Key Policy Announcements in Budget 2018 Agriculture and Rural Economy Health, Education and Social Protection MSME & Employment Page 1
Page 2 Ledger Services Private Limited
UNION BUDGET 2018 1. Direct Tax- Personal Income Tax:- No change in income slabs or tax rates or surcharge Education & Secondary Higher Cess to be replaced with Health and Education Cess @ 4% of tax and surcharge. Page 3
2. Standard Deduction for Salaried Individuals :- up to Rs. 40,000 in lieu of reimbursement of medical expenses and transport allowance 3. Increased Sops for Senior Citizen :- It has been proposed to increase the deductions available to senior citizens towards interest, health insurance and medical expenses as outlined below. Page 4
4. Tax deduction at source in respect of interest income to senior citizen:- Section 194A of the Act is proposed to be amended so as to raise the threshold for deduction of tax at source on interest income for senior citizens from existing INR 10,000 to INR 50,000. The proposed amendment shall be applicable with effect from 01 April, 2018. 5. National Pension Scheme (NPS):- 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, 2018. Page 5
Budget Proposal for Corporates Foreign Company Corporate tax rates remain unchanged at 40% (plus applicable surcharge and Cess). It has been proposed to replace Education Cess of 3% by Health & Education Cess of 4%. Effective tax rates shall be as under Page 6
2. Domestic Company Corporate tax rate reduced to 25% (plus applicable surcharge and Cess) for domestic companies having total turnover/ gross receipts not exceeding INR 2.5bn in the FY 2016-17. In other cases, the tax rates remain unchanged at 30% (plus applicable surcharge and Cess). It has been proposed to replace Education Cess of 3% by Health & Education Cess of 4%. Effective tax rates are as under. For a domestic company having total turnover/ gross receipts not exceeding INR 2.5bn in the FY 2016-17 Page 7
3. Tax on Dividends 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). 4. Taxation of Deemed Dividends Amendments have been proposed to section 115O and 115 Q to provide that Deemed Dividend would be subject to Dividend Distribution Tax under section 115-O at the rate of 30 % (without grossing up), and all other provisions of Chapter XII- shall be applicable to such Deemed Dividend. 5. DDT on Deemed Dividend Deemed dividend is proposed to be taxed at the rate of 30% (without grossing up) in order to prevent camouflaging dividend in various ways such as loans and advances. 6. MAT/AMT Tax rates of both MAT and AMT remain unchanged at 18.5% (plus applicable surcharge) except for effective increase in the rate of Cess by 1% as Health and Education Cess Page 8
7. PERMANENT ACCOUNT NUMBER (PAN) In order to use PAN as Unique Entity Number (UEN) for non-individual entities, it is proposed that every person, not being an individual, which enters into a financial transaction of an amount aggregating to two lakh and fifty thousand rupees or more in a financial year shall be required to apply to the Assessing Officer for allotment of PAN. 8. Taxation on conversion of inventory into capital asset It is proposed that any profit or gains arising from conversion of inventory into, or treatment as, a capital asset shall be charged to tax as business income based on the FMV (determined in a prescribed manner) of the inventory on the date of such conversion or treatment. It is further proposed that for computing capital gains arising on the transfer of such converted capital assets, the aforesaid FMV shall be the cost of acquisition thereof and the period of holding shall be reckoned from the date of such conversion or treatment. Currently, the Act does not provide for the tax treatment in case where the inventory is converted into, or treated as, a capital asset. This amendment is proposed in order to provide symmetrical treatment in a reverse transaction and discourage the practice of deferring tax payment by converting the inventory into a capital asset. The proposed amendment will take effect from 01 April, 2019 and, accordingly, will apply from AY 2019-20 onwards. 9. Benefit of Carry Forward Losses available to company seeking Insolvency resolution To remove the hurdle for restructuring and rehabilitation of companies seeking insolvency, it is proposed to relax the rigors of section 79 in case of such companies, whose resolution plan has Page 9
been approved under the Insolvency and Bankruptcy Code, 2016; such that the change in the beneficial ownership of shares beyond the permissible limit under section 79 does not come in way of carry-forward and set-off of losses. 10. Amendment in Section 44AE Section 44AE of the Act is amended to provide higher deemed income for heavy goods vehicles: Heavy Vehicle 1000/- per ton of the Gross Vehicle Weight or un laden 12MT gross vehicle weight), per month or part of a month, or actual Income, whichever is higher. Other than heavy Vehicle, 7500/- per month or part of a month or actual income whichever is higher. Page 10
TAX INCENTIVES 1. MEASURES IMPACTING START-UP COMPANIES To improve the effectiveness of the scheme for promoting Start-ups in India, it is proposed to make following changes in the existing taxation regime per section 80-IAC; The benefit of deduction would also be available to start-ups incorporated on or after the 1st April 2019 but before 1st April, 2021; The requirement of the Turnover being less than or equal to Rupees 25 Crores applicable to seven previous years commencing from the date of incorporation; The definition of eligible business has been expanded to provide that the benefit would be available if it is engaged in innovation, development or improvement of products or processes or services, or a scalable business model with a high potential of employment generation or wealth creation. (The above amendment would take effect from Assessment Year 2018-19.) 2. Employment generation- related incentive Currently, section 80JJAA of the Act provides for an additional deduction of 30% of emoluments paid to new employees for a period of three years, subject to fulfillment of certain conditions. In Page 11
order to claim the deduction, the new employee must be employed for more than 150 days in case of the apparel industry and 240 days in other cases. It is proposed that: The minimum period of employment of 150 days currently available to apparel industry is proposed to be extended to the footwear and leather industry. Deduction shall be available from the second year onwards for an employee employed during the first year for a period less than the minimum period (i.e., 240 days or 150 days, as the case may be) who continues to remain employed for the minimum period in the second year. 3. Incentives for encouraging MSME Sector The Government proposes to promulgate a framework to help MSMEs address issues of non-performing assets and stressed accounts. It is proposed to review the refinancing policy and eligibility criteria set up under MUDRA Yojana to help refinancing of Non-Banking Finance Companies. The Ministry of Finance is considering a policy framework, along with other institutional development measures, to facilitate the growth of Fintech companies in India. Policy announcements are expected for strengthening the regulatory framework to enable investments by AIFs in India. To give impetus to employment generation in the country, the following measures have been proposed: i. The Government to contribute 12% in Employee Provident Fund for new employees in all sectors for a period of 3 years; ii. EPF contribution for women employees to Page 12
be lowered to 8% for the first 3 years without any change in employer s contribution; and iii. Fixed term employment facility to be extended to all sectors. 4. Relief for Insolvency Companies under Minimum Alternate Tax (MAT) It is proposed to allow the reduction of loss brought forward (excluding unabsorbed depreciation) and unabsorbed depreciation for the purposes of computing book profit under section 115JB of the Act, in case of a company whose application has been admitted by the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016. (The above amendment would be applicable from A.Y. 2018-19) Further, there is another clarification that MAT will not apply to a non-resident covered by a presumptive tax regime. (This amendment would apply retrospectively from Assessment Year 2001-02 onwards) Incentive to conducting business in International Financial Service Centers Amendment in section 115JC so as to provide that in case of a unit located in an International Financial Service Center, the alternate minimum tax under section 115JC shall be charged at the rate of 9% compared to the earlier @ 18.5% of Adjusted Total Income. Page 13
PROPOSAL IN CAPITAL GAINS 1. Rationalization of treatment on difference in Stamp valuation of immovable Property The consideration received or accruing from the transfer of land, building or both shall be deemed to be the full value of consideration if stamp duty value is less than 105% of the consideration received or accruing from transfer of any asset. Consequential amendments are proposed in section 43CA, section 50C and section 56(2)(x) of the Act. 2. Rationalization of the provisions of section 54EC The provision of section 54EC is amended so as to provide that the only eligible assets under this section are land or building or both. Also, for investments made in specified Bonds up to 31st March 2018, the lock-in period would be 3 years and for investments made thereafter, it would be 5 years. 3. Taxability of Long term Capital Gain under Section 112A Long term Capital Gain Tax from sale of listed equity shares/units of equity oriented mutual funds/units of business trusts in excess of Rs. 100,000 is now proposed to be taxed at 10%. Page 14
MISCELLANEOUS Mismatch in the income - No adjustment under sub-clause (vi) of the section 143(1) shall be made on account of discrepancy in total income reported in return of income vis-à-vis Form 26AS or Form 16/16A; in respect of any return furnished on or after the assessment year commencing on the first day of April, 2018. (The above amendment would take effect from Assessment Year 2018-19.) Mandatory filling of Return of Income for Claiming Deductions (Section 80AC) - Amendment have been proposed to extend the scope of section 80AC to provide that the benefit of deduction under the entire class of deductions under the heading C. Deductions in respect of certain incomes in Chapter VIA shall not be allowed unless the return of income is filed by the due date. Amendment in Employees' PF contribution - Government proposes to contribute 12% of employees' contribution to EPF fund for all new jobs across sectors for the next 3 years. Besides, the EPFO Act will be amended to reduce contribution of women to 8% from 12% with no change in employers' contribution. This would effectively mean higher take away salary for women employees. Penalty for failure to furnish statement of financial transaction or reportable account - The penalty under section 271FA, for failing to furnish the statement of financial transaction or reportable account under section 285BA(1), is now increased to Rs. 500 from Rs. 100, for each day of continuing default.. Also, the penalty under section 271FA, for failure in furnishing the statement of financial transaction or reportable account within the period specified in the notice Page 15
issued under 285BA(5), is now increased to Rs.1,000 from Rs.500, for each day of continuing default. Rationalisation of section 276CC relating to prosecution for failure to furnish return - Section 276CC provides that a person shall not be proceeded against under the said section 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 Rs. 3,000. This section is amended, so as to provide that the conditions specified therein shall not be applicable in respect of a company in order to prevent abuse of said proviso by shell companies or by companies holding Benami properties. This amendment will take effect from 1st April, 2018 Rationalisation of provisions relating to Country-by-Country Report - The amendments to the section 286, relating to specific reporting regime in the form of Country-by-Country Report (CbCR) in respect of an international group are as under: the time allowed for furnishing the Country-by-Country Report (CbCR), in the case of parent entity or Alternative Reporting Entity (ARE), resident in India, is proposed to be extended to twelve months from the end of reporting accounting year; Page 16
constituent entity resident in India, having a non-resident parent, shall also furnish CbCR in case its parent entity outside India has no obligation to file the report of the nature referred to in sub-section (2) in the latter s country or territory; the time allowed for furnishing the CbCR, in the case of constituent entity resident in India, having a non-resident parent, shall be twelve months from the end of reporting accounting year; the due date for furnishing of CbCR by the ARE of an international group, the parent entity of which is outside India, with the tax authority of the country or territory of which it is resident, will be the due date specified by that country or territory; Agreement would mean an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A, and also an agreement for exchange of the report referred to in sub-section (2) and sub-section (4) as may be notified by the Central Government; reporting accounting year has been defined to mean the accounting year in respect of which the financial and operational results are required to be reflected in the report referred to in subsection (2) and sub-section (4). These amendments are clarificatory in nature. These amendments will take effect retrospectively from the 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years. Page 17