Reform. Perform. Transform.

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1 Reform. Perform. Transform. Highlights of Union Budget

2 Typical Scenario 2

3 Direct Tax Proposals 3

Individuals No change in income tax slabs, tax rates and surcharge Education cess increased from 3% to 4% - renamed as Health and Education Cess Standard Deduction of INR 40,000 introduced for

4 Individuals No change in income tax slabs, tax rates and surcharge Education cess increased from 3% to 4% - renamed as Health and Education Cess Standard Deduction of INR 40,000 introduced for salaried taxpayer Exemption for transport allowance of INR 19,200 will be removed Exemption for reimbursement of medical expenses of INR 15,000 will be removed Increased deductions for medical expenditure on specified diseases for senior citizens No change in limits for medical insurance premium and preventive health check up Limit increased for medical expenditure from INR 30,000 to INR 50,000 Deduction in respect of specified disease or ailment in respect of dependent senior citizens increased to INR 100,000 Interest on bank deposits tax free up to INR 50,000 for senior citizens (> 60 years of age) Interest on savings account will be fully taxable for senior citizens Withdrawal from NPS will be tax-exempt for 40% of contribution benefit extended to all taxpayers Key Takeaways Tax on interest on savings account for senior citizens included 4

5 Company v/s LLP Tax Rates Company and LLP Effective Tax Rate (incl. SC and Cess) (INR) Normal Corporates Corporates (turnover < INR 50 cr. In 15-16) Corporates (turnover > INR 250 cr. in 16-17) LLP Income up to 1 cr % % % 30.90% Income exceeding 1 cr. but not exceeding 10 cr % % % % Income exceeding 10 cr % % % % 5

6 Widening of Tax Base Long-Term Capital Gains on Listed Securities 10% levied on long-term capital gains on equity shares and equity-oriented mutual fund units Applicable to all taxpayers Concessional tax rate to apply for gains above INR 1 lac STT should have been paid at the time of purchase and sale Gains below INR 1 lac taxed are not exempt? Applicable on gains earned on or after 1 April 2018 Any gains earned up to 31 March 2018 will continue to remain exempt Gains up to 31 January 2018 grandfathered For sale made from 1 April 2018, cost of acquisition will be higher of A = Actual Cost of Acquisition B = Fair Market Value as on 31 January 2018 or consideration received, whichever is lower FMV will be the highest price quoted on 31 January 2018 Cost indexation benefit not available 6

7 Widening of Tax Base Long-Term Capital Gains on Listed Securities Particulars Situation 1 Situation 2 Situation 3 Situation 4 A. Actual Purchase Cost B. Fair Market Value (31 Jan 2018) C. Full Value of Consideration D. Lower of B and C E. Deemed Cost of Acquisition (Higher of A and D) Taxable Long Term Capital Gain (Loss) (C E) 25 (actual gain) 10 (adjusted gain) NIL (adjusted) (3) (actual loss) Key Takeaways Long term capital gains up to INR 1 lac is intended to be exempt needs to be rectified Promoter shareholding/bonus shares/trust structures may not enjoy concessional rate 7

8 Long Term Capital Gains Issues Since capital gains will now be taxable, losses arising on similar transactions should also be available for set-off / carry forward to subsequent eight assessment years Provisions of section 14A may become otiose if the view is adopted that such investments no longer give rise to only exempt income What if LTCG is less than INR 1 lac currently leads to the conclusion that it will be taxed at 20% after indexation or 10% whichever may be lower What if LTCG is more than INR 1 lac? Whether calculation up to INR 1 lac and after INR 1 lac needs to be done? Requirement of payment of Securities Transaction Tax (STT) on certain acquisitions to not apply as per the proposed provisions. Government to notify such acquisitions - IPOs, ESOPs, bonus, promoters holding, gift, etc. may get covered List of exclusions could be similar to the list notified currently for section 10(38) Also, if such shares are settled in the trust, whether they would be eligible for 10% benefit as the trust would not have paid STT? Foreign Portfolio Investors (FPIs) coming from Mauritius, Singapore are better placed in terms of grandfathering as compared domestic investors as they get complete grandfathering even in respect of appreciation post 1 April 2017 Interplay between section 112 and 112A 8

9 Widening of Tax Base Equity-oriented mutual fund to pay dividend distribution tax (DDT) at 10% Objective is to create parity between Growth Option and Dividend Option whether achieved? Particulars Growth Option Dividend Option Tax Incidence Long-Term Capital Gain Dividend Distribution Tax Base Tax Rate 10% 10% Tax (after grossing up) 10 (no gross-up) % / 12% Tax and Surcharge Health and Education 4% Total Tax 11.96% 12.96% Key Takeaways Parity between growth option and dividend option may not be achieved 9

10 Widening of Tax Base Compensation received by a taxpayer on termination or modification in terms of contract to be taxable as Income from other sources for a salaried person Overruling Delhi HC ruling in Pritam Das Narang [ITA No. 203/2014] Key Takeaways Expenses incurred on obtaining compensation (e.g. legal expenses) could be deductible for a salaried person 10

11 Other Incentives and Rationalisation Measures Incentives Benefit under section 54EC restricted to long term capital gains from transfer of land or building Presently, this benefit is available for all long term capital assets Rationalisation Measures Sale value of immovable property to be accepted if stamp value is within 5% of consideration Sale Value = 100, Stamp Value = 104 Sale value will be accepted Sale Value = 100, Stamp Value = 107 Stamp value will be considered as consideration Key Takeaways 5% tolerance band for real estate transactions not like a basic exemption 11

12 Our Story 12

13 Global Partner. Integrated Solutions. 13

14 India - Mumbai Urmi Axis, 7th Floor Famous Studio Lane, Dr. E. Moses Road Mahalaxmi, Mumbai India T: E: IndiaSales@skpgroup.com USA - Chicago 2917 Oak Brook Hills Road Oak Brook, IL USA T: E: NorthAmericaSales@skpgroup.com UAE - Dubai Emirates Financial Towers 503-C South Tower, DIFC PO Box , Dubai UAE T: E: UAESales@skpgroup.com Canada - Toronto 269 The East Mall Toronto, ON M9B 3Z1 Canada T: E: NorthAmericaSales@skpgroup.com Connect with us skpgrp.info@skpgroup.com Disclaimer The contents of this presentation are intended for general marketing and informative purposes only and should not be construed to be complete. This presentation may contain information other than our services and credentials. Such information should neither be considered as an opinion or advice nor be relied upon as being comprehensive and accurate. We accept no liability or responsibility to any person for any loss or damage incurred by relying on such information. This presentation may contain proprietary, confidential orlegally privileged information and any unauthorised reproduction, misuse ordisclosure ofits contents is strictly prohibited and will be unlawful.

Holistic solutions for complex tax challenges. Tax and Regulatory Services. skpgroup.com

Holistic solutions for complex tax challenges Tax and Regulatory Services skpgroup.com As businesses cross international borders and those borders themselves become increasingly blurred, the complexity