Highlight of Union Budget 2018

Posted by: cakjassociates in Budget, February 13, 2018

Direct Tax Proposal in Union Budget 2018

 

  1. Applicable for Individual/HUF
  • No change in income tax slabs and rates
  • No change in levy and surcharge
  • Health and Education cess to be charged at 4% instead of earlier Education Cess & Secondary and Higher Education Cess of 3%.
  • Standard deduction of 40,000 to be allowed in lieu of transport allowance of Rs. 19,200/- and medical expenses of Rs. 15,000.
  • Section 10(12A) to the extend the benefit of tax free withdrawal from NPS to non-employees subscribers on 40% of the total amount payable to him on closure of his account or on his opting out.

 

Over and above, following additional relief has been proposed for Senior Citizens :

  • Section 80 TTB introduced to provide deduction in relation to interest income upto Rs. 50,000/- in lieu of deduction u/s 80TTA to the tune of Rs. 10,000/-
  • No TDS for senior citizens on FDs and Post Office deposits upto Rs. 50,000/-.
  • Deduction in respect of health insurance premium and medical treatment increased from Rs. 30,000/- to Rs. 50,000/-.
  • Monetary limit for deduction u/s 80DDB (for specified diseases) raised to Rs. 1,00,000/- for both senior citizens and super senior citizens.
  1. Applicable for Corporate Assessee
    • Tax rate reduced to 25% for Companies with turnover upto Rs. 250 cr. in financial year 2016-17.
    • Health and Education cess to be charged at 4% instead of earlier Education Cess & Secondary and Higher Education Cess of 3%.

 

  1. Income from Business or Profession
    • Any compensation received or receivable, whether revenue or capital, in connection with the termination or the modification of the terms and conditions of any contract relating to its business shall be taxable as business income u/s 28.
    • 44 AE of the Act to provide that, in case of heavy goods vehicle (more than 12MT gross vehicle weight) , the income would deemed to be an amount equal to Rs. 1,000/- per ton of the gross vehicle weight or unladen weight, as the case may be, per month or part of a month for each goods vehicle or the amount claimed to be actually earned by the assessee, whichever is higher.

The vehicle other than Heavy goods Vehicle will continue to be taxed as per the existing rates.

These amendments will take place w.e.f 01.04.19 and accordingly apply inrelation to assessment year 2019-20 onwards.

  • Trading in agricultural commodity derivates, not chargeable to commodity transaction tax shall be treated as non-speculative transactions.
  • At present, while taxing income from capital gains (section 50C), business profit (sec. 43CA) and other sources (sec. 56) arising out of transactions in immovable property, the sale consideration or stamp duty value, whichever is higher is adopted. The difference is taxed as income both in the hand of seller and buyer.

It has been pointed out that this variation can occur in respect of similar properties in the same area because of variety of factors, including shape of the plot or location. In order to minimize the hardship in case of genuine transactions in the real estate sector, it is proposed to provide that no adjustments shall be made in case where variation between stamp duty value and the sale consideration is not more than 5% of the sale consideration.

These amendments will take place w.e.f 01.04.19 and accordingly apply in relation to assessment year 2019-20 onwards.

  • 45 of the Act, inter alia, provides that capital gain arising from a conversion of capital asset into stock in trade shall be chargeable to tax. However, in case where stock in trade is converted to capital assets, the existing law does not provide for its taxability.

In order to provide symmetrical treatment and discourage the practice of deferring the tax payment by converting the inventory into capital assets, it is proposed to amend the provisions of sec. 28, where stock in trade is converted in capital asset, difference in value of asset held as stock in trade and fair market value on the date of conversion shall be charged as business income. Further, difference between the market value as on the date of conversion and the sale value shall be charged under the head of Capital Gain.

Sec. 49 to provide that fair market value on the date of transfer should be considered as cost of acquisition.

Section 2(49) to provide that the period of holding of such capital asset shall be reckoned from the date of conversion or treatment.

  1. Capital Gain
    • Section 47 to provide that transactions in the following assets by a non-resident on a recognized stock exchange located in any International Finance Services Centre shall not be regarded as transfer , if consideration is paid or payable in foreign currency:-
  2. bond or GDR of an Indian Company.
  3. rupee denominated bond of an Indian Company
  • derivatives

 

  • It is proposed to withdraw exemption on long term capital gain (LTCG) on STT paid transactions in equity shares and equity  oriented mutual fund u/s 10(38). Section 112A introduced to tax the said capital gain at the rate of 10% exceeding Rs. 1 Lakh.

Further in case of LTCG for assets acquired before 01.02.2018, capital gain earned till that date would be grandfathered. The cost of acquisition would be higher of cost of acquisition and lower of fair market value and full value of consideration. It is proposed that FMV for shares is to be taken at the highest price quoted on stock exchange on 31.01.2018 while FMV for other assets is to be taken at NAV as on the same date. Lastly it is proposed that the benefit of deduction under Chapter VIA and rebate u/s 87A will not be available on such capital gain.

Consequent to the proposal for withdrawal of LTCG exemption u/s 10(38), section 115D relating to taxation of LTCG incase of FII’s to provide that such LTCG will become taxable in the hands of FII’s also in respect of amount of gains exceeding Rs. 1 lakh.

 

  1. Other Tax proposals
    • Every person not being an individual, which enters into a financial transaction of an amount aggregating to Rs. 2,50,000/- or more in a financial year shall be required to obtain PAN . Consequently, any natural person linked to such transactions or any person competent to act on behalf of such entities shall also apply for PAN.
    • Deemed dividend u/s 2(22)(e) to be brought under the scope of dividend distribution tax u/s 115-O to be taxed at the rate of 30% without being grossed up.
    • Dividend distribution tax is proposed at the rate of 10% on dividend payments to units holders in an equity fund.
    • 115BBE (2) proposed to restrict deduction of any expenditure, set off of losses where income u/s 68, 69, 69A, 69B, 69C & 69D is determined by AO.
    • 115 BBE provides for tax on income referred to in sec. 68, 69, 69A, 69B, 69C & 69D (undisclosed income) at a higher rate of 60%.
    • 115JC to provide that in case of a Unit located in an International Financial Service Centre, the alternate minimum tax u/s 115JC shall be charged @ 9%.
    • 11 to provide that for the purpose of determining the application of income of Charitable Trust/Charitable Institutions, the provision of sec. 40(a)(ia)[ disallowance for default in TDS] and Sec. 40A(3)/(3A) [ disallowance for payment made in cash in excess of Rs.10,000] shall apply in computing the total income chargeable under the head “Profit & Gains from business or profession”.

 

  1. Deductions/ Exemptions

 

  • Deduction u/s 54EC restricted to capital gains arising only from long term capital assets, being land and building or both. Further, for making any investment, bonds shall be redeemable after 5 years instead of existing 3 years period.
  • e.f AY 2018-19 it is proposed to substitute sec. 80AC so as to provide that in computing the total income of an assessee, deduction u/s 80G to 80TT shall be allowed only if the return is filed with in the due date specified u/s 139(1).
  • U/s 80 JJAA of the Act, relaxation of employment of minimum period of 150 days (presently it is 240 days) extended to footwear and leather industry in addition to earlier apparel industry. The said benefit to be available even for new employee who is employed for less than the minimum period during first year but continues to remain employed for minimum period in subsequent year.( a deduction @30% of emoluments paid to a new employee for three years is a available).
  • Deduction u/s 80 IAC is available for startups incorporated upto 1st day of April, 2021. The benefit has been extended to the eligible business, if it is engaged in innovation, deployment or improvement of products or process or services or a scalable business model with high potential of employment generation or wealth creation.
  • 80PA introduced to provide 100% deduction in respect of profit of farm producer companies, having a total turnover up to 100 crores. The benefit shall be available for a period of 5 years from the financial year 2018-19.

 

  1. E- Assessment / Processing of Return u/s 143(1)

 

  • Presently sec. 143(1) (a) provides that at the time of processing of return of income made u/s 139 or in response to a notice u/s 142(1) , the total income or loss shall be computed after making the adjustments specified in clauses (i) to (vi) therein.

Sub-clause (vi) provides for adjustment in respect of addition of income appearing in Form 26AS  or Form 16A or Form 16 which has not been included in the computing the total income in the return.

  1. e .f AY 2018-19, it is proposed to insert a new proviso to the said clause so as to provide that no adjustment under sub-clause (vi) of the said clause shall be made in respect of any return furnished for the assessment commencing on or after 01.04.2018.
  • Further, a scheme for e-assessment eliminating interface between assessee and Assessing Officer and introduction of team based assessment with dynamic jurisdiction will be notified in the official gazette.
  1. Provisions regarding Insolvency and Bankruptcy Code
    • e.f AY 2018-19, where a Company is approved for corporate insolvency resolution process, then aggregate amount of unabsorbed depreciation and brought forward losses shall be reduced for MAT computation (sec. 115JB).

 

  • e.f 01.04.18 in respect of company where an application has been admitted by the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016, the return shall be verified by the insolvency professional appointed by such Adjudicating Authority.

 

  1. Income Computation and Disclosure Standards
    • 36 to amend and provide that marked to market loss or other expected loss as computed in the manner provided in ICDS shall be allowed as deduction. (w.e.f AY 2017-18)
    • 40A to amend and provide that no deduction or allowance in respect of marked to market loss or other expected loss shall be allowed except as allowable under newly inserted clause (xviii) of sec. 36(1).
    • 43AA introduced to provide that, subject to provision sec. 43A, any gain or loss arising on account of effects of changes in foreign exchange rates in respect of specified foreign currency transactions shall be treated as income or loss, which shall be computed in the manner prescribed in ICDS.
    • New sec. 43CB inserted to provide that profits arising from a construction contract or a contract for providing services shall be determined on the basis of percentage completion method except for certain service contracts, and that the contract revenue shall include retention money and contract cost shall not be reduced by incidental interest, dividend and capital gains.
    • 145A to provide that for the purpose of determining the income chargeable under the head “Profit and Gains from Business or Profession”:
  • Valuation of inventory shall be made at lower of actual cost or net realizable value computed in the manner prescribed in ICDS u/s 145(2).
  • Valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee actually paid or incurred by the assessee to bring the goods or services to the place of its locations and conditions as on the date of valuation.
  • Inventory being securities not listed or listed but not quoted, on a recognized stock exchange, shall be value at actual cost initially recognized in the manner provided in ICDS.
  • Inventory being listed securities, shall be valued at lower of actual cost or net realizable value in the manner provided in ICDS.

 

  • 145B (1) introduced to provide that interest received by an assessee on compensation or on enhanced compensation, shall be deemed to be the income of the year in which it is received. (w.e.f AY 2017-18)
  • 145B(2) to provide the claim for escalation of price in a contract of export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realization is achieved. (w.e.f AY 2017-18)
  • 145B(3) to provide the subsidy referred to sec. 2(24)(xviii) shall be taxed in the year in which it is received, if not charged ot income tax for any earlier previous year.

 

  1. Tax Deduction at Source (TDS)
    • No TDS on interest paid to senior citizen upto Rs. 50,000 u/s 194A w.e.f AY 2018-19.
    • 193 to amend to propose that the person responsible for paying to a resident any interest on 7.75% Savings (Taxable) Bond, 2018 shall deduct income tax, if the interest payable on such bonds exceeds Rs. 10,000 during the financial year.
  2. Penalty
    • At present if a person who is required to furnish the statement of financial transaction or reportable account u/s 285 BA(1), fails to furnish such statement within the prescribed time, he shall be liable to pay penalty of Rs. 100 for every day of default. Section further provides that in case such person fails to furnish the statement of financial transaction or reportable account within the period specified in the notice issued u/s 285BA (5), he shall be liable to pay penalty of Rs. 500 for every day of default.

W.e.f 01.04.2018, it is proposed to amend the said section so as to increase the penalty from Rs. 100 to Rs. 500 and from Rs. 500 to Rs. 1000 for each day of continuing default.

 

  1. Report in respect of International Group Sec. 286
    • 286 of the Act contains provisions relating to Country by Country Reporting (CbCR) in respect of international group. Following amendments are proposed to be made so as to improve the effectiveness and reduce the compliance burden of such reporting w.e.f AY 2017-18.
  • Time allowed for furnishing CbCR in case of parent entity or Alternative Reporting Entity (ARE) , resident in India, is proposed to be extended to 12 months from the end of the reporting year as against on/before the due date of filing of return.
  • 286(4) is proposed to be amended to also providing for furnishing CbCR by constituent entity resident in India, having a non-resident parent entity outside India has no obligation to file the CbCR in the latter’s country/territory.
  • Time allowed for furnishing the CbCR, in the case of constituent entity resident in India, having a non-resident parent, shall be 12 months from the end of the reporting accounting year.
  • 286(5) is proposed to be amended to state that the due date of furnishing the CbCR by the ARE of an International Group, the parent entity of which is outside India, with the tax authority of the country or territory of which it is resident, will be the due date specified by that country or territory as against on/or before return filing due date specified earlier.
  • It is also proposed to consequentially substitute clause (b) of sub-section (9) so as to provide that the term “agreement” would mean a combination of-
  • An agreement referred to in sub-section (1) of sec. 90 of subsection (1) of sec. 90A; and
  • An agreement as may be notified by the Central Government for exchange of the report referred to in sub-section (2) and sub-section (4).

 

 

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