stating that a direction in the assessment order initiating penalty proceedings would tantamount to satisfaction of the tax officer for initiating such proceedings. Similar amendment made under the Wealth-tax Act. • Where any notice or other document is required to be issued, served or given by the Revenue authorities, it shall be deemed to have been authenticated if the name and office of a designated Revenue authority is printed, stamped or otherwise written thereon. The amendment is to be effective from 1 June 2008. • Amendments have been made to provide that if Revenue authorities do not file an appeal in a given case, then on the similar issue of law for another tax payer or another assessment year, the appeal of Revenue cannot be dismissed on the basis that the issue in dispute is not challenged in some previous judgment. The amendment is to be effective retrospectively from 1 April 1999. • Clarificatory explanation introduced to provide that in case of a re-assessment proceeding, the Joint Commissioner, Commissioner or the Chief Commissioner, as the case may be, is only required to be satisfied with respect to the reasons for re-opening and not required to issue such notice. The amendment is to be effective retrospectively from 1 October 1998 Similar amendment made under the Wealth-tax Act. • In the course of search proceedings, it is presumed that books of account, other documents, etc., found in the possession or control of any person in the course of a search belong to the tax payer. It is proposed to extend this presumption to documents, assets, etc. which have been delivered to the requisitioning officer in the course of such proceedings. The above amendments have been introduced with retrospective effect from 1 October 1975 and extended to a survey operation with retrospective effect from 1 June 2002 Similar amendment made under the Wealth-tax Act.

9

• Under the current provisions, where search proceedings are initiated, all the pending assessments or reassessment proceeding, if any, are abated and assessment of the six preceding years is undertaken separately. Amendments have been made to clarify that where such proceedings or an order passed thereunder has been annulled in any appeal or other legal proceeding, the abated assessment or reassessment, as mentioned above, shall stand revived. However, if such order of annulment is set aside, the revival of abatement of assessment or reassessment shall cease to have effect. The amendment has been introduced with retrospective effect from 1 June 2003. Further, in such case, the time limit for completion of assessment or reassessment shall be one year from the end of the month in which the abated assessment revives or within the period already specified under the Act, whichever is later. The period commencing from the date of annulment of a proceeding or order of assessment or reassessment till the date of the receipt of the order setting aside the order of such annulments, shall be excluded in computing the period of limitation. • Entities established for charitable purpose are generally exempt from tax. Entities were considered as established for charitable purposes if they provided relief to the poor, education, medical relief or were engaged in advancement of any other object of general public utility. Entities engaged in advancement of any other object of general public utility will not be considered as charitable if it undertakes any trade or business or services in such relation for a consideration. • The Income tax Appellate Tribunal cannot grant stay of demand for a period exceeding 365 days in aggregate even if the delay in disposing of the substantive appeal pending before the ITAT is not attributable to the tax payer. This provision is proposed to be effective from 1 October 2008. • Banking Transaction Tax levied at 0.1 percent on ’taxable banking transaction’ is withdrawn. The provision would be effective 1 April 2009.

10

Rationalising the settlement scheme • Amendments have been made to enable a tax payer to apply to the Commissioner for granting immunity from penalty and prosecution in case the application before the Settlement Commission has been abated. • No application for immunity can be made after the imposition of penalty or prosecution, as the case may be. • Immunity could be granted by the commissioner on satisfaction of certain conditions and could be withdrawn if the tax payer fails to comply with such conditions. • These provisions will take effect from 1 April 2008. Similar amendment made under the Wealth-tax Act. • Separately, on abatement of the proceedings before the Settlement Commission, the tax officer will have a minimum one year time limit for completion of assessment, re-assessment or re-computation. This provision will take retrospective effect from 1 June 2007. Similar amendment made under the Wealth-tax Act.

11

Indirect Tax

Service Tax Rate of service tax • No change in service tax rates. • Works contract composition rate increased from 2 percent to 4 percent (effective 1 March 2008). Introduction of new taxable services (effective from a date to be notified upon enactment of Finance Bill 2008): • Management of investments by life insurers under Unit Linked Insurance Plan. • Information technology software service for use in the course, or furtherance, of business or commerce. • Services provided by recognised stock exchange in relation to securities. • Services provided by a recognised association or a registered association (commodity exchange) in relation to sale or purchase of any goods or forward contracts. • Services provided by a processing and clearing house in relation to processing, clearing and settlement of transactions in relation to securities, goods or forward contracts. • Supply of tangible goods without transferring right of possession and effective control of such goods. • Internet telephony service substituted by internet telecommunication service and the scope of the said category expanded to include: - Internet backbone services, including services by one internet service provider to another - Internet access services.

12

Expansion of scope of existing services (effective from a date to be notified upon enactment of Finance Bill, 2008):

Service category Banking and other financial service Foreign exchange broker service

To include Purchase or sale of foreign currency, including money changing, by an authorised dealer or an authorised money changer

Business auxiliary service

Information technology service

Consulting engineer service

Computer software engineering consultancy

Cargo handling service

Packing together with transportation of cargo or goods with or without services like loading, unloading, unpacking

Technical testing and analysis service

Testing or analysis of information technology software

Technical inspection and certification service

Inspection, examination and certification of information technology software

Tour operator service

Journey from one place to another in a contract carriage vehicle and not just a tourist vehicle

Clarification (by way of explanation) regarding scope of existing services: Service category

Clarification

Business auxiliary service

Includes service provided in relation to promotion or marketing of games of chance (including lottery), organised, conducted or promoted by the client

Management, Maintenance or Repair

‘Properties’ covered under the said category to include information technology software

Renting of immovable property

Includes allowing or permitting the use of space in an immovable property, irrespective of whether transfer of possession or control of such immovable property takes place

13

Exemptions from service tax (effective from 1 March, 2008): • Service provided by a person located outside India in relation to booking of a hotel in India for a person located outside India. • Unconditional exemption of 75 percent of gross amount charged as freight, for services provided in relation to transport of goods by a Goods Transport Agency (GTA). Definition of ‘output service’ amended to specifically exclude from its scope, the services provided by a GTA. Amendments in provisions regarding export/ import of services (effective from 1 March, 2008): • The Export of Services Rules, 2005 have been amended to clarify that the following services provided through internet or any electronic/ computer network would be treated as export of services (irrespective of whether the services are performed in India or outside India), if these services are rendered in relation to goods or any immovable property, as the case may be, situated outside India at the time of provision of service: – Management, maintenance or repair – Technical testing and analysis service – Technical inspection and certification service. Similar amendment made in Taxation of Services (provided from outside India and received in India) Rules, 2006 (the Import Rules). Valuation for transactions between ‘associated enterprises’ (effective from enactment of Finance Bill, 2008): • Transaction between ‘associated enterprises’ liable to tax even if no payment is received and the taxable value is recognised as revenue/ expenditure in the books of the person who is liable to pay service tax. In other words, service tax in case of transaction between ‘associated enterprises’ to be paid on receipt of payment or crediting/ debiting of the amount in the books of accounts whichever is earlier.

14

Amendments in Cenvat Credit Rules, 2004 (effective from 1 April, 2008): • Removal of capital goods outside the premises of the service provider permitted without any time restriction, provided the same are being used for provision of output service. • Provider of output services using common inputs or input services for providing taxable and exempted services and opting not to maintain separate books of accounts may: - either pay an amount equal to 8 percent of the value of the exempted services or - pay amount equivalent to credit attributable to inputs and input services used for providing exempted services (to be calculated in the manner prescribed). • Provision introduced for taking of credit on inputs and capital goods in respect of which purchase invoices are received by an office or any other premises of the output service provider desirous of taking credit. Such credit allowed on the basis of invoice/ bill/ challan issued by the office/ premises receiving purchase invoice. Other proposals Effective from 1 March, 2008: • Facility of payment of service tax in advance and adjustment against service tax for the subsequent period extended to all service providers (earlier the facility was available only to service providers having centralised registration). • Limit for self-adjustment of excess service tax paid increased from the present level of INR 0.05 million to INR 0.1 million. • Time limit for filing revised return increased from 60 days to 90 days. Effective from 1 April, 2008: • The exemption limit for small service providers increased from the present level of INR 0.8 million to INR 1 million.

15

Customs Duty Amendments (effective from 1 March, 2008) • No change in peak rate of Basic Customs Duty (BCD) on non-agricultural products. However, effective Customs Duty stands reduced from 34.13 percent to 31.70 percent due to reduction in Additional Duty of Customs (ADC). • BCD on Project Imports reduced from 7.5 percent to 5 percent on specified industrial projects, power transmission, sub-transmission and distribution projects, etc. • Exemption of ADC of 4 percent withdrawn for power generation projects (other than mega power projects), transmission, sub-transmission and distribution projects, and specified goods for high voltage transmission projects. • Benefit of 5 percent BCD expanded to include MP3/ MP4 and MPEG player with or without audio and video reception facility. • Exemption from BCD extended to specified parts of set-top boxes, raw materials /inputs used in manufacture of specified electronic/ IT products. • Customs Duty on export of chromium ores and concentrates increased from INR 2,000 PMT to INR 3,000 PMT. • National Calamity Contingent Duty (NCCD) of 1 percent has been imposed on mobile phones. This duty shall be levied as ADC under Section 3 (1) of Customs Tariff Act, 1975. • NCCD of Customs removed on specified synthetic filament yarn. • BCD on specified raw materials for use in sports goods for export exempt subject to specified conditions. • Maximum period of re-export of leased equipment and machinery, temporarily imported for use in projects increased to 18 months. Such goods would be subject to customs duty ranging from 5 percent to 40 percent of applicable duty depending on their period of stay. • The maximum period for duty drawback on re-export of goods reduced to 18 months.

16

Illustrative Changes in BCD rates:

Items

Prior to 1 March 2008

With Effect From 1 March 2008

Helicopter simulators

10%

Nil

Crude and unrefined sulphur

5%

2%

Naptha for manufacture of specified polymers

Nil

5%

Animal feed additives/ pre-mixes

30%

30%

Specified drugs/ kits and bulk drugs for their manufacture

10%

5%

Iron or steel melting scrap/ aluminum scrap

5%

Nil

Cigars, cheroots and cigarillos

30%

60%

Specified raw materials for tyre industry

10%

5%

Specified machinery for manufacture of sport goods

7.5%

5%

Proposed amendments (effective from enactment of Finance Bill, 2008) • All Gazetted Customs officers empowered to issue summons. • Penalty for violations of Customs provisions not expressly mentioned in the law increased from INR 10,000 to INR 100,000. • Difference in opinion within the committee of commissioners of customs regarding appealing against an order to be referred to jurisdictional Chief Commissioner of customs for his decision.

17

Central Excise Amendments (effective from 1 March, 2008) • Excise duty reduced from 16 percent to 14 percent. Other ad valorem rates of 24 percent, 12 percent and 8 percent remain unchanged. • National Calamity Contingent Duty (NCCD) of 1 percent imposed on mobile phones. • Benefit of 8 percent Excise Duty expanded to include MP3/ MP4 and MPEG player with or without audio and video reception facility. • Effective Excise Duty for clearances from 100 percent Export Oriented Unit (‘EOU’) to Domestic Tariff Area (‘DTA’) to be computed on 50 percent BCD and applicable ADC. • Excise Duty on unbranded Motor Spirit changed from 6 percent (advalorem) plus INR 13 per Litre (specific rate) to specific rate of INR 14.35 per Litre. • Excise Duty on unbranded High Speed Diesel changed from 6 percent (advalorem) plus INR 3.25 per Litre (specific rate) to specific rate of INR 4.60 per Litre. • Abatement rates for maximum retail price (‘MRP’) products realigned due to reduction in Excise Duty. • Rules notified for determination of MRP to be applicable in specific cases.

18

Reduction in excise duty (effective from 1 March 2008) Prior to 1 March 2008

With Effect From 1 March 2008

Drugs and formulations

16%

8%

Small cars

16%

12%

Hybrid cars (driven by a combination of electric and internal combustion engine)

24%

14%

Electric cars

8%

Nil

Buses and other vehicle for transport of more than 13 persons

16%

12%

Two-wheelers and passenger threewheelers (upto 7 persons)

16%

12%

Specified refrigeration equipment for the installation of a cold storage, cold room or refrigerated vehicle, on enduse basis

16%

Nil

Wireless data modem cards

16%

Nil

Composting machines

16%

Nil

Item

Increase in Excise Duty (effective from 1 March 2008) Item

Prior to 1 March 2008

With Effect From 1 March 2008

Packaged software

8%

12%

Bulk cement

INR 400 per tonne

14% or INR 400 per tonne, whichever is higher

Cement clinker

INR 350 per tonne

INR 450 per tonne

19

Amendments (effective from 1 April 2008) • Manufacturer of dutiable and exempted goods has the option to take full credit and pay either 10 percent of the value of exempted goods or reverse the credit attributable to the exempted goods. Proposed amendments (effective from enactment of Finance Bill 2008) • Explanation inserted in Section 2 of the Central Excise Act to clarify that goods include any article capable of being bought and sold and deemed to be marketable. • Government empowered to charge duty on the basis of capacity of production for certain specified products. • Refund of interest paid on excise duty to be made available to an assessee. • Interest to be paid to assessee on delayed refund of pre-deposit by department.

Central Sales Tax (CST) • CST rate to be reduced from 3 percent to 2 percent with effect from 1 April, 2008. • Once agreement is reached about compensation for losses, new rate would be notified.

Goods and Services Tax (GST) According to the Finance Minister, considerable progress has been made in the preparation of introducing GST from 1 April, 2010. However, no concrete roadmap has been unveiled.

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