INDIA BUDGET 2008 A SHORT ANALYSIS

1. INDIA BUDGET 2008 A SHORT ANALYSIS

2. INDIA BUDGET 2008 � A SHORT ANALYSIS Budget 2008 �An overview Highlights of Finance Bill 2008 Analysis of tax amendments- Is it about Government vs. Judiciary Secondary market-Tough times ahead Corporate structuring- New twist in the tale Typical observations from accounting front GST- Need for clear roadmap Comparison with international scenarios Who Benefited?

3. INDIA BUDGET 2008 � A SHORT ANALYSIS Budget overview Amendment proposals are made to remain in tune with changes in economy plug existing loopholes provide a fillip to priority areas.

4. INDIA BUDGET 2008 � A SHORT ANALYSIS No change in the tax rates and surcharge. Ultimate Indian holding company will be allowed to set-off the dividend received from its Indian subsidiary against dividend distributed in computing the DDT. Click to go to Slide 19 DDT, interest on income tax and deferred tax not to be reduced from the book profits liable to MAT. 5 year tax holiday for hospitals located in certain areas and certain hotels located in the specified districts having a World Heritage Site. Tax holiday withdrawn for refining of mineral oil on or after 1 April 2009. Benefit of s.35D extended to services sector for preliminary expenses incurred after incorporation for setting up new unit or expansion of existing unit.

5. INDIA BUDGET 2008 � A SHORT ANALYSIS The basic exemption limit enhanced across the table No change in surcharge Tax incentives for senior citizens � Investment in Senior Citizen Saving Scheme and the Post Office Time Deposit eligible for deduction under section 80C. Additional deduction allowed under section 80D for health insurance premium paid for parents. Any transfer of a capital asset in a transaction of reverse mortgage under a notified scheme not to attract capital gains tax. Any loan received in a transaction of reverse mortgage exempt from tax. FBT paid by the employer (on specified security or sweat equity shares) and subsequently recovered from the employee to be deemed to be tax paid by such employee.

6. INDIA BUDGET 2008 � A SHORT ANALYSIS

7. INDIA BUDGET 2008 � A SHORT ANALYSIS Short term capital gains tax on transfer of equity share or unit subjected to STT, increased from 10% to 15%. FBT amendments Expenditure on maintenance of guest house excluded from the purview of FBT. Staff welfare expenses has excluded certain expenditure like creche, sports facility etc Value of fringe benefit on festival celebration expenditure reduced from 50% to 20%. CTT to be introduced on taxable commodities transactions entered in a recognized association. STT and CTT paid to be allowed as deductible business expenditure against business income. Click here Levy of STT on options and futures in securities rationalized. BCTT to be discontinued Conversion of FCEB's into shares or debentures not to be treated as transfer and accordingly not to attract capital gains tax. � The cost of acquisition of shares received on conversion of FCEBs shall be deemed to be the cost at which FCEBs were acquired.

8. INDIA BUDGET 2008 � A SHORT ANALYSIS � Weighted deduction allowed to the extent of 125% of the amount paid to a company to be used for scientific research. � Interest on corporate bonds issued in dematerialized form and listed on recognized stock exchange exempted from TDS. � AOPs and BOIs made liable to deduct tax at source under section 194C. � Due date for filing of return of income and return of fringe benefits advanced from 31 October to 30 September for following categories of assessees: company a person (other than company) whose accounts are required to be audited working partner of a firm whose accounts are required to be audited � The term �charitable purpose� in the context of advancement of any object of general public utility to exclude any trade, commerce or business activity or any service relating thereto for a fee or any other consideration.

9. INDIA BUDGET 2008 � A SHORT ANALYSIS Customs Peak rate of duty retained at 10%. Rate of duty on project imports reduced from 7.5% to 5%. Significant increases in maximum amounts of penalties leviable. Equalisation of the effective incidence of duty on temporary imports of equipment and machinery on lease, and imports for re-export under the drawback provisions. Re-export under both options aligned at 18 months.

10. INDIA BUDGET 2008 � A SHORT ANALYSIS Excise General CENVAT rate reduced from 16% to 14%. Duty on EOU/STP/EHTP clearances to Domestic Tariff Area increased from 25% of Basic Customs Duty plus applicable excise duty, to 50% of Basic Customs Duty plus applicable excise duty. Definition of �excisable goods� widened to include goods capable of being bought and sold. Provisions for payment of interest on pre-deposits made by appellants who succeed in appeal introduced in excise and customs law. Manufacturers of dutiable and exempted goods given option of proportionate reversal of CENVAT credit on inputs and input services or, payment of 10% Service Tax on value of exempted goods.

11. INDIA BUDGET 2008 � A SHORT ANALYSIS Service Tax Services continue to be taxable at 12%. Threshold exemption limit increased from Rs. 800,000 to Rs. 1,000,000. Applicability extended to seven new services. Services in relation to information technology Investment management services Stock exchange services Commodity exchange services Processing and clearing services Supply for tangible goods for use(where VAT is not applicable) Scope of some taxable services expanded. Composition rate for works contract services increased from 2% to 4%.

12. INDIA BUDGET 2008 � A SHORT ANALYSIS Service Tax �cont� Providers of taxable and exempted services given option of proportionate reversal of CENVAT credit on inputs and input services, or, payment of 8% Service Tax on value of exempted services. Service providers allowed to remove capital goods outside their premises for providing output services, without any time restriction. Service providers allowed to avail CENVAT credit on inputs and capital goods received, on basis of specified documents issued by their other offices. Central Sales Tax Rate proposed to be reduced from 3% to 2%.

13. INDIA BUDGET 2008 � A SHORT ANALYSIS

14. INDIA BUDGET 2008 � A SHORT ANALYSIS

15. INDIA BUDGET 2008 � A SHORT ANALYSIS

16. Secondary Markets: Tough Times Ahead Increase in STCG would affects parties which play on margins i.e. Brokers, FIIs, Arbitrageurs�etc. Security Transaction Tax (STT) could be taken as a deduction against the gains made from stocks. Could be availed only if the gains made from sale of listed shares are declared as 'Profits and Gains from Business or Profession'. Stock exchanges to charge a service tax on certain services provided i.e. trading, listing, clearing and settlement services. The burden of tax would pass to intermediaries who in turn will pass it to retail investors and other small time players.

17. Secondary Markets: Tough Times Ahead Other services provided with respect to forward contracts through processing and clearing houses also brought within the purview of service tax net. With strengthening of the position of Rupee in the International market, exporters generally rely on forward contracts to hedge their forex risks. With such a measure FM has made it tougher for the IT industry. With a strict regulatory regime already introduced for FIIs (which requires them to disclose the identity of their off-shore clients through the KYC norms), investing on behalf of foreign clients would become even more onerous due to the Service tax liabilities and increased short term capital gains..

18. Corporate Structuring: New Twist in the Tale Dividends paid by Subsidiary Co to be subtracted from the dividends paid by the parent to its final shareholders subject to: Only one time deduction The domestic parent shouldn't be a subsidiary of another Co. Objective Eliminate the cascading affect of double taxation of dividend. Clarifications awaited In case there is no dividends declared in the year dividend income is recognized in Holdco books, is the reduction allowed from future dividends declared by Holdco to its shareholders for calculating DDT?

19. INDIA BUDGET 2008 � A SHORT ANALYSIS

20. INDIA BUDGET 2008 � A SHORT ANALYSIS

21. INDIA BUDGET 2008 � A SHORT ANALYSIS

22. INDIA BUDGET 2008 � A SHORT ANALYSIS

23. GST � Need for clear roadmap Challenges for implementing GST Different taxes for production and consumption. Location based exemption Digital technology "Exemption/abatement" Service tax �"Select taxation of services" Tax on capital goods, financial services, immovable property, imports pose difficultly in transition Dual or Single

24. INDIA BUDGET 2008 � A SHORT ANALYSIS India stands 122 in the World Bank ranking on "Ease of Doing Business" out of 180 countries just ahead of Brazil which is placed at 122.The other 2 BRIC economies, China and Russia stand at 83 and 106 respectively. Doing business days in India would takes 1739 days based on sum total days of Starting business, Dealing with licenses, registering property and enforcing contract last among BRIC economy. Other BRIC economies it averages at 1000 days.

25. INDIA BUDGET 2008 � A SHORT ANALYSIS WHO BENEFITED? Middle class and Farmers Agriculture industry Auto & auto components Construction Engineering FMCG(except cigarettes) Financial sector Logistic Oil & Gas Industry Pharmaceuticals Power sector Textiles