Satish SAmidst global economic pressure,this Budget was much awaited one with expectations to revive the Indian economy. Though the Budget is being termed as ‘Pro-poor’, it has something for everyone in the basket.
To start with, the enabling provision in the form of KrishiKalyanCess (‘KKC’) is been introduced on services. The proceeds of KKCwill be used for improvement of agriculture and welfare of the farmers. All taxable services will become dearer by 0.5 percent from 1 Jun 2016 and will now be liable at a cumulative rate of 15 percent.However, unlike Swachh Bharat Cess, credit of KKC will be available against KKC. Another new levy is the infrastructure Cess (non-creditable) ranging from 1 percent to 4 percent applicable on motor vehicles.
Reverse charge on payments made by AMCs/Mutual funds to distributors has been done away with. Distributors will now be liable to pay service tax under normal method (or so called forward charge) from 1 Apr 2016. NBFCs are now given an option to reverse credit on actual basis instead of deemed reversal of 50 percent. This is an encouraging move for both sectors.
The Budget proposed to grant exemption on ongoing services provided to government/local authorities for construction, erection, etc. of civil structures, ports and airports, etc. for which a contract has been entered before 1 Mar 2016. However, the exemption for construction, installation services provided in relation to monorail or metro has been withdrawn on contracts entered on or after 1 Mar 2016.
Cement Industry has welcomed the Budget proposal of extending the excise duty exemption to Ready Mix Concrete manufactured at site in addition to Concrete Mix. A big impetus to the IT industry is provided by enabling the provisions to make excise duty and service tax mutually exclusive for customized software on media. Textile industry has been hit with an increase in the excise rates on readymade garments with Retail Sale Price of INR 1000 and above to 2 percent (withoutcredit)/12.5 percent (with credit).
Another major issue touched by the Budget 2016 is deeming the ‘right to use’ of radio-frequency spectrum as a ‘service’ liable to service tax. However, we are yet to see how VAT Authorities will react to this amendment. The Budget has also looked at new concepts of deferment of customs duty and deferment of credit availment on service tax paid on spectrum assignments.
There have been sweepingchanges in CENVAT Rules, with a move to streamline credit mechanism. Only the common credit will now be required to be reversed on proportionate basis. Further, the FIFO mechanism for utilization of CENVAT which was introduced last year has been done away with, settling the practical difficulties faced by the industry.
The Budget has also looked into ease of doing business by introducing Dispute Resolution Mechanism on payment of certain upfront penalty. Further, manufacturers can now revise their excise returns which earlier was restricted to only for service tax. Also, the filing of 27 excise returns in a year is reduced to 13 excise returns (12 monthly and 1 annual).
For the exporters, the duty drawback scheme is proposed to be widened to include more products and countries. Further, the clarity on time limit to file refund claim will also bring respite toservice exporters.
Interest rates on all indirect taxes have been rationalized to 15 percent. However, in service tax there is a proposed rate of 24 percent whereamount is collected as service taxand not paid. This will be a breather to service tax assesses who are currently paying penalizing interest rate of 30 percent for delay beyond a year.
The Budget surely has its positives but it was still silent on the most transformational reform of GST. The Country still hopes that the best is yet to come!!!The author is Partner, Indirect Tax, PwC India
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
