BUDGET ANALYSIS- 2018

Proposed Amendments in Direct Tax Regime

Income Tax (Personal):

  • No changes have been made in the existing slab rates. Following shall be the slab rates for individuals less than the age of 60 years:

Upto Rs. 2,50,000                                                                                    NiL

Rs. 2,50,001 to Rs. 5,00,000                                                                 5 per cent.

Rs. 5,00,001 to Rs. 10,00,000                                                            20 per cent.

Above Rs. 10,00,000                                                                           30 per cent

 

In case of Individuals exceeding the age of 60 years but less than 80 years, following shall be the slab rate:

 

Upto Rs.3,00,000                                                                                     NiL

Rs. 3,00,001 to Rs. 5,00,000                                                                 5 per cent.

Rs. 5,00,001 to Rs. 10,00,000                                                             20 per cent.

Above Rs. 10,00,000                                                                            30 per cent.

 

In case of Individuals of the age 80 years or more, following shall be the slab rate:

 

Upto Rs. 5,00,000                                                                                  NiL

Rs. 5,00,001 to Rs. 10,00,000                                                              20 per cent.

Above Rs. 10,00,000                                                                             30 per cent.

 

  • No changes have been made to the existing rates of surcharge i.e. 10% in case of individuals/HUF/AOP/BOI having total income above Rs. 50 lakhs but not exceeding Rs. 1 crore and 15% on individuals/HUF/AOP/BOI and 12% in case of firm or cooperative societies, having income exceeding Rs 1 crore.

 

  • Education and Secondary Higher education of cess of 2% and 1% (i.e. 3%) shall now be replaced with “Health and Education Cess” @ 4%.

 

  • In case of Salaried Individuals, it is proposed to allow a standard deduction upto Rs 40,000/- or the amount of salary received, whichever is less. Consequently the present exemption in respect of Transport Allowance (except in case of differently abled persons) and reimbursement of medical expenses is proposed to be withdrawn. This amendment will take effect from Assessment Year 2019-20.

 

  • It is proposed to amend section 28 of the Act to provide that 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. It is further proposed that any compensation received or receivable, whether in the nature of revenue or capital, in connection with the termination or the modification of the terms and conditions of any contract relating to its employment shall be taxable under section 56 of the Act. This amendment will take effect from Assessment Year 2019-20.

 

  • Under the existing provisions, an employee contributing to the NPS is allowed an exemption in respect of 40% of the total amount payable to him on closure of his account or his opting out. It is proposed to extend the said benefit to all subscribers (employee as well as non-employee). This amendment will take effect from 1st April, 2019.

 

Tax Benefits- Senior Citizens

  • Deduction on account of health insurance policy under section 80D of the Act is proposed to be raised from present limit of Rs 30,000 to Rs. 50,000. In case of single premium health insurance policies having cover of more than one year, it is proposed that the deduction shall be allowed on proportionate basis for the number of years for which health insurance cover is provided, subject to the specified monetary limit. This amendment will take effect from Assessment Year 2019-20.

 

  • It is proposed to raise the present limit for deduction u/s 80DDB on account of medical treatment for specified diseases from Rs. 60,000 in case of senior citizens and Rs. 80,000 in case of super senior citizens to Rs. 1,00,000 in of senior citizens and super senior citizens. This amendment will take effect from Assessment Year 2019-20.

 

  • Deduction under section 80TTA in case of senior citizens on account of interest received from savings bank account and post office savings account is proposed to be raised from present Rs. 10,000 to Rs. 50,000. This amendment will take effect, from 1st April, 2019.

 

  • It is also proposed to amend section 194A so as to raise the threshold for deduction of tax at source on interest income for senior citizens from Rs 10,000/- to Rs 50,000/-. This amendment will take effect from 1st April, 2018.

 

Income Tax (Corporate)

  • In case of domestic company, the rate of income-tax shall be 25% of the total income if the total turnover or gross receipts of the previous year 2016-17 does not exceed 250 Crores and in all other cases the rate of Income-tax shall be 30% of the total income.

 

  • No change has been made for rates of surcharge in case of Companies, both domestic and foreign.

 

  • Education and Secondary Higher education of cess of 2% and 1% (i.e. 3%) shall now be replaced with “Health and Education Cess” @ 4%.

 

  • It is proposed to amend the section 44AE of the Act to provide that, in the case of heavy goods vehicle (more than 12MT gross vehicle weight), the income would deemed to be an amount equal to 1,000 per ton of 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 vehicles other than heavy goods vehicle will continue to be taxed as per the existing rates. This amendment will take effect from Assessment Year 2019-20.

 

  • Scope of deduction u/s 80P of the Act providing for 100 percent deduction in respect of profit of cooperative society which provide assistance to its members engaged in primary agricultural activities is proposed to be expanded to Farm Producer Companies (FPC), having a total turnover upto Rs 100 Crore. This amendment will take effect from 1st April, 2019.

 

  • In order to improve the effectiveness of the scheme for promoting start ups in India, it is proposed to make following changes in the taxation regime for the start ups:—

 

(i) The benefit would also be available to start ups incorporated on or after the 1st day of April 2019 but before the 1st day of April, 2021;

 

(ii) The requirement of the turnover not exceeding Rs 25 Crore would apply to seven previous years commencing from the date of incorporation;

 

(iii) The definition of eligible business has been expanded to provide that the benefit would be available if it is engaged in innovation, development or improvement of products or processes or services, or a scalable business model with a high potential of employment generation or wealth creation.

The amendment will take effect from 1st April, 2018.

 

  • Scope of exemption u/s 80JJA of the Act given to apparel industry is expanded to footwear and leather industry under which such industries shall be eligible to a deduction of 30% in addition to normal deduction of 100% in respect of emoluments paid to eligible new employees who have been employed for a minimum period of 150 days during the year. The amendment will take effect, from 1st April, 2019.

 

  • Section 115BA of the Act provides that the total income of a newly set up domestic company engaged in business of manufacture or production of any article or thing and research in relation thereto, or distribution of such article or thing manufactured or produced by it, shall, at its option, be taxed at the rate of 25% subject to conditions specified therein. It is proposed to amend section 115BA so as to clarify that the provisions of section 115BA is restricted to the income from the business of manufacturing, production, research or distribution referred to therein; and income which are at present taxed at a scheduler rate will continue to be so taxed. The amendment will take effect retrospectively from the 1st April, 2017.

 

  • It is proposed to extend the scope of section 80AC to provide that the benefit of deduction under the entire class of deductions under the heading “C.—Deductions in respect of certain incomes” in Chapter VIA shall not be allowed unless the return of income is filed by the due date. This amendment will take effect from 1st April, 2018

 

Widening Tax Base and curbing tax evasion

  • All the people managing director, director, partner, trustee, author, founder, karta, chief executive officer, etc associated with non-individual entities such as companies, firms, BOI, AOP, etc shall need to need to apply for PAN.

 

  • 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 with a non-individual entity shall be required to obtain PAN.

 

  • In order to stop the abuse of amalgamation route to reduce capital and escape liability of paying tax on distributed profits, it is proposed to widen the scope of the term ‘accumulated profits’ so as to provide that in the case of an amalgamated company, accumulated profits, whether capitalised or not, or losses as the case may be, shall be increased by the accumulated profits of the amalgamating company, whether capitalized or not, on the date of amalgamation. This amendment shall be applicable from AY 2018-19.

 

  • Deemed Dividend paid under section 2(22)(e) of the Income Tax Act is proposed to be liable to Dividend Distribution Tax @ 30% (without grossing up). This amendment shall be applicable from AY 2018-19.

 

  • It is proposed to amend the section 115R to provide that where any income is distributed by a Mutual Fund being, an equity oriented fund, the mutual fund shall be liable to pay additional income tax at the rate of 10% on income so distributed. For this purpose, equity oriented fund will have the same meaning assigned to it in the new section 112A of the Act. This amendment will take effect from 1stApril, 2018.

 

Capital Gains and taxation of securities

  • It is proposed to withdraw the exemption enjoyed by the Assessee’s at the time of sale of equity shares held for more than 1 year on which STT has been paid u/s 10(38) of the Act and all such capital gains exceeding Rs 1 lacs shall be taxable at a concessional rate of 10%. No indexation benefit shall be given for the purpose of computation of capital gains.

 

  • The above mentioned amendment shall also be applicable on Foreign Institutional Investors.

 

  • The cost of acquisitions in respect of the long term capital asset acquired by the assessee before the 1st day of February, 2018 , shall be deemed to be the higher of –
  1. a) the actual cost of acquisition of such asset; and
  2. b) the lower of –

(I) the fair market value of such asset; and

(II) the full value of consideration received or accruing as a result of the transfer of the capital asset.

These amendments will take effect from 1st April, 2019.

  • It is proposed to amend the provisions of clause (5) of section 43 to provide that a transaction in respect of trading of agricultural commodity derivatives, which is not

chargeable to CTT, in a registered stock exchange or registered association, will be treated as non-speculative transaction. These amendments will take effect from 1st April, 2019.

 

  • At present, while taxing income from capital gains (section 50C), business profits (section 43CA) and other sources (section 56) arising out of transactions in immovable property, the sale consideration or stamp duty value, whichever is higher is adopted. It is proposed to provide that no adjustments shall be made in a case where the variation between stamp duty value and the sale consideration is not more than 5% of the sale consideration.

 

  • It is proposed to amend provision of section 54EC of the Act to restrict its benefit only with respect to LTCG arising at the time of sale of Land or building or both. Further, period for which such funds shall remain invested in specified bonds shall be raised from the current period of 3 years to 5 years. This amendment will take effect, from 1st April, 2019.

 

Taxation of Exempted Institutes

  • It is proposed to expand the provisions of section 40A(3) of the Act to exempted entities i.e. any payment made to any person on a particular day in excess of Rs. 10,000 shall be disallowed while computing the income u/s “Profits and Gains from Business and Profession” of such exempted entity.
  • It is proposed that such entities shall be liable to comply with the provisions of TDS and any non-compliance of the same shall entail disallowances under section 40(a)(ia) of the Act while computing the income u/s “Profits and Gains from Business and Profession” of such exempted entity.

 

These amendments shall be applicable w.e.f April 1, 2019 .

 

 

Filing of Returns and Assessments

  • It is proposed to amend provisions of section 143 of the Act to prescribe a new scheme for the purpose of making assessments so as to impart greater transparency and accountability, by eliminating the interface between the Assessing Officer and the assessee, optimal utilization of the resources, and introduction of team-based assessment. These amendments will take effect from 1st April, 2018.

 

  • In order to prevent abuse of section 276CC of the Act by shell companies or by companies holding Benami properties under which tax payable by him on the total income determined on regular assessment as reduced by the advance tax, if any, paid and any tax deducted at source, does not exceed Rs. 3,000, it is proposed to amend the provisions so as to provide that the sub-clause of specified section shall not apply in respect of a company. These amendments will take effect from 1stApril, 2018.

 

  • It is proposed to amend the relevant provisions of the Act to provide that no adjustment shall be made at the time of processing of return under section 143(1) of the Act in respect of addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return. This amendment will take effect from 1st April, 2018.

 

Income Computation and Disclosure Standards

 

In order to bring certainty in the wake of recent judicial pronouncements on the issue of applicability of ICDS, it is proposed to —

 

  • amend section 36 of the Act to provide that marked to market loss or other expected loss as computed in the manner provided in income computation and disclosure standards notified under sub-section (2) of section 145, shall be allowed deduction.

 

  • amend 40A of the Act to 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 sub-section(1) of section 36.

 

  • insert a new section 43AA in the Act to provide that, subject to the provisions of section 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 provided in ICDS as notified under sub-section (2) of section 145.

 

  • insert a new section 43CB in the Act to provide that profits arising from a construction contract or a contract for providing services shall be determined on the basis of percentage of 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.

 

Amend section 145A of the Act to provide that, for the purpose of determining the income chargeable under the head “Profits and gains of business or profession:—

 

  • the valuation of inventory shall be made at lower of actual cost or net realizable value computed in the manner provided in income computation and disclosure standards notified under (2) of section 145.

 

  • the 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 location and condition as on the date of valuation.

 

  • inventory being securities not listed, or listed but not quoted, on a recognised stock exchange, shall be valued at actual cost initially recognised in the manner provided in income computation and disclosure standards notified under (2) of section 145.

 

  • inventory being listed securities, shall be valued at lower of actual cost or net realisable value in the manner provided in income computation and disclosure standards notified under (2) of section 145 and for this purpose the comparison of actual cost and net realisable value shall be done category-wise.

 

Insert a new section 145B in the Act 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.
  • the claim for escalation of price in a contract or export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realisation is achieved.
  • income referred to in sub-clause (xviii) of clause (24) of section 2 shall be deemed to be the income of the previous year in which it is received, if not charged to income tax for any earlier previous year.

 

No Major amendments have been made in the Indirect Tax Regime

 

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