Income Tax Budget Highlights 2018

Budget Highlights - Direct Taxes

·      The budget proposes to allow hundred per cent deduction to the companies registered as Farmer Producer Companies and having annual turnover up to INR 100 crores in respect of their profit derived from such activities for a period of five years from financial year 2018-19.

·      Relaxation of minimum period of employment of 150 days under Section 80JJAA of Income Tax Act, 1961 apart from apparel industry is proposed to be extended to footwear and leather industry. Further, it is proposed to rationalise 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

·      Gains on transfer of immovable property not to be computed with reference to stamp duty value, where variation in stamp duty value and sale consideration is less than 5% of the sales consideration.

·      Benefit of reduced Income Tax Rate of 25% is extended to companies who have reported turnover up to INR 250 crore in the financial year 2016-17.

·      Replacement of transport (INR 19,200) and medical allowance (INR 15,000) with a standard deduction of INR 40,000 per annum for Salaried Class. Thus extending overall net benefit of INR 5,800 per annum.

·      Exemption of interest income on deposits (both fixed deposits and recurring deposits) with banks and post offices to be increased from INR 10,000/- to INR 50,000/- for Senior Citizens and TDS is not required to be deducted by Banks and Post Offices under Section 194A.

·      Raising the limit of deduction for health insurance premium and/ or medical expenditure from INR 30,000/- to INR 50,000/-, under section 80D for Senior Citizens.

·      Raising the limit of deduction for medical expenditure in respect of certain critical illness from, INR 60,000/- in case of Senior Citizens and from INR 80,000/- in case of very Senior Citizens, to INR 1 lakh in respect of all senior citizens, under section 80DDB

·      It is propose to exempt transfer of derivatives and certain securities by non-residents from capital gains tax on stock exchanges located in International Financial Services Centre (IFSC). Further, non-corporate taxpayers operating in IFSC shall be charged Alternate Minimum Tax (AMT) at concessional rate of 9% at par with Minimum Alternate Tax (MAT) applicable for corporates.

·      It is proposed that payments exceeding INR 10,000/- in cash made by trusts and institution (whose incomes are exempt if they utilise their income towards the object of the trust/institution) shall be disallowed and the same shall be subject to tax. Further, in order to improve TDS compliance by these entities, It is proposed to provide that in case of non-deduction of tax, 30% of the amount shall be disallowed and the same shall be taxed.

·      It is proposed to tax long term capital gains on equity shares (STT paid) exceeding INR 1 lakh at the rate of 10% without allowing the benefit of any indexation. However, all gains up to 31st January, 2018 will be remain exempt even if shares are sold subsequently. For example, if an equity share is purchased six months before 31st January, 2018 at INR 100/- and the highest price quoted on 31st January, 2018 in respect of this share is INR120/-, there will be no tax on the gain of INR 20/- if this share is sold after one year from the date of purchase. However, any gain in excess of INR 20 earned after 31st January, 2018 will be taxed at 10% if this share is sold after 31st July, 2018.

·      It is also proposed to introduce a tax on distributed income by equity oriented mutual fund at the rate of 10%.

·      It is propose to levy four per cent “Health and Education Cess” in place of existing three per cent education cess on the tax payable amount.

·      It is proposed that the provision of section 79 of the Income-tax Act (the Act) regarding restriction on shareholding for the purpose of carry forward loss shall not apply in case of change of shareholding pursuant to an approved resolution plan under IBC, 2016 where an opportunity of being heard has been given to the Principal Commissioner or Commissioner.

·      In respect of companies where an application under Insolvency and Bankruptcy Code (IBC), 2016 has been admitted, it is proposed to provide that for the purpose of computation of Minimum Alternative Tax (MAT) the aggregate amount of unabsorbed depreciation and brought forward loss shall be allowed to be reduced from the book profit.

·      It is proposed to provide that the insolvency resolution professional shall verify the return of income in case of a company where an application under IBC, 2016 has been admitted.

·      It is proposed to provide that provisions of MAT shall not apply in respect of foreign companies having income solely from businesses referred to in Sections 44B, 44BB, 44BBA and 44BBB of the Act provided such income has been offered to tax at the rates specified in these sections.

·      It is proposed to extend the benefit of exemption for withdrawal up to 40% from National Pension System Trust (NPS) to all subscribers and not only to employees.

·      It is proposed to provide that in a case where premium for health insurance for multiple years has been paid in one year, the deduction shall be allowed proportionately over the years for which the benefit of health insurance is available.

·      In order to encourage start-ups, the definition of ‘eligible business’ for a start-up is proposed to be aligned with the modified definition notified by DIPP. It is further proposed to extend the incorporation date for a start-up for availing benefit under section 80-IAC of the Act to 31st March, 2021 from 31st March, 2019 and rationalise the condition of turnover for availing the benefit.

·      It is proposed to rationalise the provisions of section 56(2)(x) of the Act to provide that the receipt of any property by a wholly-owned Indian subsidiary from its holding company and by an Indian holding company from its subsidiary shall be exempt from tax.

·      It is proposed to provide that trading in agricultural commodity derivatives on a recognized stock exchange shall not be treated as a speculative transaction even if no Commodities Transaction Tax (CTT) has been paid in respect of those derivative transactions.

·      Considering the strategic nature of the transactions, it is proposed to provide that income arising to a non-resident from royalty or fees for technical services received from National Technical Research Organisation shall be exempt from tax.

·      It is proposed to provide that the exemption of sale of leftover stock of crude oil shall also apply in respect of termination of the contract or arrangement in respect of a foreign company participating in a strategic oil reserve.

·      It is proposed to provide that no adjustments shall be made under section 143(1)(vi) of the Act while processing the return filed for the assessment year 2018-2019 and subsequent assessment years.

·      It is proposed to provide that no expenditure or allowance or set off of any loss shall be allowed in respect of undisclosed income determined by the Assessing Officer under section 115BBE of the Act.

·      It is proposed to provide that every entity, not being an individual, which enters into any financial transaction of an amount aggregating to Rs.2.50 Lakh or more in a financial year shall be required to apply for a permanent account number (PAN). It is also proposed that directors, partners, principal officers, office bearer or any person competent to act on behalf of such entities shall also apply for PAN.

·      It is proposed to make the order passed by the Commissioner of Income-tax (Appeals) under section 271J of the Act appealable before Appellate Tribunal. (Penalty section for professionals and merchant bakers)

·      It is proposed to enhance the penalty from INR 100/- to INR 500/- and from INR 500/- to INR 1000/- under section 271FA of the Act. (Penalty for AIR filing).

·      It is proposed to provide that prosecution shall lie against companies for non-filing of return irrespective of the fact that whether any tax is payable or not.

·      It is proposed to mandate that in order to avail benefit of any deduction under Chapter VIA-C, the persons have to file return within due date specified under Section 139(1) of the Act.

·      It is proposed to provide that if stock-in-trade is converted into capital asset, the fair market value of the same on the date of conversion shall be taken into account for computing business income.

·      It is proposed to rationalise the existing provision relating to investment in capital gain bonds by providing that the exemption shall be available only in respect of long-term capital gains arising out of sale of immoveable property and investment in the bond shall be for a minimum period of 5 year from the existing 3 years.

·      It is proposed to amend section 9 of the Act to align the scope of "business connection" with the modified dependent agent permanent establishment rule as per Multilateral Instrument signed by the Government.

·      It is proposed to amend section 9 of the Act to provide that significant economic presence of a non-resident shall constitute "business connection" with India. It is also proposed to define the phrase ‘significant economic presence’.

·      It is proposed to provide that compensation received in connection with termination or modification of business contract and employment contract shall be taxable.

·      It is proposed to provide that in respect of heavy goods vehicles (more than 12 tonnes), the presumptive income under section 44AE of the Act shall be computed at the rate of INR1000 per tonne per month.

·      In order to provide statutory backing and certainty to Income Computation and Disclosure Standards (ICDS), it is proposed to amend the provisions of Chapter IV-D of the Act relating to computation of business income and Chapter XIV of the Act.

·      It is proposed to provide that TDS at the applicable rate shall be made in respect of interest exceeding INR 10,000 from newly introduced 7.75% GOI Savings (Taxable) Bonds, 2018.

·      It is proposed to provide that in the case of an amalgamated company, accumulated profits for the purpose of determining dividend shall also include the accumulated profits of the amalgamating company on the date of amalgamation.

·      It is proposed to provide that deemed dividend under section 2(22)(e) of the Act shall be subject to dividend distribution tax at the rate of 30% without grossing up.

·      It is proposed to provide that the concessional tax rate of 25% for new domestic companies engaged in manufacturing shall be subject to the special rates in respect of specified income provided under Chapter XII of the Act.

·      It is proposed to rationalise the provisions relating to filing of Country-by- Country Report by providing the time-limits and the definition of ‘agreement’.

·      It is proposed to amend Finance Act, 2013 to rationalise levy of Commodities Transaction Tax (CTT) on options in commodity futures.

·      It is proposed to amend the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 to rationalise the designations of authorities competent to grant approval for penalty and prosecution.

Budget Highlights - Indirect Taxes

·        It is propose to increase the custom duty on following items:

S.No.	Item Description	Existing Duty	Proposed Duty
1	Food processing items like fruit and vegetable juices and miscellaneous food preparations	30%	35~50%
2.	Perfumes and Toiletry preparations	10%	20%
3.	Automobile and its parts	7.5%/10% and 20%	15% and 25%
4.	Textile Silk Fabric	10%	20%
5.	Footwear and parts	10%	20% and 15%
6.	Diamond, precious stone and jewellery	2.5%	5%
7.	Imitation jewellery	15%	20%
8.	Cellular mobile phones	15%	20%
9.	Cellular mobile phones parts and accessories	7.5%/10%	15%
10.	Charger of cellular phones	Nil	10%
11.	Watches and Clocks	10%	20%
12.	LCD/LED/OLED TV	7.5%/10%	15%
13.	Furniture	10%	20%
14.	Toys and Games	10%	20%
15.	Articles of sports	10%	20%
16.	Miscellaneous items (Candles, kites, sunglasses, cigarette lighters, sprays, scents etc.)	10%	20%
17.	Crude vegetable oils	12.5%	30%
18.	Refined Vegetable edible oil	20%	35%
19.	Refractory items	10% and 5%	7.5%

·        It is proposed to levy social welfare surcharge on imported goods (other than petrol and high speed diesel oil, Silver, Gold, and other goods exempted from education cess and secondary education cess) @ 10% of aggregate duties of customs in place of 3% education and secondary education cess of aggregate duties  of customs.

·        Definition of Indian Customs Waters expanded from Contiguous zone to Exclusive Economic Zone.

·        Proposal to levy an additional duty of customs viz. Road and infrastructure Cess on import of goods specified in sixth schedule, for the purpose of financing infrastructure projects.

·        Reduction in excise duty on motor spirits known as Petrol and High Speed Diesel Oil.

·        Abolition of additional duty of Excise (Road Cess) on motor spirits from INR 6 per litre to Nil.

·        Introduction of Road and Infrastructure cess on Petrol and Diesel manufactured and cleared from 4 specified refineries location in North East @ INR 4 per litre.

·        The Research and Development (‘R&D’) Cess Act, 1986 abolished. Consequential amendments made in the Service tax law for withdrawal of notification granting deduction of R&D cess paid (effective from the date of enactment of the Finance Bill, 2017)

·        Application to be filed for transfer of Cenvat Credit on account of change in ownership/ sale/ merger/ lease/ transfer etc. of business/ factory. Such application to be allowed within a period of 3 months from the date of receipt of application (effective from 02 February 2017)

·        Authority for Advance Ruling under Indirect taxes merged with the one under the Direct tax legislation

Other budget propositions:

·        It is propose to extend the Pradhan Mantri Vaya Vandana Yojana up to March, 2020 under which an assured return of 8% is given by Life Insurance Corporation of India. The existing limit on investment of INR 7.5 lakh per Senior Citizen under this scheme is also being enhanced to INR 15 lakh.

·        The government's emphasis will be on generating higher incomes for farmers, by helping them produce more with lesser cost, and in turn, earn higher income for their produce. The Government will fix a structure in consultation with Niti Ayog and State Governments to ensure that Farmer get Minimum Selling Price (MSP) even when market prices are lower.

·        A sum of Rs 500 Crore will be allocated for Operation Green to be launched. It will promote agricultural products.

·        Flagship National Healthcare protection scheme, with approximately 50 crore beneficiaries. Up to Rs 5 lakh per family per year for secondary and tertiary care hospitalisation. World's largest government-funded healthcare programme.

·        Government will contribute 12% of the wages of new employees in EPF in all sectors for next 3 years.

·        Women contribution to EPF reduced to 8% for first 3 years