Union Budget 2018 Empowering the unempowered

Transcription

1 Union Budget 2018 Empowering the unempowered

2 Contents Introduction Economic Performance Sector wise Analysis Budget Financials Direct Taxes Indirect Taxes 2

3 Introduction Budget Statement of any government outlines its agenda for the coming year. It categorically spells out the priorities of the government and sets tone for the future. Being Narendra Modi Government s last budget for the current tenure, it was under scanner from all the sections of the society, be it corporates, trade associations, SMEs or public at large, especially after PM s opening address at WEF s annual meeting in Davos on 23 rd January, Since the government shall be entering into an election year in 3 months from now, everyone was expecting a populist budget with sops for everyone. However, this government has proved once again that it would not take the normally treaded path and go for fundamental reforms agenda. The budget clearly lays its focus on giving empowerment to unempowered sections of the society as well as business. Its vow to undertake Ease of Living with Ease of Doing Business spells it out very clearly. The numero uno priority in this budget is Agriculture and Rural Economy. The budget focuses on giving impetus to farming sector and making agriculture a viable income source through diversification of farmer s income. The Saubhagya and Ujjwala Yojana revolve around giving more power to the poor and underprivileged. The health and education sector had always been a secondary priority, since first priority was always to the basic necessities. However, this budget includes path breaking initiatives in the health and education sectors like National Health Protection Scheme popularly known as NaMo Care in health and RISE and DIKSHA in education. Infrastructure has always been the prime agenda of this government and should rightly be so for holistic progress of India. This year also the budget lays focus on fundamental infrastructure development through schemes such as PMGSY, UDAN and Bhratmala Project. At the same time it also includes budgetary allocations for ambitious project like Bullet Train. The four years of this government has seen tremendous penetration in the border areas as far as road and rail infrastructure is concerned which has been kept at the same pace in this budget too. The tax proposals also focus on weaker sections from the economic 3

4 Introduction perspective. Relief has been given to senior citizen taxpayers through various provisions elaborated later in the document. Salaried taxpayers have also been given a marginal relief. However, the champion of the incentives and relief measures come to start ups and Corporate SMEs through extension of sunset date for startups and rationalization of corporate taxation rates for Corporate SMEs. Through rationalization of corporate tax, 95% of corporates shall get benefited which shall lead to more money with these companies leading to job creation and employment generation. These measures shall give boost to the SME economy in India. to education and from individual taxpayers to Corporate SMEs. Though this budget cannot be titled as populist budget but can definitely be titled as budget based on basic fundamentals of an economy. We thus theme this year s budget as Empowering the Unempowered. Every plus has a minus. Going by this rule, the budget imposes taxes on the Haves to set-off the incentives given to Have-nots. Taxation on deemed dividend u/s 2(22)(e), taxing capital gains from stock market transactions and increase in cess by 1% are few such examples. Detailed analysis is covered in the document later. To sum up, the budget revolves around the theme of giving more power to them who were till now either inaccessible or underprivileged. From rural economy to infrastructure; from health 4

5 Economic Performance Global Economy Indian Economy Foreign Direct Investment Key Economic Indicators 5

6 Global Economy The global economy is now back on track with recovery mode on. The World Bank has in its latest Global Economic Prospects Report predicted that the global economy shall grow at the rate of 3.1% in 2018 as against 2.9% in the last forecast. According to the International Monetary Fund forecast the world economy will grow at 3.7 % this year, the fastest pace since US Government shutdown The US economy is one of the largest destinations for Indian goods' exports, with an almost 11% share. It also has a substantial share in services exports. After a gap of 17 years, the US Government was shut on 20 th January 2018, raising concerns over its impact on the world's largest economy and also the emerging markets like India. billion worth of Chinese products while it exports just $10.2 billion worth of goods to China. From -$37.2 billion in , trade deficit has widened in the last six years to -$51.1 billion. BREXIT impact on India United Kingdom always provided India a gateway to the European Union. Many Indian businesses have their offices in UK so they can avail benefits and continue to remain a part of the EU. But with Brexit, this benefit has been taken away and may result in companies relocating their business set ups to other places. Brexit might also have a positive effect, but these results may not show up immediately. The process might take time considering that the new government will take time to design and implement their policies. India-China Bilateral trade China is India s largest trading partner, with bilateral trade at $71.5 billion, but it is heavily skewed in favour of China. India imports $61.3 6

7 Global Economy US Rate cuts The US is the largest economy globally and India s largest economic partner. The US passed tax bill titled Tax Cuts and Jobs Act of 2017 thereby reducing the corporate tax rate to 21 % from 35 % and also reduced personal income tax rates. The changes in the corporate tax structure could have tremendous consequences for emerging economies like India, for instance, the federal tax outflow will reduce for the companies that have US operations. Indian business now have an opportunity to increase investment in US business, as well as setting up manufacturing units in the US. However, the opposite may be more difficult as it ends tax advantages for companies that move abroad from US shores. Indian Perspective India is likely to reclaim the position in 2018, with growth expected to accelerate at 7.3% in the year, according to the World Bank s Global Economic Prospects report. Hence, as we enter 2018, global growth remains strong, and optimism prevails across India. 7

8 Global recognition of Indian Economy International monetary fund bullish on indian economy IMF remains bullish on India s growth potential and has retained its GDP forecast for the country at 6.7 per cent in 2017 and 7.4 per cent in 2018.In its World Economic Outlook Update, it also estimated that the Indian economy would grow by 7.8 per cent in 2019, which make the country the world s fastest-growing economy in 2018 and 2019, the top ranking it briefly lost in 2017 to China. Moody s ratings- upgradation of India's credit rating Backing the reforms carried out by the Narendra Modi government, the international credit rating giant Moody's defended its decision to upgrade India's credit ratings to Baa2 from Baa3 after a gap of around 13 years. The agency claimed the initiatives, including demonetisation and Goods and Services Tax (GST), taken up by the government would strengthen India's credit powers, boost growth prospects and global competitiveness. Standard and poor s ratings In what could be considered as a less enthusiastic view on India s debt sustainability, Standard & Poor s (S&P) kept India s sovereign rating unchanged at BBB-, evoking rather ambivalent reactions compared with those that followed the rating upgrade by Moody s to Baa2 from Baa3 on November, 16, World Economic Forum index India was on Monday ranked at the 62nd place among emerging economies on an Inclusive Development Index, much below China s 26th position and Pakistan s 47 th for year World bank India for the first time moved into the top 100 in the World Bank s Ease of Doing Business global rankings on the back of sustained business reforms over the past several years. 8

9 Indian economy India has emerged as the fastest growing major economy in the world as per the Central Statistics Organisation (CSO) and International Monetary Fund (IMF) and it is expected to be one of the top three economic powers of the world over the next decade, backed by its strong democracy and partnerships. India's growth rate in 2018 is projected to hit 7.3 per cent and 7.5 per cent in the next two years, according to the World Bank, which said the country has "enormous growth potential" compared to other emerging economies with the implementation of comprehensive reforms. India is estimated to have grown at 6.7 per cent in 2017 despite initial setbacks from demonetization and the Goods and Services Tax (GST), according to the 2018 Global Economics Prospect released by the World Bank. 9

10 Foreign Direct Investment India has been a key driver for policy making by the Government. Prime Minister Modi seems to be going along the right track, with India receiving FDI inflows worth USD 60.1 billion in , which was an all-time high. Hence, the FDI policy of India has always been closely watched and carefully amended over the years. On August 28 th, 2017, the Department of Industrial Policy and Promotion (DIPP) had issued the updated and revised Foreign Direct Investment Policy, (FDI Policy 2017). The FDI Policy 2017 also incorporates all Press Notes issued by the DIPP during the course of the year. Set out below are the sectorspecific significant amendments brought about in the last year: Foreign direct Investment (FDI) is the major monetary source for economic development in India. Foreign companies invest directly in fast growing private Indian businesses to take benefits of cheaper wages and changing business environment of India. The ability to attract large scale Foreign Direct Investment (FDI) into Manufacturing: To further liberalise the manufacturing sector (which allowed 100% FDI under the automatic route), 100% FDI under government approval route was allowed for retail trading, including through e-commerce, in respect of food products manufactured and/or produced in India. 10

11 Foreign Direct Investment Civil Aviation: The threshold for FDI in existing projects under the automatic route was increased from 74% to 100%. Single Brand Retailing: Sourcing norms applicable for FDI were relaxed and will not be applicable up to 3 (three) years from commencement of the business i.e. opening of the first store for entities undertaking single brand retail trading of products having state-of-art and cutting-edge technology and where local sourcing is not possible. Government has eased 87 FDI rules across 21 sectors in the last 3 years, opening up traditionally conservative sectors like rail infrastructure and defence. Even India s agriculture sector has received FDI worth INR crore in It is expected that the Government will continue to bring about liberalisation of the FDI regime in India in the months to come. All in all, we intend to maintain our trajectory towards remaining the world s most attractive destinations for foreign investment. Other Financial Services: The previously applicable capitalisation norms for non-banking financial services companies were struck off, and all financial sector activities by entities already regulated by financial sector regulators fall under the 100% automatic route of investment, with applicability of sectoral laws. The changes in the FDI Policy 2017 display the efforts of the Indian Government to remove of multiple layers of bureaucracy, and to process proposals for FDI under the government approval route in a more streamlined, positive and expeditious manner. The 11

12 Key Economic Indicators Gross Domestic Product (GDP) growth India's gross domestic product (GDP) grew by 6.3 per cent in July- September 2017 quarter as per the Central Statistics Organisation (CSO). Corporate earnings in India are expected to grow by over 20 per cent in FY supported by normalisation of profits, especially in sectors like automobiles and banks, according to Bloomberg consensus. GDP Growth (%) India

13 Key Economic Indicators Inflation The central bank of our country is having a very close eye on the inflation. Keeping this in view, RBI has retained the repo rate at 6 per cent in its fourth bi-monthly monetary policy review of The central bank also kept the reverse repo rate at 5.75 per cent. The cash reserve ratio (CRR) too has been left unchanged at 4 per cent. The primary reason behind no change in policy rates reflects the Reserve Bank of India's focus on inflation control. Inflation measurement in India There are two main set of inflation indices for measuring price level changes in India A. Consumer Price Index B. The Wholesale Price Index (WPI) 13

14 Key Economic Indicators Consumer price index(cpi) Wholesale price index(wpi) The CPI Inflation, a measure of retail inflation, rose to 5.21% YoY in December 2017, 17 months high, due to rising food inflation and fuel inflation. In November 2017, CPI Inflation was 4.88% YoY in and 3.58% Yoy in October 2017.As per the Bloomberg survey, the median inflation estimate was 5.1% YoY. India's wholesale inflation rose to 3.93% in November up from 3.59% in October. Build up inflation rate in the financial year so far was 2.74% compared to a buildup rate of 3.90% in the corresponding period of the previous year. 14

15 Key Economic Indicators Monetary policy-status of economic controls Repo rate RBI has retained the repo rate at 6 per cent in its fourth bi-monthly monetary policy review of Reverse repo rate The central bank also kept the reverse repo rate at 5.75 per cent. 15

16 Sector wise Analysis Agriculture Underprivileged and Poor Urban Rejuvenation Education Sectoral Allocation 16

17 Agriculture Agriculture has always been the defining sector in the socioeconomic background of Indian economy. This sector has witnessed many high and low points in the history of Indian economy. However, currently the agrarian economy is in distress and requires overhauling measures to reboot the process. This has rightly been done in this year s budget by announcement of various farming related fundamental reforms and measures. The government has changed the way agriculture was looked till now. From being production centric, agriculture in India shall be Income centric. This shall be achieved mainly through diversification of farmer s income and assuring farmer best possible price for its produce. Doubling farmer s income by 2022 generating higher incomes for farmers. Necessary measures are taken in this budget to help farmers produce more from the same land parcel at lesser cost and simultaneously realize higher prices for their produce With a veiw to give a big push to such initiative, Modi government has clearly stated that the farmers should realize at least 50 per cent more than the cost of their produce, in other words, one and a half times of the cost of their production. It has already declared Minimum support price (MSP) for the majority of Rabi crops at least at one and a half times the cost involved. Now, the Government has decided to keep MSP for the all unannounced crops of Kharif at least at one and half times of their production cost. Modi government is committed to double farmers income by 2022 when India celebrates its 75th year of independence. Emphasis is on 17

18 Agriculture The Government will continue to work closely with the farmers and the people in the rural areas to improve their life and environment. This is a non-negotiable agenda for our Government. Arun Jaitley (Budget Speech) The agriculture ministry estimates show that Total food grain production is estimated at an all-time high of 275 million tonnes in , 8% higher than the million tonnes last year, and surpassing the previous record of 265 million tonnes in e-nam In the last financial year, government had announced strengthening of e-nam and to expand coverage of e-nam to 585 APMCs. As of now 470 APMCs have been connected to e-nam network and remaining shall be connected by March In order to upgrade existing 22,000 rural haats in to gramin agricultural markets(grams), physical infrastructure will be strengthened using MGNREGA. Grameen Agricultural Markets (GrAMs) and 585 APMCs. Diversification of Income The budget aims at diversifying the farmer s income and one of the measures is promotion of cluster based development of agricommodities. Government Is planning to setup An Agri-Market Infrastructure Fund with a corpus of Rs.2,000 crore will be set up for developing and upgrading agricultural marketing infrastructure in the

19 Underprivileged and Poor The first right over nation s resources is of the underprivileged and poor. This principle has been time and again become vibrantly visible in the policies of this government, then be it Ujjwala Yojana or electricity for all. This year also, the budget lays emphasis on this sector and brings in schemes which can be termed as path breaking initiatives in the long run. Government is set to give a check on the diseases such as TB. Government has, therefore, decided to allocate additional Rs. 600 crore to provide nutritional support to all TB patients at the rate of rs. 500 per month for the duration of their treatment. If all these things are put on a single slate, it is quite clear that the health sector will certainly be benefited. National Health Protection Scheme The budget includes announcement of a flagship scheme in healthcare - National Health Protection Scheme to cover over 10 crore poor and vulnerable families providing coverage upto Rs. 5 lakh per family per year for secondary and tertiary care hospitalization. This will be the world s largest government funded health care programme. This initiatives will create lakhs of jobs, particularly for women. 19

20 Underprivileged and Poor Pradhanmantri Aawas Yojana The Pradhan Mantri Awas Yojana (PMAY) Credit Linked Subsidy Scheme (CLSS) - Housing for All is a home loan scheme. The scheme envisions 'Housing for All' by the year It benefits people belonging to the Economically Weaker Section (EWS), Low Income Group (LIG), Middle Income Group-I (MIG-I), and Middle Income Group-II (MIG-II) of society. Beneficiaries availing this scheme are eligible to avail interest subsidy on the purchase or construction of a house or the enhancement of dwelling unit. families in rural and urban areas by December Ujjwala Yojana Initially the target was to provide free LPG connections to about 5 crore poor women. But in view of the pace of implementation of Ujjwala scheme and its popularity among the women, it is proposed to increase the target of providing free connection to 8 crore poor women. Saubhagya Yojana Under this scheme, four crores poor households are being provided with electricity connection free of charge crore will be spent under this scheme. The Rs. 16,320-crore Pradhan Mantri Sahaj Bijli Har Ghar Yojana, or Saubhagya, shall provide electricity connections to over 40 million 20

21 Urban Rejuvenation Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling India s overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. In 2016, India jumped 19 places in World Bank's Logistics Performance Index (LPI) 2016, to rank 35th amongst 160 countries. Foreign Direct Investment (FDI) received in Construction Development sector (townships, housing, built up infrastructure and construction development projects) from April 2000 to March 2017 stood at US$ 24.3 billion, according to the Department of Industrial Policy and Promotion (DIPP). The Road Transport & Highways Ministry has invested around Rs 3.17 trillion (US$ 47.7 billion), while the Shipping Ministry has invested around Rs 80,000 crores (US$ 12.0 billion) in the past two and a half years for building world class highways and shipping infrastructure in the country. With the view of boosting the phase of urbanization, Modi government has launched two interlinked programmes- Smart Cities Mission and the AMRUT Smart Cities Mission aims at building 100 Smart Cities with state-ofthe-art amenities. 99 Cities have been selected with an outlay of Rs lakh crore. The AMRUT programme focuses on providing water supply to all households in 500 cities. Roadways The government had set a target of completing National Highways exceeding 9000 kilometers length during With the aim of catalyzing this, the Ambitious Bharatmala Pariyojana has been approved for providing seamless connectivity of interior and backward areas and borders of the country to develop about kms in Phase-I at an estimated cost of Rs. 5,35,000 crore. 21

22 Urban Rejuvenation Railways There has always been a massive investments in the railways to enhance the railway network and enhancing Railways carrying capacity. A large part of the Capital expenditure is devoted to capacity creation. Government is trying to eliminate capacity constraints and transform almost entire network into Broad Gauge through 18,000 kilometers of doubling, third and fourth line works and 5000 kilometers of gauge conversion. Over 3600 kms of track renewal is targeted during the current fiscal. Steps are initiated at pan India level to upgrade the status of railway stations, eliminating unmanned level crossings. Telecommunications Task of connecting one lakh gram panchayat through high speed optical fiber network has been completed under phase I of the Bharatnet project. This has enabled broadband access to over 20 crore rural Indians in about two lakh fifty thousand villages. The Government also proposes to setup five lakh wi-fi hotspots which will provide broadband access to five crore rural citizens. finance minister has provided `10000 crore in for creation and augmentation of Telecom infrastructure. Coming to India s first bullet train project, Mumbai-Ahmedabad bullet train project, The train, which is expected to begin operations in 2022, will run at a maximum speed of 350 km per hour and will cover the 508-km stretch in under three hours. 22

23 Urban Rejuvenation Airways The UDAN Scheme is a key component of the Prime Minister Narendra Modi's National Civil Aviation Policy (NCAP). UDAN (Ude Desh ka Aam Naagrik) is a regional airport development and "Regional Connectivity Scheme" (RCS) of Government of India, with the objective of "Let the common citizen of the country fly", aimed at making air travel affordable and widespread, to boost inclusive national economic development, job growth and air transport infrastructure development of all regions and states of India. operational including army airports) to at least 150 airports (by December 2018) with regular scheduled flights B) The Second component is to add several hundred financiallyviable capped-airfare new regional flight routes to connect more than 100 underserved and unserved airports in smaller towns with each other as well as with well served airports in bigger cities by using "Viability Gap Funding" (VGF) where needed. The scheme has two components A) The First component is to develop new and enhance the existing regional airports to increase the number of operational airports for the scheduled civilian flights from 70 (in May 2016, total 98 23

24 Indian Education Black Board to Digitial Board India has no dearth of knowledge, but this talent needs to be harnessed and given proper education for our future. The Indian education system consists of both public and private sector finance. In the eleventh five year plan public private partnership (PPP) model was proposed in the fields of education for no government or social control over the education system In the current year, government want to increase the reach of education to everyone with quality by providing proper training to teachers. Improvement in quality of teachers can improve the quality of education in the country. Modi government has amended the Right to Education Act to enable more than 13 lakh untrained teachers to get trained. Special provisioning has been done in respect of promotion of education in tribal area. To realise this mission, it has been decided that by the year 2022, every block with more than 50% ST population and at least 20,000 tribal persons, will have an Ekalavya Model Residential School. Ekalavya schools will be on par with Navodaya Vidyalayas and will have special facilities for preserving local art and culture besides providing training in sports and skill development The government is geared up to infuse technology in the education system. Technology will also be used to upgrade the skills of teachers through the recently launched digital portal DIKSHA. 24

25 Indian Education Black Board to Digitial Board For providing a growth direction to education system, the government is going to step up investments in research and related infrastructure in premier educational institutions, including health institutions by launching Revitalising Infrastructure and Systems in Education (RISE) by 2022 with a total investment of `1,00,000 crore in next four years. Government is proposed to set up two new full-fledged Schools of Planning and Architecture, to be selected on challenge mode. Additionally, 18 new SPAs would be established in the IITs and NITs as autonomous Schools, also on challenge mode. It is expected that these bright young fellows would voluntarily commit few hours every week for teaching in higher educational institutions. A Major announcement has been made from finance minister s desk to channelize additional funds towards education by increasing current education cess by one percent In order to take care of the needs of education and health of BPL and rural families.this will enable help to collect an estimated additional amount of `11,000 crores that will definitely benefit those who are not able to manage primary and secondary education for them. It is well said that the journey of a thousand miles begins with number of small steps. Incorporating the same The Government would launch the Prime Minister s Research Fellows (PMRF) Scheme this year. Under this scheme, 1,000 best B.Tech students will be selected each year from premier institutions and will be provided with facilities to do Ph.D in IITs and IISc, with a handsome fellowship. 25

26 Sectoral Allocation Comparison of Revised Estimates of FY 17 with Budgeted Estimates of FY 18 23% 7% 11% 5% 14% Sector Agriculture and Allied activities Commerce and Industry Education RE (Rs. Crores) BE (Rs. Crores) % Change 56,589 63, ,310 27, ,869 85, Health 53,198 54, % 9% Rural Development Social Welfare 1,35,604 1,38, ,624 44, % Transport Urban Development 1,07,092 1,34, ,754 41, Grand Total 5,40,040 5,90,

27 Fiscal Management The Central Government in FY achieved budgeted target of fiscal Deficit of 3.5 per cent of GDP. Prudent economic policies, manifested in a combined focus on reducing government spending and increasing revenue receipts ensured that the Government stayed its course. This achievement ensured that the government is on track to achieve its fiscal deficit targets as outlined in the FRBM Act. However with advancement of budget cycle and roll out of Goods and Services Tax from July 1, 2017, the fiscal deficit target for the year could not be met with revised estimate at 3.55 of the GDP. This mandated the government to recalibrate the fiscal consolidation plan set the fiscal deficit target for the year at 3.3% of the GDP. At least two major fiscal reforms which need mention due to their impact on fiscal policy outcomes are advancement of budget cycle and roll out of Goods and Services Tax from July 1, Particulars Fiscal Deficit (% of GDP) RE BE

28 Budget Financials Receipts Revised Estimates Budgeted Estimates Borrowings and Other liabilities Borrowings and Other liabilities 9% 13% 3% 21% Corporate Income Tax Income Tax Customs 10% 10% 3% 19% Corporate Income Tax Income Tax Customs 12% 19% Union Excise Duties 14% 19% Union Excise Duties 9% 14% Service Tax & other Taxes Non-Tax Revenue 9% 16% Service Tax & other Taxes Non-Tax Revenue Non-Debt Capital Receipts Non-Debt Capital Receipts 28

29 Budget Financials Expenditure Revised Estimates Centrally sponsored Scheme Central Sector schemes Budgeted Estimates Centrally sponsored Scheme Central Sector schemes 5% 8% 10% 11% Interest Payments Defence 5% 8% 9% 10% Interest Payments Defence 24% 5% 10% 9% 18% Subsidies Finance Commission & Other Transfers Stare's share of Taxes and Duties Pension 24% 8% 9% 9% 18% Subsidies Finance Commission & Other Transfers Stare's share of Taxes and Duties Pension Other Expenditure Other Expenditure 29

30 Direct Taxes The recent efforts by the government to unearth black money and to prevent black money from circulation have paid rich dividends. The growth rate of direct taxes in the financial years and has been significant. The last year ended with a growth of 12.6% in direct taxes and in the current year, the growth in direct taxes up to 15th January, 2018 is 18.7%. The number of assessees filing return of income has also witnessed a manifold rise from lakhs to lakhs in the current year. The Finance Minister stated that the demonetization and such other anti black money initiatives have taken as pro-honest initiatives by the people at large. This year s direct tax proposals does not have any path breaking amendments. However, few amendments have far reaching impact on the economy. One of the measures is rationalization of tax in case of small corporates. The Budget makes wealthy to bear the burden. One of the provisions takes the erstwhile exempted stock market transactions into taxation ambit with meagre threshold limit. Also, another provision taxes the income from mutual funds. The budget proposals also give some relief to individuals, especially to senior citizens. All in all, the direct tax recommendations casts burden on the classes and gives relief for the masses. ` ` % TAX 30

31 Personal Tax Tax Rates The rate of income tax or slabs remain unchanged in the Finance Bill, Cess: It is proposed to replace the existing 2% Education Cess and 1% Secondary and Higher Secondary Education Cess by a 4% Health and Education Cess. This Cess like Education Cess would be applicable on income tax including surcharge and shall be effective from 01 April, Comparative chart of tax rates applicable to individuals due to additional cess are as follows: Taxable income (INR) Individual < 60years Senior Citizens (60 80 years) Super Senior Citizens (>80 years) Pre Budget Post Budget Pre Budget Post Budget Pre Budget Post Budget Upto 2,50,000 NIL NIL NIL NIL NIL NIL 2,50,001-3,00, % 5.20% NIL NIL NIL NIL 3,00,001-5,00, % 5.20% 5.15% 5.20% NIL NIL 5,00,001-10,00, % 20.80% 20.60% 20.80% 20.60% 20.80% 10,00,001 50,00, % 31.20% 30.90% 31.20% 30.90% 31.20% 50,00, ,00, % 34.32% 33.99% 34.32% 33.99% 34.32% Above 100,00, % 35.88% % 35.88% % 35.88% 31

32 Personal Tax Standard deduction from salary income It is proposed to introduce a standard deduction from salary income up to INR 40,000 in lieu of reimbursement of medical expenses and transport allowance. Currently, reimbursement of medical expenses is not taxable up to INR 15,000 and transport allowance is exempt up to INR 19,200. The proposed amendment shall be effective from 01 April, Taxability of compensation in connection to employment The Finance Bill, 2018 proposes to amend section 56 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 employment shall be taxable as income from other sources. subsequent assessment years. National Pension Scheme (NPS) [clause (xviib), sub- section (2) of section 2/ Sec. 28] It is proposed to extend the exemption available in respect of withdrawal (on closure or opting out) from the NPS scheme to all subscribers. Currently, exemption of 40% of the amount payable was allowed to employees. The proposed amendment shall be effective from 01 April, This amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to assessment year and 32

33 Relief to Senior Citizens TDS u/s 194A on interest other than on interest on securities (w.e.f ) With a view of giving relief to senior citizens, the Finance Bill, 2018 proposes to increase the threshold exemption limit from Rs. 10,000/- to Rs. 50,000/-. [3 rd Proviso to Sec. 194A(3)] Increase in monetary limit for health insurance premium for senior citizens (w.e.f. A.Y ) To give relief to the senior citizens in case of health and medical facilities, the Finance Bill, 2018 proposes to increase the limit of deduction in respect of health insurance premium from Rs. 30,000/- to Rs. 50,000/- The increased limit shall be same for senior as well as very senior citizens. If lump sum consideration is paid in any previous year for the purpose of insurance premium, the same shall be allowed on a proportionate basis in the succeeding previous years. [Sec. 80D] Deduction in respect of medical treatment of diseases as specified, for senior citizens (w.e.f. A.Y ) The deduction in respect of expenditure in respect of medical treatment of senior citizens increased from Rs. 60,000/- to Rs. 1,00,000/-. The increased limit shall be same for senior as well as very senior citizens. Section 80 D 80 DDB 80 TTB Description Health insurance and medical treatment Medical treatment for specified ailments Interest from banks/ post office (including FD interest) Existing Limit (INR) Proposed Limit (INR) 30,000 50,000 60,000/80, ,000 10,000 (under section 80TTA) 50,000 33

34 Taxation Other Persons Partnership firm/ LLP Tax rates remain unchanged except for Health and Education cess. Effective tax rate of 31.2% if taxable income is less than INR 1Crore and 34.94% if taxable income exceeds INR 1 Crore Individuals/ HUF/ BOI Tax rates remain unchanged except for effective increase in the rate of cess by 1% as Health and Education cess. Alternate Minimum Tax Tax rate of MAT remain unchanged at 18.5% (plus applicable surcharge) except for effective increase in the rate of cess by 1% as Health and Education cess. 34

35 Corporate Taxation Tax Rates Domestic Companies having turnover upto Rs. 250 Crore in FY As a measure of giving impetus to Corporate SMEs, the Finance Bill, 2018 proposes to reduce the corporate rate of tax to 25% from existing 30% in case of companies having turnover upto Rs. 250 crores in F.Y Domestic Companies having turnover more than Rs. 250 Crore in FY Corporate tax rates remain unchanged at 30% Cess: It is proposed to replace the existing 2% Education Cess and 1% Secondary and Higher Secondary Education Cess by a 4% Health and Education Cess. from 01 April, Particulars Taxable income <= INR 1 Crore INR 1 Crore< Taxable Income <= INR 10 Crore Taxable income > INR 10 Crore Corporate Tax 25.00% 25.00% 25.00% Surcharge % 12.00% Corporate tax + Surcharge Health and Education cess 25.00% 26.75% 28.00% 4.00% 4.00% 4.00% Effective tax rate 26.00% 27.82% 29.12% Particulars Taxable income <= INR 1 Crore INR 1 Crore< Taxable Income <= INR 10 Crore Taxable income > INR 10 Crore Corporate Tax 30.00% 30.00% 30.00% Surcharge % 12.00% Corporate tax + Surcharge Health and Education cess 30.00% 32.10% 33.60% 4.00% 4.00% 4.00% Effective tax rate 31.20% 33.38% 34.94% 35

36 Corporate Taxation Tax Rates Foreign Companies Corporate tax rates remain unchanged at 30% Cess: It is proposed to replace the existing 2% Education Cess and 1% Secondary and Higher Secondary Education Cess by a 4% Health and Education Cess. from 01 April, Particulars Taxable income <= INR 1 Crore INR 1 Crore< Taxable Income <= INR 10 Crore Taxable income > INR 10 Crore Corporate Tax 40.00% 40.00% 40.00% Surcharge % 5.00% Corporate tax + Surcharge 40.00% 40.08% 42.00% Minimum Alternate Tax Tax rate of MAT remain unchanged at 18.5% (plus applicable surcharge) except for effective increase in the rate of cess by 1% as Health and Education cess. Dividend Distribution Tax Rate of DDT remains unchanged at 15% (plus applicable surcharge of 12%) except for effective increase in the rate of cess by 1% as Health and Education cess. Further, scope of DDT expanded to include deemed dividend under section 2(22)(e) and the rate prescribed thereto is 30% (plus applicable surcharge and cess) without grossing up applicability. Health and Education cess 4.00% 4.00% 4.00% Effective tax rate 41.60% 42.43% 43.68% 36

37 Non-Resident Taxation Aligning the scope of business connection with modified PE Rule as per Multilateral Instrument (MLI) (w.e.f ) It is proposed to amend the provision of section 9 of the Act so as to align them with the provisions in the DTAA as modified by MLI so as to make the provisions in the treaty effective. Accordingly, it has been proposed to amend the section 9(1)(i) to provide that business connection shall also include any business activities carried through a person who, acting on behalf of the nonresident, who habitually concludes contracts or habitually plays the principal role leading to conclusion of contracts by the non-resident. It is further proposed that the contracts should be- (i) in the name of the non-resident; or (ii) for the transfer of the ownership of, or for the granting of the right to use, property owned by that non-resident or that the nonresident has the right to use; or (iii) for the provision of services by that non-resident. [Amendment in clause (i), sub-section (1) of section 9] Exemption of income of Foreign Company from sale of leftover stock of crude oil extended to cover termination of agreement or arrangement (w.e.f ) Section 10 (48A) inserted by Finance Act, 2017 provided for the exemption of income accruing or arising to a foreign company on account of sale of leftover stock of crude oil only on the after the expiry of the agreement or arrangement and not on the termination of the said agreement or the arrangement. Given the strategic nature of the project benefitting India to augment its strategic petroleum reserves, it is proposed to amend clause (48B) of section 10 to provide that the benefit of tax exemption in respect of income from left over stock will be available even if the agreement or the arrangement is terminated in accordance with the terms mentioned therein. [clause 48B of section 10] 37

38 Non-Resident Taxation Concept of business connection widened It is proposed to widen the definition of business connection to also include cases where an agent habitually conclude contracts or habitually plays the principal role leading to conclusion of contracts, following the recommendations under BEPS Action 7 of OECD. The amendment is being proposed to widen the provisions of section 9(1)(i) of the Act and to align the same with the expanded Dependent Agent provisions of the tax treaties post modifications by the MLI, signed by various countries last year, and to which India is also a signatory. payments arising from such transaction or transactions during the tax year exceeds the amount as may be prescribed; or (ii) systematic and continuous soliciting of its business activities or engaging in interaction with such number of users, as may be prescribed, in India through digital means. This amendment will take effect from 1st April, 2019 and will, accordingly, apply in relation to assessment year and subsequent assessment years. [Insertion of explanation 2A in section 9] It is further proposed that Significant Economic Presence of a nonresident shall constitute a business connection in India. For this purpose, Significant Economic Presence shall mean: (i) Any transaction in respect of any goods, services or property carried out by a non-resident in India including provision of download of data or software in India if the aggregate of 38

39 Dividend Tax on deemed dividend u/s 2(22)(e) To bring dividend u/s 2(22)(a/b/c/d) and 2(22)(e) in line, it is proposed in the Finance Bill, 2018 to levy dividend distribution tax on deemed dividend u/s 2(22)(e). The applicable rate of tax shall be 30%. However, the tax on deemed dividend u/s 2(22)(e) is not required to be calculated by grossing up the dividend amount. 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 will take effect from 1st April, 2018 and will accordingly apply in relation to assessment year and subsequent assessment years. [Explanation 2A, clause (22), of section 2] This provision shall apply to transactions on or after 1 st April, [Proviso to Sec. 115-O(1) ] Accumulated profits for the purpose of dividend The Finance Bill, 2018 proposes to insert a new Explanation 2A in clause (22) of section 2 of the Act to widen the scope of the term accumulated profits. So as to provide that in the case of an amalgamated company, 39

40 Business Profits Conversion of stock-in-trade into Capital Asset shall be treated as transfer and chargeable to tax as Business Income Section 45 of the Act, provided for capital gains on conversion of capital asset into stock-in-trade. However, conversion of stock in trade into capital asset was not considered as transfer. In order to provide symmetrical treatment and discourage the practice of deferring the tax payment by converting the inventory into capital asset, the Finance Bill, 2018 proposes to amend the provisions of section 28 so that any profit or gains arising from conversion of inventory into capital asset or its treatment as capital asset shall be chargeable to tax as business income. Taxability of compensation in connection to business The Finance Bill, 2018 proposes 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. These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to assessment year and subsequent assessment years. [clause (xviib), sub- section (2) of section 2/ Sec. 28] It is also proposed to provide that the fair market value of the inventory on the date of conversion or treatment as capital asset, shall be deemed to be the full value of the consideration. [sub- clause (xiia), clause (24), of section 2 / Sec. 28] 40

41 Discouraging Cash Transactions - Trusts To encourage a less cash economy and to reduce the generation and circulation of black money, it has been proposed that the provisions relating to cash expenditure and tax deduction shall be made applicable to charitable or religious trusts or institutions. Applicability of sec. 40A(3) and 40A(3A) to trusts institutions. This implies that while computing application of income by trusts, provisions relating to deduction of tax at source shall be considered. [Explanation 3 to sec. 11(1)] Section 40A(3) and 40A(3A) shall apply as they apply under the head Profits and gains of business or profession for determining the Total Income and its application there on by a charitable or religious trusts or institutions. This implies that a charitable or religious trusts or institutions now shall not be allowed to claim expenditure in cash of Rs. 10,000 or more. Applicability of sec. 40(a)(ia) to trusts Section 40(a)(ia) shall apply as it applies under the head Profits and gains of business or profession for determining the Total Income and its application there on by a charitable or religious trusts or 41

42 Start-ups In recent times the culture of start ups has started to gain momentum in India, thereby providing a boost to self employment and employment generation. Finance Bill, 2018 proposes the following provisions to expand the purview of incentives to start ups. Definition of eligible business The new definition rationalises the purview of business eligible to take benefit of start-ups linked incentives. Earlier, the eligible businesses were only those which were driven by technology or intellectual property This implies that the companies incorporated on or after 1 st April, 2019 to 31 st March, 2021 too shall be eligible for incentives u/s80-iac. Also, the turnover requirement shall be applicable to seven previous years commencing from the date of incorporation instead of the existing provision of applicability from 1st day of April, 2016 and ending on the 31st day of March, However, the new definition expands the ambit of eligible business of start ups by adding the words start up with a high potential of employment generation or wealth creation Extension of sunset date for scheme for start-ups to 31 st March, 2021 (w.e.f. A.Y ) The eligibility criteria for start-ups has been extended till 31 st March, 42

43 Deductions Allowability of deductions u/s 80H to sec. 80RRB (w.e.f. A.Y ) The existing provisions provide for allowability of deductions u/s 80IA sec. 80IE only in case of return of income is filed within the due date as per sec. 139(1). This provision u/s 80AC is proposed to be extended by the Finance Bill, 2018 to cover all the deductions from sec. 80H to sec. 80RRB. [sec. 80AC] 43

44 Exemptions Tax treatment of transactions in respect of trading in agricultural commodity derivatives Earlier CTT (Commodity transaction tax) paid transactions were not considered as speculative even if settled otherwise than by the actual delivery or transfer of the commodity or scraps. CTT did not apply to agricultural commodity derivatives. Now, In order to encourage participation of agricultural commodity derivatives in trade, 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 and will, accordingly, apply in relation to assessment year and subsequent assessment years. [proviso inserted in clause (e) of the first proviso of section 43] Stamp Duty Value not to be considered as Sale consideration if variation less than 5% At present, while taxing income from capital gains under section 50C, business profits under section 43CA and other sources under section 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 hands of the purchaser and the seller. In order to minimize hardship in case of genuine transactions in the real estate sector, it has been 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 five percent of the sale consideration. These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year and subsequent assessment years. [Proviso to 43CA(1) / 3 rd Proviso to sec. 50C(1) / Sec. 56(2)] 44

45 Exemptions Royalty and FTS payment by NTRO to a non-resident to be taxexempt It has been proposed that any income arising to non-resident, not being a company, or a foreign company, by way of royalty from, or fees for technical services rendered in or outside India to, the National Technical Research Organisation (NTRO) will be exempt from income tax. Consequently, NTRO will not be required to deduct tax at source on such payments. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year and subsequent assessment years. [Clause 6D, in section 10] Exemption to specified income of class of body, authority, Board, Trust or Commission in certain cases Under the existing provisions, the Central Government is required to notify each case separately even if they belong to the same class of cases. Consequently, the whole process of approval is considerably delayed. Accordingly, it is proposed to amend the said clause so as to enable the Central Government to also exempt, by notification, a class of such body or authority or Board or Trust or Commission (by whatever name called). This amendment will take effect from 1st April, [clause 46 of section 10] 45

46 Presumptive Taxation Presumptive income under section 44AE in case of goods carriage The current presumptive income scheme is applicable uniformly to all classes of goods carriages irrespective of their tonnage capacity. The only condition which needs to be fulfilled is that the assessee should not have owned more than 10 goods carriages at any time during the previous year. Accordingly, the transporters who owns (less than 10) large capacity/ size goods carriages are also availing the benefit of section 44AE while legislative intent of this provision was to give benefit to small transporters by reducing their compliance burden. So, it has been proposed to amend the section 44AE 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 Rs.1000 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. These amendments will take effect 1st April, 2019 and will, accordingly, apply in relation to assessment year and subsequent assessment years. Particulars Pre budget Post budget Heavy Goods Vehicle Light Goods Vehicle Rs. 7500/ Vehicle per month or part thereof. Rs. 7500/ Vehicle per month or part thereof. Rs.1000/ Ton of gross vehicle weight per month or part, per vehicle. Rs. 7500/ Vehicle per month or part thereof. [Sec. 44AE] 46

47 ICDS ICDS Retrospective amendments relating to ICDS The central government had notified 10 ICDS under section 145 effective from assessment year In order to bring certainty in the wake of recent judicial pronouncements on the issue of applicability of ICDS, it is proposed that: Deduction in respect of marked to market loss or other expected loss shall be allowed only if it is computed in accordance with the ICDS; Any gain or loss arising on account of any change in foreign exchange rates shall be treated as income or loss, which shall be computed in the manner provided in ICDS. It is further proposed to provide that any gain or loss arising on account of change in foreign exchange shall be in respect of all foreign currency transactions including those relating to:- monetary items and non-monetary items; translation of financial statements of foreign operations; forward exchange contracts; foreign currency translation reserves. Profits arising from a construction contract or a contract for providing services shall be determined on the basis of percentage of completion method. In case of certain contract for providing services, the profits and gains shall be determined as under: where contract duration is less than 90 days, on project completion method; where contract involves indeterminate number of acts over a specified period of time, on straight line method. It is also proposed that, the contract revenue shall include retention money and the contract cost shall not be reduced by any incidental interest, dividend and capital gains. This amendment is proposed with retrospective effect from assessment year (Section 36, Section 40A, Section 43AA, Section 43CB) 47

48 ICDS Amendment of section 145A Currently, ICDS II applies to valuation of inventories and ICDS VIII deals with securities held as stock in trade. In line with ICDS II and ICDS VIII, it is proposed that the valuation of inventory shall be made at lower of actual cost or net realizable value computed in the manner provided in ICDS notified. It is proposed that 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 ICDS notified. It is proposed that inventory being listed securities, shall be valued at lower of actual cost or net realisable value in the manner provided in ICDS notified and for this purpose the comparison of actual cost and net realisable value shall be done category-wise. It is also proposed that 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 taxpayer to bring the goods or services to the place of its location and condition as on the date of valuation. Insertion of section 145B Currently, ICDS IV deals with recognition of revenue. ICDS VII deals with the treatment of Government grants. It is proposed to insert new section 145B to provide that: In line with ICDS IV, 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. In line with ICDS VII, income from assistance in the form of subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement 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. Interest received by tax payer on compensation or on enhanced compensation, shall be deemed to be the income of the year in which it is received. 48

49 Capital Gains New regime for taxation of long-term capital gains on sale of equity shares etc It has been proposed to withdraw the exemption under section 10(38) and to introduce a new section 112A in the Act. Consequently, the capital gains arising from transfer of a long term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust shall be taxed at 10% of such capital gains exceeding one lakh rupees. The indexation benefit shall not be available. FMV of such asset Sale consideration Thus, this amendment shall not alter the tax exemption available to the listed equity shares or bonds acquired before 1 st February, These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year and subsequent assessment years. [Section 112A] Note: The Finance Bill, 2018 provides for calculation of cost of acquisition in case of listed equity shares or bonds acquired upto 31 st January, The cost of acquisition shall be higher of the following. Actual Cost of Acquisition Lower of the following 49

50 Capital Gains 54EC Exemption applicable only in case of transfer of land or building or both as a long term capital asset It has been proposed to restrict the scope of the section only to capital gains arising from land or building or both by substituting the words Land or building or both in place of long term specified asset in subsection 1 of section 54EC. Also, the lock-in period for the investment under the section on or after the 1st day of April, 2018 has been increased to 5 years. This amendment will take effect, from 1st April, 2019 and will, accordingly, apply in relation to the assessment year and subsequent assessment years. rate of ten per cent. Consequent to the proposal for insertion of section 112A, the taxability for FII and domestic investors is proposed to be streamlined and both would be liable for Long term capital gains of 10% on such LTCG only in respect of amount of such gains exceeding one lakh rupees. This amendment will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year and subsequent assessment years. [Proviso to Sec. 115AD(1)] [Section 54EC) Taxation of long-term capital gains in the case of Foreign Institutional Investor Under the existing provisions, the long-term capital gains arising to FII from the transfer of certain securities, are chargeable to tax at the 50

51 Tax Incentive to promote Farm Producer Companies Deduction in respect of income of Farm Producer Companies To promote Farm Producer Companies, it has been proposed to insert section 80PA to provide 100% deduction in respect of profits and gains attributable to Farm Producer Companies (FPC). This amendment will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year and subsequent assessment years. [Sec. 80PA] Conditions- FPC to have a total turnover not more than Rs 100 Crore and whose gross total income includes any income from- (i) the marketing of agricultural produce grown by its members, or (ii) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (iii) the processing of the agricultural produce of its members The benefit shall be available for a period of five years from the financial year

52 Measures to promote units in IFSC In order to promote the development of world class financial infrastructure in India, it is proposed to amend the section 47 of the Act so as to provide that transactions in the following assets, by a non-resident on a recognized stock exchange located in any International Financial Services Centre shall not be regarded as transfer, if the consideration is paid or payable in foreign currency: (i) bond or Global Depository Receipt, as referred to in sub-section (1) of section 115AC; or (ii) rupee denominated bond of an Indian company; or (iii) derivative. AMT in case of International Financial Services Centre Unit (w.e.f. A.Y ) To give impetus to the units located in International Financial Services Centre (IFSC), the Finance Bill, 2018 proposes to give relaxation in the rate of taxation in case of Alternate Minimum Tax (AMT) being applicable to an unit in IFSC deriving its income solely in convertible foreign exchange. The proposed rate is 9% as against existing rate of 18.5% [Sec. 115JC(4)] This amendment will take effect, from 1st April, 2019 and will, accordingly, apply in relation to the assessment year and subsequent assessment years. 52

53 Incentive for employment generation At present, under section 80-JJAA of the Act, a deduction of 30% is allowed 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 240 days during the year. However, the minimum period of employment is relaxed to 150 days in the case of apparel industry. In order to encourage creation of new employment, it is proposed to extend this relaxation to footwear and leather industry. Further, it is also proposed to rationalize this deduction of 30% by allowing the benefit for a new employee who is employed for less than the minimum period during the first year but continues to remain employed for the minimum period in subsequent year. This amendment will take effect, from 1st April, 2019 and will, accordingly, apply in relation to the assessment year and subsequent assessment years. 53

54 Insolvency Resolution Relief from Minimum Alternate Tax (w.e.f. A.Y ) The newly enacted Insolvency and Bankruptcy Code, 2016 aims at facilitating the process of insolvency resolution which is being welcomed by all sections of business community. However, the existing provisions of allowance of brought forward loss or unabsorbed depreciation, whichever is lower, in calculation of MAT u/s 115JB was acting as a hindrance in the process. To eliminate this contradiction, the Budget 2018 proposes to allow aggregate of brought forward losses and unabsorbed depreciation while calculation of MAT u/s 115JB in case of a company against whom an application for corporate insolvency resolution process has been admitted by the Adjudicating Authority under section 7 or section 9 or section 10 of the Insolvency and Bankruptcy Code, [Clause (iih), Explanation 1, Sec. 115JB] 54

55 Mutual Funds Tax on distributed income of Equity Oriented by Mutual Funds (w.e.f ) The existing provisions of Income Tax Act, 1961, specifically exempts income by way of distribution by Equity Oriented Mutual Funds. However, to provide level playing field to all the mutual funds, the Finance Bill, 2018 proposes to bring in the distribution of income by equity oriented funds into the tax net. The rate of tax applicable to such distribution of income shall be 10% in case of all assessees. Person Money Market Mutual Fund / Liquid Funds Equity Oriented Fund Other Funds Individual / HUF 25% 10% 25% Other than Individual / HUF 30% 10% 30% [Sec. 115R(2)] 55

56 Permanent Account Number Applicability of PAN (w.e.f ) The following persons shall be mandatorily required to apply to the assessing officer for Permanent Account Number. 1. Any person other than an individual and HUF which enters into a financial transaction of an amount aggregating to Rs. 2,50,000/- or more in a financial year; or 2. Managing director, director, partner, trustee, author, founder, karta, chief executive officer, principal officer or office bearer of the entity referred above. [Sec.139A(1)] 56

57 Assessments Adjustments in assessment u/s 143(1) (w.e.f ) Adjustments shall not be made with reference to the income not included in the return which is appearing in the Form 26AS or Form 16 in respect of any return furnished on or after the assessment year commencing on the first day of April, [3 rd Proviso to Sec.143(1)] New Scheme for Scrutiny Assessment (w.e.f ) With a view of bringing more transparency in the scrutiny assessment process and eliminating the interface with the department, the Finance Bill, 2018 proposes to introduce new scheme of scrutiny assessment. [Sec.143(3A)] 57

58 Penalties Increment in the Penalty for failure to furnish statement of financial transaction or reportable account Currently, penalty of one hundred rupees per day of default is leviable under section 271FA of the Act if a person who is required to furnish the statement of financial transaction or reportable account under section 285BA (1), fails to furnish such statement within the prescribed time. The proviso to the said 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 under section 285BA (5), he shall be liable to pay penalty of five hundred rupees for every day of default. In order to ensure compliance of the reporting obligations under section 285BA, it has been proposed to amend the section 271FA so as to increase the penalty leviable from one hundred rupees to five hundred rupees and from five hundred rupees to one thousand rupees, for each day of continuing default. These amendments will take effect from 1st April, Rationalisation of section 276CC relating to prosecution for failure to furnish return Section 276CC of the Act provides that if a person wilfully fails to furnish in due time the return of income which he is required to furnish, he shall be punishable with imprisonment for a term, as specified therein, with fine. The sub-clause (b) of clause (ii) of proviso to the section 276CC further provides that a person shall not be proceeded against under the said section for failure to furnish return for any assessment year commencing on or after the 1st day of April, 1975, if the 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 three thousand rupees. In order to prevent abuse of the said proviso by shell companies or by companies holding Benami properties, it is proposed to amend the provisions of the said sub-clause so as to provide that the said subclause shall not apply in respect of a company. This amendment will take effect from 1st April,

59 Appeals Appeal against penalty imposed by Commissioner (Appeals) under section 271J Section 253 of the Act inter-alia provides that any assessee aggrieved by any of the orders mentioned in sub-section (1) of the said section may appeal to the Appellate Tribunal against such order. It is proposed to amend clause (a) of the said sub-section so as to also make an order passed by a Commissioner (Appeals) under section 271J appealable before the Appellate Tribunal. This amendment will take effect from 1st April,

60 Indirect Taxes Post implementation of Goods and Services Tax in July, 2017, there does not remain much for Union Government to alter or modify in the indirect tax regime, since all the powers regarding GST are vested in the GST Council. Few changes are being proposed in Customs Act and few changes are being made in the rates. Also, few procedural changes are made in Service Tax, Excise and Customs. The name of the apex authority dealing with indirect taxes gets changed to Central Board of Indirect Taxes and Customs (CBIC). As such many changes were not proposed in the indirect tax regime. Goods & Services 60

61 Indirect Taxes Customs duty Being the first budget after the implementation of GST, the changes were primarily limited to customs only. While there was no change in the merit rate of basic customs duty, to further encourage Make in India, basic customs duty on specified goods of food processing, electronics, auto sector, etc. was increased. Apart from that, the focus was to align the customs law to ensure ease of doing business and meeting the commitments of the Trade Facilitation Agreement. Peak Rate Peak rate of BCD maintained at 10%. Education cess and secondary and higher education cess have been abolished Social Welfare Surcharge to be levied on import of goods, except notified items, on aggregate customs duties excluding IGST and compensation cess. Changes in Customs Act, 1962 Scope of the Customs Act, 1962 expanded to cover any offence or contravention committed outside India by any person. Assessment to now include specific aspects such as classification, duty, valuation, exemption or concession of duty etc. Indian customs waters expanded to exclusive economic zones. Expansion in scope of provisional assessment to include exports as well. Process of pre-notice consultation by the authorities before issuance of demand notice for recovery of duty or refund in cases other than collusion, suppression, etc. Supplementary show cause notice to be issued in specified cases and subject to conditions. Definite time frame provided for adjudication of demand notices including their extension. In the event the demand notice is not adjudicated within the specified time period including extension, it would be deemed that no notice was issued.

62 Indirect Taxes In cases where the extended period due to collusion, suppression of facts, etc. is set aside by the appellate authority, the demand pertaining to normal period of 2 years will sustain and a proceeding will be undertaken on that basis. Changes in Customs Tariff Act, 1975 Valuation methodology for computation of IGST and Compensation Cess for warehoused goods sold prior to clearance for home consumption or export prescribed. The above change is effective from the date of enactment of Finance Bill.

63 Team Aniruddha Bhide Snehal Agrawal In-Charge, Pune Branch K. K. Mankeshwar & Co. Manager K.K. Mankeshwar & Co. Ramaa Sagdeo Param Nath Assistants: 63