Synopsis of Income Tax provisions under Union Budget 2018

A] TAX RATES

There is no change in income tax rates, except as under:-

[a] The rate of income tax for a domestic company will be 25%, if the total turnover or gross receipts of the previous year 2016-17 does not exceed Rs.250 crores.

[b] Education cess of 3% replaced by Health and Education cess and to be levied @ 4% for all tax payers.

 

BTRUSTS

Charitable Trusts, Educational Institutions etc also now in the clutches of [a] Section 40(a)(ia) for TDS to be deducted and disallowance for non deduction and [b] Section 40A(3) & (3A) for cash payment not to exceed Rs.10000 in a day to a person which otherwise will be disallowable.

 

C] BUSINESS INCOME

1] Any type of compensation received now taxable whether revenue or capital, in connection with the termination or modification of the terms and conditions of any contract relating to business shall be taxable as business income u/s 28 and if relating to employment shall be taxable u/s 56 of the I.T.Act.

2] Presumptive income u/s 44AE for goods carriages for transporters who own less than 10 goods carriages are paying Rs.7500 per month per truck or amount actually claimed to have been earned, whichever is higher.  This is there for all sizes of trucks. The Government now proposes that for heavy trucks [more than 12 MT] gross vehicle weight, the income will be Rs.1000 per ton of gross vehicle weight or unladen weight i.e. Rs.12000 per month or amount actually earned, whichever is higher.

3] Proposed to amend section 43[5] to provide that trading in agricultural commodity derivatives, which is not chargeable to CTT, in a registered stock exchange or regd association, will be treated as a non speculative transaction.

4] Conversion of stock in trade to a capital asset now taxed for which section 28 to provide that fair market value of the inventory on the date of conversion or treatment as such, shall be deemed to be the full value of the consideration and the difference to conversion cost will be taxed as business income. Section 2[24] amended to include such FMV as income. Section 49 amended to provide that for capital gains, the FMV on the date of conversion will be cost. The period of holding of capital asset u/s 2[42A] spelt out to be the period of holding from the date of conversion or treatment as such.

 

D] CAPITAL GAINS

1] Long term capital gain on sale of equity shares or units of an equity oriented fund etc to be taxed – From 1.4.2018, LTCG, exceeding Rs.100000, where STT is paid both on acquisition and sale, will be taxed @ 10%, on full amount, without indexation under a new section 112A. Certain other manner of acquisition like original holding directly received from company or at a very earlier date from the market etc also to be considered u/s 112A, will be announced soon by a notification.

COST FOR THIS PURPOSE will be the higher of

[a] the actual cost of acquisition of such asset; and

[b] the lower of

{i} fair market value of such asset  (for quoted rate as on 31.1.18 or last traded. For unquoted- the NAV of such asset as on the the 31st day of January, 2018.); and

{ii} the full value of consideration received.

Benefit of deductions under chapter VIA or rebate u/s 87A will be allowed by reduction of such capital gains.

FIIto be also taxed similarly @ 10% as above.

2] Section 47 amended to provide that transactions in [i] bond or GDR; [ii] rupee denominated bond of an Indian Co or [iii] derivative —- by a non resident on a recognized stock exchange located in any IFSC shall not be regarded as transfer, if the consideration is paid or payable in foreign currency.

3] Exemption u/s 54EC will now be available only on transfer of long term capital asset, being land or building or both. Further it is also proposed that investment under this section will be made in specified bonds which are redeemable after five years.

 

E] OTHER SOURCES

Section 56 to now also exclude transfers between wholly owned subsidiary and parent co., provided that both are Indian cos.

 

F] DEDUCTIONS

1] Deduction to individual or HUF, u/s 80D for a senior citizen enhanced from Rs.30000 to Rs.50000 a year [being expenditure on annual premium on health insurance policy or on preventive health check up or on medical expenditure].

2] Enhanced deduction u/s 80DDB now proposed to be available to both senior citizens and very senior citizens of an amount of Rs.100000 for specified diseases.

3] Deduction in respect of interest income from savings account for a senior citizen now enhanced from Rs.10000 per annum u/s 80TTA to Rs.50000 per annum and now allowable with a new section u/s 80TTB.

4] Standard deduction on salary income now proposed to be allowed upto Rs.40000 or amt of salary received, whichever is less. But medical expenses Rs.15000 and transport allowance of Rs.1600 per month are withdrawn.

5] Deduction u/s 80P, so far provided to cooperative society providing assistance to its members, now extended to Farm Producer Companies [FPC], having a total turnover upto Rs.100 crores. Benefit shall be available for five years from F.Y.2018-19.

6] Section 80-IAC extended to provide benefit to eligible start ups incorporated on or after 1.4.2019 but before 1.4.2021 and turnover not exceeding 25 crores for seven years commencing from date of incorporation. Elgible business is innovation, development or improvement of products or processes or services, or a scalable business model with a high potential of employement generation or wealth creation.

7] 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, it is proposed to extend this relaxation to footwear and leather industry. This deduction of 30% will also be allowed 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.

 

G] EXEMPTION

Benefit of tax-free withdrawal, from NPS, now available also to non-employee subscribers u/s 10[12A], for exemption in respect of 40% of the total amount payable to him, on closure of his account or on his opting out.

 

H] ASSESSMENT

1] Proposed to prescribe a new scheme of making assessments by eliminating the interface between AO and assessee. A new section 143[3A] is being introduced enabling the Govt. to prescribe the new scheme for scrutiny assessments, by a notification in the Official Gazette.

2] Section 143[1][a] restricted to not to allow adjustments specified in clause [vi] relating to addition of income appearing in form 26AS or form 16A or form 16 which has not been included in computing the total income in the return.

 

I] MISCELLANEOUS

1] PAN— All non-individual entities entering into a financial transaction of Rs.250000 or more in a financial year, are now required to obtain PAN.

In order to link the financial transactions with the natural persons, it is required that the managing director, director, partner, trustee, author, founder, karta, CEO, principal officer or office bearer or any person competent to act on behalf of such non-individual entities shall also apply to PAN.

2] Dividend Distribution Tax to Deemed Dividend — Instead of the recipient being taxed, it is now proposed to bring deemed dividends also under the scope of DDT u/s 115-O. Such deemed dividend will be taxed @ 30% in the hands of company in order to prevent camouflaging dividend in various ways such as loans and advances.

3] Proposed to amend section 116[7] so as to include “options in commodity futures” in the definition of “taxable commodities transactions”.

4] Return must be filed by due date now to avail any benefit of deduction in respect of CERTAIN INCOME in Chapter VIA under the heading “C”  i.e (sec.80HH till sec 80RRB).

5] Where variation between sale price and stamp duty value is not more than 5% of sale consideration, sale price will be treated as consideration u/s 50C, 43C and 56.

6] Section 115BBE w.e.f.1.4.17 provided for income u/s 68, 69, 69A, 69B, 69C or 69D at a higher rate of 60%. Earlier no expenditure or allowance or set off any loss was allowed to such income returned by the assessee. Now such expenditure etc will also not be allowed to such income assessed by the AO.

7] Amendments in section 145 in relation to notified ICDS in view of recent judicial pronouncements have raised doubts on the legitimacy of the notified ICDS. Since a large number of tax payers have already complied with the provisions of ICDS for computing income for the asst year 2017-18, and in order to regularize the tax compliance with the notified ICDS, the amendments are effective from Asst Year 2017-18 i.e. from 1.4.2017.

8] Further u/s 115JC amended for IFSC for alternative minimum tax to be levied @ 9% instead of 18.5%.

 

J] PENALTY

1] Section 271FA amended to increase the penalty leviable from Rs.100 to Rs.500 per day and from Rs.500 to Rs.1000 per day, in order to ensure compliance of the reporting obligations under section 285BA of the Act.

2] Section 276CC amended to penalize all companies not filing return where tax evaded exceeds Rs.25000 then jail for not less than 6 months but which may extend to seven years and with fine. In any other case, then jail for not less than 3 months but which may extend to two years and with fine. SO IF THE RETURN IS NOT FILED IN TIME OR BEFORE THE EXPIRY OF THE ASSESSMENT YEAR PENALTY IS IMPOSABLE ON COMPANIES. For other than companies, penalty under this section is leviable if the tax evaded exceeds Rs.3000.

One thought on “Synopsis of Income Tax provisions under Union Budget 2018

Leave a Reply

Your email address will not be published. Required fields are marked *