Corporate tax planning

M.B.A 2nd SEM.

SECTION-C
2015

Taxation policies for consumer durables

Submitted to:

Submitted by:
ASHWANI KR. YADAV
NARENDRA DAHIYA
DIVYANGANA DHAKA

INDEX
S.NO
1. Introduction

2.

3.

4.
5.

6.

TOPICS

Overview of consumer durables market

Major players
Government initiatives
Challenges, opportunities & future prospects
SOWT analysis
Future prospects
Tax And Duty Structure
Governments several schemes and benefits
GoI initiatives
Highlights Union budget 2015-16 and unmet expectations
Announcements in Union Budget 201516 for TV and
white goods industry.
With Budget 2015-16, the Government expresses its
intent on making India a manufacturing hub through
various initiatives.
Future expectations- related to tax and budget
Conclusions
Recommendations
GST will benefit consumer durables most
Bibliography

ABSTRACT
India is expected to become the fifth largest consumer durables market in the world by 2025.
The consumer electronics market is expected to increase to USD 400 billion by 2020. The
production is expected to reach USD 104 billion by 2016. The sector is expected to double at
14.7% compound annual growth rate (CAGR) to USD 12.5 billion in FY15 from USD 6.3
billion in FY10. Urban markets account for the major share (65 percent) of total revenues in
the consumer durables sector in the country. Demand in urban markets is expected to increase
for non-essential products. Such as LED TVs, laptops, split ACs and, beauty and wellness
products. In rural markets, durables like refrigerators as well as consumer electronic goods
are likely to witness growing demand in the coming years as the government plans to
invest significantly in rural electrification. The Government of India has increased
liberalization which has favoured foreign direct investments (FDI). Also, policies such as
National Electronics Mission and digitization of television and setting up of Electronic
Hardware Technology Parks (EHTPs) is expected to boost the growth of this

sector.

The consumer durables market is anticipated to expand at a CAGR of 14.8 per cent to USD
12.5 billion in FY15. Also, the demand from rural and semi-urban areas is projected to
expand at a CAGR of 25 per cent to USD 6.4 billion in FY15, with rural and semi-urban
markets likely contributing majorly to consumer durables sales. But this could be possible
only if the taxation policies of India for consumer durables goods become understandable and
informal to every companies thats comes under this industry, whether its small or big,
foreign or domestic. The companies over here are facing many complications just because of
the complex tax regime. So India required a simple tax structure by making single tax
payment structure. Which will also boost up MAKE IN INDIA campaign and able to make
India a manufacturing hub. Government had already started to do this, by providing
favourable union budget 2015-16, which will boost the consumer durables most.

1. INTRODUCTION
1. OVERVIEW OF CONSUMER DURABLES MARKET
India is expected to become the fifth largest consumer durables market in the world by 2025.
The consumer electronics market is expected to increase to USD 400 billion by 2020. The
production is expected to reach USD 104 billion by 2016. The sector is expected to double at
14.7% compound annual growth rate (CAGR) to USD 12.5 billion in FY15 from USD 6.3
billion in FY10.
Share in the consumer durables
Market in India (FY15)

Rural, 35%
Urban, 65%

Urban markets account for the major share (65 percent) of total revenues in the consumer
durables sector in the country. Demand in urban markets is expected to increase for nonessential products. Such as LED TVs, laptops, split ACs and, beauty and wellness
products. In rural markets, durables like refrigerators as well as consumer electronic goods
are likely to witness growing demand in the coming years as the government plans to
invest significantly in rural electrification.
The Government of India has increased liberalisation which has favoured foreign direct
investments (FDI). Also, policies such as National Electronics Mission and digitisation of
television and setting up of Electronic Hardware Technology Parks (EHTPs) is expected to
boost the growth of this sector.

Size of Consumer Durable Market in India (Figures in USD billion)

14
12
10
8
6
4
2

12.5

3.8

4.2

FY06

FY07

4.7

5.2

FY08

FY09

6.3

7.3

7.3

FY11

FY12

0
FY10

2015E

The consumer durables market is anticipated to expand at a CAGR of 14.8 per cent to USD
12.5 billion in FY15. Also, the demand from rural and semi-urban areas is projected to
expand at a CAGR of 25 per cent to USD 6.4 billion in FY15, with rural and semi-urban
markets likely contributing majorly to consumer durables sales.
1.2 Key Categories
The Indian Consumer Durables segment can be segmented into three groups:

White Goods

Categories

Brown Goods
Consumer
Electronics

White goods
Air conditioners
Refrigerators
Washing Machines
Sewing Machines
Watches and clocks
Cleaning equipment
Other domestic appliances

Brown goods
Microwave Ovens
Cooking Range
Chimneys
Mixers
Grinders
Electronic fans
Irons

Consumer electronics
TVs
Audio and video systems
Electronic accessories
PCs
Mobile phones
Digital cameras
DVDs
Camcorders

Brown goods

This is a highly penetrated market

Electric fans are an essential utility for more than six months of the year in most parts
of the country.

1.3Market Share by Segments (Electronics)

2. MAJOR PLAYERS

1.4 Samsung India

Samsung India commenced its operations in India in December 1995, today enjoys a
sales turnover of over USD 1 billion in just a decade of operations in the country.
Samsung design centres are located in London, Los Angeles, San Francisco, Tokyo,
Shanghai and Romen. Samsung India has its headquartered in New Delhi and has a
network of 19 Branch Offices located all over the country. The Samsung manufacturing
complex housing manufacturing facilities for Colour Televisions, Colour Monitors,
Refrigerators and Washing Machines is located at Noida, near Delhi. Samsung Made in
India products like Colour Televisions, Colour Monitors and Refrigerators are being
exported to Middle East, CIS and SAARC countries from its Noida manufacturing
complex. Samsung India currently employs over 1600 employees, with around 18% of
its employees working in Research & Development.

1.5 Whirlpool India

Whirlpool was established in 1911 as first commercial manufacturer of motorized
washers to the current market position of being world's number one manufacturer and
marketer of major home appliances. The parent company is headquartered at Benton

Harbor, Michigan, USA with a global presence in over 170 countries and manufacturing
operation in 13 countries with 11 major brand names such as Whirlpool, KitchenAid,
Roper, Estate, Bauknecht, Laden and Ignis. Today, Whirlpool is the most recognized
brand in home appliances in India and holds a market share of over 25 per cent. The
company owns three state-of-the-art manufacturing facilities at Faridabad, Pondicherry
and Pune.

1.6

LG India
LG Electronics was established on October 1, 1958 (As a private Company) and in
1959, LGE started manufacturing radios, operating 77 subsidiaries around the world
with over 72,000 employees worldwide it is one of the major giants in the consumer
durable domain worldwide. The company has as many as 27 R & D centres and 5
design centres. Its global leading products include residential air conditioners, DVD
players, CDMA handsets, home theatre systems and optical storage systems.

1.7

Godrej India
Godrej India was established in 1897. The company was incorporated with limited
liability on March 3, 1932, under the Indian Companies Act, 1913. The Company is one
of the largest privately-held diversified industrial corporations in India. The Company
has a network of 38 Company-owned Retail Stores, more than 2,200 wholesale dealers,
and more than 18,000 retail outlets. The company has Representative Offices in Sharjah
(UAE), Nairobi (Kenya), Colombo (Sri Lanka), Riyadh (Saudi Arabia) and Guangzhou
(China-PRC).

1.8

Sony India
Sony Corporation, Japan, established its India operations in November 1994. In India,
Sony has its distribution network comprising of over 7000 channel partners, 215 Sony
World and Sony Exclusive outlets and 21 direct branch locations. The company also has
presence across the country with 21 company owned and 172 authorized service
centres.

1.9

Hitachi India
Hitachi India Ltd (HIL) was established in June 1998 and engaged in marketing and

sells a wide range of products ranging from Power and Industrial Systems, Industrial
Components & Equipment, Air Conditioning & Refrigeration Equipment to
International Procurement of software, materials and components. Some of HILs
product range includes Semiconductors and Display Components. It also supports the
sale of Plasma TVs, LCD TVs, LCD Projectors, Smart Boards and DVD Camcorders.

2. GOVERNMENT INITIATIVES
2.1Government Initiatives

The Indian Government is majorly concerned about the development of rural markets
and hence, keeps introducing policies and initiatives to encourage their growth.
In a bid to make economic development inclusive, the Indian Government has initiated
many schemes and programs that aim at improving the standard of living in India
villages or rural areas. For instance, the Government launched a time-bound business
plan for action called Bharat Nirman for enhancing the infrastructure in hinterlands.
Under this program, action is proposed in the areas of Water Supply, Housing,
Telecommunication and Information Technology, Roads, Electrification and Irrigation.
The other initiatives are:
National Policy on Electronics (NPE) 2012 was launched with an objective to
transform India into a global hub for Electronic System Design and Manufacturing
(ESDM) and to expand the manufacturing base of electronic products in India. Key
goals for 2020 are to attract investment of USD 100 billion, enhance exports to
USD 80 billion, achieve a turnover of USD 400 billion and create employment of
around 28 million
As per Foreign Trade Policy (2015-2020), the Focus Product Scheme, Market
Linked Focus Product Scheme and Focus Market Scheme are now under a single
MEIS scheme. Export of notified goods (includes Ac parts and compressors,
refrigerating equipment compressors, fully automatic washing machines and color
TV) and Asia-Oceania block) will be payable as percentage of realized FOB value
(in free foreign exchange). Moreover, there will be a provision for higher level of
rewards under MEIS scheme for export items with high domestic content and value
addition.
According to the Modifies Special Incentives Package Scheme (MSIPS) the
government will reimburse certain taxes and duties for 10 years, amounting to 20%
(SEZs) to 25% (non-SEZs) of capital investment. However, white goods are not
covered in this scheme and are in the draft MSIPS document.
Zero duty EPCG scheme allows import of capital goods for pre-production,
production and post-production (including CKD/SKD thereof as well as computer

software systems) at zero Customs duty. As per the Foreign Trade Policy 2015-20
the specific export obligation under EPCG scheme where capital goods are procured
from indigenous manufacturers has been reduced to 75% from 90% in order to
promote domestic capital goods manufacturing industry.
An Electronics development fund of USD 2 billion has been created to promote
innovation, intellectual property creation, product commercialization etc.

3. CHALLENGES, OPPORTUNITIES & FUTURE PROSPECTS

3.1Challenges and Opportunities
The consumer durables sector in India is one that will be passing through some very
interesting times. On the one hand there is substantial scope for expansion as the
favourable demographics of India are a positive for the sector.
On the other hand there are many factors which pose as a challenge to this industry,
some of these challenges are:

Tax and duty structure:

Indias taxation system is unusually complex, especially where indirect taxes
are concerned. While income tax, excise and customs duty are set by the
Central Government, states and municipalities also levy their own taxes.

Limited scale and quality:

Most of the suppliers of raw material and components in India do not have the
scale to cater to the substantial demand in the industry, making them less cost
competitive as compared to imports. Moreover, the quality of inputs is not as
competitive to Chinese or other SE Asian counterparts. This has led various global
majors to scale down operations in the country.

Increasing competition:
Indian manufacturers face strong competition from Chinese and other SE Asian
counterparts

Which have a huge supply base and installed capacities. Moreover, China
government provides numerous subsidies for manufacturing unit development which
the Indian government is unable to match.

Capital intensive nature of business:

Cost of production in India is higher as compared to China and other SE Asian
countries due to high finance costs. Moreover, given the frequently changing energy
efficient norms manufacturers will need to invest substantial amounts for products
with high rating. The cost of capital at 12%14% is much higher than the global
average of 5%7%.

Infrastructure Deficiency:
Indias spend on infrastructure was only 7.2% of its GDP in 2012. The basic
infrastructure

for

any

industry

comprises

good

roads,

power,

water,

telecommunications, finance, raw materials, components, and logistics. In India,

these facilities are not up to the mark even in established industrial estates.

Domestic markets are growing at a brisk pace with continued dependence on

imports. About 30-35% electronic components required for local equipment
manufacturing are available from domestic sources. For semiconductors, there is

almost 100% dependence on imports.

Inverted Duties due to dual use of Inputs such as Plastics, Copper, Aluminum, etc
continue to plague hardware manufacturers. Specific items are covered under
Customs Notification 25/99, although the procedure for claiming this benefit is

extremely convoluted and time taking.

Domestic Taxes and Levies impose Fiscal Disabilities with very high indirect taxes
Cascading impact of CST on components detrimental for finished products

manufacturing
High cost of Finance, Power and Logistics/ Regulatory and Procedural problems
add to disabilities estimated at 7-8%. This discourages capital intensive, high value
add investments in manufacture of components / parts which require high and long
term investments necessitating a supportive fiscal and infrastructural environment.

3.2SWOT Analysis
3.2.1 Strengths

o Presence of established distribution networks in both urban and rural areas

o Presence of well-known brands
o In recent years, organized sector has increased its share in the market vis a vis
the unorganized sector.
3.2.2 Weaknesses

Demand is seasonal and is high during festive season

Demand is dependent on goods monsoons
Poor government spending on infrastructure
Low purchasing power of consumers

3.2.3 Opportunities
In India, the penetration level of white goods is lower as compared to other
developing countries.

Unexploited rural market

Rapid urbanization
Increase in income levels, i.e. increase in purchasing power of consumers
Easy availability of finance

3.2.4 Threats

Higher import duties on raw materials imposed

Cheap imports from Singapore, China and other Asian countries

3.3Future Prospects
India is emerging as the third largest internet market and its e-commerce business is
likely to touch Rs 40 billion (USD 742.76 million) in 2015 against Rs 12 billion (USD
222.83 million) at present.

Also, with mobiles becoming a major medium for advertising and content delivery,
every three out of four users in the country are expected to access the net through a
mobile phone by 2015. During 2012-22, cumulatively around USD 500 billion of ad
spend is expected to happen on mobile phones, according to industry estimates.
Moreover, companies in the last decade have positioned tea and coffee as recreational
products, which have majorly attracted younger population. Growing at a compounded
annual growth rate (CAGR) of 20 per cent, it is expected to touch Rs 330 billion (USD 6.13
billion) by 2015 from the current level of Rs 195 billion (USD 3.62 billion) (in 2011) .
Domestic coffee outlets, which have a lot of appeal for the new generation, are set to double
over 2012-15, majorly driven by the foray of global players such Starbucks and Dunkin
Donuts in India.

2. Tax and duty structure

Indias taxation system is unusually complex, especially where indirect taxes are concerned.
While income tax, excise and customs duty are set by the Central Government, states and
municipalities also levy their own taxes.
Taxes
Corporate tax
rate

Particulars
Domestic companies: As per the corporate tax rates for the 2015-16
fiscal, domestic companies, are levied with an income tax at the rate of
30%. Surcharge is applied in the following cases:

If the company has a total income less than Rs. 1 crore, then it

does not have to pay any income tax.

If the net income of the company for that year is in the range of

Rs. 10 crore then 5% surcharge is applied on its net income.

If the net income of the company for that year exeeds Rs. 10 crore
then 10% surcharge is applied on its net income.

Plus Education Cess is levied @ 2% of income-tax and Secondary and

higher Education Cess is levied @ 1% of income-tax.
Foreign companies: According to the corporate tax rates for 2015-16
fiscal, international business organizations working in India and
earning more than 10 million rupees need to pay a corporate tax rate
of 42.024 percent. This includes a basic tax of 40%, an education cess
of 3 percent and a surcharge of 2%.
If their aggregate income is less than INR 10 million they have to pay
a corporate tax of 41.2 percent. This includes a basic tax of 40 percent
along with an education cess of 3%.
If the net income for a foreign company exceeds Rs 10 crores then the
surcharge that it will have to pay will be 5%.
Minimum
Alternate Tax
(MAT)

If a firms tax liability is less than 10% of book profits, the book
profits are deemed to be total income and are levied tax at 10%. The
effective MAT Rate is 18.5%, including 10% surcharge and 3%
education cess. MAT credit for the amount of MAT in excess of

Fringe Benefit

regular taxes can be carried forward for up to 7 years

33.99% on the defined value of fringe benefit provided.

Tax
Dividend tax

Dividends received by Indian companies from outside India, are

subjected to a tax rate of 30 percent along with cess and surcharge. A
gross tax rate of 15 percent has also been proposed in case an Indian
company has got dividends from an overseas company. It is expected

Capital taxes

this will encourage Indian companies to repatriate their money.

In addition to income tax, all companies must pay a 1% wealth tax on
the aggregate value of specified assets net of debt secured on, or
incurred in relation to those assets. This tax applies to amounts that

Taxes on interest
income

exceed INR 1.5 million of specified assets.

Taxed at same rates applicable to companies. However, tax to be

deducted at source at 20% (plus applicable surcharge and cess).

In India Real asset capital gains are taxed at the same rate irrespective of the overall amount
of gain.
Taxes
Capital
gains

Particulars

Long term

Stocks sold on

Stocks not sold

a recognised

on a recognised

stock exchange
-

stock exchange
22.66%

22.66%

33.99%

33.99%

capital gains
short term capital 16.995%

Other assets

gains
The long-term capital gains of foreign institutional investors on assets acquired
in foreign currency and sold on stock exchanges are now exempt from tax
provided they have been subject to Securities Transaction Tax (STT); their
short-term capital gains are now taxed at 15% (plus applicable surcharge and
cess) Gains from the sale of a long-term capital asset are exempt from capital
gains tax if they are reinvested in certain securities within six months and
Locked in for 3 years. The 2007-08 budget placed a ceiling of INR 5 million in
a financial year on the capital gains eligible for such investment and relief,
applicable from April 1st 2007.The only eligible securities at present are bonds
issued by the Rural Electrification Corp issued on or after April 1st 2006. The
1999-2000 budget relaxed the conditions for carrying forward the
Accumulated loss and unabsorbed depreciation in mergers. For a merger

between two foreign companies, one of which holds shares in an Indian

company, there is no liability for capital gains on the transfer of shares if 25%
of the shareholders of the amalgamating foreign company remain shareholders
of the resulting foreign company.

Taxes
Excise
rates

Particulars
Present excise rate is12% (hike of 2% from January)

Excise duty is levied by the central Government on the manufacture of

movable and marketable goods in India.

The manufacturer is allowed to take credit of excise duty paid on
locally sourced goods and the Additional Duty of customs on imported
goods. Excise duty on raw material and packing material is eligible for

Central
sales tax

setoff.
Education cess of 2% and secondary higher education cess of 1% are

also liveable on excise duty payable on the transaction.

On procurement of raw material from outside the State, the sales tax
was 4% against form C in the year 2002. At present, the central sales
tax (CST) rate is 2%. The CST paid on the procurement is not available
for setoff and is a cost. In addition, some States have entry tax in the

Value
added
tax
(VAT)

range of 1% to 5% on raw material.

Education cess of 2% and secondary higher education cess of 1% are

also liveable on CST payable on the transaction.

Under the VAT regime, the VAT paid on purchases within the State is

eligible for VAT credit. The present VAT rates are 4 and 12.5%.
Education cess of 2% and secondary higher education cess of 1% are
also liveable on VAT payable on the transaction.

2.2 Governments several schemes and benefits

Benefits
Key
schemes/incentive
s

Electronics
Manufacturing
Clusters
Modified special
incentive Package
Scheme (MSIPS)

There will be subsidies on the infrastructure cost to set up special

electronics
Manufacturing zones.
Government will reimburse certain taxes and duties for 10 years,
amounting to
20% (SEZs) to 25% (non-SEZs) of capital investment. However,
white goods are

Merchandise
Exports from
India Scheme
(MEIS)

not covered in this scheme and are in the draft MSIPS document.
As per Foreign Trade Policy (2015-2020), the Focus Product
Scheme, Market Linked Focus Product Scheme and Focus Market
Scheme are now under a single MEIS scheme.
Export of notified goods (include AC parts and compressors,
refrigerating equipment compressors, fully automatic washing
machines and colour TV) to notified markets (includes countries in
Latin America, Africa , CISS, Eastern Europe and Asia-Oceania
block) will be payable as percentage of realized FOB value (in free
foreign exchange).
Moreover, there will be a provision for higher level of rewards under
MEIS scheme for export items with high domestic content and value

Export Promotion
Capital
Goods (EPCG)

addition.
Zero duty EPCG scheme allows import of capital goods for preproduction, and post-production (including CKD/SKD thereof as
well as computer software systems) at zero Customs duty. As per the
Foreign Trade Policy 2015- 2020, the specific export obligation
under EPCG scheme where capital goods are procured from
indigenous manufacturers has been reduced to 75% from 90% in

Favourable
climate for
foreign direct
investment
Advance
Authorization
Initiatives to
reduce imports

order to promote domestic capital goods manufacturing industry.

100% foreign direct investment is allowed in the electronics
hardware manufacturing under the automatic route.
Duty free imports of inputs allowed for exports provided minimum
15% value addition is achieved.
Education cess and secondary and higher education cess is being
levied on

imported electronic products

End of concessions on excise duties on electronics goods, resulting
in Countervailing duties going up another 2% and leading to imports
getting more expensive.
The GoI banned duty-free imports of flat-panel television sets
beginning August 2014 and imposed a duty of 36.5%, as a step to
Investment
allowances
and deductions

Custom duty
reduction

boost local manufacturing.

Investment allowance (additional depreciation) at the rate of 15% to
electronics manufacturing companies that invest more than INR250
million in plant and machinery. The benefit will be available for
three years, i.e., for investments made up to 31 March 2017.
LCD and LED TV panels smaller than 19 inches: Basic Customs
Duty reduced to zero.
Colour picture tubes for cathode ray TVs : Basic Customs Duty
reduced to zero
Specified parts LCD and LEO panels for TVs (including open cell,
plate diffuser, film diffuser): Basic Custom Duty exempted on
specified parts.

2.3 GoI initiatives

Initiatives
National Policy
on
Electronics
(NPE) 2012

objective to transform India into a global hub for Electronic System

Design and Manufacturing
(ESDM) and to expand the manufacturing base of electronic products in
India.
Key goals for 2020 to attract investment of US$100 billion,
enhance exports to US$80 billion, achieve turnover of US$400 billion

Export
Oriented Units
(EOUs),
Electronic
Hardware
Technology
Parks
(EHTPs),
Special

and create employment of around 28 million.

Exemption from education cess and secondary higher education cess
on all goods manufactured in these units and cleared in domestic tariff
area (DTA).
Duty free import/domestic procurement of goods for development,
operation and maintenance of these units.
Exemption from Central Sales Tax, exemption from service tax
Exemption from state sales tax and other levies as extended by the

Economic
Zones
(SEZs)
Electronics
development
fund

respective state governments

Large-scale
initiatives
to create skilled
manpower
Exporters
/Associations
are entitled to
utilize

(2500 PhDs per year in Electronics by 2020, additional colleges for

EDF of US$2 billion to promote innovation, intellectual property

creation, product commercialization etc.

electronics education, incentives to students/ researchers etc.)

For promoting Electronics and IT Hardware Manufacturing industry
exports.

3. Highlights Union budget 2015-16 and unmet expectations

3.1 Announcements in Union Budget 201516 for TV and white goods
industry
1. Basic Customs Duty (BCD) of back light unit module for use in the manufacture of
LCD/LED TV panels reduced to Nil from 10%. BCD for Organic LED (OLED) TV
panels also reduced to Nil from 10%.
2. BCD on C- Block for compressor, over load protector (OLP) and positive thermal
co-efficient and crank shaft for compressor for use in the manufacture of
refrigerator compressors is proposed to be reduced from 7.5% to 5%.
3. Goods and Services Tax (GST) for a state-of-the-art indirect tax system is proposed
to be implemented by 1 April 2016.
4. As part of the progress toward GST, it is proposed to subsume the education cess
and the secondary and higher education cess in central excise duty. In effect, the
general rate of central excise duty of 12.36% and including the cesses is being
rounded off to 12.5%.
5. To facilitate a smooth transition to levy of tax on services by both the Centre and
the states, it is proposed to increase the current rate of service tax plus education

cesses from 12.36% to a consolidated rate of 14%.

3.2 With Budget 2015-16, the Government expresses its intent on making
India a manufacturing hub through various initiatives
1. Reduction in corporate tax rate
Base rate of corporate tax remains unchanged for both domestic and foreign

companies.
However, it has been proposed to reduce the rate of corporate tax from 30% to

25% over the next four years starting from next year.
2. Reduction in tax rate on royalty and fees for technical service
The Government has proposed to reduce the rate of income tax on royalty and
fees for technical services from 25% to 10% to facilitate technology inflow to
small business at low costs.
3. Enabling ease of doing business in India
There is a proposal to set up an e-Biz portal, which will integrate 14 approvals

at one source.
The Government plans to appoint an Expert Committee to examine the
possibility and prepare a draft legislation where the need for multiple prior

permissions can be replaced with a pre-existing regulatory mechanism.

To further facilitate the ease of doing business, online central excise and
service tax registration will be done in two working days. Assesses under these
taxes will be allowed to issue digitally signed invoices and maintain electronic

records. These measures will cut down considerable paper work and red tape.
The time limit for taking CENVAT credit on inputs and input services is being
increased from six months to one year as a measure of business facilitation.

4. Promoting start-up ecosystem

The Government is establishing a mechanism to be known as Self

Employment and Talent Utilisation (SETU).

SETU will be a techno-financial, incubation and facilitation program to

support all aspects of start-up

And other self-employment activities, particularly in technology-driven areas.
INR10 billion are being set aside initially in NITI Aayog for this purpose.

5. Fostering R&D and innovation

Atal Innovation Mission (AIM) will be an Innovation Promotion Platform
involving academics, entrepreneurs, and researchers and draw upon national

and international experiences to foster a culture of innovation, R&D and

scientific research in India.

Initially, a sum of INR1,500 million is being earmarked for this purpose.

3.4 Though the Budget had its positives, expectations from the industry
are yet to be met Recommendations in detail
Ups

Downs

Commitment to introduce

Overall increase in excise duty

GST by 1 April 2016

Increase in time limit for

and service tax rates

Increase in non-creditable

availing CENVAT on

customs cess by virtue of

inputs/input services.
Uniform excise duty and

increased CVD rate

Did not include any incentives

CVD post absorption of

for manufacturing of ACs and

cess
Streamlining of procedures
and documentation

3.5 Union budget 2015 - Boost in consumer durables.

The Budget statement by Finance Minister Arun Jaitley announced several changes to the
effect of putting together a positive and progressive financial plan aimed to set the Indian
economy on a faster growth trajectory.
With the objective to stimulate a favourable environment for the economy, the Budget is
surely expected to boost the consumer durable sector.
The Rs 50,000-crore consumer durables and electronics industry was unequivocal in its
praise for this year's Union Budget. The government rationalised duty structures in the
Budget, responding to long-standing demands of companies operating in the space. In the
exercise, domestic manufacturing is expected to get a boost.
"The reduction of customs duty on 22 items (which go into the manufacture of various
products including TVs, refrigerators, washing machines, air conditioners and microwaves)
as well as a reduction in tax on royalty will encourage indigenous manufacturing and
technology proliferation," said Manish Sharma, MD, Panasonic, India & South Asia, and
current president, Consumer Electronics and Appliances Manufacturers' Association

(CEAMA).
According to CEAMA, almost 40 per cent of goods sold in the consumer durables and
electronics market are imported. Those that are made here are basically assembled using
imported parts. While this is not expected to change overnight, companies say, the
government's efforts are laudable, since it seems committed to promote its 'Make in India'
drive.
Anirudh Dhoot, director, Videocon Industries, and past president of CEAMA, says, "For
long, the industry felt neglected because measures were simply not adequate. What
this budget has done is changed that perception. There have been definite measures taken in
this Budget, which will create the environment or climate for manufacturing. That is the key."
The government has specifically targeted LED TVs, one of the largest consumer electronic
categories in the country, reducing customs duty on organic or OLEDs from 10 per cent to
zero. This, says Dhoot, was something that TV manufacturers were demanding, since OLEDs
are expected to gain traction in the coming months.
Dhoot says customs duty on backlights used in LEDs has also been abolished - from 10 per
cent to zero. "Bulk of the components in LEDs is imported. By reducing customs duty,
assembling costs will reduce. While manufacturers stand to gain from this, consumers benefit
because we could pass these savings to them," Dhoot says.
The appliances segment too got a favourable push. Kamal Nandi, business head and
executive vice-president, Godrej Appliances, says, "Of the 22 items that see customs duty
reduction, there are two that appliance manufacturers were demanding. This includes
magnetrons, a key input used in microwave ovens, and components used in the manufacture
of refrigerator compressors. While we are yet to assess the impact of this on our business, at
the outset these steps are welcome."
Even LED light and lamp makers have a reason to cheer because excise on components such
as LED drivers and metal core printed circuit boards or MCPCBs have been reduced from 12
per cent to six per cent. The move comes in the wake of the government's effort to push
energy conservation in the country. In January, Prime Minister Narendra Modi had launched a
scheme for LED bulb distribution under the domestic efficient lighting programme in Delhi
as well as a national programme for LED-based home and street lighting.

4. Future expectations- related to tax and budget

1. Roll back of

It needs to be reinstated at 10%, instead of the current 12%, as the

excise duty

industry is still struggling and needs reduced price tag for the

2. CST exemption
3. Excise duty

consumer so that demand can be revived.

For any inter-state purchase of components or raw materials

relaxation on

To encourage manufacturing of more energy efficient products, at a

manufacturing of

time when energy standards are undergoing a severe upward

higher-rated home

revision.

appliances
4. Reform inverted

FPD to 0% to provide a level-playing field to domestic

duty structure or

manufacturers as well as importers of FPDs, encourage panel

introduce reduction

manufacturing in the country and create a competitive

of customs duty on

environment.
Pre-printed steel sheets, AC compressors and washing

components for
high-import

machine motors in order to enhance manufacturing set ups.

products:
5. Deferred

It should allow deferred payment of excise duty for 7 years to

payment of excise

manufacturers (threshold value addition).

duty:

5. CONCLUSIONS
Consumer durables companies are worried. Even as they consider raising their prices by
March-end due to rising metal prices, any rise in excise duty through the Budget would force
them to increase prices again.
Any price rise, say the durables companies, reduces purchase sentiment, especially in rural
India, which contributes 60-65 per cent of their overall turnover. Further, sales dip by almost
10 per cent per month for the first two months after any price rise.
Moreover, some states increased value-added-tax (VAT) last week, which has put pressure on
the durables companies bottom line. For instance, Delhi increased VAT on mobile phones to
5 per cent of sale price, up from 4 per cent earlier. Andhra Pradesh, one of the biggest
markets for consumer durables, increased VAT from 12.5 per cent to 14.5 per cent. Other
states are likely to follow.
Amitabh Tiwari, head of sales at LG Electronics, says: We are increasing prices by an
average 2 per cent across the board from February this year, because of increase in VAT at a
state level, as well as rise in input costs, like steel and other metals. If excise is increased this
year, we will have no option but to increase prices once again, because our bottom line is
already under pressure.
We need a uniform tax structure nationally, across states. For manufacturers like ourselves,
it helps in operations and cost calculations if we could pay tax just once. This also ensures a
national approach, instead of paying at state level, at Central level, and even goods entry
charge in states like Maharashtra, added Tiwari.
Taxes are 30 to 40 per cent of a products selling price for consumer durables manufacturers
in India. And, companies pay close to 8 per cent excise duty and 10 per cent service tax.
Shantanu Dasgupta, VP - corporate affairs and strategy, Whirlpool India, says: We expect
the goods and services tax (GST) to be rolled out as early as possible because that would help

us do away with a multiple tax structure. This would also mean we have to relocate and
reconfigure some of our existing warehouses.
Dasgupta also feels while the import duty on components should be kept low, government
could look at extending some support to domestic component manufacturers to enable them
to compete with imports. This would also help durables companies to procure more
competitive products at better prices and since these would be made in India, prices of endproducts are likely to come down.
"I would recommend that the supply base in India is improved and made more competitive,
both in terms of quality and cost. The current situation is such that sometimes even imported
products are cheaper than locally procured components of the same quality," Dasgupta adds.
"Excise duty should continue to drop, as was the case in the last budget. This would boost
industry," says Kamal Nandi, director-marketing, Godrej & Boyce. Electronics consumer
goods makers expect the government to reduce the rate of service tax, at par with excise.
They also expect the government to implement policies that would facilitate easy financing
through banks for customers and small traders, as it would help spur demand.
Samsung Electronics, for instance, suggests the government treat information technology (IT)
products and consumer electronics at par. Ravinder Zutshi, managing director, says, In
todays market, the difference between IT and non-IT products is blurred, as we can watch
TV programmes on personal computers and mobile phones. Therefore, it is recommended
that indirect taxes for IT and non-IT products like consumer electronics and entertainment
products, should be at par."
Zutshi opines that the customs duty on raw materials should be low. He also expects lower
Central value-added tax (Cenvat) on energy-efficient home appliances and consumer
electronics products. "Most countries incentivise use of energy-efficient products. Currently,
there is no incentive for the manufacturers of these products. So, we would recommend that
the Cenvat on energy-efficient products and its inputs should be 50 per cent of the general
Cenvat rate," adds Zutshi.
The government has introduced a mandatory energy efficiency star-labelling system from this
month on home appliances, including refrigerators and air-conditioners. Also, the government

is committed to phasing out ozone-layer depleting substances used in air conditioners.

Consumer durables companies, therefore, recommend that the capital equipment required for
manufacturing energy-efficient home appliances and consumer electronic products which are
not ozone-layer depleting should be allowed at zero per cent.

5.2 Recommendations:

No excise duty increase

Single tax payment structure

Goods and services tax (GST) should be rolled out soon

Indirect taxes at par for IT and non-IT products like consumer electronics and
entertainment products

Improvement of existing supply base in India, both in terms of quality and cost

Capital equipment required for manufacturing energy-efficient home appliances and

consumer electronic products, which are not ozone layer-depleting, should be allowed
at a rate of zero per cent.

5.3 GST will benefit the consumer durables most

Rating agency CRISIL believes companies producing non-bulk goods will see a 20 percent
reduction in their logistics cost once GST is rolled out. Besides the primary bulk commodities
that are transported by railways, everything else can be categorized as non-bulk. To be
effective, it is necessary to dismantle the existing central sales tax (CST), Crisil noted.
Once the timeline is announced, firms can plan to set up warehouses. He added consumer
durables will be the biggest beneficiary of GST and insisted that an improvement in the
distribution process of FMCG goods is a must to see the effectiveness of the tax system.
What kind of cost savings and for whom?

Essentially, a large part of logistics cost are anywhere in the region of five to eight percent on
sales. they will see a saving of two reasons. One is the warehousing costs and inventory
carrying costs will come down. Secondly, if checks posts are also dismantled along with
goods and services tax (GST), we will see a significant reduction in the cost of transit of
goods as well. Due to these two reasons, we believe that the logistics cost for several sectors,
several normal goods could come down by up to 20 percent.
But, there are two necessary conditions for GST to be successful. One is that levy of
additional tax of one percent which is being envisaged right now. That is against the core
principle of GST and that to our mind would not be a very good idea. The second thing is,
today, almost a quarter of the journey time is lost because of stoppages which occur during
the transportation of goods. And thereby it ends up adding a lot of cost. And if check posts
also dismantled with GST, it will lead to faster transit of goods and also lower inventory
carrying costs.
So if you look at numbers broadly, we believe that over a period of three to four years, you
will see up to a 20 percent saving in costs out of which approximately 15 percent will come
because of lowered warehousing cost and lowered inventory carrying costs. And
approximately five percent will come because of faster transit of goods.

6. BIBLOGRAPHY
1. INDUSRTY OVERVIEW: www.cci.in/pdfs/surveys-reports/Consumer-DurablesIndustry-in-India.pdf
2. GOVERNMENTS SEVERAL SCHEMES AND BENEFITS AND GoI
INITIATIVES:
http://www.ey.com/Publication/vwLUAssets/EY-study-on-indian-electronics-andconsumer-durables/$FILE/EY-study-on-indian-electronics-and-consumer-durables.pdf
3. CONCLUSION: http://www.business-standard.com/article/companies/vat-exciseduty-concern-consumer-durables-firms-110012100081_1.html
4. GST WILL BENEFIT CONSUMER DURABLES MOST:
http://www.moneycontrol.com/news/business/gst-to-benefit-consumer-durables-mostcrisil_1404148.html