India’s 2014 Interim Budget: Regulatory Highlights
MUMBAI – While India’s Interim Budget for the fiscal year 2014-2015 does not propose any major changes in the nation’s tax laws, it does make a few notable changes in indirect taxes including excise duty, service tax and customs duty. It is important to keep in mind, however, that upcoming elections later this year make the new budget likely to be overturned in the near future (most likely in early June after a new government is formed in May).
Changes in Excise Duty [Amendment Notification No. 4/2014-Central Excise]
- Excise duty on vehicles is reduced as follows:
The excise duty on chassis has also been reduced along with the duty on hybrid and hydrogen vehicles. These changes will be valid until June 30, 2014.
- Excise on machinery and equipment falling under Chapters 84 and 85 of the Central Excise Tariff is reduced from 12 to 10 percent. This includes washing machines, air conditioners, refrigerators, computers, color televisions, etc. and related components. These changes will also be valid until June 30, 2014.
- Excise duty on domestic mobile handsets is reduced to between one and six percent, and excise duty on imports is six percent countervailing duty (CVD) in an attempt to spur domestic manufacturing. Mobile handsets will attract one percent excise duty if Central Value Added Tax (CENVAT) benefits are not availed of and six percent if CENVAT is. All imported mobile handsets will now attract six percent CVD.
Changes in Service Tax [Amendment Notification No. 4/2014-ST]
- The handling, storage and warehousing of rice is now exempt from service tax. This is accomplished by adding “services by way of loading, unloading, packing, storage or warehousing of rice” to the “the Mega Exemption Notification” (Notification 25/2012) under the definition of ‘agricultural produce’ in section 65B(5) of the Finance Act, 1994.
- The transportation of rice by rail, vessel or a Goods Transport Agency via a goods carriage is exempt from service tax. This is accomplished by clarification via Circular No. 177/3/2014, which clarifies that the “food stuff” exemption outlined in Notification 25/2012-ST [entry sl.no.20(i)] includes rice.
- The milling of paddy into rice is exempt from service tax. This is also accomplished by clarification via Circular No. 177/3/2014, which clarifies that the milling of paddy into rice is covered by sl.no.30 in Notification 25/2012-ST as such milling is an intermediate production process.
- Services provided by [umbilical] cord blood banks are exempt from service tax. This is accomplished by the insertion of Entry no. 2A into “the Mega Exemption Notification” (Notification 25/2012) which clarifies that services provided by cord blood banks “by way of preservation of stem cells or any other service in relation to such preservation” are service tax exempt.
Changes in Customs Duty [Amendment Notification No. 5/2014-Customs]
- Customs duty exemption on pulses (edible seeds) is extended for an additional six months until June 30, 2014.
- Human Embryos are fully exempted from customs duty.
- CVD exemption on some Road Construction machinery is withdrawn.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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In this issue of India Briefing Magazine, we explore important amendments to India’s foreign investment policy and outline various options for business establishment, including the creation of wholly owned subsidiaries in sectors that permit 100 percent foreign direct investment. We additionally explore several taxes that apply to wholly owned subsidiary companies, and provide an outlook for what investors can expect to see in India this year.
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