AMENDMENTS TO FINANCE BILL, Inclusion INDIA BUDGET

Size: px

Start display at page:

Download "AMENDMENTS TO FINANCE BILL, Inclusion INDIA BUDGET"

Johnathan Stephens
5 years ago
Views:

1 AMENDMENTS TO FINANCE BILL, 2018 Inclusion INDIA BUDGET

Disclaimer Baker Tilly DHC Pvt. Ltd is a private limited company incorporated in India and an independent member of Baker Tilly International. Baker Tilly International Limited is an English company.

2 Disclaimer Baker Tilly DHC Pvt. Ltd is a private limited company incorporated in India and an independent member of Baker Tilly International. Baker Tilly International Limited is an English company. Baker Tilly International provides no professional services to clients. Each member firm is a separate and independent legal entity and each describes itself as such. Baker Tilly DHC Pvt. Ltd is not Baker Tilly International s agent and does not have the authority to bind Baker Tilly International or act on Baker Tilly International s behalf. None of Baker Tilly International, Baker Tilly DHC Pvt. Ltd nor any of the other member firms of Baker Tilly International has any liability for each other s acts or omissions. In addition, neither Baker Tilly International nor any other member firm has a right to exercise management control over any other member firm. This publication has been carefully prepared, but it has been written in general terms and should be seen as a broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Baker Tilly DHC Pvt. Ltd. to discuss these matters in the context of your particular circumstances. Baker Tilly DHC Pvt. Ltd., its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

Contents Sl. No. Particulars THE AMENDMENTS TO FINANCE BILL, 2018 1.

3 Contents Sl. No. Particulars THE AMENDMENTS TO FINANCE BILL, Levy of tax on Long Term Capital Gains arising on sale of listed equity shares or unit of equity oriented fund or unit of business trust [Sec. 10(38), Sec. 112A, Sec. 48 & Sec. 55] 2. Category of entities required to apply for PAN restricted to resident nonindividuals and condition for issuance of laminated PAN Card relaxed [Sec. 139A] 3. Tax treatment on conversion of stock in trade into Capital Asset [Sec. 43(5)] 4. s relating to notified Income Computation and Disclosure Standards (ICDS) [Rationalisation of provisions of Sec. 145A] 5. Extension of time period for commencement of start-up and relaxation of conditions for claiming deduction [Sec. 80-IAC] 6. Extension of lock-in period of redemption of specified bonds u/s 54EC from 3 years to 5 years [Sec. 54EC] 7. Protection against attachment - Insertion of Sec. 14A in Government Savings Banks Act, Scope of Business Connection expanded to include Significant Economic Presence [Sec. 9(1)(i)] 9. Rationalisation of provisions relating to Country by Country Report (CbCR) [Sec. 286]

4 THE FINANCE BILL, 2018 AS APPROVED BY THE LOK SABHA & THE RAJYA SABHA, HAS GOT ASSENT OF HON BLE PRESIDENT OF INDIA ON 29TH MARCH, 2018 AND HAS BEEN ENACTED AS FINANCE ACT THE AMENDMENTS TO FINANCE BILL, 2018 ARE HIGHLIGHTED HERE: 2 INDIA BUDGET

AMENDMENTS TO FINANCE BILL, 2018 1 Levy of tax on Long Term Capital Gains arising on sale of listed equity shares or unit of equity oriented fund or unit of business trust [Sec. 10(38), Sec.

5 AMENDMENTS TO FINANCE BILL, Levy of tax on Long Term Capital Gains arising on sale of listed equity shares or unit of equity oriented fund or unit of business trust [Sec. 10(38), Sec. 112A, Sec. 48 & Sec. 55] [w.e.f. AY ] Earlier Proposal [Para 7.1 of Book] New Sec. 112A was inserted to provide that LTCG arising in excess of H 1 lac on transfer of equity share of a company or unit of equity oriented fund or unit of business trust ( Specified Assets ) shall be Exemption u/s 10(38) was withdrawn by inserting 4th proviso. Sec. 112A has been amended to shift the mechanism of computation of long term capital gains on such specified assets to Chapter IV Computation of Total Income by making consequent amendments in Sec. 48 and Sec. 55. LTCG arising on transfer of such specified assets shall continue to be taxed u/s 112A. Sec. 112A(5) which provides for non-applicability of first and second proviso to Sec. 48 in case of LTCG arising on transfer of aforesaid assets has been omitted. Consequential amendment is made in Sec. 48 wherein a third proviso has been inserted to provide that the benefit of first proviso (benefit of computation of LTCG in foreign currency) and second proviso (benefit of indexation) shall not be available in case of LTCG arising on transfer of capital assets referred to in Sec. 112A. 3

6 The definition of Cost of Acquisition for the purpose of computing LTCG on specified assets has been shifted from Sec. 112(6) to Sec. 55 by insertion of a new clause (ac) after clause (ab) to Sec. 55(2). Further, meaning of the term Fair Market Value earlier provided in Explanation (b) occurring after sub-section (8) to Sec. 112A has also been shifted to Sec. 55 by insertion of Explanation to Sec. 55(2)(ac). However, a new clause has been added in the Explanation to provide meaning of FMV in the following two scenarios:- i. in case of equity shares of company which was not listed on a recognized stock exchange as on but is listed on the date of transfer ii. in case of equity share which are listed on a recognized stock exchange on the date of transfer and which have been received in exchange of shares which were unlisted as on by way of transaction not regarded as transfer u/s 47 In both the above scenarios, FMV of the shares shall be calculated by applying indexation benefit upto FY on the cost of acquisition. The tax payable u/s 112A(1) on total income has been clarified to be aggregate of i. the amount of income-tax calculated on such long-term capital gains exceeding H 1 lac at the rate of 10%; and ii. the amount of income tax payable on the total income as reduced by the amount of long term capital gains referred to in Sec. 112(1) as if the total income so reduced were the total income of the assessee. Further, in Explanation 4 to Sec. 2(42A), definition of equity oriented fund shall have the meaning as stated in clause (a) of Explanation to Sec. 112A instead of that provided in Explanation to Sec.10(38). 2 Category of entities required to apply for PAN restricted to resident non- individuals and condition for issuance of laminated PAN Card relaxed [Sec. 139A] [w.e.f ] Earlier Proposal [Para 7.19 of Book] Clause (v) to Sec. 139A(1) was proposed to be inserted to provide that every person not being an individual who enters into a financial transaction of an amount aggregating to H 2,50,000 or more in a financial year shall be required to obtain PAN. Further clause (c) of Explanation after subsection (8) of Sec. 139A provided that PAN Card shall be issued in a laminated form. PAN requirement has been restricted to resident non-individual entities if they enter into a financial transaction of an amount aggregating to H 2,50,000 or more in a financial year. Further the condition for issue of PAN card in laminated form has also been done away with. 4 INDIA BUDGET

7 3 Tax treatment on conversion of stock in trade into Capital Asset [Sec. 43(5)] [w.e.f. AY ] Earlier Proposal [Para 7.4 of Book] In the Finance Bill, taxation mechanism for conversion of stock in trade into capital asset was introduced. Clause (via) to Sec. 28 was proposed to be inserted to provide that fair market value of inventory, to be determined in the prescribed manner, on the date of conversion into capital asset, shall be deemed to be the full value of consideration for computing business income. Consequential amendment has been made by inserting new Explanation 1A to Sec. 43(1), to provide that the actual cost of capital asset as converted from stock in trade and used for the purpose of business or profession, shall be the fair market value as considered for the purpose of Sec. 28(via). 4 s relating to notified Income Computation and Disclosure Standards (ICDS) [Rationalisation of provisions of Sec. 145A] [w.r.e.f. AY ] Earlier Proposal [Para 7.5 (C) of Book] In the Finance Bill, it was proposed to substitute Sec. 145A, interalia, to provide inventory being listed securities, shall be valued at lower of actual cost or net realizable value in accordance with ICDS. Further, securities being unlisted or listed but not quoted regularly on a recognised stock exchange shall be valued at actual cost initially recognised in accordance with ICDS. The proviso to Sec. 145A provided that comparison of actual cost and net realizable value of securities shall be made category-wise. Another proviso before the proposed proviso to Sec. 145A, has been inserted to further provide that the securities which are held as inventory by scheduled bank or public financial institution shall be valued in accordance with ICDS notified u/s 145(2) after taking into consideration the extant guidelines issued by RBI. Further, the scope of Explanation 2 to Sec. 145A which defines the meaning of the term recognised stock exchange has been enlarged to also define the meaning of the term public financial institution and scheduled bank as follows:- i. Public Financial Institution Meaning as per Sec. 2(72) of the Companies Act, ii. Scheduled Bank Meaning as per clause (ii) of Explanation to clause (viia) of 36(1) of the Income tax Act. 5

8 5 Extension of time period for commencement of start-up and relaxation of conditions for claiming deduction [Sec. 80-IAC] [w.e.f. A.Y ] Earlier Proposal [Para 7.7 of Book] In the Finance Bill, one of the condition to satisfy the definition of the term eligible startup for availing the benefit of deduction u/s 80 IAC was proposed to be amended to provide that the specification of annual turnover not exceeding monetary threshold of H 25 Crs. would apply to seven previous years commencing from the date of incorporation. The aforesaid amendment has been modified to provide that condition of annual turnover not exceeding monetary threshold of H 25 Crs. would apply only to the previous year for which deduction u/s 80-IAC is being claimed. 6 Extension of lock-in period of redemption of specified bonds u/s 54EC from 3 years to 5 years [Sec. 54EC] [w.e.f. AY ] Earlier Proposal [Para 7.24 of Book] In the Finance Bill, it has been proposed that Investment in bonds issued by NHAI or RECL on or after which are redeemable after 5 years or any other bond notified by the Central Government shall qualify for exemption u/s 54EC. Consequential amendment has been made to insert proviso to Sec. 54EC(2) to provide that in case of investment made in bonds issued by NHAI or RECL after , the lockin-period shall be increased from 3 years to 5 years. 7 Protection against attachment - Insertion of Sec. 14A in Government Savings Banks Act, 1873 has been made to insert new Sec. 14A in Government Savings Banks Act, 1873 to provide that amount standing to the credit of any depositor in the Public Provident Fund Scheme shall not be liable to any attachment under any decree or order of any court in respect of any debt or liability incurred by the depositor. 6 INDIA BUDGET

9 8 Scope of Business Connection expanded to include Significant Economic Presence [Sec. 9(1)(i)] [w.e.f AY ] Earlier Proposal [Explanation 2A to Sec. 9(1)(i)] In the Finance Bill, Explanation 2A to Sec. 9(1)(i) was proposed to be inserted to clarify that the significant economic presence of a non-resident in India shall constitute business connection in India wherein it is provided that the transactions or activities shall constitute significant economic presence in India, whether or not (i) the nonresident has a residence or place of business in India or (ii) renders services in India. The scope has been widened vide Finance Bill passed by Lok Sabha. Apart from the conditions mentioned in the earlier proposal, the transactions or activities shall also constitute significant economic presence in India whether or not the agreement for such transactions or activities is entered in India. 9 Rationalisation of provisions relating to Country by Country Report (CbCR) [Sec. 286] [w.r.e.f. AY ] Earlier Proposal [Sec. 286(4)] The timeline for filing CBC report under subsection 4 of Sec. 286 by a constituent entity of an international group was proposed vide Finance Bill 2018 as twelve months from the end of the said reporting accounting year in case if Parent Entity is a resident of country (a) where the parent entity is not obligated to file CBC report; (b) with which India does not have an agreement for exchange of CBC Report or (c) there has been systematic failure of the country and the same has been intimated by the prescribed authority to such constituent entity. The timeline for furnishing CBC report under sub-section 4 of Sec. 286 has been amended and such report shall be filed within the period as may be prescribed. Earlier Proposal [Sec. 286(9)(b)] The Finance Bill proposed to amend the definition of the term agreement to mean a combination of all the agreements entered into under subsection (1) of Sec. 90 or sub-section (1) of Sec. 90A as well as an agreement for exchange of the report referred to in sub-sections (2) and (4) and notified by the Central Government. As CbCR shall not be exchanged with a country with which India does not have an agreement for exchange for CbCR, it has now been amended to exclude reference to sub-section (4) of Sec

10 Contact us To know more about Baker Tilly DHC, please visit or any of our offices as mentioned below:- Corporate Office 701, Leela Business Park, Andheri Kurla Road, Andheri (E), Mumbai Tel: +91 (22) Constantia, B Wing, 7th floor, 11, Dr. U.N. Brahmachari Street, Kolkata Tel: +91 (33) Ahmedabad 703, Venus Atlantis, 100 Ft Road, Corporate Road Prahlad Nagar, Ahmedabad Tel: +91 (79) / Bengaluru (Bangalore) No. 45, 1st Floor, 2nd Main, Sankey Road, (Above Indian Bank) Lower Palace Orchards, Bengaluru Tel: +91 (80) / No. 202, 2nd Floor, Spear Head Towers, #50-56, Margosa Road, Malleswaram, Bengaluru Tel. No.: +91 (80) /15 Chennai (Madras) 5B, A Block, 5th Floor, Mena Kampala Arcade, New No 18 & 20, Old No 113/114, Theyagaraya Road, T. Nagar, Chennai Tel: +91 (44) / Old No. 27, New No. 36, Nathamuni Street, T. Nagar, Chennai Tel. No (44) /259 Cochin Krishna Kripa, 174b, Oen Road, Kannakulangara, Thekkumbhagam, Tripunithura , Cochin Tel.: +91 (484) Coimbatore Shree Shanmugappriya, 2nd Floor, 454, Ponnaiyan Street, Crosscut Road, Gandhipuram, Coimbatore Tel: +91 (422) / Gurugram DCT # 231, 2nd Floor, DLF City Court, Sikanderpur, Gurgaon Tel.: +91 (124) Hyderabad Raja Pushpa House, 3rd floor, Plot No-34, Silicon Valley, Madhapur, Hyderabad Tel: +91 (40) /0 Jaipur F-5, 1st Floor, Diamond Tower, Neelkanth Colony, Ajmer Road, Jaipur Tel: +91 (141) Kolkata (Calcutta) Bagrodia Niket, 1st floor, 19C, Sarat Bose Road, Kolkata Tel: +91 (33) Devarati, 1st Floor, 8, Dr. Rajendra Road, Kolkata Tel.: +91 (33) Mumbai 42, Free Press House, Nariman Point, Mumbai Tel: +91 (22) th Floor, C- Wing, Sree Ramdev Commercial Complex, Dr. Dalvi Road, Kandivali (West), Mumbai Tel. No.: +91 (22) /56 New Delhi 3rd floor, 52-B, Okhla Industrial Estate, New Delhi Tel: +91 (11) Pune Hermes Centre Premises Society Limited, Office No. 103, 1st Floor, S. No. 185A, Shashtri Nagar, Yerwada, Pune Tel.: +91 (20) B-405, Siciliaa, B T Kawade Marg, Ghorpadi Gaon, Pune INDIA BUDGET

11 As the world is converging into a single global entity, technology is blurring the lines between geographies, services and solutions. And in this era of a flat, borderless world, Baker Tilly DHC is committed to going beyond service, into value addition in the true sense of the word. To understanding not just what our clients want, but what their business needs To meeting not just immediate requirements, but providing long term solutions To being not just reactive to client s needs but being proactive to solve their future issues Because at Baker Tilly DHC, we believe there s a thin line between delivering a service and delivering value.

Reinventing India INDIA BUDGET AMENDMENTS TO FINANCE BILL, 2017

AMENDMENTS TO FINANCE BILL, 2017 Reinventing India INDIA BUDGET 2017-18 Disclaimer Baker Tilly DHC Pvt. Ltd. is a private limited company incorporated in India and an independent member of Baker Tilly