Themes of the Budget

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2 Direct Taxes 1. Rates of Income-Tax 1.1 No change in Income Tax Slabs and tax rate for Individuals. HUF, Firms, Co-operative Societies. 1.2 Lower rate of tax at 25% for Companies having turnover upto INR 250 Crores. Existing rate of 30% to continue for other Companies in excess of INR 250 Crores. 1.3 Education 3% levied on Personal Income tax and Corporation Tax replaced with Health and Education Cess to be 4%. 2. Widening and Deepening of Tax Base 2.1 Permanent Account Number (PAN) to be used as Unique Entity Number (UEN) for non-individual entities. (With effect from April 1st, 2018). 2.2 To curb evasion of Dividend Distributed Tax Companies resorts to abusive arrangements. To control such a practice, a new Explanation 2A is proposed in the clause (22) of section 2 of the Income-Tax Act, Consequent to the proposed amendment, in case of an amalgamated company, accumulated profits, whether capitalised or not, or losses shall be increased by the accumulated profits of the amalgamating company, whether capitalized or not, on the date of amalgamation. (With 2.3 The scope of Dividend Distribution Tax under Section 115-O of the Income-Tax Act, 1961 extended to Deemed Dividend and shall be (With 2.4 Section 112A introduced in the Income-Tax Act, 1961 to levy Long-Term Capital on gains (>One Lakh) arising from transfer of an equity share in a company, unit of an equityoriented fund or a business trust. (With effect from April 1 stt, 2018). 2.5 Section 115R of the Income-Tax Act, 1961 amended to levy additional on the distribution of Income by an equity-oriented fund. (With 2.6 Amendment proposed to Section 115AD of the Income-Tax Act, 1961; Capital Gains levied in the hands of Foreign Institutional Investors on the distribution of gains arising from the transfer of securities is proposed to be extended to transfers of equity shares of a company, unit of an equity-oriented fund and business trusts. (With effect from April 1 st, 2018) 2.7 Proposed to expand the scope of Section 11 of the Income-Tax Act, Application of Sections 40(a)(ia), 40A(3) and 40A(3A) (Disallowance of Expenditure) to cover Charitable Trust and Religious Institutions as well. As a consequent expenditure on which tax is to deductible at source is not deducted or when expenditure is incurred in contravention of section 40A(3) / 40A(3A), such amount shall be chargeable to tax under the head "profits and gains of business or profession".(with 2.8 Amendment proposed to the provision of section 9 of the Income-Tax Act, 1961 to expand the application of the term business connection to include under its scope, activities habitually carried through a person to conclude contracts on behalf of the non-residents. Post-amendment business connection shall be determined by significant economic presence. (With effect from 2.9 Amendment proposed to Section 28 & 56 of the Income-Tax Act, Post-amendment compensation received or receivable consequent to termination or the modification of the terms and conditions of business and or termination of an Employment contract shall be levied to tax. (With 2.10 Amendment proposed to Section 44AE of the Income-Tax Act, 1961 Act to provide that "in respect of heavy goods vehicles (more than 12 tonnes), the presumptive income shall be computed at the rate of INR 1,000 per tonne per month" The vehicles other than heavy goods vehicle will continue to be taxed as per the existing rates. (With 3. Measures for Promoting Equity 3.1 Deductions available to senior citizens in respect of health insurance premium and medical treatment under Section 80D of the Income-Tax Act, 1961 raised from INR 30,000/- to INR 50,000/- (With 2

3 3.2 Deduction available to senior citizens and very senior citizen for medical treatment of specified diseases raised from INR 60,000/- & INR 80,000/- to INR 1,00,000. (With 3.3 Section 80TTB proposed in Income-Tax Act, 1961 to allow a deduction up to INR 50,000/- in respect of interest income from deposits held by senior citizens. (With 3.4 Amendment proposed to Section 194A of the Income-Tax Act, 1961 to raise the threshold for deduction of tax at source on interest income for senior citizens from INR 10,000/- to INR 50,000/- (With 3.5 Standard deduction on salary income under Section 16 of the Income-Tax Act, 1961 allowed up to INR 40,000/. The exemption in respect of Transport Allowance (except in case of differently abled persons) and reimbursement of medical expenses to be withdrawn. (With effect from 4. Tax Incentives 4.1 Deduction of 100% available in respect of profit of cooperative societies assisting its members engaged in primary agriculture activities extended to Farm Producer Companies (FPC), having a total turnover up to INR 100 Crore. (With effect from 4.2 The Deduction available to start-ups under Section 80 - IAC of the Income-Tax Act, 1961 extended to startups incorporated on or after the 1st day of April 2019 but before the 1st day of April, 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. (With effect from 4.3 An amendment is proposed to Section 47 of the Income-Tax Act, The amendment provides that transfers of bond or Global Depository Receipt, the rupee-denominated bond of an Indian company; or derivative for tax neutrality relating by a non-resident on a recognized stock exchange located in any International Financial Services Centre shall not be regarded as a transfer, in a case where consideration is paid or payable in foreign currency. (With 4.4 Section 115JC of the Income-Tax Act, 1961 is proposed to be amended to provide that in case of a unit located in an International Financial Service Centre, the alternate minimum tax under section 115JC shall be 9 %. (With effect from 4.5 Section 10 of the Income-Tax Act, 1961 is proposed to be amended to provide that the 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 under Section 195 of the Income-Tax Act, (With 5. Facilitating Insolvency Resolution 5.1 It is proposed to amend section 115JB of the Income-Tax Act, 1961 to allow to reduce aggregate amount of unabsorbed depreciation and loss brought forward (excluding unabsorbed depreciation) from the book profit, if a company s application for corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 has been admitted by the Adjudicating Authority. Consequently, a company whose application has been admitted would henceforth be entitled to reduce the loss brought forward (excluding unabsorbed depreciation) and unabsorbed depreciation to compute book profit under section 115JB of the Income-Tax Act, (With 5.2 It is proposed to amend Section 79 of Income-Tax Act, 1961 which provides that carry forward and set off of losses in a closely held company shall be allowed only if there is a continuity in the beneficial owner of the shares carrying not less than 51 % of the voting power, on the last day of the year or years in which the loss was incurred. Consequent to the proposed amendment requirement of Section 79 will be relaxed in case of companies, whose resolution plan is approved under the Insolvency and Bankruptcy Code, 2016, (With 3

4 6. Improving Effectiveness of Tax Administration 6.1 Sub-section (3A) to Section 143 of the Income-Tax Act, 1961 is proposed to prescribe a new scheme to make assessments to impart greater transparency and accountability, by eliminating the interface between the Assessing Officer and the introduction of team-based assessment. The Scheme will enable the Central Government to prescribe the aforementioned new scheme for scrutiny assessments, by way of notification in the Official Gazette. (With 7. Rationalisation Measures 7.1 Section 116 of the Income-Tax Act, 1961 is proposed to be amended to include options in commodity futures in the definition of taxable commodities transaction. Further Section 117 of the Income-Tax Act, 1961 is also proposed to be amended to prescribe the rate at which sale of an option on commodity derivative shall be taxed. It is further recommended to amend the provisions of section 117 of the Income-Tax Act, 1961 to prescribe the rate at which sale of an option on commodity derivative shall be chargeable. (With 7.2 The sub-clause (b) of clause (ii) of the proviso to the section 276CC of the Income-Tax Act, 1961 is proposed to be amended. As per the amendment proceedings can be initiated against Companies for non-filing of return of income even if the tax payable on the total income does not exceed three thousand rupees. (With 7.3 An amendment is proposed to sub-section 46 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 to provide that the Joint Director shall also be vested with the power to approve an order imposing a penalty imposed under the said section. It is also proposed to amend clause (b) of the said subsection to include reference to the Assistant Director and Deputy Director. Further it is also recommended to amend Section 55 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 to give powers to Principal Chief Commissioner or the Chief Commissioner to issue instructions to proceed against for an offence under section 49 to section 53 of the said Act. (With 7.4 Amendments are proposed to Section 286 of the Income-Tax Act, 1961 with respect to time allowed for furnishing County-by-Country Report (CbCR), the meaning of the term Agreement and definition of Reporting Accounting Year. (With effect from April 1 st, 2017). 7.5 Amendment is proposed to Section 115BA of the Income-Tax Act, 1961 to clarify that the provisions of section 115BA are restricted to the income from the business of manufacturing, production, research or distribution referred; and income which is at present taxed at a scheduler rate will continue to be so taxed. (With effect from April 1 st, 2017). 7.6 Amendment is proposed to clause (12A) of section 10 of the Income-Tax Act, 1961 to extend the benefit of tax-free withdrawal from NPS to nonemployee subscribers. (With effect from April 1 st, 2018). 7.7 The scope of section 80AC of the Income-Tax Act, 1961 is extended to disallow the benefit of deduction under the entire class of deductions under the heading C. Deductions in respect of certain incomes in Chapter VIA unless the return of income is filed by the due date specified under Section 139 of the Income-Tax Act, (With 7.8 Section 43CA, section 50C and section 56 of the Income-Tax Act, 1961 is proposed to be rationalised as such 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. Till date 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 was being adopted. The difference was taxed as income both in the hands of the purchaser and the seller. The said amendment is to minimise hardship in case of genuine transactions in the real estate sector. (With 7.9 To Rationalise the provision relating to the conversion of stock-in-trade into Capital Asset it is proposed to amend the provisions of section 28 of the Income-Tax Act, As per the amendment any profit or gains arising from the conversion of inventory into a capital asset or its treatment as capital asset shall be charged to tax as business income. It is also proposed to provide that the fair 4

5 market value of the inventory on the date of conversion or treatment determined in the prescribed manner, shall be deemed to be the full value of the consideration received or accruing as a result of such conversion or treatment. A further amendment is proposed in clause (24) of section 2 Income-Tax Act, 1961 to include such fair market value in the definition of income. Amendment is also proposed to section 49 of the Income-Tax Act, 1961 to provide that for computation of capital gains arising on transfer of such capital assets, the fair market value on the date of conversion shall be the cost of acquisition. (With effect from April 1 st, 2018) Amendment is proposed in Section 54EC of the Income-Tax Act,1961 so as to provide that subject to fulfilment of conditions specified in the said section, capital gain shall not be levied in cases where the gains arising out of transfer of a longterm capital asset, being land or building or both are invested in the long-term specified asset within a period of six months after the date of such transfer. The amendment also clarifies that for the purpose of the said section long-term specified asset, shall mean any bond, redeemable after five years and issued on or after 1st day of April, 2018 by the National Highways Authority of India or by the Rural Electrification Corporation Limited or any other bond notified by the Central Government in this behalf. (With 7.11 The government has now decided to discontinue the existing 8% Savings (Taxable) Bonds, 2003 with a new 7.75% GOI Savings (Taxable) Bonds, The interest received under the new bonds will continue to be taxed as in the case of the earlier once. The provisions of section 193 of the Income-Tax Act, 1961 are proposed to be amended to allow for the deduction of tax at source at the time of making payment of interest on such bonds to residents. However, no TDS will be deducted if the amount of interest is less than or equal to ten thousand rupees during the financial year. (With 7.12 Amendment is proposed to Clause 46 of section 10 of the Income-Tax Act, 1961 to enable the Central Government to exempt, by notification, the specified income of a class of such body or authority or Board or Trust or Commission (by whatever name called). Earlier the Central Government was required to notify each case separately even if they belong to the same class of cases. This is to avoid the delay caused in the hands of Central Government in the process of providing such exemption. (With effect from April 1 st, 2018) Amendment is proposed to section 271FA of the Income-Tax Act, 1961 to increase the penalty leviable on non-furnishing of the statement of the financial transaction required to be furnished under sub-section (1) of section 285BA, from INR 100 to INR 500 and from INR 500 to INR 1000 for each day of continuing default. (With effect from 7.14 Amendment is proposed to the provisions of section 245-O of the Income-Tax Act, 1961 to provide that Authority for Advance Rulings under the said section shall cease to act as an Authority for Advance Rulings, and shall act as an Appellate Authority for Chapter V of the Customs Act, 1962 from the date of appointment of Customs Authority for Advance Rulings under section 28EA of the Customs Act, (With effect from April 1 st, 2018) Amendment is proposed to clause (a) of subsection (1) of Section 253 of the Income-Tax Act, 1961 to also make an order passed by a Commissioner (Appeals) under section 271J appealable before the Appellate Tribunal. (With Themes of the Budget- Indirect Taxes 1. Amendments to the Customs Act, Under the Customs Act, 1962 (hereinafter referred to as the Act), for the words import manifest and export manifest, the words arrival manifest or import manifest and departure manifest or export manifest are to be substituted. 1.2 Section 1 of the Act is proposed to be amended to expand the scope of the Customs Act to any offence or contravention committed thereunder outside India by any person. 1.3 A new section 25A to the Act is being inserted, empowering the Central Government to exempt goods imported for repair, further processing or manufacture [ Inward Processing of Goods ] from payment of whole or any part of the duty of customs, leviable thereon subject to certain conditions. 5

6 1.4 Section 18 of the Act is amended to cover export consignments under provisional assessment of duty. 1.5 A new section 25B is being inserted to the Act to empower Central Government to exempt goods re-imported after export for repair, further processing or manufacture [ Outward Processing of Goods ] from payment of whole or any part of the duty of customs, leviable thereon subject to certain conditions. 1.6 Amendment is proposed to Section 28 of the Act to provide pre-notice consultation in cases not involving collusion, willful mis-statement, suppression before the issue of demand notice and to provide for the issuance of supplementary show cause notice. 1.7 A new section 28EA relating to Customs Authority for Advance Rulings is being inserted in the Act empowering the Board to appoint officers of the rank of Principal Commissioner of Customs or Commissioner of Customs as Customs Authority for Advance Rulings by way of notification. Till such appointment by the Board, existing Authority shall continue to pronounce Advance Rulings. 1.8 Amendment is proposed to the Act to enable Section 51A of the Act to have a provision for an advance deposit which would enable payment of duties, taxes, fee, interest, and penalty through electronic cash ledger. 1.9 Amendment to Section 125 of Act is proposed to provide that where the demand proceedings against a noticee / co-noticee have been closed on the grounds of having paid the dues mentioned in section 28 of the Act then the provisions section 125 shall not be applicable if the goods are not prohibited or restricted. 2. Changes in the Basic Customs Duty Rate & introduction of Cess 2.2 Increase in the rate of duty on Import of diamonds, CKD imports of motor vehicles, motor cars, motorcycles, CBU imports of motor vehicles, Edible oils of vegetable origins, preform of silica for use in the manufacture of telecommunication grade optical fibre and parts for manufacture of LCD/LED TV panels. 2.3 Reduction in the rate of duty on Imports of Inputs or parts for manufacture of PCBA, or moulded plastics of charger/adapter of cellular mobile phones of cellular mobile phones, ball screws, linear motion guides, CNC systems for manufacture of all types of CNC machine tools. 2.4 Reductio in the rate of duty on Imports of Solar tempered glass or solar tempered [anti-reflective coated] glass for manufacture of solar cells /panels/modules, Other articles of stone containing magnesite, dolomite or chromite, Bricks, blocks, tiles and other ceramic goods of siliceous fossil meals or of similar siliceous earths. 2.5 Social Welfare Surcharge to be collected on the import of goods specified in the First Schedule to the Customs Tariff Act, Road and Infrastructure Cess to be levied and collected on import of motor spirit and High-Speed Diesel Oil. 2.7 Road and Infrastructure Cess on Petrol and Diesel manufactured in and cleared from 4 specified refiniries located in North-east. Disclaimers This document has been written on the basis of a quick and preliminary analysis of the Union Budget It is meant for general information only and should not be construed as specific legal or tax advice. Fox Mandal does not accept any responsibility for any actions that anyone may take on the basis of the contents of this document. Do not make any decisions on the basis of this document. Seek appropriate professional advice. 2.1 Increase in the rate of duty on Import of Food Processing Commodities, Silk Fabrics, Printed Circuit Board Assembly (PCBA) of charger/adapter and moulded plastics of charger/adapter of cellular mobile phones. 6

BUDGET SIGNIFICANT PROPOSALS IN BRIEF GENERAL

2018 BUDGET SIGNIFICANT PROPOSALS IN BRIEF GENERAL INDEX Sr. No. Particulars Page No. HIGHLIGHTS OF FINANCE BUDGET 2018 3-7 DIRECT TAX A Rates of Income Tax 8-10 B Widening and Deepening of Tax Base 11