Pwc Budget Analysis

This publication is intended as a service to clients and to provide clients with the details of the Budget proposals for the year 2008/09. It has been prepared for general guidance on matters of interest only, and does not constitute professional advice. No person should act upon the information contained in this publication without obtaining specific professional advice. Further information and assistance may be obtained from any of the offices listed in the publication. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, PricewaterhouseCoopers, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of any person acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2008 PricewaterhouseCoopers Private Limited. All rights reserved. ‘PricewaterhouseCoopers’ refers to PricewaterhouseCoopers Private Limited or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. This publication is for private circulation only.

Contents

Introduction

2

Chapter 1

3

Overview Chapter 2

7

Economic Performance 2007-08 Chapter 3

11

Recent Policy Measures Chapter 4

17

Key Legislative Amendments Chapter 5

24

Budget Financials Chapter 6

26

Direct Taxes Chapter 7

32

Indirect Taxes Chapter 8

43

In the Pipeline Abbreviations

48

Introduction

The Union Budget 2008 comes in the background of robust economic growth of 8.7% in GDP in 2007-08 with manufacturing and services sector continuing to be the twin engines of growth. However, agriculture sector continues to languish with a sluggish growth rate of 2.6%. Tax collections have been buoyant exceeding budgets. With elections looming in the horizon this budget was expected to be and is an election budget. True to expectations the FM has announced a slew of measures favoring the “Aam Aadmi” particularly the “Kisaan”. Apart from the increased allocations on the flagship programs of the UPA Government on rural employment and urban renewal, the most significant has been the loan waiver scheme for farmers estimated to cost over INR 600 billion. Though a political necessity, this is an unfortunate disincentive for credit compliance and forms a bad precedence. The FM has recognized that the demographic dividend could become a demographic drag and hence has rightly placed great emphasis both on education and skill development, which is the need of the hour. Launching of a non profit corporation with INR 15 billion as capital to “launch a world class skill development in mission mode” shows the realization of this necessity and one hopes that it will have successful implementation. The crying need for long term financing and derivative instruments, particularly for infrastructure sector through development of a corporate debt market seems to have been addressed in some ways. The proposal to seek a uniform stamp duty would go a long way to have a “seamless national market for securities”.

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PricewaterhouseCoopers • India Budget 2008

The pilot projects to have smart card for public distribution system is good initiative to ensure subsidies reach the target persons. In taxation proposals while increase in minimum exemption limits on personal tax is a step in the right direction, there was a case for reduction in corporate tax by removing the temporary surcharge which unfortunately did not happen. A very welcome step, however, was the recognition of the need for domestic companies to efficiently structure their business and that DDT had a cascading effect in multi tiered structures creating inefficiency. However, it is unfortunate that the exemption of DDT proposed is restricted only to one time and that too for dividend received from a subsidiary…the inefficiencies will continue in most cases. Some other important changes in the Income Tax Act are introduction of 5 year tax holiday for non-5 star hotels at World Heritage sites and hospitals across India with the exception of Tier 1 cities, while a sunset date of 1 April 2009 has been stipulated for mineral oil refining operations. On the indirect tax side peak rate of customs duty remains unchanged with a welcome reduction in CENVAT from 16% to 14% and CST from 3% to 2%, and reaffirmation of the roadmap to a common GST by 1 April 2010. In the end, a good election year budget with a strong recognition for the need for economic growth. Quoting Pandit Jawarharlal Nehru, the FM has rightly questioned “How can we have a welfare state without wealth?”

Chapter 1

Overview

Direct Tax

Business Income

The proposals in the Finance Bill 2008 have major elements relating to lowering the burden on individual tax, streamlining tax administration processes, enhancing research and development, lowering cascading effect of DDT and encouraging growth of corporate debt market.

•

It is proposed to allow weighted deduction of 125% in respect of any sum paid for scientific research to a domestic company engaged in scientific research and development, subject to fulfillment of certain conditions. Further, to avoid multiple deductions, it is proposed that such domestic company incurring the expenses would not be entitled to weighted deduction of 150%.

MAT

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It is proposed to provide that STT paid in respect of taxable securities transactions shall be deductible if the income arising thereon is considered as business income.

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With a view to provide a level playing field, amortization of post commencement preliminary expenses available to the industrial sector to be extended to all sectors including services sector.

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No change in corporate and MAT rates. However with a view to clarify the ambiguity, it is proposed with effect from 1 April 2001 that book profits shall be increased by the amount of deferred tax, DDT etc.

DDT •

There is no change in DDT rates. However in order to mitigate the cascading effect of DDT, it is proposed to allow set off of dividend received from subsidiary company against dividend to be declared by holding company, subject to certain conditions.

Capital Gains •

Individual taxation •

The new tax rates proposed for individuals are under: Income (INR)

Tax Rate

Upto 150,000*

Nil

150,001 -300,000

10%

300,001 – 500,000

20%

Above 500,000

30%

Tax Withholding •

*Basic exemption for women INR 180,000 and INR 225,000 for senior citizen

There is no change proposed in respect of surcharge which will be levied @ 10% on income above INR 1,000,000. Education cess of 2% and Additional cess called Secondary and higher education cess of 1% will continue to be levied.

Reverse Mortgage Scheme •

4

Rate of short-term capital gains is proposed to be increased to 15% from 10% in relation to transfer of shares or units, which are subject to securities transaction tax. It is proposed to exempt conversion of specified bonds of a company issued under FCEB into shares or debentures of any company from the purview of capital gains tax.

It is proposed that any amount received by a senior citizen under a notified scheme of reverse mortgage will be exempt from tax. Also the pledge of the residential property under the scheme of reverse mortgage will not be regarded as a transfer of a capital asset and therefore shall not attract capital gain tax.

PricewaterhouseCoopers • India Budget 2008

Scope of “assessee in default” has been widened to include all persons who have failed to deduct tax at source. Also interest on listed corporate bonds in dematerialized form has been exempted from TDS. The TDS on Interest on securities issued by the Central and the State Government has been reduced to 10% as against earlier rate of 20% for resident non-corporate assessee.

Tax Holiday •

It is proposed to provide 5 year tax holiday in respect of profits derived from business of operating and maintaining hospital located in non metro cities which start functioning between 1 April 2008 and 31 March 2013 subject to conditions.

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It is proposed to provide 5 year tax holiday in respect of profits derived from the business of new 2/3/4 star category hotels located in specified district having a World Heritage Site. The hotel should start functioning between 1 April 2008 and 31 March 2013.

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It is proposed that no tax holiday will be available to undertakings commencing business of refining of mineral oil on or after 1 April 2009.

FBT

Indirect Tax

•

General

FBT on Stock Plans has been retained. The recovery of FBT from employees shall be deemed to have been paid by the employees. FBT not to be levied on certain expenses such as relating to sports events for employees. The value of fringe benefit for festival celebrations proposed to be reduced from 50% to 20%.

Tax Assessment •

It has been proposed to advance the filing date of income tax and fringe benefit tax returns for corporates to September 30. Notice for initiation of scrutiny assessment can now be issued within six months from the end of the financial year in which return is submitted. Also participation of an assessee in tax proceedings would prevent the assessee from pleading that the notice for assessment was not served properly or served after due date.

Penalty •

A direction to initiate penalty proceedings while framing assessment would constitute sufficient satisfaction for initiation of such proceedings. A new scheme of waiver of penalty and immunity from prosecution introduced for cases where the settlement application of the assessee abates.

Tax Appeals •

Tribunal’s power to grant stay of demand curtailed to 365 days even if the appeal could not be disposed off for reasons not attributable to the assessee. CBDT to lay down guidelines for regulating filing of appeals by the tax department. However, non filing of appeals pursuant to such guidelines will not prevent the department from filing appeals in the same assessee’s case for other assessment years and for other assesses for the same year or other years.

Others • CTT proposed in line with STT • BCTT is proposed to be abolished effective April 1, 2009.

As per the Finance Minister, there has been considerable progress in preparing a roadmap for the introduction of the Goods and Services Tax (GST) with effect from April 1, 2010. As a step forward, the rate of Central Sales Tax (CST) is proposed to be reduced to 2% from April 1, 2008 The general rate of excise duty (CENVAT) has been reduced from 16% to 14% for all goods. The other ad-valorem rates of 24%, 12% and 8% have been retained.

Customs The peak rate of Basic Customs Duty (BCD) on all nonagricultural products has been maintained at 10%. The duty on project imports has been reduced from 7.5% to 5%. However, additional duty of customs in lieu of sales tax/VAT @ 4 % has been imposed on power generation projects (other than mega power projects), transmission, sub transmission and distribution projects and goods for high voltage transmission projects. Also, a Countervailing Duty (CVD) of 1% has been levied on mobile phones Further, BCD on certain specified items such as helicopter simulators, specified parts of set top boxes, raw material used in IT / Electronic Hardware industry, ground equipment for testing of satellites and payloads etc has been exempted.

CENVAT The general CENVAT rate has been reduced from 16% to 14%. The CENVAT on various goods like cars, writing paper, printing paper and packing paper, drugs and pharmaceuticals, water filtration and purification devices, pan masala not containing tobacco etc have been reduced. Further, various goods like anti AIDS drugs and bulk drugs, packaged tender coconut water, tea and coffee mixes, specified refrigeration equipment etc have been exempted from excise duty. The duty on packaged software has been increased from 8% to 12%. Also, NCCD at the rate of 1% has been imposed on mobile phones Amendments have also been made in the percentage of abatements applicable to the goods assessed on MRP based valuation. Further, substantial changes have been made in the CENVAT Credit Rules, 2004.

Service Tax The rate of service tax continues at 12%. However, the composition rate for works contract services has been increased from 2% to 4%. The Government has broadened the service tax base by introducing several new categories of services and by

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expanding the scope of certain existing services. Further, the Government also proposes to increase the threshold limit for small service providers from INR 8 lakhs to INR 10 lakhs. The Export of Services Rules, 2005 have been modified with effect from March 1, 2008 so as to grant the benefit of exports to certain services, provided remotely through the internet or any electronic network including a computer network in relation to goods or materials or any immovable property situated outside India at the time of provision of service. Parallely, an amendment has been made in the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 with effect from March 1, 2008 to tax similar services under the reverse charge mechanism.

The CENVAT Credit Rules, 2004 have been amended so as to provide specified options for availment of CENVAT credit by service providers providing taxable and exempt services and not maintaining separate books of accounts.

Chapter 2

Economic Performance 2007-08

Key Indicators Particulars Growth in %

2004-05

2005-06

2006-07

2007-08

- GDP (at 1999-2000 prices)

7.5

9.4

9.6Q

8.7% A

- Agricultural & allied sectors (at 1999-2000 prices)

0.0

5.9

3.8

2.6 A

- Index of industrial production

8.4

8.2

11.6

9.0 (Apr – Dec)

Imports (at current prices, in USD billion)

111.5

149.2

185.7

168.8 P (Apr – Dec)

Exports (at current prices, in USD billion)

83.5

103.1

126.3

110.9 P (Apr – Dec)

Inflation (in terms of WPI) in %

5.1

4.1

6.3

3.9 (Jan 19, 2008)

Forex reserves (in USD billion)

135.6

145.1

191.9

281.1 (8 Feb 2008)

Exchange rate (USD1 = INR)

44.93

44.27

45.25

40.41 (Average rate Apr – Dec 07)

Q - Quick estimate, A - Advance Estimate, P – Provisional, b – April to December

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•

•

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The Economic Survey 2007-08 (Survey) released by the Ministry of Finance, Government of India, has projected the Indian economy to grow at 8.7% during 2007-08. The Survey is confident of achieving an average growth rate of 9% during the Eleventh Plan Period. (2007-12). Agriculture and allied sector is estimated to grow at 2.6% during 2007-08 as against the previous year’s growth of 3.8%. The Survey observes that there has been a loss of dynamism in the agricultural and allied sectors in recent years with lower production of foodgrains at 217.3 million tonnes during 2007-08 (final estimate) compared to advance estimates made for the year at 219.3 million tonnes. The industrial sector witnessed a slowdown during April – December 2007 with 9% growth, lower than the robust growth during the last 4 years. The growth performance of some infrastructure sectors such as power generation, railway freight, intermediaries like steel, cement and petroleum have shown a subdued performance. On the other hand, rural penetration of mobile telephony has shown a strong growth in the telecom sector.

PricewaterhouseCoopers • India Budget 2008

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Despite a global rise in commodity prices and an upsurge in capital inflows, inflation was successfully contained during 2007-08.

•

Per capita income grew at an annual average rate of 3.1% from 1980-81 to 1991-92. Thereafter, it marginally grew by 3.7% per annum for the period until 2002-03. However, the pace of economic improvement has moved up considerably during 2003-04 to 2007-08 by 7.2% per annum. This means that the average income would now double in a decade compared with the earlier two decades.

•

During 2007-08, the size of Indian economy at the market exchange rate crossed USD 1 trillion. Per capita income at nominal exchange rate is estimated at USD 1,021.

•

The average growth rate of 7.8% during the Tenth Plan period (2002-07), was the highest as compared to any other plan period, which is marginally short of the target of 8%. Manufacturing, construction and communication were the leading sectors in the acceleration of growth during the Tenth Plan period with transport and

communication services being the fastest averaging 15.3% per annum. •

•

•

•

•

There was a sharp acceleration in the growth of manufacturing from 3.3% during the Ninth Five Year Plan to 8.6% during the Tenth Five Year Plan. The average growth of manufacturing for the 5 years ending 2007-08 is expected to be about 9.1%. The average savings ratio for the Tenth Plan period has been 31.4% higher than that for the Ninth Plan period. The average savings rate was also 31.4% of GDP, higher than the average ratio of 23.6% during the Ninth Plan period. The household sector savings were stable at 23-24% of GDP, averaging 23.7% during the Tenth Plan period. Private corporate sector investment, in particular, showed remarkable improvement - from 5.4% of GDP in 2001-02 to 14.5% in 2006-07 - on account of capex boom, a trend which the Survey sees as continuing. As per the findings of the 61st round of NSSO Survey, 47 million work opportunities were created during 19992005, at an annual average of 9.4 million. Employment growth accelerated to 2.6% during this period. At the same time, the labour force grew at 2.8% per year, 0.2% faster than the work-force, resulting in an increase in the unemployment rate of 8.3% in 2004-05 from 7.3% in 1999-2000. The proportion of persons below the poverty line declined from about 36% of the population during 1993-04 to 28% in 2004-05. Inflation as measured by the WPI, rose from 4.4% in 200506 to 5.4% in 2006-07 and is expected to return to around the 2005-06 rate for the full year 2007-08. Fuel and power have witnessed an increase in prices in recent months. An increase in the prices of coal and crude oil has been the major constituent of inflation.

•

The ratio of debt flows to GDP has been on an uptrend since 2004-05. Debt flows, primarily ECBs, shot up on a net basis in 2007-07 to a level of USD 16.2 billion. The trend in net capital flows since 2003-04, therefore, seems to be broadly driven by the rising ratio of debt flows.

•

There was a 150% increase in net FDI inflows in 2006-07 to USD 23 billion. This trend is continued in the 2007-08, with the gross FDI inflows reaching USD 11.2 billion in the first 6 months.

•

Outward investment from India shot up to USD 14.4 billion in 2006-07 from less than USD 2 billion in 2003-04.

•

In the year 2007-08, the process of fiscal consolidation was carried forward on the strength of buoyant tax revenues and prudent expenditure management. The targets of revenue and fiscal deficits for the year appear to be well within the reach. Further, as the trends of receipts

indicate, it may not be very difficult to achieve the target of 3% fiscal deficit by 2008-09. However, the target of bringing revenue deficit to zero by the end of 2008-09 would remain a challenge. •

The trade to GDP ratio, including services trade, increased from 29.2% of GDP in 2000-01 to 48% of GDP in 200607. During April – December 2007, exports reached USD 111 billion, which is nearly 70% of the year’s export target. Imports grew by 25.9% during the same period, due to non-petroleum and other lubricants imports growth of 31.9%, implying strong industrial demand by manufacturing sector.

•

India’s services export grew by 32.1% to USD 76.2 billion in 2006-07 with software services, business services, financial and communication services being the main drivers of growth.

•

The share of the US, the largest trading partner, declined by 2.5% points to 9.8% in 2006-07. As a result China is set to emerge as the largest trade partner. During April – October 2007, India-China trade had already surpassed INR 6000 million.

•

The rupee appreciation against the US dollar during April 2007 and February 2008 was the highest at 8.9%. The rupee appreciated even more if calculated on year-onyear basis (December 2007 to December 2006) to 13.2%, which is even higher.

•

The stock markets saw increased activity in 2007-08, with the BSE SENSEX rising from 13,072 in March 2007 to 18,048 on February 18, 2008. The NIFTY 50 rose from 3,822 to 5,277 during the same period.

•

The gross tax-GDP ratio, which had stagnated at 8-10% range for more than a decade, increased to 11.4% in 2006-07 and is expected to improve further to 11.8% in 2007-08.

•

India has remained relatively insulated from the US sub-prime crisis. The banks and FIs in India do not have marked exposure to the sub-prime and related assets in matured markets. India’s gradual approach to the financial sector reforms process with the building of appropriate safeguards, have kept India insulated from these developments. Going forward, with the expected slowdown of the US economy and the resulting slowdown in global economy is expected to impact both the demand for India’s exports and the value of imports.

•

India’s CDM potential represents a significant component in the global CDM market. As on 31 January 2008, 309 out of the 918 projects registered by the CDM Executive Board are from India, the highest figure for any country. The Indian National CDM Authority has accorded Host Country Approval to 858 projects facilitating an investment of INR 711 billion.

India Budget 2008 • PricewaterhouseCoopers

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As per the UNDP’s Human Development Report (HDR) 2007, in spite of the absolute value of the Human Development Index (HDI) for India improving from 0.588 in 2000 to 0.619 in 2005, the relative rank of India has not changed much.

•

The share of the Central Government expenditure on social services including rural development has increased from 10.97% in 2001-02 to 16.42% in 2007-08. Some of the new schemes introduced during the year are Aam Aadmi Bima Yojana (Common Man Insurance Scheme), Rashtriya Swasthya Bima Yojana (National Health Insurance Scheme).

•

Despite the favourable demographics with a relatively young labour force, India faces an emerging shortage of labour force with required skills, especially from the technology sectors and semi-skilled labour intensive sectors of manufacturing, organized retail, civil aviation, construction and finance. This not only contributes to cost-push inflation but also erodes price advantage in some of the tradable sectors of the economy.

- Allow 100% FDI in Greenfield Private Rural-Agricultural Banks, which would not have a cap on the number of branches in any rural or semi-rural area for lending to agriculture and allied sectors. As an incentive, such Banks could be allowed expansion into small towns when the general FDI policy on banks will be liberalized; - Amend Coal Mines Nationalisation Act to allow entry of private sector into coal mining. Allow privatization of old coal mines to improve recovery of reserves by 5-10%, subject to a professional, independent regulator for safety and environment issues; - Sale of old oil fields to private sector for application of improved/enhanced oil recovery techniques. Besides stepping up domestic production, the remaining deficit would have to be bridged by entering into strategic geopolitical alliances to access energy assets in regions such as Middle-East and Africa; - Increase work week to 60 hours (from 48) and daily limit to 12 hours to meet seasonal demand through overtime; -

Pointers to the future •

An appreciation of the rupee, a slowdown in the consumer goods segment of industry and infrastructure (both physical and social) constraints, remain areas of concern. Raising growth to double digit will therefore require additional reforms.

•

The quiet but quick growth in e-commerce has implications for tax and trade policy. India’s position on non-imposition of customs duty on electronic transmission has been that given the inherent advantage that India has in e-commerce, it can maintain a liberal regime on electronic transmissions at present. However, this must not preclude its options for possible methods of taxation since the future course of growth in e-commerce is impossible to visualize.

•

The Survey offers several reform suggestions to policy makers: - Allow FDI in all retail trade, especially, 100% foreign equity in foreign branded, specialized retail chains (e.g. Luxury Brands, Consumer Durables, Semi-Durables); - Raise FDI limit in Insurance to 49%. Permit 51% FDI in a special category of insurance companies that provide all types of insurance (e.g. health, weather) to rural residents and for all agricultural related activities including agro-processing;

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PricewaterhouseCoopers • India Budget 2008

Either introduce a separate section on Bankruptcy in the Company Law or introduce a new bankruptcy law that facilitates exit of old/failed management as expeditiously as possible.

Chapter 3

Recent Policy Measures

Inbound Investment •

The DIPP, through its Press Note 3 of 2007 issued on 19 April 2007 has made the following amendments to the FDI policy in telecom: - Indirect foreign investment shall mean foreign investment in the company/ companies holding shares of the licensee company and their holding company/ companies or legal entity (such as mutual funds, trusts) on proportionate basis;

- Limit for Portfolio Investment by listed Indian companies increased from 25% of net worth to 50%; Requirement of reciprocal 10% shareholding in Indian companies removed. •

Pledge of shares held in overseas JV / WOS to overseas lender permitted provided lender is regulated and supervised as a bank and the Indian party’s total financial commitment remain within overall ODI limit.

•

A single new ODI form is notified instead of earlier separate forms (ODA, ODI, ODB, ODR, ODG).

- FIPB to consider unfriendly entities / countries of concern while considering applications; - Condition of at least one serious Indian promoter (at least holding 10% shareholding of the telecom company) removed. •

•

- For meeting rupee expenditure, ECB allowed only up to USD 20 million per borrower company per FY with prior RBI approval; Funds to be parked overseas until actual requirement in India; - For meeting foreign currency expenditure, ECB permitted up to USD 500 million per borrower company per FY without prior RBI approval. Funds to be parked overseas for foreign currency expenditures for permissible end-uses and not to be remitted to India;

Issuance of Equity instruments made mandatory within 180 days of inward remittance (after 180 days, prior approval of RBI required)

- Prepayment limit without prior RBI approval enhanced from USD 300 million to USD 500 million provided minimum average maturity requirement is met. •

- 250 bps (earlier 350 bps) over 6 month LIBOR for ECBs with average maturity period greater than 5 years. •

Limits for ODI revised

- ODI in exchange of ADRs / GDRs issued by Indian investing party permitted. - 100% of guarantees by the Indian investing company (along with promoter / group companies) to form part of “financial commitment” for ODI; - Aggregate ceiling for ODI by SEBI registered Mutual Funds increased from USD 3 billion to USD 5 billion, with expansion of permitted categories for ODI;

PricewaterhouseCoopers • India Budget 2008

Revised ‘all-in-cost’ ceilings (applicable to ECBs under automatic as well as approval route) - 150 bps (earlier 200 bps) over 6 month LIBOR for ECBs with average maturity period between 3-5 years;

FDI from Citizens of Bangladesh or entities incorporated in Bangladesh permitted with prior FIPB approval

- Overall limit for ODI enhanced from 200% of net worth of the Indian investing party to 400%;

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Revised Limits / Approval Requirements

- Only fully and mandatorily convertible preference shares/ debentures convertible into equity within a specified time to be reckoned as part of equity under the FDI Policy, subject to the respective sectoral caps.

Outbound Direct Investment: •

•

Optionally / Partly Convertible Preference Shares/ Debentures for which foreign funds have been received after 1 May 2007 (7 June 2007 in case of debentures) shall be considered as debt and required to comply with guidelines on ECB

- Amounts outstanding beyond a period of 180 days to be refunded (without interest) with RBI approval. •

ECB

‘Development of Integrated Township’ derecognized as a permissible end-use.

Foreign Currency Exchangeable Bonds (FCEB) Scheme for Issue of Foreign Currency Exchangeable Bonds (‘FCEB’) notified on 15 February 2008, which will allow Indian companies to unlock a part of their holding in group companies for meeting their financing requirements by issue of Exchangeable Bonds. •

Definition of FCEB - A foreign currency bond issued by an Indian Company to non-residents, exchangeable into equity shares of

another ‘Offered’ company as per terms of attached equity related warrants. •

range of risk mitigation products and create more activity in the Indian onshore markets:

Eligibility conditions for issuance of FCEBs

- Mini-contracts on equity indices;

- Prior RBI approval required;

- Options with longer life/tenure;

- Offered Company must be:

- Volatility index and Fututures & Options contracts;

• Part of the promoter group of the Issuing Company (which shall hold the underlying equity share/s being offered, at the time of FCEB issuance);

- Options on Futures;

• listed and engaged in a sector eligible to receive FDI and avail FCCB / ECB.

- Exchange-traded currency (foreign exchange) F&O; and

- Bond Indices and F&O contracts;

- Introduction of exchange-traded products to cater to different investment strategies.

- Subscriber to comply with FDI policy; - FCEB issue to comply with parameters prescribed under ECB policy (‘All in cost’ ceiling, end-use requirements, proceeds to be retained and/or deployed overseas)

•

- Exchange price of offered equity shares not to be less than prescribed thresholds; - Minimum maturity • Redemption to be after 5 years; Exchange permissible anytime.

Insurance •

Guidelines issued by IRDA in July 2007 for closure of Liaison Offices set up in India by foreign insurance companies, specifying the procedure and documentation required for closure.

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IRDA vide press release dated 18 August 2007 has phased out the unit linked products that are actuarially funded so as to remove complexity in all the unit linked products. This move helps policy holders to compare products across companies.

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IRDA has completely removed the controls on pricing of risks effective 1 January 2008, in general insurance business except for Motor Third Party risks.

•

Amendment made to the definition of “Infrastructure” thereby widening the range of investment avenues to insurance companies. Accordingly, insurance companies are now permitted to invest in bonds floated by Developers of SEZs / industrial parks, educational institutions, hospitals, etc.

• On redemption, net cash settlement not permissible. - Issuing company cannot transfer, mortgage or offer as collateral or trade in the offered shares during the tenure of FCEB. •

Tax Implications - Interest (on bonds) / dividend (on exchanged portion) subject to WHT @ 10% - Exchange of FCEB into shares not taxable as capital gains in India - Transfers of FCEB between two non-residents inter-se outside India exempt from capital gains tax in India.

Financial Services and Capital Markets •

•

Guidelines issued under the Reserve Bank of India Act, 1934 on registration and operations of Mortgage Guarantee Companies (MGCs). These guidelines apply to all Non Banking Financial Companies undertaking the business of mortgage guarantee. SEBI, vide its Press Release on 14 November 2007, has approved introduction of the following new derivative products, expected to provide investors with a larger

SEBI has released its “Message for Investors” wherein it has indicated that ‘Art Funds’ require registration as Collective Investment Scheme (CIS). The Message says that Art Funds without CIS registration violate SEBI regulations and SEBI may take action (including criminal action) against such funds / companies.

Real Estate •

National Housing Board has issued reverse mortgage operational guidelines, a scheme under which a senior citizen who is an owner of a house can avail of a stream of income at regular intervals i.e. monthly, quarterly, annually, etc. against the mortgage of his/her house, while

India Budget 2008 • PricewaterhouseCoopers

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remaining the owner and occupying the house throughout his/her lifetime, without repayment or servicing of the loan. •

The CBDT has notified the Rules relating to Industrial Park Scheme, 2008, as per which Information Technology Parks (IT Parks) will no longer qualify as Industrial Parks and hence not be eligible for income tax benefit under section 80-IA of the IT Act. Amongst other prescribed eligibility conditions for availing benefit under section 80IA, is a condition for minimum constructed floor area of 50,000 square metres.

Oil and Gas •

Power •

Special Economic Zones (Amendment and Second Amendment) Rules, 2007 have been notified with the following salient features:

- dispenses licence requirement for sale of electricity generated from captive units; and

- SEZ Developer/Co-Developer entity to provide details of FDI;

- expands the definition of theft to cover use of tampered meters and use for unauthorized purpose. Theft made explicitly cognizable and non-bailable offence.

- Minimum processing area for all categories of SEZs to be 50%; - Area for multi product SEZ not to exceed 5,000 hectares; - Change in sector permitted with certain conditions from case to case basis; - For Notification, a developer requires a certificate from State Government that he has legal possession and irrevocable rights to develop the area as SEZ and it is free from all encumbrances;

Telecom •

Cellular Mobile Telephone Service/ Unified Access Service licenses amended with respect to the security conditions, i.e. with respect to creation of No Service Zone and restrictions in Buffer Zone.

•

ISP guidelines amended to widen the scope of the license to permit the following: - Internet Access including IPTV;

- Board empowered to relax conditions of contiguity and public thoroughfare on a case to case basis but not the condition of vacancy;

- Internet Telephony as follows: • PC to PC; within or outside India;

- Lease period for SEZ Unit shall not be less than five years;

• PC / a device / Adapter conforming to standard of any international agencies like- ITU or IETF etc. in India to PSTN/PLMN abroad;

- Quantum of infrastructure as approved by the BoA shall be eligible for tax exemptions and any such infrastructure created in excess thereof shall not be eligible for such tax exemptions; - Tax exemptions also allowed to contractors appointed by unit for setting up and maintenance of the factory building, if the documents are filed jointly in the name of the unit and the contractor; - Temporarily removal of the goods, to a place in the DTA or same or another SEZ or EOU/EHTP/STPI/Biotechnology Park , permitted for subcontracting a process, with prior permission of Approval Committee.

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PricewaterhouseCoopers • India Budget 2008

The Electricity (Amendment) Act, 2007, amending certain provisions of the Electricity Act, 2003, has been brought into force effective 15 June 2007. The highlights of the Amendment Act are: - provides for electrification of all areas including villages and hamlets through joint action by the Central Government and State Governments;

SEZs •

NELP VII has been launched on 13 Dec 2007. A total of 57 blocks are on offer for exploration of oil and gas constituting 19 blocks in deepwater, 9 blocks in shallow waters and 29 onland blocks.

• Any device / Adapter conforming to standards of International agencies like ITU, IETF etc. connected to ISP node with static IP address to similar device / Adapter; within or outside India. •

DoT has accepted TRAI’s recommendation on removing the cap on number of access service providers in a service area.

•

DoT has issued LoI to all eligible applicants who have applied till 25 September 2007 for Unified Access Service license.

•

The security conditions of Global Mobile Personal Communication by Satellite (GMPCS) license have been revised to permit the licensee to operate and maintain land based satellite link station (gateway).

Civil Aviation •

kinds of training, modified the evaluation procedure for Flight simulators and restricted the validity of the certificate of approval to 2 years;

On 22 June 2007, Ministry of Civil Aviation has revised “Civil Aviation Requirements” on paid-up capital requirement for Scheduled Air Transport Passenger Operators:

- prescribed requirements for operation of scheduled air services to/from India by foreign airlines with leased aircraft;

Paid up capital for upto 5 aircraft

Additional equity investment for each additional aircraft over 5

Aircraft with take off mass equal to or exceeding 40,000 kg

INR 500 million

INR 200 million

Aircraft with take off mass less than 40,000 kg

INR 200 million

INR 100 million

• National Policy on Petrochemicals, released on 28 September 2007, aims to increase investments in the sector, create quality infrastructure to ensure value addition and increase exports through measures such as rationalization of duty and tax structures and setting up of dedicated Plastic Parks and a Plastic Development Council.

- The above requirements are not applicable if applicant has paid-up equity/ reserves of INR 1,000 million; - Existing operators given a time frame of up to 15 May 2008 to comply with this requirement.

•

The Ministry of Civil Aviation has prescribed that effective 23 July 2007, pressurised aircraft to be imported for air cargo operations shall not be more than 25 years in age or have completed 75 percent of its design economic cycles or 45,000 pressurisation cycles whichever is less. - Aircraft to be imported, if more than 20 years of age, shall be allowed only if found satisfactory on inspection by DGCA; - DGCA may permit import of unpressurized aircraft of more than 20 years of age for the purpose of flying training operations subject to certain conditionalities.

•

The DGCA has vide its various notifications - defined flight simulator training devices and the varied

passed regulations in relation to operation of Regional Airlines. Apart from defining the scope of a Regional Airline, these regulations prescribe the conditions for grant of Scheduled Regional Air Operator’s Permit.hemicals & Petrochmicals

•

The Petroleum, Chemical and Petrochemical Investment Regions (PCPIR) Policy, released on 8 May 2007, envisages establishment of investment regions in the country with world-class infrastructure. Salient features include area size of 250 sq. kms of which 40% area designated as processing area.

Road Transport •

The Carriage by Road Act, 2007 which replaces Carriers’ Act, 1865, aims to cater to the need of the modern day trade and transport by road, through provisions such as registration requirement for common carriers and empowering the Registering Authority to enquire upon the complaints received from consignors of goods against common carrier in case of default and to revoke/ suspend the registration of / penalize the common carrier.

Education

•

The National Institutes of Technology Act, 2007 was notified on 5 June 2007 declaring certain institutes to be institutes of national importance and to provide for instructions and research in branches of engineering, technology, management, education, sciences, arts and for advancement of learning.

Warehousing •

Warehousing (Development & Regulation) Act, 2007 notified, providing for negotiability of warehouse receipts which will help farmers to avail credit lines against their stocks stored in Exchange accredited warehouses. Corresponding provisions were also inserted in the Forward Contracts (Regulation) Act, 1952.

Small & Medium Enterprises •

On 5 February 2008, further 79 items were dereserved from the list of items which are reserved for SSI sector. After this de-reservation, only 35 items can be exclusively manufactured in the small scale sector (including specified items under wood/wood products, paper/paper products, organic chemicals, drugs and drug intermediaries, glass and ceramics).

Chapter 4

Key Legislative Amendments

SEBI •

•

- Simplification of the requirements for submission of financial results with stock exchanges by issuer companies having only listed debt securities (and not equity shares); issuer companies can now submit unaudited accounts subject to limited review as against earlier requirement for audited results.

Key Amendments to the Disclosure and Investor Protection (‘DIP’) Guidelines - Unlisted company making an IPO required to obtain grading from at least one credit rating agency; - Securities pledged with banks & financial institutions as collateral will not henceforth be eligible in the computation of promoters’ contribution. Promoters’ locked-in securities could be pledged with banks or financial institutions as collateral only if purpose of the loan is to finance objects specified in the issue;

•

- Clause 32 amended to align it with the provisions of Section 219(iv) of the Companies Act, 1956. Consequently, listed companies can now send a statement containing salient features of the (i) Balance Sheet (ii) Profit and Loss Account and (iii) the Auditor’s Report instead of sending full Balance Sheet and Annual Report.

- Companies will need to have minimum one year’s listing history (as against earlier requirement of six months’ listing history) for making QIPs;

- IDR issues now open to all categories of investors (earlier only QIBs could apply) provided at least 50% of the issue is being subscribed by QIBs ; minimum application value reduced from INR 200,000/- to INR 20,000/-; - Companies making public issues allowed to offer discount of upto 10% of the issue price to retail individual investors; - For public/rights issues of debt instruments, issuers now need to obtain rating from only one credit rating agency instead of two as required earlier; - Removal of stipulation of at least ‘investment grade’ rating for debt instruments issued through public/ rights issues; - Removal of structural restrictions for debt instruments such as maturity period, put/call option, conversion, etc.

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PricewaterhouseCoopers • India Budget 2008

Equity Listing Agreement – Amendments - Clause 41 amended to rationalize and simplify the process and formats for submission of quarterly and year-to-date financial results with the stock exchanges;

- Listed companies are now allowed to make preferential allotment with less than six months’ listing history subject to compliance with modified pricing norms; investor to bring in differential price based on the price determined after six months’ listing history;

- Introduction of fast track issues for already listed companies that fulfill certain conditions such as market capitalization, 3 years of listing, other compliances requirements, etc. (such companies now not required to file draft offer document with SEBI and stock exchanges for follow on issues);

Debentures Listing Agreement – Amendment

•

Other amendments - Tightening of norms relating to investments through PNotes through a press release restricting FII investments in India through Offshore Derivative Instruments and P-Notes; - SEBI has decided to permit all classes of investors, viz., retail and institutional investors, to short sell and also put in place simultaneously a full-fledged securities lending and borrowing scheme for all market participants in the Indian securities market under the overall framework of “Securities Lending Scheme, 1997” in order to provide a mechanism for borrowing of securities to enable settlement of securities sold short. Requisite amendments have been made to relevant regulations including the SEBI (Foreign Institutional Investors) Regulations, 2007 and SEBI (Mutual Fund) Regulations, 2007; - Use of PAN as sole identification number for all transactions in securities market (discontinuing earlier requirement for obtaining Unique Identification Number); - Detailed guidelines issued describing the process for issue of consent orders and consider requests for compounding of offenses. Guidelines made available for violations under the SEBI Act, Securities Contracts (Regulation) Act and Depositories Act.

• Certain matters pending before Securities Appellate Tribunal/courts can be settled between SEBI and a person who may prima facie be found to have violated the securities laws;

from USD 1 million to USD 10 million per project. - Donations by Corporates Remittance on account of donations by corporates for specified purposes permitted upto 1% of foreign exchange earnings during the previous three financial years or USD 5 million, whichever is less.

• Compounding of offense may cover prosecution cases filed by SEBI before the criminal courts.

Companies Act •

•

- Domestic producers / users permitted to hedge their price risk on domestic purchase and sale transactions of aluminium, copper, lead, nickel and zinc on international commodity exchanges, based on their underlying economic exposures. However, only standard exchange traded futures and options contracts (purchases only) are permitted to be booked.

Amendments in the Companies (Issue of Indian Depository Receipts) Rule, 2004 The amendments, inter-alia, provide that the following conditions should be fulfilled by a company proposing to issue IDR: - Pre-issue paid up capital and free reserves of at least USD 50 million and minimum average capitalization in the parent company of at least USD 100 million;

- Actual users of aviation turbine fuel (ATF) permitted to hedge their economic exposures in the international commodity exchanges based on their domestic purchases subject to certain conditions.

- Continuous trading record or history on a stock exchange in its parent country for at least 3 out of the immediately preceding 5 years;

- Domestic oil marketing and refining companies allowed to hedge their commodity price risk through ADs to the extent of 50% of their inventory based on the volumes in the quarter preceding the pervious quarter. Hedging can be undertaken using over-the- counter / exchange traded derivatives overseas having the maximum tenure of one year forward.

- Track record of distributable profits for at least 3 out of the immediately preceding 5 years; and - Fulfillment of other eligibility criteria as may be laid down by SEBI.

FEMA •

Remittances (on Capital or Current Account) - Liberalised Remittance Scheme for Resident Individuals Monetary limit for resident individuals under the liberalized remittance scheme of USD 50,000 is enhanced to USD 200,000 per financial year for permitted capital or current account transactions or combination of both. - Remittance towards Pre-Incorporation Expenses Remittance of foreign exchange towards reimbursement of pre-incorporation expenses incurred in India permitted under automatic route upto 5% of the investment brought into India or USD 100,000, whichever is higher, on the basis of certification from Statutory Auditors. - Remittance for Consultancy Services by Indian Infrastructure Companies Limit for remittance for consultancy services by Indian Companies executing infrastructure projects enhanced

Commodity Hedging – Liberalisation

•

Booking of forward Contracts – Liberalisation - Resident individuals are permitted to book forward contracts to hedge foreign exchange risk arising out of actual or anticipated remittance (inward / outward) on self declaration i.e. without production of underlying documents. Forward contracts can be booked upto tenures of one year subject to outstanding amount not exceeding USD 100,000 at any point of time. The facility is available on a deliverable basis. - SMEs having direct / indirect exposure to foreign exchange risk permitted to book / cancel / rebook / roll over forward contracts without production of underlying documents subject to certain conditions. Further, SMEs also permitted to use foreign currency rupee options for hedging their exposures after production of underlying documents or under past performance route. - Resident entities having overseas direct investments (in equity and loan) are permitted to hedge the exchange risk arising out of such investments by entering into forward / option contracts. Forward contracts can also be cancelled and 50% cancelled contracts can be rebooked.

India Budget 2008 • PricewaterhouseCoopers

19

Miscellaneous •

Remittance to Non-residents– Clarification regarding Deduction of Tax at Source RBI has specifically clarified that at the time of making remittance to a non-resident or a foreign company, the remitter of foreign exchange is required to submit to the AD an undertaking and CA Certificate in the format prescribed by CBDT vide Circular No. 10 dated October 9, 2002. This applies even in case of remittances in the nature of trade transactions such as import payments.

•

•

Stock-in-trade v. Investment in shares •

Surrender of Foreign Exchange by Residents Resident individuals are required to surrender the realized / received / unspent / unused foreign exchange to an authorized person within a period of 180 days from the date of realization / receipt / purchase / acquisition / date of return of the traveler, as the case may be (earlier, the period of surrender was different for different transactions).

•

Income Tax Law

Suspension of collection of taxes during pendency of MAP •

NRI Employees of Indian Companies – Financing of ESOP Scheme Participation

The Industrial Park Scheme 2008

Exchange Earners Foreign Currency (EEFC) account

•

- Minimum of thirty Industrial Units in a Industrial Park; - Minimum constructed floor area not to be less than 50,000 square meters; - Industrial units to undertake only specified manufacturing activity.

New Guidance Notes issued by ICAI - Tax Audit Under Section 44AB of the Income-tax Act, 1961;

FBT on ESOPs

- Accounting for employee share- based payments.

•

Separate valuation guidelines for FBT on ESOPs have been issued for shares listed on a recognized stock exchange in India and unlisted shares

•

The CBDT has issued an Explanatory Circular on FBT arising on ESOPs. This Circular addresses various queries related to levy of FBT on ESOPs, some of which are:

New Accounting Standards issued by ICAI - AS 30 - Financial Instruments: Recognition and Measurement; - AS 31 - Financial Instruments: Presentation.

•

The Central Government has notified ‘The Industrial Park Scheme 2008’, key features being: - Area allocated to Industrial units not to be less than 90% of the allocable area;

Accounting Standards and Guidance Notes

•

In order to avoid hardship to Indian resident entities especially in cases involving transfer pricing, where Indian resident entity is liable to pay taxes on income which may have been charged to tax in the hands of the associated entity in USA, the applicability of MOU regarding suspension of collection of taxes during pendency of MAP, has been extended to such Indian resident entities during pendency of MAP proceedings invoked by a resident of USA

NRI employees of Indian companies are permitted to obtain INR loans for acquiring shares under ESOP Scheme to the extent of 90% of purchase price of shares or INR 2 million, whichever is lower.

As a temporary measure upto October 31, 2008, all exporters were permitted to maintain balance in EEFC account to the extent of USD 1 million in the form of term deposits and earn interest thereon.

•

The CBDT issued a Circular to update the earlier Instruction regarding the distinction between shares held as stock-in-trade and shares held as investment. This Circular incorporates the principles from certain judicial precedents. It re-iterates that there is no single decisive principle and total effect of all principles should be considered in any given case to determine whether shares are held as investment or stock-in –trade

Limited revisions made to AS 2, AS 11, AS 15, AS 21, AS 23, AS 26, AS 27, AS 28 and AS 29

- In case of recovery of FBT from employees, credit of the same can be claimed in foreign country; - Shares not listed in a recognized stock exchange in India to be treated as unlisted shares

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PricewaterhouseCoopers • India Budget 2008

- Merchant Banker’s valuation to be binding on AO, unless perverse;

deductor of tax. This circular deals with cases where no income has accrued to the non-resident on cancellation of contract or when income has accrued but no tax is due / is due at a lower rate and the excess amount in respect of which refund is claimed is borne by deductor

- Recovery of FBT not be treated as income.

DTAAs •

DTAA with Luxembourg approved by the Union Cabinet

Others

•

DTAA with Mexico signed

•

•

DTAA with Iceland notified

Lending / borrowing of securities under the new Securities Lending Scheme notified by SEBI will not be liable to capital gains tax and STT

•

DTAA with Kuwait notified

•

•

Protocol amending the DTAA between India and UAE notified. Key features being:

Benign Assessment Procedure for assessees engaged in business of manufacturing and /or trading of diamonds made applicable for assessments made during FY 200809. Profit of 6% or more on the total turnover from such business to be accepted by the AO

•

Effective FY 2007- 08, deduction from income under Section 80C has been extended to investments made under Five Year Post Office Time Deposit Account and Senior Citizens Savings Scheme

•

Rules relating to disallowance of expenses incurred, other than through specified modes, were amended to include payment by the use of electronic clearing system through bank account, credit card and debit card. From FY 200708 payments made by these modes will not be adversely hit

- Residency conditions redefined; - Major amendments on withdrawal of capital gains protection; - Limitation of Benefits clause introduced.

Perquisite Valuation Rules •

The CBDT made amendments in perquisite valuation rules to bring the housing perquisite rules in line with amendments made by Finance Act 2007. Further, perquisite valuation rules which had been omitted have now been reinstated and made applicable to those employees whose employers are not liable to FBT on such benefits

New Return Forms

Customs Law

•

•

The CBDT notified eight new Return Forms for FY 2006 - 07, under a new series (ITR-1 to ITR -8). These new forms (other than ITR -7) are not to be accompanied by any attachment/ annexure. However, Transfer Pricing Report under section 92E would be continued to be filed as earlier. It has been clarified that return of any earlier financial year would be furnished in form applicable for that financial year

Tax deducted / collected at source •

•

The CBDT has enhanced the threshold limit for quoting PAN in TDS/TCS Returns to 95% (from 90%) in case of Form 24Q (for salaries) and to 85% (from 70%) in case of Forms 26Q (for payments other than salaries) and 27EQ (for TCS). In case of non-compliance, such returns will not be accepted. The enhanced limits will be applicable for and from the quarter ending March 31, 2008. It would also be applicable to those returns which are filed for any of the earlier quarters on or after April 1, 2008 The CBDT has issued a Circular prescribing procedure for refund of tax deducted at source under section 195 to the

Customs Valuation Rules for Imports & Exports The Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 have been notified. These new rules which were brought into effect from 10 October 2007 incorporate differing valuation principles for imports and exports.

•

Refund of Additional Customs Duty in lieu of Sales Tax/VAT (ADC) A refund mechanism in relation to the ADC paid on all goods covered under the Customs Tariff and imported for trading purposes was introduced with effect from 14 September 2007. Accordingly, the ADC paid @ 4% on goods imported for the purpose of trading would be available as a refund subject to the fulfillment of certain prescribed conditions.

•

Prohibition on import of goods suspected of IPR Infringement The Intellectual Property Rights (Imported Goods)

India Budget 2008 • PricewaterhouseCoopers

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Enforcement Rules, 2007 have been introduced with a view to prohibit the import of goods which allegedly infringe such rights. The Rules enable the customs authorities, after following due process, to suspend clearances of such goods and to order their destruction. They also detail the procedures for registration of such cases and for issuance of appropriate bonds and guarantees by the rights holders.

goods have been merely subjected to preservation during storage, cleaning operations, packing or repacking of such goods in a unit container or labeling or re-labeling of containers, sorting, declaration or alteration of retail sale price and have not been subjected to any other process or processes amounting to manufacture. •

The Government has notified the information technology products such as computers and their accessories such as printers etc. under the MRP based valuation scheme under Section 4A of the CE Act and has also prescribed the relevant percentages of abatement.

Excise Law •

Extension of sunset date for location based exemptions in the North-East The Government has effected amendments to the present dispensation in relation to excise duty benefits applicable to units located in the North Eastern region, including Sikkim, in order to extend the sunset date of 31 March 2007 and to exclude therefrom certain activities not amounting to manufacture. The Government has also notified revised excise duty benefits for goods manufactured by industrial units in the region subject to such units commencing production before 31 March 2017. The excise duty benefit will be available for a period of 10 years from the date of commercial production.

•

•

Restriction in CENVAT exemptions relating to Himachal Pradesh and Uttarakhand Notifications have been issued restricting the benefit of exemption from CENVAT available to new and existing units in excise free zones located in Himachal Pradesh & Uttaranchal (now known as Uttarakhand) to units engaged in manufacture and denying the benefit to units where

22

•

PricewaterhouseCoopers • India Budget 2008

VAT introduced in the State of Uttar Pradesh The State Government of Uttar Pradesh (U.P.) has implemented Value Added Tax in the State effective 1 January 2008. Through this, the whole country has now come under the VAT regime.

•

CST rate reduced The process of phasing out of CST commenced with the reduction in the central sales tax rate for inter-State sales against Form C from 4% to 3% effective 1 April 2007.

Service Tax Law •

Export Rules Liberalised The criteria for determining the eligibility of services to be treated as exports has been modified with effect from 1 March 2007, in order to replace the condition of delivery of service outside India with the condition of provision of service from India.

Reversal of CENVAT credit on used capital goods An important amendment has been made in the CENVAT Credit Rules to prescribe that if used capital goods are removed from the factory of use, the manufacturer shall pay an amount equal to the CENVAT credit availed on such goods reduced by 2.5% thereof for each quarter of a year or part thereof from the date of availing such credit.

•

Sales Tax / VAT Laws

Reversal of CENVAT Credit on inputs/capital goods whose value is written off in the books The CENVAT Credit Rules have been amended to require reversals of credits availed on inputs or capital goods whose values are fully written off in the books of accounts, before being put to use. The Rules further provide that if such goods are subsequently used by the manufacturer, he shall be entitled to avail the benefit of the CENVAT credit already reversed.

IT products brought under the MRP based valuation scheme

•

New services made taxable Seven new categories of services were made chargeable to service tax with effect from 1 June 2007. These service categories are telecommunication service, mining services, renting of immovable property services, execution of a works contract services, development and supply of content services, asset management services and design services.

•

Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 Notified The Central Government has notified rules pertaining to works contract services applicable from 1 June 2007. The person liable to pay service tax in relation to the works contract service shall have the option to discharge his service tax liability by paying an amount equivalent to two per cent of the gross amount charged for the works contract.

•

Master circulars issued superseding the majority of earlier circulars The CBEC has issued two master circulars clarifying various procedural and technical issues in service tax,

inter-alia, relating to the scope and classification of taxable services, the levy of the service tax itself and the valuation of taxable services. •

New mechanism in place for refund of input tax on specified services for exporters of goods The Central Government has notified a refund mechanism in relation to service tax paid on the specified taxable services, which are not in the nature of ‘input services’ but which could be linked to export of goods. This benefit is available to both manufacturer exporter and a trader exporter.

Chapter 5

Budget Financials

The following table sets out the Key Budget Financials: (INR in crores) 2006-2007

2007-2008

2007-2008

2008-2009*

Actuals

Budget Estimates

Revised Estimates

Budget Estimates

1. Revenue Receipts

434,387

486,422

525,098

602,935

2. Capital Receipts^

149,000

194,099

184,275

147,949

3. Total Receipts (1+2)^

583,387

680,521

709,373

750,884

4. Non-Plan Expenditure

413,527

475,421

501,849

507,498

5. Plan Expenditure

169,860

205,100

207,524

243,386

6. Total Expenditure (4+5)

583,387

680,521

709,373

750,884

7. Revenue Expenditure

514,609

557,900

588,586

658,119

8. Capital Expenditure

68,778

122,621

120,787

92,765

9. Revenue Deficit (7-1) As a percentage of GDP

80,222 1.9%

71,478 1.5%

63,488 1.4%

55,184 1.0%

150,948 3.3%

143,653 3.1%

133,287 2.5%

(7,699)

(8,047)

(28,318)

(57,520)

-0.2%

-0.2%

-0.6%

-1.1%

10. Fiscal Deficit (6 - (1+Recoveries of Loans+ Other receipts) 142,573 As a percentage of GDP 3.5% 11. Primary Deficit (10-Interest payments) As a percentage of GDP

*GDP for BE 2008-09 has been projected at INR 53,03,770 crore assuming 13% growth over the advance estimate of 2007-08 (INR46,93,602 crore) released by CSO. ^Does not include receipts in respect of Market Stabilization Scheme, which will remain in the cash balance of the Central Government and will not be used for expenditure.

Where the Rupee comes from

Non-tax Revenue Service tax and Other Taxes

Excise

Where the Rupee goes to

Non-debt Capital receipts Borrowings & Other liabilities

12

10

5

14

7

States’ share of taxes & duties

24

15 13 Customs

State & UT Plan Assistance

Non-plan Assistance to State & UT Govts.

15

Income-tax

Corporationtax

Central Plan

7 19

19 21 Interest

10 Other Non-Plan Expenditure

8 Subsidies

11 Defence

India Budget 2008 • PricewaterhouseCoopers

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Chapter 6

Direct Taxes

Definitions •

•

Agricultural income is exempt from income tax. It is proposed to insert an explanation in the definition of “agricultural income” to provide that any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income and consequently exempt from tax.

Deposit made under Senior Citizen Savings Scheme Rules, 2004 and Five Year Time Deposit under the Post Office Time Deposit Rules, 1981 are proposed to be covered within INR 100,000 limit prescribed under section 80C. The amendment is proposed to be effective from 1 April 2008

•

It is proposed to allow an additional deduction upto INR 15,000 (if parents age > 65 years, the limit is 20,000) to an individual on any payment made to effect an insurance on the health of his parents. This deduction is available in addition to the existing deduction available on medical insurance for himself, spouse and dependent children.

Entities having charitable purpose get concessional tax treatment. It is proposed to restrict the scope of “charitable purpose” by excluding the phrase ‘advancement of any other object of general public utility’ from the definition, if it involves: - any activity in the nature of trade, commerce or business, or - any activity of rendering any service in relation to any trade, commerce or business for a fee, cess, or any other consideration, irrespective of the application or retention of the income from such activities. Such activities will not be eligible for concessional tax treatment.

Reverse Mortgage Scheme It is proposed that any amount received by a senior citizen under a notified scheme of reverse mortgage will be exempt from tax. Also the pledge of the residential property under the scheme of reverse mortgage will not be regarded as a transfer of a capital asset and therefore shall not attract capital gain tax.The amendment is proposed to be effective from 1 April 2008.

MAT

Individual Taxation •

•

The exemption limit is proposed to be revised. The new slabs are as under: Income (INR)

Tax Rate

Upto 150,000*

Nil

•

150,001 -300,000

10%

300,001 – 500,000

20%

- tax on distributed profits under section 115O or on distributed income under section 115R of the IT Act

Above 500,000

30%

- any interest charged under the IT Act

*Basic exemption for women to be INR 180,000 and INR 225,000 for senior citizen

No change proposed in respect of surcharge which will be levied @ 10% on income above INR 1,000,000. Education cess of 2% and Additional cess called Secondary and higher education cess of 1% will also continue to be levied. •

In order to remove the ambiguity on adjustments relating to tax entries in the profit and loss account, it is proposed that the book profits be increased by an amount of deferred tax and provision thereof. In addition, the amendment defines the term “income tax” to include the following –

Any income, which accrues or arises to a “Sikkimese” individual from any source in the State of Sikkim or by way of dividend or interest on securities, is proposed to be exempt from tax. The term ‘Sikkimese’ has been specified in the said clause in pursuance to the Sikkim Subjects Regulation, 1961, rules made thereunder and relevant Government orders issued in this regard. This amendment is effective from 1 April 1990.

- surcharge, education cess, secondary and higher education cess. The amendment is proposed to be effective from 1 April 2001

DDT •

In order to mitigate the cascading effect of DDT, it is proposed that any dividend received by a domestic company (C1) during any financial year from its subsidiary (C2) shall be allowed to be reduced from dividend to be declared/distributed/paid by C1, for the purpose of computation of DDT, provided that the dividends so received by C1 had been subjected to payment of DDT by C2. It is also provided that C1 should not be a ‘subsidiary’ of any other company.

India Budget 2008 • PricewaterhouseCoopers

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For this purpose, a company shall be a ‘subsidiary’ of the domestic company, if such domestic company holds more than half in nominal value of the equity share capital of the company. The amendment is proposed to be effective from 1 April 2008. •

The rate of DDT remains unchanged at 16.995% (including surcharge and education cess).

Tax Holiday •

The IT Act provides for exemption of any income of certain commodity boards and export development authorities. It is proposed to extend the exemption to Coir Board established under the Coir Industry Act, 1953.

•

It is proposed to provide five year tax holiday in respect of profits derived from business of operating and maintaining hospital located anywhere in non metro cities, subject to fulfillment of following conditions:

Tax Withholding •

Currently, payment can be made to non residents after submitting an undertaking and a certificate with the banker. Such documents are thereafter forwarded by the banker to the assessing officer. It is proposed to introduce a new provision under which such remittance will need to be reported to the tax authorities through e-filing system. The form and manner of such e-filing shall be subsequently prescribed by the CBDT. This amendment is proposed to be effective from 1 April 2008.

•

Under the current provisions there was a possible view that if a person fails to deduct tax, then he is not considered as an “assessee in default”. It is proposed to insert an explanation with effect from 1 June 2002 under which a complete failure to deduct tax will also be considered for the purpose of determining the assessee in default.

•

Interest payment is respect of corporate debt security listed on a recognized stock exchange in India will not be subject to TDS if such securities are held in dematerialized form. The amendment is proposed to be effective from 1 June 2008

•

•

•

The scope of provisions of TDS in respect of payments to contractors is proposed to be widened to require association of person or a body of individuals to withhold tax. The amendment is proposed to be effective from June 1, 2008.

- the hospital should start functioning between 1 April 2008 and 31 March 2013; and - the hospital has at least 100 beds for patients. •

It is proposed to provide five year tax holiday in respect of profits derived from the business of new two star, three star, and four star category hotels located in specified district having a World Heritage Site. The hotel should start functioning between 1 April 2008 and 31 March 2013.

•

Currently, undertaking engaged in refining and commercial production of mineral oil is eligible for tax holiday for a period of seven years. It is proposed to deny the tax holiday to the undertaking which begins refining on or after 1 April 2009.

Business Income •

In certain cases where the income earned from purchase and sale of securities is taxable under the head PGBP, tax credit is allowed for STT paid by such tax payers against their income tax liability. It is proposed that instead of a tax credit, such STT shall be allowed as deductible expenditure in computing taxable income under the head PGBP.

•

It is proposed to allow a weighted deduction of 125% in respect of any sum paid for scientific research to a domestic company, if such company,

A scheme for dematerialization of TDS/TCS certificates was introduced through the Finance (No. 2) Act, 2004. The commencement of this scheme was postponed to 1 April 2006 and later to 1 April 2008. Since the national level information technology infrastructure of the Income-tax Department is not yet operational, it is proposed to defer the commencement of the scheme to 1 April 2010. The rate of TDS in respect of payment of interest on securities issued by Central and Sates Government to a resident in India, other than a company, has been specified @ 10% as against the current rate of 20%.

- has as its main object to carry out the scientific research and development; - is approved by the prescribed authority, in the prescribed manner; and - fulfils such other conditions as may be prescribed However, with a view to avoid multiple claims for deduction, it is proposed that such domestic company will not be entitled to claim weighted deduction of 150% as prescribed under section 35(2AB) of the IT Act. •

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PricewaterhouseCoopers • India Budget 2008

The benefit of amortization of post-commencement preliminary expenses in relation to extension or setting up of a new undertaking currently applicable to

manufacturing sector is proposed to be extended to all sectors including service sector. •

•

Currently, disallowance in relation to payment made otherwise than by an account payee cheque drawn on a bank or account payee bank draft are disallowed, if such individual payment exceeds twenty thousand rupees. In order to plug the loophole of multiple payments, it has been proposed that all payments made to a person in a single day will be aggregated for the purpose of considering disallowance. In case of assessee whose income is brought into the tax net through removal of exemption, the depreciation claim of the assets of such an assessee is proposed to be computed on the basis of actual cost of assets as adjusted by depreciation and revaluation of assets. This proposal has been introduced in order to plug the potential tax leakage resulting on account of depreciation claim by assessee on actual cost of assets. The amendment is effective from 1 April 2003.

- Providing crèche facility for children of employee - Sponsoring a employee sportsman - Organizing sports events for employees - Maintenance of accommodation in the nature of guest house •

Tax Assessment •

The due date of filing of return of income of a company or other person whose accounts are required to be audited has been advanced from October 31 to September 30. The amendment is proposed to be effective from 1 April 2008 and would be applicable for FBT returns also.

•

Currently, where the accounts of the assessee are subject to special audit, certain time limits have been prescribed for the completion of such audits. The extension of time for completion of such audits can be done only on the basis of a request made by the assessee. It is proposed to enlarge the power of the Assessing Officer to suo motu extend the period for the completion of the special audit. The amendment is proposed to be effective from 1 April 2008.

•

It is proposed to empower the Assessing Officer to make certain adjustments on account of arithmetical error or incorrect claims. These adjustments will be made only by computerized processing without any human interface. For this purpose the CBDT may formulate a scheme to expeditiously determine the tax payable by, or refund due to, the assessee. The amendment is proposed to be effective from 1 April 2008.

•

Currently, a notice for detailed scrutiny can be issued by the tax officer within one year from the end of the month in which return is furnished. It is proposed that no such notice shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished. The amendment is proposed to be effective from 1 April 2008.

•

It is proposed to allow the Assessing Officer to initiate reassessment proceedings even where the assessment order itself is a subject matter of appeal/reference/ revision. However, this power can be exercised only for those items of income which are specifically not the subject matter of the appeal/reference/revision. The amendment is proposed to be effective from 1 April 2008.

Capital Gains •

•

Recently, the CDBT issued guidelines for issuing FCEBs under which bonds of a company can be converted into shares/debentures of another company. It is proposed that conversion of specified bonds into shares or debentures of any company be not subjected to capital gains tax. It is also proposed that the cost of acquisition of such shares or debentures received upon conversion of the bond shall be the price at which the corresponding bond was acquired. It is proposed to increase the tax rate on short-term capital gains from 10% to 15% arising from transfer of an equity share in a company or a unit of an equity oriented fund, where such transaction is chargeable to securities transaction tax.

FBT •

•

It is proposed that the FBT recovered from the employees on account of shares allotted under ESOPs shall be deemed as tax paid by such employee in relation to the value of such fringe benefit provided to him. The following expenditures are proposed to be excluded from the purview of FBT: - Prepaid non-transferable electronic meal card which is usable only at eating joints and outlets subject to other conditions as may be prescribed

Value of Fringe benefit on account of expenditure on festival celebrations is proposed to reduce from existing rate of 50% to 20%.

India Budget 2008 • PricewaterhouseCoopers

29

•

•

Under the IT Act where a search is conducted the tax department has the power to frame an assessment in respect of past six years. On account of search assessments being initiated the regular assessments stand abated. The issues relating to revival of the regular assessments and the time limit for completion of such assessments have now been clarified. This amendment is effective from 1 June 2003. It is proposed that where any assessee has appeared and participated in any proceeding or cooperated in any enquiry relating to an assessment or reassessment, it shall be presumed that any notice which was required to be served on him was duly served and the assessee will be precluded from taking any objection regarding the service of such notice, or that service was not in time or that service was not effected in the proper manner. The amendment is proposed to be effective from 1 April 2008.

Tax Appeals •

The power of the Tribunal to grant stay of demand has been limited to 365 days irrespective of the fact whether that appeal could not be disposed off for reasons not attributable to the assessee. The amendment is proposed to be effective from 1 October 2008.

•

A new provision is proposed to be inserted to empower CBDT to lay down the guidelines for regulating the filing of appeals by the Department. It is further provided that in pursuance of such guidelines issued by CBDT if an appeal is not filed, the same would not prevent the Department from filing an appeal in the same assessee’s case for another year or in another assessee’s case for the same or any other year. This amendment is effective from 1 April 1999. In the event an appeal is not preferred by the Department in pursuance of any guidelines laid down by the CBDT, the assessee is prevented from taking a plea that the Department had acquiesced in the decision.

Penalty •

•

30

To overcome the obstacle of recording adequate satisfaction before initiating penalty proceedings, it is now proposed that where any amount is added or disallowed in computing the total income of an assessee and the said order contains a direction for initiation of penalty proceedings, such an order of assessment or reassessment shall be sufficient for initiation of penalty proceedings. The amendment is effective from 1 April 1989. Where an assessee’s application for settlement of his case abates, it is proposed that such person may make an application to the Commissioner for granting immunity from penalty. The Commissioner may, in his discretion, grant immunity from levy of penalty provided he is satisfied that the assessee has co-operated with the Department and has made full and true disclosure of his income. However, the assessee is required to comply with all conditions imposed on him in this regard. Similar powers have been granted to Commissioner for granting immunity from prosecution for applications for settlement are made prior to 1 June 2007. Immunity can be granted under all offences under the IT Act, the Indian Penal Code as well as under any other Central Act.

PricewaterhouseCoopers • India Budget 2008

BCTT It is proposed to discontinue BCTT after 31 March 2009.

STT The STT rates have been prescribed for following transactions with effect from 1 June 2008:

Taxable securities transaction

Rate

Payable by

Sale of an option in securities

0.017% of option premium

Seller

Sale of option in securities, where option is exercised

0.125% of the settlement price of the option

Purchaser

Sale of futures in securities

0.017%

Seller

CTT •

A new tax called CTT has been introduced. CTT is applicable on taxable commodities transaction entered in a recognized association.

•

Taxable commodities transaction has been defined as transaction of purchase or sale in a recognized association of option in goods or commodities derivatives and any other commodity derivative

•

The tax is proposed to be levied at the following rates on the transactions undertaken by the seller or purchaser, as the case may be:

Taxable commodities transaction

Rate

retrospectively. Below is a list of certain important decisions sought to be neutralized in this Finance Bill. •

Kandla Port Trust v ACIT (2006) (296 ITR (AT) 88 (Rajkot) – It was held that actual cost of the asset at the commencement of tax holiday would be adopted as written down value for computing depreciation after the tax holiday period. Section 43(6) is proposed to be amended to adopt book written down value.

•

Berger Paints (I) Limited v CIT (2004) 266 ITR 99 (SC) – It was held that tax authorities cannot challenge an issue if the same has been accepted in yet another case. Section 268A has been inserted to propose that various considerations for non-filing of appeal need to be considered.

•

Metro Auto Corporation v ITO & Ors. 286 ITR 618 (Bom) – It was held that the notice for reassessment issued during the pendency of the appeal by tax authorities before the Tribunal was invalid. Section 147 is proposed to be amended to empower the reassessment of income other than the one which is subject matter of appeal.

•

Shashi Kant Garg v CIT (2005) 285 ITR 158 (All) – It was held that notice under section 148 for reassessment to be issued by the Joint commissioner. An amendment to Section 151 proposes to clarify that the Joint commissioner is only required to be satisfied on the reasons recorded by the assessing officer and not issue the notice himself.

•

ACIT v Balrampur Chini Mills Limited – (2007) 297 ITR (AT) 15 (Cal); Maharaja Shree Umaid Mills Limited v ACIT (2007) 17 SOT 72 (Jaipur) – It was held that the deferred tax could not be added back to book profits for computing minimum alternate tax. The proposed amendment to section 115JB seeks to provide for adding back of deferred tax while computing the book profit.

•

CIT v Ram Commercial Enterprises Ltd. (1998) 246 ITR 568 (Del); CIT v Jai Bharat Maruti Ltd. (2007) 212 CTR 250 (Del) – It was held that recording of satisfaction is essential to initiate penalty proceedings. It is proposed to negate such requirement by an amendment to Section 271.

•

CIT Orissa v Aloo supply company (1979) 121 ITR 680 (Orissa); Shree Mahaveer Corporation v ITO (2002) 258 ITR (AT) 55 (Bang), CIT v. Triveniprasad Pannalal [1997] 228 ITR 680 (MP) – It was held that the disallowance for cash payments in excess of specified limit is applicable to a single payment and not the aggregate sum. Section 40A(3) is proposed to be amended to apply to aggregate of various payments in a day.

•

CIT v Gujarat Martime Board (2007) 214 CTR 81 (SC) – It was held that the development and maintenance of ports was an object of general public utility to be entitled for registration as a charitable institution. Section 2(15) has been amended to exclude trade or other similar activities from the purview of charitable purpose.

Payable by

Sale of an option in goods or an option in commodities derivative

0.017% of option premium

Seller

Sale of an option in goods or an option in commodities derivative, where option is exercised

0.125% of the settlement price of the option

Purchaser

Sale of any other commodity derivate

0.017% of the price Seller at which the commodity derivative is sold

•

Any amount of CTT paid by the assessee during the course of business shall be allowed as deduction, provided income from such transaction in commodities is included under the head PGBP.

•

The provisions with regard to collection and recovery of CTT, furnishing of returns, assessment procedure, power of assessing officer, chargeability of interest, levy of penalty, institution of prosecution, filing of appeal, power to the Central Government, etc. have also been provided

The amendment would be effective from the date of notification in the Official Gazette.

Recognized Provident Funds To obtain recognition under the IT Act a Provident Fund has to satisfy certain conditions specified under Rule 4 of Part A of the Fourth Schedule of the IT Act. One of the conditions is that the establishment shall obtain exemption under section 17 of the Employees Provident Fund and Miscellaneous Provisions Act, 1952. In case recognition has been granted to any Provident Fund on or before 31 March 2006 it has also been provided that the recognition will be withdrawn, if the fund does not satisfy this condition on or before 31 March 2008. It is proposed to extend this time limit by one more year to 31 March 2009.

List of certain judicial precedents proposed to be neutralized A trend has been observed in the recent years that certain judicial decisions in favour of tax payer have been sought to be neutralized through amendments in the IT Act and that too

India Budget 2008 • PricewaterhouseCoopers

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Chapter 7

Indirect Taxes

General As per the Finance Minister, there has been considerable progress in preparing a roadmap for the introduction of the Goods and Services Tax (GST) with effect from 1 April 2010. The Joint Working Group on the GST has already submitted its report on GST to the Empowered Committee of State Finance Ministers (EC) recommending a dual GST model for India. The rate of Central Sales Tax (CST) is proposed to be reduced to 2% from 1 April 2008 once the Centre and the States have reached agreement on the compensation for revenue losses, if any, consequent to the reduction in the CST rate. This proposal is further progression towards the phase out of the CST by 1 April 2010.

- convergence products i.e. MP3/MP4 and MPEG players having audio and video reception facility; - specified raw materials for tyre industry. •

BCD has been reduced from 7.5 % to 5% on the following products: - specified machinery for the manufacture of sports goods.

•

BCD has been reduced from 5 % to 2% on the following products: - crude and unrefined sulphur

•

The general rate of excise duty (CENVAT) has been reduced from 16% to 14% for all goods. In some cases further reductions have been made. The other ad-valorem rates of 24%,12% and 8% have been retained.

BCD has been reduced from 5 % to NIL on the following products: - melting scrap of iron or steel - aluminium scrap - rough cubic zirconia

•

BCD has been exempted on the following items: - helicopter simulators;

I. Customs Duties Direction

- specified parts of set top boxes and raw material used in IT / Electronic Hardware industry;

•

- rough cubic zirconia;

Due to certain exigencies, Budget 2008 has maintained the peak rate of Basic Customs Duty (BCD) on all nonagricultural products at 10%. Customs duties have however been reduced in relation to specific industries.

- specified raw materials for the manufacture of sports goods for export, upto 3% of the FOB value of exports in the preceding year; - tuna bait;

Details of proposals

- ground equipment for testing of satellites and payloads;

Tariff •

•

BCD on project imports has been reduced from 7.5% to 5%. However, additional duty of customs in lieu of sales tax/VAT @ 4 % has been imposed on power generation projects (other than mega power projects), transmission, sub transmission and distribution projects and goods for high voltage transmission projects.

- bactofagus. •

Withdrawal of BCD exemption on the following items: - naphtha for manufacturing polymers; - polymer long rod insulators except those of765 KV rating.

BCD has been reduced from 10% to 5% on the following products:

•

Countervailing Duty (CVD) of 1% under Section 3(1) of the Customs Tariff Act, 1975, levied on mobile phones

- specified life saving drugs/kits and bulk drugs;

•

Others

- specified raw materials for manufacture of ELISA kits; - polished cubic zirconia; - unworked or simply prepared coral;

- customs duty on vitamin pre-mixes and mineral mixtures used in manufacture of cattle and poultry feeds reduced from 30% to 20%; - customs duty on cigars, cheerots and cigarillos has been increased from 30% to 60%.

India Budget 2008 • PricewaterhouseCoopers

33

•

•

The period of re-export of leased equipment and machinery, imported for temporary use, has been increased from 12 to 18 months. The concessional rates of duty applicable on such imports have now been provided for on a quarterly basis, as against the half yearly basis provided for earlier

- packaged tender coconut water;

The rates of drawback in respect of goods which have been used after importation have been aligned with the rates prescribed for duty payable on leased equipment and machinery, depending upon the period of retention in India. The maximum period of retention of such goods, for admissibility of drawback, has been reduced from 36 to 18 months

- compositing machines;

- tea and coffee mixes; - mudi (puffed rice); - paws;

- menthol/menthol crystal; - milk containing edible nuts with sugar or other ingredients; - specified Refrigeration equipment; - wireless data modems cards; - paper and paper products manufactured from nonconventional raw material upto specified turnover.

Non Tariff •

The maximum amount of penalty for contravention of any provisions of the Customs Act, 1962, increased from INR 10, 000 to INR 1,00,000

•

Likewise, the maximum amount of penalty for contravention of any provisions of a rule or regulation increased from INR 500 to INR 50,000

•

The power to issue summons has now been extended to all customs officers

•

Excise duty reduced on the following categories of products: - duty reduced from 24 % to 14% on • hybrid cars. - duty reduced from 16% to 12% on: • small cars ;

•

Central Government empowered to recover any excess customs duty collected by any person

• buses or its chassis for the purpose of transport of more than 13 person;

•

Interest payable on refunds delayed by more than three months

• two wheelers and three wheelers. - duty reduced from 12% to 8% on: • writing paper, printing paper and packing paper.

II. Cenvat Direction •

General CENVAT rate reduced to 14% from 16%

•

Reduction of duties for cars and two wheelers result in major relief for the to Auto Sector

•

Major changes in CENVAT Credit Rules

- duty reduced from 16% to 8% on: • drugs and pharmaceuticals; • water filtration and purification devices; • breakfast cereals; • sharbats; • pan masala not containing tobacco; • veneers;

Details of proposals

• flush doors;

Tariff

• packaging material;

•

• open top sanitary cans, aseptic packaging paper and aseptic bags.

Excise duty exempted on the following categories of products: - anti AIDS drugs and bulk drugs;

34

PricewaterhouseCoopers • India Budget 2008

- Duties increased on the following categories of products:

• packaged software from 8% to 12%;

services increased from 2% to 4%

• cement clinker from INR 350 to INR 450 per MT;

•

• non filter cigarettes (not exceeding 60 mm in length) from INR 168 per thousand to INR 819 per thousand;

Threshold limit for small service providers increased to INR 10 lakhs per annum

•

Applicability of service tax extended to several new categories of services and scope of certain existing services enlarged

•

Rationalisation of procedures

• non filter cigarettes (length between 60 to 70 mm) from INR 546 to INR 1323 per thousand. •

NCCD at the rate of 1% imposed on mobile phones

•

Change in basis of duty on unbranded petrol and diesel from ad valorem plus specific rate to pure specific rate. The duty on petrol has been changed from 6% plus INR 13 per liter to INR 14.35 per liter. The duty on diesel has been changed from 6% plus INR 3.25 per ltr to INR 4.60 per ltr.

Details of proposals •

The threshold limit of service tax exemption for small service providers is being increased from the present level of INR 8 lakhs to INR10 lakhs. Consequently, the limit for obtaining service tax registration has also been increased to INR 9 lakhs. (effective 1 April 2008)

•

Exemption from tax has been provided to taxable services provided by a person located outside India to a hotel located in India, in relation to booking of accommodation in the said hotel (effective 1 March 2008)

•

The abatement for 75% of the gross amount charged as freight for services provided in relation to transport of goods by road in a goods carriage by a goods transport agency (GTA) has now been granted unconditionally

•

The following new categories of services have been brought within the tax net:

Note- Aforesaid changes to be effective from 1 March 2008

Non-Tariff •

Consequent to reduction in duty rates for the goods covered under MRP based assessment, abatements rates have been suitably reduced (effective from 1 March 08)

•

Interest to be paid on refund of predeposit made after expiry of three months from the date of communication of favorable order to adjudicating authority (to be effective from the date of enactment of the Finance Bill)

•

Rule 6 of the CENVAT Credit Rules, 2004 have been amended to provide an option for reversal of credit attributable to common inputs or input services used in relation to manufacture of both dutiable and exempted goods subject to the procedure mentioned in the said rule. (to be effective from 1 March 08)

•

The rate of duty applicable to clearance of goods to DTA from 100% EOU’s has been revised from 25% of BCD + excise duty payable on like goods to 50% of BCD + excise duty payable on like goods. (to be effective from 1 March 08)

•

Section 11D of the CE Act, 1944 is proposed to be amended for recovery of amount collected by any person as representing duty of excise on any excisable goods , which are wholly exempt or chargeable to Nil rate of duty. (to be effective from the date of enactment of the Finance Bill)

III. Service Tax Direction •

Rate of service tax continues at 12%

•

Composition rate of service tax for works contract

- services provided in relation to information technology software for use in the course or furtherance of business or commerce (such as software development, up-gradation including right to use IT software for commercial exploitation and IT software supplied electronically); - asset management services under unit linked insurance business plans ; - services of a recognized stock exchange in relation to securities - services of a recognized association or a registered association in relation to sale or purchase of any goods or forward contracts - services of a processing and clearing house in relation to processing, clearing and settlement transactions in securities, goods or forward contracts - services in relation to transfer of right to use tangible goods not chargeable to sales tax/VAT (such as charter hire of vessels and equipment) - Internet telecommunication services (the earlier category of internet telephony services has been replaced by this category)

India Budget 2008 • PricewaterhouseCoopers

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The above changes will come into effect from a date to be notified after the enactment of the Finance Bill, 2008 •

•

The scope of some existing categories of taxable services has been amended as follows: - to include: • purchase or sale of foreign currency, including money changing, by an authorized dealer or an authorized money changer, under banking and other financial service and also under foreign exchange broker services provided by individuals; • packing, together with transportation of cargo or goods, under cargo handling service; • testing or analysis of information technology software under technical testing and analysis service;

- management, maintenance or repair; - technical testing and analysis; - technical inspection and certification; The above change will come into effect from 1 March 2008 •

- allow removal of capital goods outside the premises of the provider of the output service, without restriction, for providing output services (effective 1 April 2008);

• services provided in relation to a journey from one place to another in a contract carriage vehicle, under tour operator service.

- provide the following options to a provider of both taxable and exempt output services, using common inputs or input services and opting not to maintain separate accounts;

- to omit: • from business auxiliary service, reference to information technology service consequent upon notifying information technology software service as a separate taxable service;

- either reverse the credit attributable to the inputs and input services used for providing exempted service, to be worked out in a manner prescribed in the rules;

• from consulting engineer service, reference to computer software engineering consultancy consequent upon notifying information technology software service as a separate taxable service;

- pay 8% amount of the value (determined in terms of Section 67 of the Finance Act, 1994 of the exempted services). This is effective 1 April 2008; - prescribe a procedure to enable the provider of output services to take credit on inputs and capital goods on the basis of an invoice/challan/bill issued by its other office (effective 1 April 2008).

• from 39 specified taxable services, references to service recipient as “client” or “customer” and replacement thereof with the words “any person”.

•

The scope of the Export of Services Rules, 2005 is being amended so as to treat the following services, provided remotely through the internet or any electronic network including a computer network in relation to goods or materials or any immovable property situated outside India at the time of provision of service, as export of services: - management, maintenance or repair - technical testing and analysis - technical inspection and certification

The above change will come into effect from 1 March 2008

36

PricewaterhouseCoopers • India Budget 2008

The CENVAT Credit Rules, 2004 are being amended to: - exclude goods transport agency service from the scope of “output service” (effective 1 March 2008);

• inspection, examination and certification of information technology software under technical inspection and certification service;

The above changes will come into effect from a date to be notified after the enactment of the Finance Bill, 2008

The Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 are being amended so as to treat the following services, provided remotely through the internet or any electronic network including a computer network in relation to goods or materials or any immovable property situated in India at the time of provision of service, as import of services and leviable to service tax under reverse charge method:

•

The Finance Act, 1994 is being amended to: - specify the scope of seven individually specified taxable services and also certain other existing taxable services ( effective from a date to be notified after enactment of the Finance Bill, 2008); - include any amount credited or debited, as the case may be, to any account, in the books of account of a person liable to pay service tax under “gross amount charged” where the transaction of taxable service is with any associated enterprise, as defined in the Income Tax Act, 1961; - empower the Board to frame a Scheme by notification in the Official Gazette to enable preparation and filing of service tax returns through a person or class of persons

known as Service Tax Return Preparer authorized to act for the said purpose; - authorize the Central Excise Officer to make assessment on the basis of best judgment after allowing an assessee to represent his case where he has failed to file service tax returns or to assess and pay the tax;

amount of service tax payable is nil; - enable payment of an amount as service tax in advance to the credit of the Central Government and adjust such amount paid towards payment of service tax for the subsequent period. The above changes will come into effect from 1 March 2008.

- provide that where penalty for suppressing the value of taxable service under Section 78 is payable, no penalty for failure to pay service tax under Section 76 will be levied. The above changes ( except the one specifying the scope of taxable services) will come into effect from the date of enactment of the Finance Bill, 2008 •

The Service Tax Rules, 1994, are being amended to: - increase the monetary limit from INR 50,000/- to INR 1,00,000/- for self-adjustment of excess service tax paid; - increase the time limit from 60 days to 90 days for rectification of mistakes and filing of revised returns; - empower the Central Excise Officer to reduce or waive the penalty for delayed filing of returns, where the gross

Swings In Customs Duty Rates (Illustrative) Goods On Which Duty Reduced From 10% to 5% Goods

Existing Rate (%)

New Rate (%)

10

5

Specified raw materials for manufacture of ELISA kits 10

5

Specified convergence products

10

5

Chlorobutyl rubber/Bromobutyl rubber

10

5

Polyester tyre cord fabric

10

5

Specified life saving drugs and bulk drugs for their manufacture

10

5

Polished cubic zirconia

10

5

Unworked or simply prepared corals

Goods On Which Duty Reduced From 7.5% to 5% Goods

Existing Rate (%)

New Rate (%)

Specified machinery for manufacture of sports goods 7.5

5

Project Imports

5

7.5

India Budget 2008 • PricewaterhouseCoopers

37

Goods on which duty reduced from 5% to 2% Goods

Existing Rate (%)

New Rate (%)

5

2

Existing Rate (%)

New Rate (%)

Crude and unrefined sulphur

Goods on which duty reduced to nil Goods Rough Cubic Zirconia

5

Nil

Helicopter simulators

10

Nil

Melting scrap of Iron or Steel

5

Nil

Aluminum scrap

5

Nil

Specified parts of set top boxes for use in manufacture of set-top boxes

7.5

Nil

Specified raw materials and inputs for IT/Electronic hardware industry

10

Nil

Bactofuges

7.5

Nil

Ground equipment for testing of satellites and payloads

10

Nil

Tuna Bait

30

Nil

Air Rifles or Air Pistols of 0.177 caliber

10

Nil

Specified raw materials for manufacture of sports goods for subsequent export

10

Nil

Specified raw materials and inputs for IT/Electronic hardware industry

7.5

Nil

Existing Rate (%)

New Rate (%)

Miscellaneous Goods

Vitamin pre-mixes and mineral mixtures used in manufacture of cattle and poultry feeds

30

20

Naphtha for manufacture of polymers

Nil

5

Cigars, Cheroots and cigarillos

30

60

Polymer Long Road Insulators, except those of rating 765KV

Nil

5

38

PricewaterhouseCoopers • India Budget 2008

Swings in excise duty rates (illustrative) Reduction in excise duty rates All goods – general rate reduced from 16% to 14% Goods All Goods covered in Excise Tariff which are subject to general rate of 16%

Existing Rate (%)

New Rate (%)

16

14

Goods on which duty reduced from 24% to 14% Goods Hybrid cars (which can run both on battery power or normal fuel )

Existing Rate (%)

New Rate (%)

24

14

India Budget 2008 • PricewaterhouseCoopers

39

Goods on which duty reduced from 16% to 12% Goods

Existing Rate (%)

New Rate (%)

Small cars

16

12

Buses and other vehicle for transport of more than 13 persons

16

12

16 + Rs 10,000

12 + Rs 10,000

16

12

Chassis of the above buses Two-wheelers and passenger three wheelers (upto 7 persons)

Goods on which duty reduced from 16% to 8% Goods

Existing Rate (%)

New Rate (%)

Drugs & Pharmaceuticals (formulations)

16

8

Instant sterile dressing pads, burn therapy pads, corn removers

16

8

Sterile surgical catgut, sterile absorbable surgical and sterile tissue adhesive for wounds closure

16

8

First aid boxes and kits, blood grouping reagents

16

8

Muesli, corn flakes & similar breakfast cereals

16

8

Sharbats

16

8

Specified packaging material

16

8

Convergence products

16

8

Water filtration and purification devices

16

8

Veneers & flush doors

16

8

Heat resistant rubber tension tape

16

8

Ink for marker pens, highlighter etc.

16

8

Goods on which duty reduced from 12% to 8% Goods

Existing Rate (%)

New Rate (%)

12

8

Writing, printing and packing paper

40

PricewaterhouseCoopers • India Budget 2008

Goods earlier chargeable to duty now exempt Goods

Existing Rate (%)

New Rate (%)

Anti –AIDS drug ATAZANAVIR and bulk drugs for its manufacture

16

Nil

Composting machines

16

Nil

Specified parts of electric cars based on end use

16

Nil

Packaged tender coconut water

16

Nil

Tea/ coffee pre-mixes

16

Nil

Wireless data modem cards

16

Nil

Menthol / menthol flakes

16

Nil

Electric cars

8

Nil

Goods on which NCCD reduced from 1% to nil Goods

Existing Rate (%)

New Rate (%)

1

Nil

Polyester yarn

INCREASE IN EXCISE DUTY RATES Erstwhile exempt goods on which duty imposed Goods

Existing Rate (%)

New Rate (%)

Nil

8

Shuttle-less looms

Goods on which specific rate of duty increased Goods

Existing Rate (Rs)

New Rate (Rs)

Non- Filter Cigarettes (rates are per 1000 cigarettes) • Not exceeding 60 mm in length

168

819

• Exceeding 60 mm but not exceeding 70mm

546

1323

Goods on which there is a change in specific rates Goods

Existing Rate (INR)

New Rate (INR)

Bulk cement

400 per tonne

14% or INR 400 per tonne, whichever is higher

Cement Clinkers

350 per tonne

450 per tonne

Unbranded Petrol

6% + INR 13 per litre

INR 14.35 per litre

Unbranded Diesel

6% + INR 3.25 per litre

INR 4.60 per litre

Goods on which duty increased from 8% to 12% Goods

Existing Rate (%)

New Rate (%)

8

12

Packaged software

Goods on which NCCD increased from nil to 1% Goods

Existing Rate (%)

New Rate (%)

Nil

1

Mobile phones

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PricewaterhouseCoopers • India Budget 2008

Chapter 8

In The Pipeline

FDI Policy The Union Cabinet has cleared the following amendments as a further liberalization of FDI policy. The amendments will take effect on notification of necessary Press Note by the Department of Industrial Policy and Promotion. Civil Aviation Activity

Foreign Investment Cap

Approval/ Automatic Route

Conditions

Domestic Scheduled Passenger Airlines

49% FDI

automatic route

no direct or indirect participation by foreign airlines

Non Scheduled airlines, Chartered airlines, and Cargo airlines

74% FDI

automatic route

no direct or indirect participation by foreign airlines in non-scheduled airlines and chartered airlines

Ground Handling Services

74% FDI

automatic route

subject to sectoral regulations and security clearance

Maintenance and repair organizations, flying training institutes, technical training institutions, and helicopter services / seaplane services requiring DGCA approval

100% FDI

automatic route

NRI investment up to 100% under automatic route in all the above

Financial Services Commodity Exchanges

26% FDI 23% FII

Credit Information companies(CICs):

49% FDI Includes 24% FII investment in listed cos

Automatic route

Prior approval from FIPB and RBI

Construction / Development Project

SEBI

FDI in construction development projects as given under Press Note 2(2005) will not apply to Industrial Parks.

•

•

Mining of Titanium bearing minerals and ores

- Disposal of tailings during the mineral separation shall be carried out in accordance with regulations framed by the Atomic Energy Regulatory Board. Government to monitor foreign fund inflow in consultation with RBI, and take temporary measures as necessary to moderate the capital flows to ensure monetary and financial stability.

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PricewaterhouseCoopers • India Budget 2008

Draft SEBI (Issue and Listing of Debt Securities) Regulations, 2008 SEBI has issued draft regulations with a view to provide an enabling regulatory framework to develop the corporate debt market. It is expected to allow flexibility to issuer to structure their instruments without diluting areas of regulatory concern.

FDI upto 100% with prior Government approval in mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities. Following conditions for mineral separation to apply: - value addition facilities to be set up within India alongwith transfer of technology;

Imposition of price band on the day of listing of IPOs SEBI has proposed a policy change to impose a price band of 25% on the issue price on the day of listing IPOs of issue size upto INR 2,500 million.

Petroleum & Natural Gas FDI cap increased to 49% with prior approval of FIPB in petroleum refining by PSUs. Disinvestment/ dilution in the existing PSUs not contemplated.

No single investor to hold more than 5%

•

Draft SEBI (Investment Advisors) Regulations, 2007 The draft Regulations provides for registration of investment advisors through self-regulatory organizations. These are likely to be applicable even to those advisors mainly advising their foreign group entities The Regulations also describe the obligations and duties of investment advisors. The draft regulations are placed in the public domain for comments and suggestions

•

All shares may come with face value of one rupee

Capital Markets

SEBI is considering a uniform face value of INR 1 for shares of listed companies. Such proposal has been mooted by the SEBI’s Primary Market Advisory Committee.

•

- Registration of REITs and Real Estate Investment Management Companies (REIMCs);

Companies Act •

In the first step in the direction of formulating statutory policies for REITs and to define the role of various intermediaries, SEBI issued the much-awaited draft regulations on REITs. The Draft Regulations incorporate provisions relating to:

The new completely revamped Company Law Bill is likely to be tabled in the Parliament in 2008 for its approval.

- Rights and obligations of various participants including REITs, Trustee companies and REIMCs; - REIT schemes offered to the public for subscription;

Competition Law

- Investment limitations and dividend policy stipulations;

•

- Operational requirements and other miscellaneous provisions.

The Parliament has passed the Competition (Amendment) Act, 2007. However, the same is not yet notified. The amendments include: - Change in the threshold limits to report a merger or combination. These thresholds are based on the total asset value or turnover of the parties combining/ merging;

The salient features relating to REITs are: - REITs to be constituted as trusts registered under the Indian Trusts Act, 1882 and to be registered with SEBI;

- All merger / combination deals crossing the threshold criteria need to be reported to the Competition Commission of India (‘CCI’) within 30 days of signing the deal;

- Instrument of trust to be in accordance with the format prescribed by SEBI and to be executed by the sponsor in favor of the Trustees;

- CCI can take a maximum period of 210 days to approve a merger deal with a possible further extension of 60 days.

- Minimum net worth of INR 50 million for REITs and REIMCs (net worth can initially be INR 30 million provided it is increased to INR 50 million within 3 years from the date of grant of registration);

The amended law is likely to come into force only by mid-2008.

- At least 50% of the Trustees of REITs and directors of REIMCs to be independent of persons who control the REIT / REIMC, as the case may be.

Financial Services •

•

•

RBI has prepared draft guidelines for obtaining a No Objection Certificate to open Offices or undertaking investment abroad by NBFCs. These guidelines would apply in addition to the FEMA regulations on overseas investment by Indian entities. RBI has proposed the “Money Lenders & Accredited Loan Providers’ Bill, 2007. With the spread of banking, changes in the financial sector and the increase in the awareness among the rural households in the country, RBI had conducted a survey to examine whether the money lending legislations passed by the various states of India are still relevant. Accordingly, based on the survey report the model legislation was proposed.

Appropriate amendments/clarifications may be required in other legislations such as Income-tax law, FDI guidelines, etc. that impact REITs so as to formulate an effective and comprehensive legislative framework while launching REITs. •

RBI has expressed its willingness to allow the unveiling of exchange traded currency futures. The government and financial regulators have arrived at a broad agreement on unveiling trading in currency futures on an exchange platform soon. Indian firms with foreign currency exposures now may hedge or shield their risks by getting into currency swaps, forward agreements or options through an over the counter (OTC) market.

•

Measures to be undertaken to develop forex bond currency derivative market

•

Stamp duty to be rationalized by various states to develop a India Securities Market

•

PAN required for all Financial Market Transactions (subject to threshold exemption limits).

Dedicated funds to be created for - Risk capital financing (in SIDBI); - Refinance to the MSME sector (in SIDBI); - Refinance operations to short term cooperative credit institutions (in NABARD); - Refinance operations in the rural housing sector (in NHB).

India Budget 2008 • PricewaterhouseCoopers

45

Information & Broadcasting Broadcasting Services Regulation Bill, 2007

TRAI

Salient features of the proposed Bill are

Recommendations on 3rd Phase of Private FM Radio Broadcasting

•

Setting up of a content and carriage regulator for the broadcasting sector — the Broadcast Regulatory Authority of India.

-

•

Cross-media restrictions prescribed - Broadcasting content companies may not be allowed to hold more than 20% of paid up equity nor have any financial, commercial arrangement that may give it management control over the financial, management or editorial policies of any broadcasting network service provider and vice versa.

For news broadcasting, FDI limit, including FII, to be enhanced to 26% from present 20%; and in case of nonnews broadcast, FDI, including FII, to be enhanced to 49% from present 20%;

-

The geographical basis to be changed from City to District to augment the number of private FM channels;

-

Existing ceiling limit on one broadcaster of not exceeding 15% of total FM Radio channels in the country to be removed;

-

News broadcast from authorized sources to be permitted;

-

Restriction on the outsourcing of content production and leasing of content development equipment to be removed.

•

Broadcaster may not be allowed to have more than 15% of the total number of channels in the country.

•

All private broadcaster (TV and Radio) to have at least part of their content and advertising dedicated to programs for public importance, i.e. on health, sanitation, national integration, education, environment etc and to have some element of local content in their programme. Public Service Broadcasting Council to be established to oversee this requirement.

•

Mandatory sharing of Sports Broadcasting signals with Prasar Bharti

•

Compulsory transmission of Public Service Broadcasting channels

Civil Aviation Airport Economic Regulatory Authority (AERA) Bill 2007 The Bill to set up an Airport Economic Regulatory Authority (AERA) was introduced in the Lok Sabha on 5 September 2007 and has been referred to a Parliamentary Standing Committee for examination and report within three months. The objectives of AERA are to: -

Enable creation of a level playing field;

Content Code

-

Foster healthy competition amongst all airports;

Content Self-Regulation draft guidelines have been placed on the website for public comments. The main features are

-

encourage investment in airport facilities;

-

regulate tariffs of aeronautical services;

-

protect reasonable interest of users, among others.

•

Onus on complying with the certification rules and content shown would vest with the broadcasting service provider (BSP) at the first level and broadcasting regulatory authority of India (BRAI) and other industry bodies like Broadcasting Consumers’ Complaints Committee (BCCC) or Central Board of Film Certification (CBFC) at the second level

•

Content should not be misleading, cause offence or lead to harm, protect the minors, women’s respectability and dignity etc.

•

All programme would need to be certified (as A, U/A, U, S) and broadcasted as per identified time lines prescribed for such certified programme

46

PricewaterhouseCoopers • India Budget 2008

Social Sector •

The Unorganized Sector Workers Social Security Bill, 2007 was introduced in Parliament in September this year to provide social security to workers in the unorganized sector.

•

National Programme for the Elderly to be started; National Institutes of Ageing with regional centers as well as geriatric medical care centers to be established.

•

National Rural Employment Guarantee Scheme to be rolled to all rural districts.

•

Smart card system to be introduced in Haryana and Chandigarh as pilot for PDS

•

Janashree Bima Yojana scheme run by the LIC to cover women Self Help Groups that are credit-linked to banks.

Agriculture

Energy

•

•

National Fund for power transmission & distribution reform to be created.

•

Five Ultra Mega Power Projects (UMPP) to be initiated

•

National Coal Regulator to be appointed

Comprehensive Scheme of Debt Waiver and Debt Relief for farmers in respect of loans overdue on 31 December 2007 and which remained unpaid until 29 February 2008: - Complete waiver for marginal farmers and small farmers; - One time settlement (OTS) scheme for others.

•

Irrigation & water resource finance corporation to be set up

•

Rainfed Area Development Programme to be implemented

•

Special Purpose Tea Fund (SPTF) for re-plantation and rejuvenation. Cardamom, rubber and coffee to be provided similar support;

•

Crop insurance scheme for tea, rubber, tobacco, chilli, ginger, turmeric, pepper and cardamom to be introduced.

Others •

Government intends to establish and promote ‘Territorial Textiles Investment & Production Complexes’ (TTIPCs) under the Textiles Infrastructure Development Fund.

•

Government has promulgated the Forward Contracts (Regulation) Amendment Ordinance, 2008 to amend the Forward Contracts (Regulation) Act, 1952 (FCR Act). The Ordinance provides for strengthening and restructuring of Forward Markets Commission on the lines of SEBI.

Education •

In order to curb fake educational institutes, the UGC has proposed comprehensive changes in the UGC Act, including providing for deterrent punishment including imprisonment for a period upto three years and penalty upto INR 1 million.

•

Government has recently circulated draft UGC (Admission and Fee Structure in Private Aided and Unaided Professional Educational Institutions) Regulations, 2007, inviting comments from stakeholders. The stated purpose is to curb the practice of capitation fee and to bring transparency in admissions.

•

Focus on India becoming a knowledge society. Many higher education institutes (including 16 Central Universities and 3 IITs) to be set up.

•

Innovation in Science Pursuit for Inspired Research (INSPIRE) to provide scholarships for young learners, continuing science education and opportunities for research careers;

•

National Knowledge Network to be established

•

A non-profit corporation with a proposed capital of INR 150 billion to be established for new-age Skill Development.

India Budget 2008 • PricewaterhouseCoopers

47

Abbreviations

ADC

Access Deficit Charge

FCCB

Foreign Currency Convertible Bond

NRO

Non Resident Ordinary

AD

Authorised Dealer

FCEB

Overseas Corporate Body

Additional Duty of Customs

Foreign Currency Exchangeable Bond

OCB

ADC

PAN

Permanent Account Number

ADR

Amercian Depository Receipt

FCNR

Foreign Currency Non- Resident

PDS

Public Distribution System

AFS

Available for Sale

FDI

Foreign Direct Investment

PGBP

AGR

Adjusted Gross Revenue

FEI

Foreign Education Institutions

Profits and Gains of Business or Profession

AMC

Asset Management Company

FEMA

Foreign Exchange Management Act

PIO

Person of Indian Origin

Accounting Standard

FII

Foreign Institutional Investor

PLMN

Public Land Mobile Network

ASCI

Advertising Standard Council of India

FM

Finance Minister

PNG

Piped Natural Gas

ASI

Accounting Standard Interpretations

FMC

Forward Markets Commission

POL

Petroleum & other lubricants

Air Traffic Control

FVCI

Foreign Venture Capital Investment

PPP

Public Private Partnership

ATF

Aviation Turbine Fuels

FY

Financial Year

PSTN

Public Switch Telephone Network

BCD

Basic Customs Duty

GDR

Global Depository Receipt

PSU

Public Sector Undertaking

BCTT

Banking Cash Transaction Tax

GST

Goods and Service Tax

QIB

Qualified Institutional Buyer

BIS

Bureau of Indian Standards

GTA

Goods Transport Agency

QIP

Qualified Institutional Placement

BoA

Board of Approval

HUF

Hindu Undivided Family

R&D

Research & Development

Conditional Access System

ICAI

Institute of Chartered Accountants of India

RBI

Reserve Bank of India

RRB

Regional Rural Bank

IDR

Indian Depository Receipts

RSE

Recognised Stock Exchange

IETF

Internet Engineering Task Force

SACFA

ILD

International Long Distance

Standing Advisory Committee on Radio Frequency Allocation

INR

Indian Rupees

IPO

Initial Public Offering

AS

ATC

CAS CBDT

Central Board of Direct Taxes

CBEC

Central Board of Excise & Customs

CBFC

Central Board of Film Certification

CCI

Competition Commission of India

CE Act

Central Excise Act, 1944

CENVAT Central Value Added Tax

IPTV

Internet Protocol Television

IRDA

Central Electricity Regulatory Commission

Insurance Regulatory & Development Authority

ISP

CRR

Cash Reserve Ratio

IT Act

CSC

Common Services Centres

CST

Central Sales Tax

CTT

Commodities Transaction Tax

CUG

Closed User Group

CVD

Countervailing Duty

DDT

SARFAESI Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest SEBI

Securities & Exchange Board of India

SEZ

Special Economic Zone

Internet Service Provider

SLR

Statutory Liquidity Ratio

Income-tax Act, 1961

SMC

Small & Medium Company

ITES

Information Technology Enabled Services

SME

Small & Medium Enterprises

SPV

Special Purpose Vehicle

ITU

International Telecommunication Union

SSI

Small Scale Industry

STP

Software Technology Parks

JV

Joint Venture

STPI

Software Technology Parks of India

LIBOR

London Inter Bank Offered Rate

Dividend Distribution Tax

STT

Securities Transaction Tax

LIC

Life Insurance Corporation

DIP

Disclosure & Investor Protection

TCS

Tax Collected at Source

LLP

Limited Liability Partnership

DIPP

Department of Industrial Policy & Promotion

TDS

Tax Deducted at Source

LTU

Large Tax Payer Units

TRAI

Telecom Regulatory Authority of India

MAT

Minimum Alternate Tax

UAE

United Arab Emirates

MFN

Most Favoured Nation

USA

United States of America

MOU

Memorandum of Understanding

USD

United States Dollars

MPHL

Minimum Public Holding Level

VAT

Value Added Tax

MRP

Maximum Retail price

VCF

Venture Capital Fund

VCU

Venture Capital Undertaking

VPN

Virtual Private Network

VSAT

Very Small Aperture Terminal

WHT

Withholding Tax

WOS

Wholly Owned Subsidiary

WPC

Wireless Planning Commission

CNS CREC

DOT DTA

Communication, Navigation & Surveillance

Department of Telecommunication Domestic Tariff Area

DTH

Direct-to-Home

DVD

Digital Video Disc

EC

Empowered Committee of Finance Ministers

ECB

External Commercial Borrowing

ED

Excise Duty

EEFC

Exchange Earner’s Foreign Currency

ESOP

Employee Stock Option Plan

ETF

Exchange Traded Fund

FBT

Fringe Benefit Tax

48

NABARD National Bank for Agriculture and Rural Development NBFC

Non Banking Finance Company

NCCD

National Calamity Contingent Duty

NHB

National Housing Bank

NLD

National Long Distance

NRE

Non Resident External

NRI

Non Resident Indian

PricewaterhouseCoopers • India Budget 2008

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