It was a pleasure to present you the analysis of the Union Budget 2018 on the very same day.
The various provisions of the Finance Bill are explained below in the simple language to the extend possible:
- Education Cess:
Education cess and Secondary and Higher Education Cess will be discontinued which was 2% and 1% respectively.
However, a new cess, by the name of “Health and Education Cess” shall be levied at the rate of 4%.
- Slab of taxation:
For Every Individual, HUF, AOP, BOI and Artificial Judicial person
Upto Rs. 2,50,000 Nil
Rs. 2,50,001 to Rs. 5,00,000 5 %
Rs. 5,00,001 to Rs. 10,00,000 20 %
Above Rs. 10,00,000 30 %
For Senior Citizen:
Up to Rs.3,00,000 Nil
Rs. 3,00,001 to Rs. 5,00,000 5 %
Rs. 5,00,001 to Rs. 10,00,000 20 %
Above Rs. 10,00,000 30 %
For Super Senior Citizen:
Up to Rs. 5,00,000 Nil
Rs. 5,00,001 to Rs. 10,00,000 20 %
Above Rs. 10,00,000 30 %
- For Partnership firm, no change in the rates of taxation.
- For Companies:
- In case of domestic company, the rate of income-tax shall be 25%. of the total income if the total turnover or gross receipts of the previous year 2016-17 does not exceed 250 Crore rupees
- In all other cases the rate of Income-tax shall be 30 % of the total income.
- In the case of company other than domestic company, the rates of tax are the same as those specified for the financial year 2017-18
- Surcharge – Same as specified for Financial Year 2017-18.
- Entities to apply for Permanent Account Number in certain cases
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.
In order to link the financial transactions with the natural persons, it is also proposed that the managing director, director, partner, trustee, author, founder, karta, chief executive officer, principal officer or office bearer or any person competent to act on behalf of such entities shall also apply to the Assessing Officer for allotment of PAN.
- Dividend Distribution Tax to Deemed Dividend
At present dividend distributed by a domestic company is subject to dividend distribution tax payable by such company.
However, Deemed dividend as defined under Section 2(22)(e) of the Income Tax, 1961 is taxable in the hands of the recipient.
In order to avoid litigation, it has been provided that the DDT will also be applicable on deemed dividends.
Further, such 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.
- New regime for taxation of long-term capital gains on sale of equity shares etc.
Under the existing regime, long term capital gains arising from transfer of long term capital assets, being equity shares of a company or an unit of equity oriented fund or an unit of business trusts , is exempt from income-tax under clause (38) of section 10 of the Act.
It is proposed to withdraw the exemption under clause (38) of section 10 and to introduce a new section 112A in the Act to provide that long term 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 1 Lac rupees
Further, it provides that:
The long term capital gains will be computed without giving effect to the first and second provisos to section 48, i.e. inflation indexation in respect of cost of acquisitions and cost of improvement.
Further, the cost of acquisitions in respect of the long term capital asset acquired by the assessee before the 1st day of February, 2018, shall be deemed to be the higher of –
- a) the actual cost of acquisition of such asset; and
- b) the lower of –
- the fair market value of such asset; and
- the full value of consideration received or accruing as a result of the transfer of the capital asset.
- Dividend distribution tax on dividend pay outs to unit holders in an equity oriented fund
It is proposed to provide that where any income is distributed by a Mutual Fund being, an equity oriented fund, the mutual fund shall be liable to pay additional income tax at the rate of ten per cent on income so distributed.
- Extending the Scope of TDS and Restriction of Cash payment by charitable or religious trusts or institutions:
At present, there are no restrictions on payments made in cash by charitable or religious trusts or institutions.
There are also no checks on whether such trusts or institutions follow the provisions of TDS.
In order to encourage a less cash economy and to reduce the generation and circulation of black money, it is proposed to insert a new Explanation to the section 11 to provide that for the purposes of determining the application of income under the provisions of sub-section (1) of the said section, the provisions of sub-clause (ia) of clause (a) of section 40, and of sub-sections (3) and (3A) of section 40A, shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head “Profits and gains of business or profession”.
- Presumptive income under section 44AE in case of goods carriage
Section 44AE, inter alia provides that, the profits and gains shall be deemed to be an amount equal to Rs. 7500/- per month or part of a month for each goods carriage or the amount claimed to be actually earned by the assessee, whichever is higher.
The current presumptive income scheme is applicable uniformly to all classes of goods carriages irrespective of their tonnage capacity.
It is proposed to amend the section 44AE of the Act 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 to 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.
- Increase in Section 80D Limit for Senior Citizens:
The limit has been increased to Rs. 50,000/- from present limit of Rs. 30,000/-.
- Increase in Section 80DDB Limit for Senior Citizens:
It is proposed to amend the provisions of section 80DDB of the Act so as to raise this monetary limit of deduction to Rs 1,00,000/- for both senior citizens and very senior citizens.
- Deduction in respect of interest income
At present, a deduction upto Rs 10,000/- is allowed under section 80TTA to an assessee in respect of interest income from savings account. It is proposed to insert a new section 80TTB so as to allow a deduction upto Rs 50,000/- in respect of interest income from deposits held by senior citizens.
However, no deduction under section 80TTA shall be allowed in these cases.
- Standard deduction on salary income:
It is proposed to allow a standard deduction up to Rs 40,000/- or the amount of salary received, whichever is less.
Consequently the present exemption in respect of Transport Allowance (except in case of differently abled persons) and reimbursement of medical expenses is proposed to be withdrawn.
- Deduction in respect of income of Farm Producer Companies:
Section 80P provides for 100 percent deduction in respect of profit of cooperative society which provide assistance to its members engaged in primary agricultural activities.
It is proposed to extend similar benefit to Farm Producer Companies (FPC), having a total turnover up to Rs 100 Crore, whose gross total income includes any income from-
- the marketing of agricultural produce grown by its members, or
- the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or
- the processing of the agricultural produce of its members
The benefit shall be available for a period of five years from the financial year 2018-19.
- 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.
- Incentive for Start Up:
In order to improve the effectiveness of the scheme for promoting start ups in India, it is proposed to make following changes in the taxation regime for the start ups:—
- The benefit would also be available to start ups incorporated on or after the 1st day of April 2019 but before the 1st day of April, 2021;
- The requirement of the turnover not exceeding Rs 25 Crore would apply 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.
- Tax treatment of transactions in respect of trading in agricultural commodity derivatives
In order to encourage participation in trading of agricultural commodity derivatives, 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.
- New scheme for scrutiny assessment
It is proposed to prescribe a new scheme for the purpose of making assessments so as to impart greater transparency and accountability, by eliminating the interface between the Assessing Officer and the assessee, optimal utilization of the resources, and introduction of team-based assessment.
Therefore, it is proposed to amend the section 143, by inserting a new sub-section (3A), after sub-section (3), enabling the Central Government to prescribe the aforementioned new scheme for scrutiny assessments, by way of notification in the Official Gazette.
- Rationalisation of prima-facie adjustments during processing of return of income
With a view to restrict the scope of adjustments, it is proposed to insert a new proviso to the said clause to provide that no adjustment under sub-clause (vi) of the said clause shall be made in respect of any return furnished on or after the assessment year commencing on the first day of April, 2018.
- Extending the benefit of tax-free withdrawal from NPS to non-employee subscribers
Under the existing provisions of the clause (12A) of section 10 of the Act, an employee contributing to the NPS is allowed an exemption in respect of 40% of the total amount payable to him on closure of his account or on his opting out. This exemption is not available to non-employee subscribers. In order to provide a level playing field, it is proposed to amend clause (12A) of section 10 of the Act to extend the said benefit to all subscribers.
- Rationalization of section 43CA, section 50C and section 56
At present, 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 is adopted.
The difference is taxed as income both in the hands of the purchaser and the seller.
It has been pointed out that this variation can occur in respect of similar properties in the same area because of a variety of factors, including shape of the plot or location. In order to minimize hardship in case of genuine transactions in the real estate sector,
It is 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.
- Amendments related to ICDS (Income Computation and Disclosure Standards)
It is proposed to bring the notified amendments retrospectively with effect from 1st April, 2017 i,e the date on which the ICDS was mad effective and will, accordingly, apply in relation to assessment year 2017-18 and subsequent assessment years.