Tax Hotline February 26, 2010

India Budget Insights (2010-11)

Editorial : India Budget 2010-11 : Gain for locals, Pain for globals

Part I : Direct Tax Code: Fresh Jitters?

Part II : Non-resident services outside India : Taxed retroactively

Part III : Equity deals at lower than FMV : A new tax trap?

Part IV : Use of LLP as a structural alternative : A non-starter for non-residents?

Part V : Key Budget Proposals

India Budget 2010-11

Gain for Locals, Pain for Globals

Dear Friend,

The Indian Finance Minister presented his annual Budget 2010-11 before the Parliament today. In the domestic context, individual taxpayers from the lower and mid income groups can breathe a sigh of relief thanks to a widening of tax slabs. The maximum marginal rate of tax has been maintained at 30%. Corporate tax rates have also remained unchanged at 30% for resident companies and 40% for foreign companies. However, the rate of minimum alternate tax has been increased from 15% to 18% of the book profits.

The Government hopes to introduce the Goods and Services Tax legislation and the Direct Taxes Code (“Code”) from April 1, 2011. It is most unlikely that the draft Code would be enacted in its current form. We strongly believe that the Code must be referred to an independent commission of experts for evaluating relevant economic theories, public policy and legal propositions and to ensure proper legislative drafting.

A close reading of the fine print of the Budget raises some serious concerns on the international tax front. It is sad to note that the Indian tax environment has become extremely unpredictable with the Government’s frequent and casual recourse to retrospective amendments. The Budget has also disregarded the well established principle of territorial nexus while bringing to tax non-resident services rendered outside India. The proposal conflicts with the customary international law principles of sovereignty and comity of nations.

The Government introduced the new Limited Liability Partnership (LLP) framework with much fanfare and encouraged people to convert their private limited companies to LLPs. The Budget, however, has inserted a show stopper by restricting the benefit of a tax free conversion only to companies having a turnover of INR 6 million (approximately USD 120,000) in the preceding three years. While foreign companies have been waiting for the Government’s nod to invest in Indian LLPs, disappointingly, there has been no announcement in this respect. The use of Indian LLPs in cross-border structures, therefore, still remains uncertain.

Concerns also arise in relation to the proposal to tax receipt of shares by a firm or company at less than fair market value. This provision, though not applicable to mergers and demergers, does not spare acquisitions. Private placements, strategic sales, and investments made by foreign and domestic venture capital funds may get adversely affected. Problems could also arise when a US LLC owning Indian shares transfers them in the course of conversion to a C-Corporation. Interestingly, this proposal seems to introduce the concept of transfer pricing in the case of domestic transactions as well as transactions between unrelated enterprises.

Lastly, with the sun finally setting on units set up in software technology parks, or as export oriented units, cross-border structures involving such entities would now require a fresh look. In the US, for example, check-the-box elections may have to be revisited.

In the following sections, we have attempted to provide insights into such issues concerning the international business community along with a summary of other key proposals in the Budget. We hope you find this useful. Do let us know if you have any comments.

Nishith M. Desai


Direct Taxes Code: Fresh jitters?

The new draft Direct Taxes Code Bill, 2009 (“DTC”), which is slated to replace the existing income tax (and wealth tax) law in India, was released by the Finance Minister for public comments on August 12, 2009. The Finance Minster has, in his Budget speech, indicated that it would come into effect from April 1, 2011.

The changes proposed in the DTC, in its current form, are radical, overrule long-standing principles of tax jurisprudence and may have far-reaching consequences. Among other things, the DTC proposes to alter the basis of Indian taxation, the concept of fiscal residence, the scope of extra-territorial operation of tax laws and also overhauls the existing international tax regime. The proposed general anti-avoidance rules (GAAR) are widely worded and are likely to capture most conventional investment structures. The adoption of the ‘later-in-time doctrine’ as embodied in the DTC would lead to overriding of tax treaties by subsequent domestic law provisions. To put it briefly, the Code is likely to have an undesirable impact on the business and investment climate in India.

A close reading of the DTC indicates that it is replete with numerous legislative drafting and conceptual errors and a number of ambiguous provisions that are bound to create tremendous uncertainty and harm the interests of both, the taxpayers and the Government. The Constitutional validity of many of its provisions is also questionable. The discussion paper to the DTC makes only vague references to economic theories, without providing any empirical study, meaningful data or basis justifying the provisions in the DTC.

The DTC has been the subject matter of criticism from all quarters including the revenue authorities themselves and we believe that the Government should refer the matter to an independent Commission, comprising of experts in the field of public policy, law, economics, accountancy and legislative drafting. Due to the concerted criticism and considering the suggestions made from all quarters, it is not expected that the DTC is likely to be enacted in its present form.


Non-resident services outside India : Taxed retroactively

The Budget has proposed a fundamental change to India’s source rules governing non-resident income in the nature of royalties, interest and fees for technical services. As a consequence, a non-resident may now be taxed on such income, even if it has not rendered any services within India, or does not have a residence, place of business or business connection in India.

To understand the impact of this proposal, one can consider a standard EPC or turnkey arrangement, where a non-resident contracts with an Indian person to provide a comprehensive set of services in relation to an Indian project. The scope of services comprises of both, offshore components such as preparation of designs and procurement of equipment as well as onshore components such as installation, commissioning and testing services. It would be logical to conclude that India would not have the right to tax services provided by non-residents outside India, especially since the services would not have any nexus with the territory of India. However, as per the Budget proposal, even the services provided completely offshore by a non-resident to a resident of India would be caught within the Indian tax net.

Under the existing law, a non-resident is taxable in India only on income that is sourced in India. In Ishikawajma-Harima Heavy Industries, a landmark case concerning the taxation of cross-border EPC contracts, the Supreme Court of India clarified that income from offshore services provided by a non-resident does not have an Indian source and hence would not be taxable in India. The absence of sufficient territorial nexus with India precludes the Government from taxing services that are rendered outside India. This principle was also recently applied by the Bombay High Court in Clifford Chance, where a UK-based law firm (then a general partnership) was not taxed on fees received by it from Indian clients for professional services rendered by its partners from outside India. The Court held that only those services that were rendered by the partners in India would have the required degree of territorial nexus to be subjected to tax in India.

The change proposed in the Budget has the effect of overriding the ‘doctrine of territorial nexus’ that was read into the ‘law of the land’ by the Supreme Court. The proposed alteration to India’s source rules is likely to have adverse ramifications on most conventional cross-border service models. For example, now even the offshore service element in every EPC / turnkey contract would be taxable in India. This is also likely to influence the dynamics of international project financing. Likewise, income earned by foreign advisors and consultants would now be taxable even if no part of the service is performed in India, but simply because the same is utilized in India.

The proposed change may also give rise to double taxation issues especially in a situation where a foreign country refuses to grant its resident a credit for taxes paid in India under a conflicting or asymmetric source rule. Considering that the amendment is retroactive in nature, leading as far back to 1976, one can imagine the degree of controversy that this proposal can create. It may result in tax authorities re-opening all past cases within the limitation period of six years.

A similar proposal, sought to be introduced in the draft Direct Taxes Code, has been subjected to criticism from all quarters. The extra-territorial nature of the proposal and its retroactive application may face a number of constitutional challenges. The proposal also seems to conflict with various customary international law principles that restrict a State’s right to tax income from offshore transactions. For these reasons, we believe that a departure from India’s existing source rules should be avoided.


Equity deals at lower than FMV : A new tax trap?

The Budget has introduced a proposal to tax companies and firms which buy/receive shares for less than their actual market value. In other words, where there is a difference between the market value of shares and the consideration paid, the difference would be taxed as income in the hands of the recipient company or firm. Public listed companies are excluded from the purview of the proposed provision, as are transfers where the difference between fair market value and transfer price is less than INR 50,000 (approximately USD 1,000). Exceptions have also been provided for transfers that take place in the course of specified kinds of mergers and demergers, but not for acquisitions.

This change will have wide ramifications since it effectively seeks to introduce indirect transfer pricing requirements in case of transfer of a company’s shares, even if such transaction takes place between unrelated parties. Further, the proposal also seeks to categorize the income as ‘other income’ under the Indian tax laws, which is the residuary category and not as ‘capital gains’ or ‘business income’.

The Budget proposals will adversely impact all kinds of transactions, including share transfers undertaken at book value between a parent and its subsidiary and various other forms of investment transactions. Additionally, complications would arise where the same transaction is also considered not chargeable to tax under the head ‘capital gains’ on account of specific exemptions set out therein.

The situations where this proposal may have an adverse impact include:

· Sale of shares made to foreign venture capital investors (“FVCI”): To bolster venture capital investments in Indian companies, FVCI’s have been specifically exempted from pricing restrictions, viz: the requirement to buy and sell Indian shares at a fair market price, as applicable to FDI investors. While the regulatory regime provides for special exemption from pricing requirements, the proposed amendments may result in confusion and adverse tax implications for FVCIs with equity investments made at a price lower than the fair market value. Consequently the difference between the fair market value and the purchase price would be subjected to tax in India.

· Private Placements and venture capital fund (“VCF”) investments: In investment transactions by VCFs and private placements, there is no mandatory requirement for the transaction to be at fair market value, since pricing guidelines are not applicable. Thus, where a domestic investor is investing in an Indian company, the investment may not necessarily be at the fair market value of the shares but at a price mutually decided by the parties. In such cases, the rigors of proposed amendments may be triggered making the transaction subject to tax on the difference between the fair market value and the purchase price paid by the investor.

· Rights Issue: In cases of a rights issue, where an Indian company issues shares to its domestic shareholders at a specific price, the company has the discretion to fix a price less than the fair market value of the shares. Such issue of shares will also get captured under the mischief of the proposed amendments.

· Merger of two foreign companies resulting in transfer of shares of an Indian company: Such re-organization is not chargeable to capital gains tax in India, if certain conditions relating to continuity of shareholder interests are met. However, where such conditions are not met, it would be taxable as capital gains in the hands of the transferor company. The proposal, however, may also result in taxing the acquirer company on the difference between the fair market value and the transfer price which does not seem to be the intention of the legislature.

· Stock re-purchase by an Indian company: The distributions made on a stock re-purchase are typically considered capital gains in the hands of the shareholder in India. However, if the proposed amendment is applied, the Indian entity may be sought to be taxed on the shares bought back, if the re-purchase price is not equal to the fair market value of such shares. If the shareholder is an entity situated in a jurisdiction such as the U.S., it could consider electing to check the box for the Indian entity to attempt to avail of credit for taxes paid by the Indian entity. However, there is some uncertainty as to the availability of such credit due to differences in characterization of income by the two countries.

· The provision may also be problematic in situations where there is transfer of shares between a parent to its subsidiary or vice-versa. Such transfers are not chargeable to capital gains tax, but may result in tax implications in India for the recipient entity in light of the proposed amendment.

It is important to mention that no rules have been prescribed with respect to the valuation of the above share transfers. This results in considerable amount of uncertainty on how the provision would be applied. What the proposed amendment does do is introduce a ‘deemed fair market value’ of transferred property, which permits the revenue authorities to question the value upon every share transfer. This may effectively result in any type of transaction being questioned by tax authorities on account of valuation issues and would lead to extensive litigation. In the context of capital gains taxation in India, there is a fair amount of jurisprudence doing away with the ‘notional value’ concept and respecting the value agreed to by the parties. Further, there is no clarity on how these proposed provisions would apply in the event the consideration for which the transfer takes place is not determinable making it difficult to determine whether the transfer took place for inadequate consideration. These proposed amendments appear to be the back door entry for domestic transfer pricing amongst unrelated parties, which is absurd.


Use of LLP as a structural alternative : A non-starter for non-residents?

Last year saw the introduction of the first Indian hybrid entity, the Limited Liability Partnership (“LLP”), as a structural alternative for doing business in India. It was anticipated that investment structures in India may be restructured to convert existing companies into LLPs because of the beneficial tax treatment available to LLPs. Government clarification is still awaited on whether foreign investment in an LLP is permitted without a prior approval from the Reserve Bank of India.

LLPs are taxed as an entity and any distribution made by an LLP to its partners is tax exempt i.e.there is no dividend distribution tax on distribution to partners. Further, as opposed to a corporate entity, an LLP is not subject to Minimum Alternate Tax (“MAT”).

The Budget has proposed the much awaited provisions with respect to tax treatment on conversion of existing private and public unlisted companies into LLPs. Transfer of assets from a company to an LLP upon conversion has been proposed to be exempt from tax with effect from April 1, 2011. However, alongside the much-awaited relief came the startling dampener wherein the Budget imposed various other parameters for claiming a tax exemption upon converting a company into an LLP, which rendered use of LLPs as a structural alternative considerably restricted. To the extent these parameters are not met, the conversion of a company into an LLP would become a taxable event in India.

As per the Budget proposals, one of the abovementioned conditions is that the company converting into an LLP should not have total sales, turnover or gross receipts of more than INR 6 million (approximately USD 120,000), in any of the preceding 3 years. This would restrict the feasibility of conversion of an existing company to an LLP and only substantially small companies would be benefited.

Further, the LLP is not entitled to make distributions, either directly or indirectly, to any partner out of the accumulated profits as on the date of conversion of the company into an LLP, for a period of 3 years. This effectively imposes a lock-in on the profits of the company, which are carried over to the LLP upon conversion.

Additionally, the flexibility to introduce new partners in the LLP has been restricted to a great extent as one of the conditions sought to be imposed is that the profit-sharing ratio of the shareholders of the company in the LLP has to be at least 50%, at any time, during a period of 5 years from the date of conversion.

The Budget also proposes that, upon conversion of a company into an LLP, subject to the compliance of prescribed conditions, the accumulated loss and un-absorbed depreciation of the company will be deemed to be the loss or allowance for depreciation for the LLP; and accordingly, the provisions with respect to set off and carry forward of loss and allowance for depreciation will be applicable. However, where the conditions prescribed are not complied with, the set off of loss or allowance of depreciation will be deemed to be the income of the LLP chargeable to tax.

Separately, it is also to be noted that the Budget has proposed that a company, upon conversion to an LLP, will not be able to avail credit for payment of excess MAT which may have been paid in the past years. While the need to avail a credit for excess MAT may be triggered only in limited cases (and may or may not be substantial), the LLP will have to, nonetheless, automatically forfeit credits for any excess MAT payments it holds at the time of conversion.

Further, while the Budget has also sought to clarify the tax treatment of a company converting into an LLP, it has missed out on providing clarity on whether the shareholder will be taxed upon acquiring an interest in the LLP.

In our analysis, while the Government, on the one hand, has tried to promote the conversion of existing companies into LLPs, it has unfortunately imposed upon the entity a whole lot of restrictions, thereby making it doubtful whether such conversion would be feasible. Thus, in view of the proposals introduced in this Budget, converting existing investment vehicles into LLPs will have to be carefully evaluated from a taxation perspective. Having said that, these proposals do not really have an impact on setting up new LLPs as a structural alternative.


Key Budget Proposals


Income Tax Rates

The Budget has not proposed any significant change in the existing direct tax rates.

· Corporate Tax Rates

The Budget does spell some relief for the domestic corporate community. Although the income tax rate for an Indian company has remained unchanged viz: currently 30%, the surcharge has been reduced from 10% to 7.5% thus bringing the overall corporate tax rate down marginally from 33.99% to 33.22%.

For a foreign company, the income tax rate and surcharge remains unchanged at 40% and 2.5% respectively. Education cess and secondary and higher education cess also remain unchanged.

· Personal Tax Rates

For the fiscal year 2010-11, the effective rates of taxes on Individuals, Hindu Undivided Families, Association of Persons, etc. will be as follows:

Income (in INR)

Rate 1

0 to 160,0002


160,0002 to 500,000


500,000 to 800,000


Above 800,000


1. Education cess at the rate of 3% (on tax).

2. INR 190,000 for resident women and INR 240,000 for resident senior citizens.

Minimum Alternate Tax

Under the current tax provisions, every company is liable to pay a MAT of 15% on its book profits, if the income-tax payable by such company on its total income is less than 15%. The Budget has increased the MAT rate from 15% to 18%.

Incentives for scientifc research and development (“R&D”) and research in social sciences*

With a view to further promote R&D in India, the Budget has increased the weighted deduction on expenditure** incurred on scientific research in an approved in-house R & D facility from 150% to 200%. This in effect would result in, an availability of a two dollar deduction for every dollar spent on research and development.

Further, in order to provide impetus to corporate contributions to approved institutions engaged in scientific R&D viz: National laboratories, research institutions, etc., the Budget has increased the weighted deduction on such contributions from 125% to 175%.

Finally, certain benefits of weighted deductions and exempt income that are currently available to approved institutions engaged in scientific R&D have also been extended to approved institutions that are engaged in undertaking research in social sciences and statistical research.

*these amendments will apply in relation to assessment year 2011-2012 and subsequent years.

**except expenditure in the nature of cost of any land or building.


· The Finance Minister announced that he aimed to implement the Direct Taxes Code Bill, 2009 and Goods and Services Tax, effective April, 2011. However, no mention was made by him on the DTC being implemented in its present form;

· With respect to charitable institutions that carry on certain trade or business activities, it has been clarified that such activities should not impact the status of the entity as ‘charitable’, provided that the turnover from such business activity does not exceed INR 1,000,000;

· Units set up in software technology parks (“STPIs”), hardware technology parks, free trade zones, and 100-percent export-oriented units (“EOUs”) currently enjoy a tax holiday, which is due to expire in the fiscal year ending in March 31, 2011. The Budget is silent as to the extension of the tax holiday for these STPI/EOU units, which indicates that the tax holiday enjoyed by these units may no longer be available from fiscal year commencing 2011-2012. This can have adverse implications for foreign companies that have already set up STP operations in India. Due consideration would need to be given to restructuring such operations or migrating such units to Special Economic Zones in India.

· Recognizing that the tourism industry has the potential to generate significant employment, the Budget has provided a 100% deduction in respect of expenditure of a capital nature+ to businesses operating new hotels (of two star or above category). anywhere in India;

+Except expenditure on land, goodwill and financial instruments

· Withholding tax thresholds have been raised across a wide range of payments, in order to aid small business and taxpayers;

· There have been differing views amongst the various Indian High Courts (“Court”) on the question of whether the Court could condone a delay in the filing of an appeal from the order of the Income Tax Appellate Tribunal (“Tribunal”). Similarly, it was unclear as to whether the Court’s could condone a delay in the filing of an appeal against the refusal of the Tribunal to refer a case to the Court. The Budget has clarified that the power to condone a delay indeed vests with the Court.


In the background of a likely deficit in the direct tax collection in the current financial year compared to the previous financial year, this Budget seeks to make up by proposing changes by substantially increasing the Government’s collection of the indirect tax in the current fiscal year.

Service Tax

The Government seems to believe that the service sector, which is contributing extensively to the GDP, is capable of contributing much more in the form of service tax as well. Accordingly, the Budget proposes to capture many new services in the service tax net. The Government, while introducing the negative, has made a positive move by relaxing the norms relating to service tax exemption in respect of export of services, which will serve as a boost to the services industry.

· Revisiting the meaning of export of service

Under the current provisions of Finance Act, 1994 (being the law governing service tax) (“Finance Act”) there is no levy of service tax on those services which are exported from India. The characterization of a service as “export service” has been the subject matter of controversy and ambiguity, more specifically in relation to the interpretation of the phrase “such service is provided from India and used outside India”, which is an essential pre-requisite for any service to be regarded as an export service. The Budget, whilst recognizing that one of the fundamental tenets of taxation is ensuring certainty to a taxpayer, has proposed to delete the aforementioned phrase from the Export of Services Rules, 2005. This change appears to be a step in the right direction to bring about clarity and certainty on the correct characterization of a particular service as being exported. With this change, for a majority of taxable services, so long as the service recipient is located outside India, the service is likely to be regarded as exported and therefore not liable to service tax.

· Service tax on temporary transfers/ permission to use or enjoyment of copyright in cinematographic films/ sound recordings

In 2004, the Finance Act was expanded to levy tax on services rendered pertaining to intellectual property. Under the current law, service tax is levied on providing intellectual property services involving temporary transfers and permission to use or enjoyment of intellectual property rights, such as trademarks, designs, patents and other similar rights. However, when such services are rendered pertaining to a copyright, no tax is leviable.

The Budget has sought to plug that hole to a limited extent by proposing to tax such similar services rendered pertaining to copyrights in relation to cinematographic films and sound recordings. This proposal is sure to cause a lot of heartburn to the media and entertainment sector, as the business models therein are based on grant of temporary licenses and the permission to use copyrights relating to cinematographic films and sound recordings. Importantly, there is no levy in case of copyrights in relation to artistic, musical, dramatic and literary work.

· Service tax on renting of Immovable Property

The Budget also includes a clarification regarding the applicability of service tax to renting of immovable property for commercial or business purposes. This amendment has been proposed to take effect retroactively from June 1, 2007. This clarification would have the effect of directly overruling the principle held in the decision of Delhi High Court in Home Solution Retail India Ltd. vUnion of India (UOI) and Ors., wherein it held that the ‘act of renting property could not be treated as service’. Pursuant to this judgment, renting of immovable property was considered to be out of the preview of service tax. The proposed amendment therefore would impose service tax on lessors of immovable property, who may not have paid tax after the said judgment. To further worsen the situation of making the amendment retroactive in nature, the revenue may even levy interest or penalty on such lessors. This will result in significant ramifications on a wide variety of sectors and may also be the subject matter of countless litigation in the times to come.

In addition to the aforementioned, the Budget also seeks to impose service tax by expanding the scope of the term ‘renting’. Henceforth this term will include, within its scope, renting of vacant land where there is an agreement between the lessor and lessee for undertaking the construction of buildings for furtherance of business. Such an imposition of service tax is not likely to go down too well with the real estate sector, where such agreements are a common phenomenon.

· Service tax provisions pertaining to Hospitals and nursing homes

The Budget has also put forth a proposal to levy service tax on services provided by hospitals, nursing homes and multi-specialty clinics to employees of business entities, in relation to health check-ups or preventive care services. It has to be noted that service tax is applicable to such services irrespective of whether the payments are made by the recipient of such service or by an insurance company directly.

· Service tax provisions pertaining to Information Technology Industry

Under the present provisions of the Finance Act, for services in relation to Information Technology Software, there is a levy of tax limited only to cases where the software is used for furtherance of business or commerce. The Budget proposes to widen the scope to cover all cases, irrespective of the software’s use. However, much to the relief of the software industry, pre-packaged IT software with the license to use the same has been kept outside the purview of this provision.

· Services on promotion or marketing of a Brand

With the advent of globalization, Indian corporates have realized the importance of building a brand name. In this background, the Budget has sought to levy a service tax for the services rendered for promoting or marketing of a brand of goods, services, event or endorsement of name.

· Marketing or organizing of games of chance

Provision of lottery services is no longer going to be outside the purview of the service tax net. It is proposed that rendering of services in the nature of “promoting, marketing or in any other manner assisting in organizing games of chance including lottery” would be liable to service tax.

Customs and Excise Duty

The Government had introduced various stimulus packages last year in order to combat the global recession. One of the proposals that was implemented was the reduction in the standard rate of excise duty for non-petroleum products from 10% to 8%, in addition to various other duty reductions. The Budget proposes to reverse some of these measures, one of which is, reverting the rate of excise duty back to the original 10%. Further, the Budget has also restored the basic customs duty in respect of petroleum products including diesel and petrol.

There Budget also proposes to enhance the standard rate of excise duty on cement and cement clinkers, which may have adverse impact on real estate developers and construction business.

The automobile sector has seen a mixed bag with an increase in excise duty on large cars, multi-utility vehicles and sports utility vehicles. etc., and chassis of such vehicles, from the current rate of 20% to 22%. At the same time, a nominal excise duty has been imposed on electric cars and vehicles in order to enable the manufacturers to offset/ neutralize the duty paid on the inputs in addition to exempting some critical parts of electric vehicles from customs duty.

Further, with a view to provide a fillip to the clean-tech sector, the customs duty, on equipments relating to solar thermal units and photovoltaic units, has been reduced to 5%, in addition to various other exemptions from customs and excise duty for clean tech products and equipments. Further, following the ‘polluter pays principle’, a clean energy cess has been proposed on the production and use of coal, lignite and peat, to be levied and collected as excise duty. In addition to the above, full exemption has been proposed to be extended to goods supplied to mega power projects from which power supply or the mega power project itself has been tied up through tariff based competitive bidding. Additionally, certain customs duty exemptions have been provided for parts used for manufacture of environment-friendly products, solar power facilities and those of geo-thermal energy utilization.

The health sector has been provided relief in the form of certainty with respect to customs duty. All medical equipments, with some exceptions, will be subject to an basic customs duty of 5% and CVD of 4%. The Budget proposes continuity of customs duty exemptions for aids and devices for disabled and products used for manufacture of orthopedic implants.

The electronics hardware industry has also been treated favorably by exempting notified parts, components and accessories for the manufacture of mobile handsets, battery chargers, hands-free headsets, microwave ovens and other electronic hardware from customs duty. Further, the food and agro processing industry has been provided relief by the way of reducing customs duty on cold storages for preservation, storage and processing units and further on agricultural machinery, including those used in tea, coffee and rubber plantations.

In a move that would boost imports in the country, goods imported in pre-packaged forms and sold on a retail basis have been exempted from the additional duty of customs of 4%.

The supply of electricity to SEZ (processing as well as non-processing zone) would now attract customs duty of 16% thus increasing operational costs for SEZ units. Moreover, this levy would be retroactively applicable from June 26, 2009.

The International TaxTeam

Nishith Desai Associates 2013. All rights reserved.