© KNAV, 2018. All rights reserved. Budget... · 2019-03-29 · arising from transfer of a long term capital asset, being an equity share in a company or a unit of an equity oriented

© KNAV, 2018. All rights reserved.


An overviewIndia Union Budget 2018-19


Foreword

Fiscal and economic review

Direct taxes

Indirect taxes

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Foreword

The Hon'ble Finance Minister of India presented the Union Budget 2018 on 1 February 2018. This year’s Budget was in line with the

Government’s mission to transform India by strengthening agriculture, rural development, health, education, employment, Micro, Small

and Medium Enterprises (MSME) and infrastructure.

The major achievements of the past year include the Goods and Services Tax, resolution of the Twin Balance Sheet (TBS) problem by

sending the major stressed companies for resolution under the new Indian Bankruptcy Code, implementing a major recapitalisation

package to strengthen the public sector banks, further liberalisation of FDI and the export uplift from the global recovery.

India’s FY 2018-19 budget is in line with the government’s fiscal consolidation path.

Most of the spending announced seemed to be on “productive investments” rather than ‘one-time hand outs’.

The Finance Minister loosened the Government’s fiscal deficit targets for the new financial year – partly as a result of unsure tax

revenue and partly to step up public spending – while presenting a budget that appeared to focus heavily on the agriculture and health

sectors.

The Government should be commended on sticking to fiscal discipline. While a slight revision did occur, the larger point is that populist

measures have been avoided, and all initiatives are centred around development and growth.

Increased emphasis on agriculture, rural and MSME sectors is most appropriate, as these sectors have gone through rough weather

with demonetisation and GST. If implemented well, this budget carries the promise of reviving the economy in FY2019

All-in-all, it is a business-as-usual budget for India and a great one for Bharat (rural India). The Government did what it thought

necessary to boost revenue, revive growth and get election-ready

We have discussed some of the key pillars that impact businesses and individuals through the government’s tax policy and

regulatory changes in this Budget Update 2018.


Foreword


Direct taxes

Indirect taxes

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Fiscal deficit target

• The Modi Government revised the fiscal budget for FY 2018-19

to 3.3% (target was 3%).

• This was on account of receipt of Goods & Service Tax (GST)

revenue being reduced to 11 months and shortfall in non-tax

revenue due to lower accrual through spectrum auction.

Continued focus on strategic divestment

• Divestment target for FY 2017-18 has been exceeded, to get

INR 1 trillion

• Divestment target for FY 2018-19 set at INR 800 billion

• Govt. to come up with more exchange-traded fund offers

including debt ETFs


Economic indicators

• Fiscal deficit for FY 2017-2018 is expected to be expanded

to the target of 3.5% of GDP. The road map for fiscal deficit

is 3.3% in FY 2018-19. Govt. intends to use fiscal deficit

target as key operational parameter for fiscal consolidation

• Current account deficit has declined to reach about 1.8%

of the GDP in the first half of FY 2017-18

• GDP growth is expected to be between 6.5% and 6.75% in

FY 2017-18. GDP growth is projected to be between 7.0%-

7.75% in FY 2018-19.

• The wholesale price index (WPI) settled at 2.90% in FY

2017-18 (April-December).

• Index of Industrial Production (IIP) grew 3.2 per cent,

while registering a growth rate of 8.4 per cent in November

2017, the highest in 25 months.

• Service sector growth: Projected to grow at 8.3% in FY

2017-18, as against 7.7 % in FY 2016-17.

• Forex reserves: USD 411 Bn. at its highest ever

India Economy – 7th largest

• India aims to occupy the 5th largest position at the soonest

• Indian economy is now a 2.5 trillion dollar economy

• India is already the third largest economy on Purchasing

Power Parity (PPP) basis


Impetus to air travel by Aam Aadmi

• In the words of the Finance Minister, “People in Hawai

Chappals can fly in Hawai Jahaaj.”

• In last three years, domestic air passenger traffic grew at 18%

per annum and in total, orders were placed for more than 900

aircrafts

• Proposed to expand airport capacity more than five times to

handle a billion trips a year.

Push to tourism

• Ten tourist cities will be developed into “iconic” tourist

destinations.

• Tourist amenities at 100 Adarsh monuments will be upgraded

to enhance visitor experience

Fiscal and economic review (Cont…)

Ease of Doing Business in India

• Various reforms taken by the Government of India have led

to increase in India’s ranking in the World Bank’s Ease of

Doing Business Index from 130 in 2017 to 100 in 2018.

• India’s ranking in the taxation and insolvency parameters

improved by 53 and 33 spots, respectively, on the back of

administrative reforms undertaken by the Government in the

areas of taxation and passage of Insolvency and Bankruptcy

Code (IBC), 2016.

• To improve the ease of doing business in the country, the

government has taken various initiatives to improve contract

enforcement. Over 1,000 redundant legislations have been

scrapped.

Measures to boost MSME segment

• Provision of INR 38 billion to MSME Sector for giving credit

support, capital and interest subsidy and innovations.

• Policy and institutional development measures are being

examined for creating right environment for Fintech

companies to grow in India.

• Online loan sanctioning for MSMEs to commence

• Measures will be announced soon for effectively addressing

non-performing and stressed accounts of MSMEs.


Changing face of Science, Research and Technology in India

• India was ranked 13 in 2017 by Nature Index, which publishes

tables based on counts of high-quality research outputs based

on natural sciences in the previous year.

• Launched the initiative “Revitalising Infrastructure and

Systems in Education (RISE) by 2022” to set up investments

in research and infrastructure for education

• Proposed to invest INR 1 trillion for this project

• NITI Aayog will initiate a national program for enhancing

efforts in areas of machine learning, artificial intelligence,

internet of things, 3D printing and the likes.


Digital India

• Doubling the budget of Digital India to INR 30 billion in FY

2018-19 shows the Government's vision and commitment

towards digital economy

• The task of connecting 0.1 million gram panchayats with

high speed optic fibre network has been completed under

Phase 1 of Bharat Net program. This has enabled

broadband access to cover rural Indians in about 2.5 lakh

villages.

• Aim to establish India as a knowledge and digital society

by promoting Digital India, Start Up India and Make in India

initiatives

• The Government will explore use of block chain

technology; a very encouraging sign, for proactively

ushering in digital economy

• The Government also proposes to setup five lakh wi-fi

hotspots which will provide broadband access to five crore

rural citizens.

Universal Healthcare

• Potential to be both; a political and social game changer.

• World’s Largest Government funded programme proposes

health coverage of INR 0.5 million per annum to 100 million

poor and vulnerable families under the National Health

Protection Scheme

• Move to bring health insurance to almost 40 percent of the

population


Roadmap & priorities

• Smart cities: Government will continue focus on urbanization

through its two interlined programs – Smart Cities Mission and

AMRUT

• 99 out of 100 cities have been selected with an outlay of INR 2

trillion.

• The AMRUT program\ focuses on providing water supply to all

households in 500 cities. State level plans of INR 779 billion

have been already approved.

• Electricity: Government is seriously concerned for providing

electricity to every rural family. It has decided to allocate INR

160 billion to provide electricity to rural areas under Pradhan

Mantri Saubhagya Yojna.


Rural economy

• Government continues to introduce measures to uplift

agriculture based population.

• MSP at 1.5 times for kharif crops

• Operation Greens: to address price volatility of perishable

commodities like potatoes, tomatoes and onions.

• Bamboo is Green Gold: An outlay of INR 13 billion has

been allocated to promote bamboo sector in a holistic

manner

• New policies that will address procurement, demand and

forecast targeted at doubling farmers’ incomes FY 2021-22.

Defence industry

• Private investment in defence production opened up

including liberalizing foreign direct investment

• Measures being undertaken to develop two defence

industrial production corridors in the country

• Industry friendly Defence Production Policy 2018 to be

brought out to promote domestic production by public sector,

private sector, and MSMEs

Reforms for enterprises

• A National Logistics Portal as a single window online market

place to link all stakeholders to be developed by the Ministry

of Commerce

• A scheme to be launched to assign every individual

enterprise in India a unique ID


Foreword


Direct taxes

Indirect taxes

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Direct Tax

New regime for taxation of long-term capital gains on sale

of equity shares etc.

The long term capital gains (“LTCG”) arising from the 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

are currently exempt from income-tax u/s 10(38) of the Act.

However, transactions in such long term capital assets carried

out on a recognized stock exchange are liable to securities

transaction tax (“STT”).

It is proposed to withdraw the exemption u/s 10(38) and to

introduce a new section 112A in the Act to provide that LTCG

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 INR 100,000.

The rate of 10% will be applicable to such LTCG, if:

• STT has been paid both on acquisition and transfer of equity

shares of a company; and

• STT has been paid on transfer of units of an equity oriented

fund or units of a business trust.

Further, sub-section (4) of the proposed section 112A of the Act

empowers the Central Government to notify instances where

the payment of STT, at the time of acquisition of equity shares

shall not apply. Additionally, the requirement of payment of STT

at the time of transfer of units of an equity oriented fund or units

of a business trust shall not apply if the transfer is undertaken

on a recognized stock exchange located in any International

Financial Services Centre (“IFSC”) and the consideration of

which is received or receivable in foreign currency.

It is also proposed as under:

• The LTCG will be computed without giving effect to inflation

indexation in respect of cost of acquisitions and cost of

improvement;

• The benefit of computation of LTCG in foreign currency in

the case of a non-resident, will not be allowed;

• Where the total income of the taxpayer includes any LTCG:

o Deduction under Chapter VI-A will be allowed from the

gross total income as reduced by such capital gains; and

o Rebate u/s 87A will be allowed from the income-tax

payable by the taxpayer on the total income, as reduced

by tax payable on such LTCG.


Direct Tax (Cont…)

• In a case where the total income (excluding LTCG) of a

resident individual or an Hindu undivided family is below the

basic exemption limit, such LTCG shall be allowed to be to

reduced to the extent of the unexhausted basic exemption

limit.

• The definition of the term “Cost of Acquisition” has been

amended as under:

The cost of acquisitions in respect of the long term capital

asset acquired by the taxpayer before 1 February 2018,

shall be deemed to be the higher of:

o the actual cost of acquisition of such asset; and

o 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.

• The definition of the term “Fair Market Value” has been

amended as under:

Fair market value has been defined to mean:

o in a case where the capital asset is listed on any

recognized stock exchange, the highest price of the

capital asset quoted on such exchange on 31 January

2018. However, where there is no trading in such asset

on such exchange on 31 January 2018, the highest price

of such asset on such exchange on a date immediately

preceding 31 January 2018 when such asset was traded

on such exchange shall be the fair market value; and

o in a case where the capital asset is a unit and is not listed

on recognized stock exchange, the net asset value of

such asset as on 31 January 2018.

• The definition of the term “equity oriented fund” has been

amended and has been elaborately defined in the Bill.

• It has been clarified that, all the LTCG upto 31 January 2018

will be grandfathered.

Example: If an equity share is purchased six months before

31 January 2018 at INR 100 and the highest price quoted

on 31 January 2018 in respect of this share is INR 120,

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 31 January 2018 will be

taxed at 10% if this share is sold after 31 July 2018.

• Further, it has been clarified that, the gains from equity

share held up to one year will continue to remain short term,

and be taxed at the rate of 15%.



KNAV comments:

• It is pertinent to note that there wouldn’t be any capital

gains tax impact if a long term capital asset, being

equity shares or units of fund is sold before 31 March

2018.

• STT was initially introduced in 2004 in order to reduce

the capital gains tax rates as under:

However, the introduction of long term capital gains tax

u/s 112A is not compensated with the elimination of STT.

This will result in an outflow for the taxpayer in the form

of STT as well as long term capital gains tax.

It seems that the Hon’ble Finance Minister has

overlooked the above fact.

ParticularsPrior to 1

October 2004

Post introduction

of STT

Long term capital

gains tax rate on sale

of listed securities

(resident / non-

resident)

10% / 20% 0%

Short term capital

gains tax rate on sale

of listed securities

30% 15%

Relief from liability of Minimum Alternate Tax (“MAT”) for

company under insolvency resolution process and foreign

company

It is proposed to amend section 115JB of the Act to provide that

the aggregate amount of unabsorbed depreciation and loss

brought forward (excluding unabsorbed depreciation) shall be

allowed to be reduced from the book profit, in case of companies

application for corporate insolvency resolution process under the

Insolvency and Bankruptcy Code, 2016 has been admitted by the

Adjudicating Authority. Consequently, a company henceforth be

entitled to reduce the loss brought forward and unabsorbed

depreciation for the purposes of computing book profit u/s 115JB

of the Act.


• Insertion of new section 43CB: Profits arising from a

construction contract or a contract for providing services shall

be determined on the basis of percentage of completion

method except for certain service contracts, and that the

contract revenue shall include retention money, and contract

cost shall not be reduced by incidental interest, dividend and

capital gains

Section 145A: For the purposes of determining income under

profits and gains of business or profession:

• the valuation of inventory shall be lower of cost or NRV;

• to include the amount of any tax, duty, cess or fee actually

paid/incurred by the taxpayer in purchase or sale of goods or

services as on the date of valuation;


This amendment will take effect from 1 April 2018 and will

accordingly apply from AY 2018-19 and subsequent years.

Further, a clarificatory amendment is also proposed in section

115JB of the Act that this provision shall not be applicable and

shall be deemed never to have been applicable to a foreign

company in case its total income comprises solely of profits and

gains from business referred to in section 44B or section 44BB

or section 44BBA or section 44BBB and such income has been

offered to tax at the rates specified in the said sections.

This amendment will take effect retrospectively from 1 April

2001 and will accordingly apply from AY 2001-02 onwards.

Amendments in relation to notified ICDS

In order to bring certainty due to recent judicial

pronouncements on the issue of applicability of ICDS or

otherwise, it is proposed to amend —

• Section 36(1)(xviii): Marked to market loss or other expected

loss as computed in the manner provided in ICDS shall be

allowed as deduction;

• Section 40A: no deduction or allowance in respect of

marked to market loss or other expected loss would be

allowed except newly inserted Section 36(1)(xviii);

• Insertion of new section 43AA: Any gain or loss arising on

account of effects of changes in foreign exchange rates in

respect of monetary and non-monetary items, translation of

financial statement of foreign operations, forward exchange

contract and foreign currency translation reserves

transactions shall be treated as income or loss;



• inventory being securities not listed on a recognized stock

exchange shall be valued at cost initially recognized in the

manner provided in ICDS;

• inventory being listed securities shall be valued at lower of

cost or NRV in the manner provided in ICDS and for this

purpose the comparison shall be done category-wise;

• Insertion of new section 145B:

This amendment will take effect retrospectively from 1 April

2017 i.e. the date on which the ICDS was made effective and

will, accordingly, apply in relation to AY 2017-18 and

subsequent years.

KNAV Comments:

ICDS were inserted in the Act through a notification. The

question arose as to whether it is binding on the taxpayer

Particulars Taxability

Interest received on

compensation or on

enhanced compensation

Taxable in the year of

receipt

Claim for escalation of price

in the contract / export

incentives:

Taxable when reasonable

certainty of its realization

is achieved;

Subsidy/grant/cash

incentives/duty drawback

etc. by Central and State

government

Taxable in the year of

receipt in case not offered

to tax in earlier year.

and hence in view thereof the amendment has been brought

to bring it in the Act itself.

The various conflicts as to taxable income vis-à-vis real

income theory and vis-à-vis the true accounting profit still

continue to be a matter of discussion and litigation.

Further, a question arises as to whether method of

accounting can give rise to income which is beyond the

charging provisions and scope of income.



Aligning the scope of “business connection” with modified

PE Rule as per Multilateral Instrument (“MLI”)

It is proposed to amend the provision of section 9 of the Act so

as to align them with the provisions in the DTAA as modified by

MLI so as to make the provisions in the treaty effective.

Accordingly, section 9(1)(i) is being proposed to be amended to

provide that “ business connection” shall also include any

business activities carried through a person who, acting on

behalf of the non-resident, habitually concludes contracts or

habitually plays the principal role leading to conclusion of

contracts by the non-resident. It is further proposed that the

contracts should be:

(i) in the name of the non-resident; or

(ii) for the transfer of the ownership of, or for the granting of the

right to use, property owned by that non-resident or that the

non-resident has the right to use; or

(iii) for the provision of services by that non-resident.



Business connection to include Significant Economic

presence

It is proposed to amend section 9(1)(i) of the Act to provide that

'significant economic presence' in India shall also constitute

'business connection'. It is further proposed to provide that only

so much of income as is attributable to such transactions or

activities shall be deemed to accrue or arise in India. It is

further proposed to provide that the transactions or activities

shall constitute significant economic presence in India, whether

or not the non-resident has a residence or place of business in

India or renders services in India.

KNAV Comments

• India has signed MLI on its DTAA signed with various

countries. The current provisions of tax treaty on DAPE

and the exempt activities of PE are favourable to

taxpayers as compared to the provisions of the Act.

However, with the signing of the MLI agreement, these

provisions are more strict i.e. adverse to the taxpayer

under provisions of the tax treaty. If these changes are

not made in the Act, provisions of MLI will be of no use

and consequences, to avoid the taxation through the

current DAPE and the exempt activities provisions of the

DTAA.

• This aspect has been introduced by amending definition

of business connection u/s 9 of the Act. Recognising the

fact that, the current principles of PE and attribution of


losses sitting on the Balance Sheet of a company (which is

larger than unabsorbed business loss) will not have losses

to be setoff.

Rationalization

Entities to apply for Permanent Account Number in certain

cases

In addition to persons specified in Section 139A of the Act, who

are required to apply for PAN, it is proposed that the following

persons also, will now be required to apply for PAN:

• In order to use PAN as Unique Identity Number (UEN), every

person not being an individual which enters into a financial

transaction of an amount aggregating to INR 250,000 or more;


incomes to PE can be properly applied only when there is

a physical presence of non-resident in the source state,

this budget provides for the concept of significant

economic presence to capture the digital activities in India

where most of the activities take place on the digital

platform which does not require physical presence in the

source state.

Benefit of carry forward and set off of losses and verify the

tax return

It is proposed to relax the rigors of section 79 of the Act in case

of such companies, whose resolution plan has been approved

under the Insolvency and Bankruptcy Code, 2016, after

affording a reasonable opportunity of being heard to the

jurisdictional Principal Commissioner or Commissioner.



It is also proposed to amend section 140 of the Act so as to

provide that during the resolution process under the Insolvency

and Bankruptcy Code, 2016, the return shall be verified by an

insolvency professional appointed by the Adjudicating Authority

under the Insolvency and Bankruptcy Code, 2016.

KNAV Comments:

This is certainly a positive and welcome step. However,

one issue which remains unresolved, is the large business

profits arising out of restructuring, since only unabsorbed

assessed loss will be allowed whereas, large



• In order to link financial transactions with the natural

persons, 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 for allotment of PAN.

Deductions in respect of certain incomes not to be allowed

unless return is filed by the due date

It is proposed to extend the ambit of section 80AC to deny the

deduction benefit under the entire class of deduction under

heading “C- Deduction in respect of certain incomes.” in case

the return of income isn’t furnished on or before the due date

specified u/s 139(1) of the Act.

This amendment will take effect from 1 April 2019 and apply to

AY 2019-20 and subsequent years.

KNAV Comments:

If procedural aspects are not observed by the taxpayer,

then in addition to payment of interest, many other forms

of disincentives have now become the order of the day. In

this Finance Bill, we find a number of such provisions,

such as obtaining PAN, loss of exemption profits u/s 80

IAC on non-filing of returns by the due date.

The Bill proposes that a Partner or a Trustee of any entity,

is also required to obtain a PAN, which is a very onerous

obligation cast on the individual. It should not be a blanket

provision, but may be restricted only to the active / directly

involved partner or trustee or the principal officer of the

entity concerned.

Rationalization of adjustments during processing of return of

Income

It is proposed to insert a new proviso to section 143(1)(a) of the

Act to provide that no adjustment under sub-clause (vi) of the said

clause (i.e. adjustment in respect of addition of income appearing

in Form 26AS or Form 16A or Form 16 which has not been

included in computing total income in the return), shall be made in

respect of any return furnished on or after the assessment year

commencing on the first day of April 2018.

New scheme for scrutiny assessment

It is proposed to amend the provisions of section 143 of the Act, 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



taxpayer, optimal utilization of the resources, and introduction

of team-based assessment.

This amendment will take effect from 1 April 2018.

KNAV Comments:

Removal of 26AS adjustment, huge number of rectification

application will be curtailed as adjustment u/s 143(1)(a)

cannot be made on basis of 26AS. The step above

alongwith the new scheme of scrutiny assessment will

certainly go a long way in improving tax administration,

unnecessary loss of time and efforts and create a tax

friendly environment.

Application of Dividend Distribution Tax to Deemed

Dividend

Under the existing provisions of the Act, deemed dividend u/s

2(22)(e) is taxed in the hands of the recipient at the applicable

marginal rate.It is proposed to amend the provisions of section

115Q and 115-O to bring deemed dividend within the purview

of dividend distribution tax u/s 115-O.

Further, such deemed dividend is proposed to be taxed at the

rate of 30 per cent (no grossing up) in order to prevent

camouflaging dividend in various ways such as loans and

advances.

This amendment will apply to transactions undertaken on or

after 1 April 2018.

KNAV Comments:

This is a normal understanding that deeming provisions are

to be construed very strictly and there cannot be further case

in terms of payment of further taxes.

Section 2(22)(e) itself is an anti-avoidance provision by way

of a deeming fiction and is stretched further to DDT. By

bringing in the deemed dividend under scope of section 115-

O, it will be practically impossible to observe section 115-O

and 115Q in a straight forward manner as a principle officer

of the company who is made responsible u/s 115-O to make

payment of DDT, in most of situations he may not know that

such payment is liable for DDT, thus a humanely impossible

function added to law.



It is proposed to amend section 286 of the Act which pertains to

specific reporting regime containing revised standards for

transfer pricing documentation and a template for country-by-

country reporting (CbCR) as under:

• To change the due date for furnishing the CbC report to the

income tax authorities to twelve months from the end of the

said reporting accounting year as against the existing due-

date specified u/s 139(1) i.e. the due-date for furnishing the

return of income.

• A constituent entity resident in India, having a non-resident

parent, shall also be required to furnish CbC report in case

its parent entity outside India has no obligation to file the

report in the parents' country or territory. The due-date for

furnishing of CbC report for such a constituent entity is also

proposed to be twelve months from end of the reporting

accounting year.

• The due date for furnishing of CbC report by the alternative

reporting entity 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;

• An alternative reporting entity of an international group (the

parent entity of which is outside India) will be required to

furnish the CbC report to the tax authority of the country or

territory of which it is a resident, and the due date for the

same will be the due date specified by that country or

territory.

The definition of the term ‘agreement’ is proposed to be amended

to also include an agreement as may be notified by the Central

Government for exchange of the CbC report referred to in sub-

section (2) and subsection(4).

The definition of the term “reporting accounting year” is proposed

to be amended 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 the proposed sub-section (2) and sub-

section (4).

The above amendments have been proposed to take effect

retrospectively from the 1 April 2017 and will, accordingly apply in

relation to the AY 2017-18 and subsequent years.



Miscellaneous:

Tax rate: Corporate

As a part of the government’s promise to reduce the

corporate’s tax rate for the small and medium enterprises, it is

proposed to provide relief in the corporate tax rate for

enterprises having turnover less than INR 250 crores as under:

Hopes of any increase in slab rates for non-corporate tax

payers have remained unfulfilled. No changes proposed in the

slab rates for Individuals, Hindu Undivided Family (“HUF”),

Association of Persons (“AOP”), Body of Individuals (“BOI”) and

Artificial Jurisdictional Person (“AJP”). Effective tax rate in case

of abovementioned taxpayers continue to remain as under:

The above rates will increase by surcharge and cess.

In the case of company other than domestic company, the rates

of tax are the same as those specified for the AY 2018-19.

There has been no change in the rates of surcharge on income

tax in case of companies.

Existing provisions Proposed provisions

Turnover upto

INR 50 crores

25% Turnover upto

INR 250 crores

25%

Above INR 50

Crores

30% Above INR 250

crores

30%

Domestic companies Foreign companies

Taxable

income

more than

INR 1 Crore

less than

INR 10

Crores

Taxable

income

more than

INR 10

Crores

Taxable

income more

than INR 1

Crore less

than INR 10

Crores

Taxable

income

more than

INR 10

Crores

7% 12% 2% 5%



Tax rate: Individuals, HUF, AOP, BOI, AJP -

No changes in tax rates

Hopes of any increase in slab rates for non-corporate tax

payers have remained unfulfilled. No changes proposed in the

slab rates for Individuals, Hindu Undivided Family (“HUF”),

Association of Persons (“AOP”), Body of Individuals (“BOI”) and

Artificial Jurisdictional Person (“AJP”). Effective tax rate in case

of abovementioned taxpayers continue to remain as under:

Tax slab rates for individuals of 60 years but less than 80 years

of age:

Taxable Income Tax Rates

Upto INR 250,000 Nil

INR 250,001 - INR 500,000 5%

INR 500,001 – INR 1,000,000 20%

Above 1,000,001 30%



INR 300,001 to INR 500,000 5%

INR 500,001 to INR 1,000,000 20%

Above INR 1,000,001 30%



INR 500,001 to INR 1,000,000 20%

Above INR 1,000,001 30%

Tax slab rates for individuals of more than 80 years of age:

The Education and higher education cess has been proposed to

be increased from 3% to 4% and is proposed to be termed as

“Health and Education Cess on income tax”.



There are no changes in rate of surcharge. The same are

proposed to be levied on the amount of income tax, if the

taxable income of the person (i.e. Individuals, HUF, AOP, BOI

and AJP) is as under:

Tax rate: Co-operative societies, Firms and Local

Authorities - No changes in tax rates

There has been no change in the income tax rates and the

rates continue to be the same as that specified for assessment

year 2018-19.

Further, there is no change in the rates of surcharge to be

levied on the tax amount. It continues to be levied at 12%.

In case of all the taxpayers, the Education Cess and Secondary

and Higher Education Cess has been proposed to be increased

from 3% to 4% and is proposed to be termed as “Health and

Education Cess on income tax” in all cases.

Enhanced deduction to senior citizens in respect of

medical insurance premium and medical treatment

It is proposed to amend section 80D of the Act to enhance the

deduction in respect of payments towards:


5,000,001 upto 10,000,000 10%

Above 10,000,001 15%

• Annual premium on health insurance policy, or preventive

health check-up of a senior citizen; or

• Medical expenditure in respect of very senior citizen.

The proposed amendment is to enhance the deduction from the

existing INR 30,000 p.a. to INR 50,000 p.a.

Further, in case of single premium health insurance policies

having cover of more than one year, it is proposed that the

deduction shall be allowed on proportionate basis for the number

of years for which health insurance cover is provided, subject to

the specified monetary limit.

This amendment will take effect from 1 April 2019 and will,

accordingly apply in relation to the AY 2019-20 (FY 2018-19) and

subsequent years.



Enhanced deduction to senior citizens for medical

treatment of specified diseases

It is proposed to amend the provisions of section 80DDB of the

Act which provides for a deduction an individual and Hindu

undivided family with regards to amount paid for medical

treatment of specified diseases in respect of a senior citizen

and a very senior citizen.

The existing deduction limit and the proposed amendment has

been tabulated as under:

This amendment will take effect from 1 April, 2019 and will,

accordingly apply in relation to the AY 2019-20 (FY 2018-19)

and subsequent years.

Enhanced deduction in respect of interest income to

senior citizens

Under the existing provisions of section 80TTA of the Act, the

taxpayer is allowed a deduction in respect of interest income

from savings bank account up to INR 10,000 p.a. It is proposed

to insert section 80TTB, to enhance the exempted interest

income on deposits held by senior citizens with banks and post

offices from INR 10,000 p.a. to INR 50,000 p.a. It is important to

note that no deduction u/s 80TTA shall be allowed in these

cases.


Particulars Existing limit

(INR)

Proposed limit (INR)

Senior citizen 60,000 1,00,000

Very senior citizen 80,000

accordingly apply in relation to the AY 2019-20 (FY 2018-19) and

subsequent years.

Further, it is also proposed to amend section 194A so as to raise

the threshold for deduction of TDS on interest income for senior

citizens from INR 10,000 p.a. to INR 50,000 p.a.


Standard deduction on salary income

It is proposed to amend the provisions of section 16 of the Act

which to provide for a deduction of INR 40,000 or the amount of

salary, whichever is less. This standard deduction shall be in lieu

of the present exemption in respect of transport allowance (except

in case of differently abled persons) and reimbursement of

medical expenses. The existing allowances are proposed to be

withdrawn.






Extending the benefit of tax-free withdrawal from NPS to

non-employee subscriber

It is proposed to extend the benefit of tax free withdrawal from

NPS as per section 10(12A) of the Act to non-employee

subscribers in order to provide a level playing filed. This

amendment will take effect from 1 April 2019 and apply to AY

2019-20 and subsequent years.

Taxability of compensation u/s 28 and 56 of the Act

In order to bring the compensation receipts in connection with

business and employment within the tax purview, currently, out

of the purview of taxation leading to base erosion and revenue

loss, it is proposed to amend section 28 and 56 of the Act to tax

such compensation received or receivable (revenue or capital):

• For termination or the modification of the terms and

conditions of any contract relating to its business shall be

taxable as business income; and

• For termination or the modification of the terms and

conditions of any contract relating to its employment shall be

taxable as income from other sources.



Rationalization of gain from immovable property

In order to minimize the 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.





Tax deduction at source on 7.75% GOI Savings (Taxable)

Bonds, 2018

It is proposed to discontinue the existing 8% savings (Taxable)

Bonds, 2003 and introduce 7.75% GOI Savings (Taxable)

Bonds, 2018. The provisions of section 193 are proposed to be

amended to allow for deduction of tax at source at the time of

making payment of interest on such bonds to residents.

However, no TDS will be deducted if the amount of interest is

less than or equal to INR 10,000 p.a. during the financial year.


Amendment in section 194A “TDS on Interest other than

interest on securities”

It is proposed to amend section 194A of the Act so as to

provide that in case of senior citizens, tax shall not be deducted

where interest amount credited or paid during the financial year

is upto INR 50,000 (existing limit was INR 5,000 p.a.).


Dividend distribution tax proposed to be levied on

dividend payouts to unit holders in an equity oriented fund

With a view of providing a level playing field between growth

oriented funds and dividend paying funds, it is proposed to

charge dividend distribution tax at 10% on the income

distributed to unit holder of equity oriented fund by a mutual

fund being an equity oriented fund.

Presumptive income u/s 44AE in case of goods carriage

The legislative intent of introducing this provision was to give

benefit to small transporters in order to reduce their compliance

burden.

Even though the profit margins of large capacity goods carriages

are higher than small capacity goods carriages, the tax

consequences are similar which is against the principle of tax

equity.

It is proposed to amend section 44AE of the Act that in the case of

heavy goods vehicle (more than 12MT gross vehicle weight), the

income would deemed to be an amount equal to one thousand

rupees per ton of gross vehicle weight or unladen weight per

month or part of a month for each goods vehicle or the amount

claimed to be actually earned by the taxpayer whichever is higher.



Measures to promote start-ups

In order to improve the effectiveness of the scheme for

promoting start ups in India, it is proposed to amend the

provisions of section 80-IAC of the Act as under:




Deduction in respect of income of Farm Producer Companies

It is proposed to extend the benefit of section 80P of the Act to

provide 100% deduction in respect of profits to Farm Producer

Companies (FPC) having total turnover upto INR 100 crore,

whose gross total income includes any income from:

• 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

FY 2018-19. The amendment will take effect from 1 April 2018

and apply to AY 2019-20 and subsequent AYs.

Particulars Existing Proposed

Benefit available

to start-ups

incorporated in

the period

1 April 2016 to

31 March 2019

1 April 2019 to

31 March 2021

Turnover not to

exceed INR 25

crores in

Any FY from

2016-17 to FY

2020-21

7 PY’s commencing

from the date of

incorporation

Definition of

eligible business

Involves

innovation,

development,

deployment or

commercializati

on of new

products,

processes or

services driven

by technology or

intellectual

property

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.



Incentive for employment generation

In order to encourage creation of new employment, the is

proposed to amend the provision of section 80JJA of the Act as

under:

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

years.

The amendment will take effect from 1 April 2018 and apply to

AY 2019-20 and subsequent AYs.

Appeal against penalty imposed by Commissioner

(Appeals) under section 271J:

It is proposed to amend section 253(1)(a) of the Act by

including an order passed by a Commissioner (Appeals) u/s

271J of the Act (levy of penalty for furnishing incorrect

information in reports or certificates by an accountant or a

merchant banker or a registered valuer) appealable before the

Appellate Tribunal.


Particulars Existing Proposed

Minimum period of employment in case

of footwear and leather industry240 days 150 days

Rationalisation of section 276CC relating to prosecution for

failure to furnish return

In order to prevent abuse of the proviso to section 276CC of the

Act by shell companies or by companies holding Benami

properties, it is proposed to amend the provisions of the said sub-

clause so as to provide that the said sub-clause shall not apply in

respect of a company.



section 115JF of the Act.



Rationalisation of provision relating to conversion of stock-

in-trade into Capital Asset

Section 45 of the Act provides that capital gains arising from a

conversion of capital asset into stock-in-trade shall be chargeable

to tax. However, in cases where the stock in trade is converted

into, or treated as, capital asset, the existing law does not provide

for its taxability.


Penalty for failure to furnish statement of financial

transaction or reportable account:

It is proposed to increase the penalty u/s 271FA for failure to

furnish statement of financial transaction or reportable account

within time prescribed u/s 285BA(2) as under:



Measures to promote International Financial Services

Centre (IFSC)

In order to promote the development of world class financial

infrastructure in India, it is proposed to amend section 47 of the

Act so as to provide that bond or GDR/rupee denominated

bond of an Indian company / derivative transactions entered by

a non-resident on a recognized stock exchange located in any

International Financial Services Centre shall not be regarded

as transfer u/s 47 of the Act if consideration is paid or payable

is in foreign currency.

Further, it is also proposed to amend section 115JC of the Act

so as to provide that in case of a unit located in an International

Financial Service Center, the alternate minimum tax u/s 115JC

of the Act shall be charged at a concessional rate of 9%.

Consequential amendment are proposed to be made in

Particulars Existing penalty Proposed penalty

Section 285BA(1) INR 100 per day INR 500 per day

Section 285BA(5) INR 500 per day INR 1,000 per day



It is proposed to amend the provisions of:

Section 28 of the Act so as to provide that any profit or gains

arising from conversion of inventory into capital asset or its

treatment as capital asset shall be charged to tax as business

income. Also, fair market value of the inventory on the date of

conversion or treatment determined in the prescribed manner,

shall be deemed to be the full value of the consideration;

Section 49 of the Act: Fair market value on the date of

conversion shall be the cost of acquisition;

Section 2(42A) of the Act: Period of holding of such capital

asset shall be reckoned from the date of conversion or

treatment.



It is proposed to amend section 10 of the Act relating to

incomes not included in total income:

• Proposed to introduce clause (48B) to section 10 to provide

that any income accruing or arising to a foreign company on

account of sale of leftover stock of crude oil even after the

expiry of the agreement or arrangement shall be exempt

subject to such conditions as may be notified by the Central

Government; Further, it has been proposed that the benefit

of tax exemption in respect of income from left over stock will

be available even if the agreement or the arrangement is

terminated in accordance with the terms mentioned therein.

• Proposed to insert a new clause (6D) in the said section so

as to exempt that any income arising to a non-resident, not

being a company, or a foreign company, by way of royalty from

or fees for technical services rendered in or outside India to the

National Technical Research Organisation (NTRO). Further, it

has been proposed that NTRO will not be required to deduct

tax at source on such payments.

• Proposed to amend the provisions of clause (12A) to section

10 to extend the benefit of tax-free withdrawal from NPS to

non-employee subscribers.

The third proviso to clause (23C) of section 10 of the Act provides

for exemption in respect of income of the entities referred to in

sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause

(via) of said clause in a case where such income is applied or

accumulated during the previous year for certain purposes in

accordance with the relevant provisions. Section 11 of the Act



also contains provisions relating to income from property held

for charitable or religious purposes.

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 deduction of tax at source under Chapter XVII-B

of the Act. This has led to lack of an audit trail for verification of

application of income.

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”. It is also proposed to insert a similar proviso in

clause (23C) of section 10 so as to provide similar restriction as

above on the entities exempt under sub-clauses (iv), (v), (vi) or

(via) of said clause in respect of application of income.


Foreword


Direct taxes

Indirect taxes

Contact us


Indirect tax revenues

[the figures are in Indian Rupees in crores]

• Indirect tax revenue budgeted to grow at 19.2% against the

growth of 8.6% last year

• GST revenue (full year) budgeted to grow at 1.67 times of the

current year revenue (for 8 months)

• Compensation to States / UTs for revenue loss on roll-out of

GST is considered in Government Expenditure’s – INR

60,500 crores for 2017-18 and INR 90,000 crores for 2018-19

1005000

1150000

936375

1116000

850000

900000

950000

1000000

1050000

1100000

1150000

2016-2017 (A) 2017-2018 (RE) 2018-2019 (BE)

Direct Tax Indirect Tax

135242112500

276995259600

79507

444631

743900

50000

150000

250000

350000

450000

550000

650000

750000

2016-2017 (A) 2017-2018 (RE) 2018-2019 (BE)

Customs Duty Central Excise Service Tax GST

5.4

5.6

6.0 6.1

5.2

5.7

5.6

6.0

5

5.2

5.4

5.6

5.8

6

6.2

2015-2016 (A) 2016-2017 (A) 2017-2018 (RE) 2018-2019 (BE)

Direct Tax Indirect Tax

Tax GDPTax Revenue

Indirect tax Revenue


Indirect tax litigation

[the figures are in Indian Rupees in crores]

0

30000

60000

90000

120000

150000

Amount under dispute Total

end: 2016-17 end: 2015-16 end: 2014-15

end: 2013-14 end: 2012-13

Revenue raised

but not realised

Authorities

success rate

Authorities

petition rate

Supreme Court 11% 63%

High Court 46% 39%

Tribunal 12% 20%

Indirect tax cases


Customs duty

Scope of law and definition

• Section 1 of the Customs Act, is proposed to be amended to

expand the scope of the law to apply to any offence or

contravention thereunder committed outside India by any

person.

• Definition of the term ‘assessment’ is substituted to mean

determination of duty liability under the Customs law and

under any other law with reference to classification,

valuation, exemption, quantity, the origin of goods or any

other specific factor which effects the duty or tax or cess

payable.

• Definition of the term ‘Indian customs waters’ is amended to

extend the Indian customs waters from the existing

‘contiguous zone of India’ to the ‘Exclusive Economic Zone’.

Power to prohibit importation

• It is proposed to provide, from a date to be notified, that

regulatory requirements relating to import or export of any

goods or clearance thereof, in any other law or the rules or

regulations made, or any order or notifications issued,

thereunder, shall be executed under that other law only if

such regulatory requirement is notified under the

Customs Act, with such exceptions or modifications or

adaptations as the Central Government deems fit.

• As per Notes explaining the above proposed amendment

explains that the regulatory requirement in any other law

shall be required to be notified under the Customs Act.

Assessment of duty

• It is proposed to broaden the scope of verification by the

proper officer to include all aspects of declarations made in

the bill of entry or shipping bill in addition to self-assessment. It is

further proposed to provide for the risk based selection of self-

assessment. The scope of re-assessment is proposed to be

broadened beyond valuation, classification and exemption or

concessions of duty availed consequent to any notification issued

therefor under this Act.

Exemption for inward / outward processing

• It is proposed to empower the Central Government to exempt

whole or any part of duty of customs, leviable on goods

imported for repair, further processing or manufacture or

leviable on re-imported goods which were exported for the

purposes of repair, further processing or manufacture, subject to

certain conditions.


Customs duty (Cont…)

Adjudication of demand notice

• It is proposed to provide pre-notice consultation in cases not

involving collusion, suppression, etc., before issue of

demand notice.

• It also proposes to provide a definite time frame for

adjudication of demand notices as six months / one year, as

applicable, which can be extended for a further period of six

months and one year respectively.

• If the demand notice is not adjudicated within such extended

period, it shall be deemed as if no demand notice was

issued. Where the notice issued by invoking grounds of

collusion, etc., is held not sustainable, in such cases, the

demand which pertains to the normal period will only be

sustainable and proceeded on that basis.

• Any notice issued for non-levy, not paid, short-levy or short

paid or erroneous refund after the May 14, 2015, but before

enactment of the Finance Bill, 2018, shall continue to be

governed by the earlier provisions as it stood immediately

before the date of enactment of Finance Bill, 2018.

Audit

• It is proposed to insert a new Chapter XIIA relating to audit.

It seeks to provide for audit of imported or export goods and

of auditee. The expression ‘auditee’ includes licensee of a

warehouse, and any other person concerned directly or

indirectly in clearing, forwarding, stocking, carrying, selling

or purchasing of imported goods or export goods or dutiable

goods.

Payment of duty through electronic cash ledger

• It is proposed to introduce a new Chapter VIIA in the Customs

Act relating to payment through electronic cash ledger so as to

provide that the importer or exporter shall deposit an advance

with the Government instead of transaction wise payment as

being done at present. The amount available in the in the

electronic cash ledger can be used for making payment of

duty, tax, fee, interest and penalty.

Advance ruling

• Definition of ‘advance ruling’ is substituted so as to cover

subjects beyond mere determination of duty.

• The time limit to pronounce the ruling by the authority is

reduced from six months to three months.



Controlled delivery

• It is proposed to insert a new section 109A in the Customs

Act relating to controlled delivery.

• It seeks to authorise the proper officer or any other officer

authorised by him to make controlled delivery of any

consignment of goods to any destination in India or a foreign

country. ‘Controlled delivery’ is defined to mean ‘the

procedure of allowing consignment of such goods to pass

out of, or into, the territory of India with the knowledge and

under the supervision of proper officer for identifying the

persons involved in the commission of an offence or

contravention under this Act’

• It further seeks to provide that controlled delivery shall be

applicable on such consignment of goods and in such

manner as may be provided by regulations.

Reciprocal arrangement for exchange of information

facilitating trade

• It is proposed to introduce reciprocal arrangement for

exchange of information with any other country

Modes of services of notice, orders etc.

• In line with the Central Goods and Services Tax Act, 2017, it

is proposed to include speed post, courier, and registered e-

mail also as valid modes for delivery of notice, etc., and also

to provide for affixing it at some conspicuous place at the

last known place of business or residence in addition to

affixing it on the notice board of the Customs House.

Retrospective exemption

• Retrospective exemption from Integrated tax, on aircraft,

aircraft engines and other aircraft parts imported under cross-

border lease during the period from 1 July 2017 to 7July 2017

subject to payment of Integrated tax leviable under the

Integrated Goods and Services Tax Act, 2017, on the said

supply

Re-naming of the Board

• Name of ‘Central Board of Excise and Customs’ is being

changed to ‘Central Board of Indirect Taxes and Customs’.



Commodity – change in rates From To

Food processing Cashew nuts in shell (raw cashew) 5% 2.5%

Orange fruit juice 30% 35%

Fruit juices and vegetable juices including cranberry juice 30% 50%

Edible vegetable

oils

Crude edible vegetable oils like Ground nut oil, Olive oil, Cotton seed oil,

Safflower seed oil, Saffola oil, Coconut oil, Palm Kernel/ Babassu oil, Linseed

oil, Maize corn oil, Castor oil, Sesame oil, other fixed vegetable fats and oils

12.5% 30%

Refined edible

vegetable oils

Refined edible vegetable oils, like Ground nut oil, Olive oil, Cotton seed oil,

Safflower seed oil, Saffola oil, Coconut oil, Palm Kernel/ Babassu oil, Linseed

oil, Maize corn oil, Castor oil, Sesame oil, other fixed vegetable fats and oils,

edible margarine of vegetable origin, Sal fat; specified goods of heading 1518

20% 35%

Perfume and

toiletry

preparations

Perfumes, toilet waters, Beauty or make-up preparations and preparations for

the care of the skin (other than medicaments), including sunscreen or suntan

preparations; manicure or pedicure preparations, preparations for use on the

hair, preparations for oral or dental hygiene, including denture fixative pastes

and powders; yarn used to clean between the teeth (dental floss), in individual

retail packages, pre-shave, shaving or after-shave preparations, personal

deodorants, bath preparations, depilatories and other perfumery, cosmetic or

toilet preparations, not elsewhere specified or included, prepared room

deodorizers, whether or not perfumed or having disinfectant properties

10% 20%

Electronics /

Hardware

Specified parts and accessories including lithium ion battery of cellular mobile

phones

7.5% / 10% 15%

Microphone rubber case, sensor rubber case/ sealing gasket including sealing

gaskets/ cases from rubbers like SBR, EPDM, CR, CS, Silicon and all other

individual rubber or combinations/ combination of rubbers for use in the

manufacture of cellular mobile phones

10% 15%




Electronics /

Hardware

Cellular mobile 15% 20%

Cell battery on of cellular mobile phones 10% 15%

Smart watches/ wearable devices 10% 20%

LCD/LED/OLED panels of televisions and other parts of LCD/LED/OLED TVs 7.5% / 10% 15%

Medical devices 7.5% 10%

Printed Circuit Board assembly of charged / adapter and moulded plastics of

charger / adapter off cellular mobile phones

Nil 10%

Automobile parts Truck and bus radial tyres 10% 15%

CKD (completely knocked down) import of motor vehicles, motor cars, motor

cycles

10% 15%

CBU imports of motor vehicles 20% 25%

Spark ignition engine, Compression ignition engine, parts of these engines,

crank shaft for these engines, electrical ignition or starting equipment and cut-

outs of specified motor vehicles

7.5% 15%

Furniture Seats and parts of seats [other than aircraft seats and their parts], Other

furniture and parts, Mattresses supports; articles of bedding and similar

furnishing, Lamps and lighting fitting, illuminated signs, illuminated name

plates and the like [except solar lanterns or solar lamps]

10% 20%

Refractory items Bricks, blocks, tiles and other ceramic goods of siliceous fossil meals or of

similar siliceous earths

10% 7.5%

Refractory bricks, blocks, tiles and similar refractory ceramic constructional

goods, other than those of siliceous fossil meals or similar siliceous earths,

Other refractory ceramic goods

5% 7.5%




Toys and games Tricycles, scooters, pedal cars and similar wheeled toys; dolls’ carriages; dolls;

other toys; puzzles of all kinds, video game consoles and machines, articles

for funfair, table or parlor games and automatic bowling alley equipment

festive, carnival or other entertainment articles, articles and equipment for

sports or outdoor games, swimming pools and paddling pools [other than

articles and equipment for general physical exercise, gymnastics or athletics],

fishing rods, fishing-hooks and other line fishing tackle; fish landing nets,

butter fly nets and similar nets; decoy birds and similar hunting or shooting

requisites roundabouts, swings, shooting galleries and other fairground

amusements; travelling circuses, traveling menageries and travelling theatres

10% 20%

Footware Footware and parts of footware 10% 20% / 15%

Solar tempered

glass

Solar tempered glass or solar tempered [anti-reflective coated] glass for

manufacture of solar cells /panels/modules

5% Nil

Preform of silica for use in the manufacture of telecommunication grade optical

fibres or optical fibre cables

Nil 5%

Diamonds and

precious stones

Cut and polished colored gemstones; Diamonds including lab grown

diamonds-semi processed, half-cut or broken; non-industrial diamonds

including lab-grown diamonds (other than rough diamonds), including cut and

polished diamonds

2.5% 5%

Jewellery Imitation jewellery 15% 20%

Watches and

clocks

Wrist watches, pocket watches and other watches, including stop watches,

clocks with watch movements, other clocks, including alarm clocks

10% 20%

Others Sunglasses, Lithium-ion batteries, Scent sprays and similar toilet sprays, and

mounts and heads therefor; powder-puffs and pads for the application of

cosmetic or toilet preparations

10% 20%

Candles, tapers 10% 25%


Social Welfare Surcharge

• A new levy, as a duty of customs, called a Social Welfare

Surcharge would be levied effective from 2 February 2018 at

the rate of 10% on imported goods.

• The rate of 10% is to be calculated on the aggregate of

duties, taxes, and cesses which are levied and collected

under Section 12 of the Customs Act, 1962 and any sum

chargeable under any other law for the time being in force

excluding safeguard duty, anti-dumping duty, etc.

• The Surcharge would not apply to the Integrated Tax and

GST Compensation Cess on imported goods

• The new levy would be collected to fulfil the commitment of

the Government to provide and finance education, health

and social security.

• The provisions of Customs Act, 1962 and rules and

regulations made thereunder would apply to the said

Surcharge.

• The rate of Social Welfare Surcharge would be 3% on the

following goods imported goods -

o Motor spirit commonly known as petrol

o High speed diesel oil

o Silver (including silver plated with gold or platinum),

unwrought or in semi-manufactured form, or in powder

form

o Gold (including gold plated with platinum), unwrought or

in semi-manufactured form, or in powder form.

• Specified goods which were exempted from levy of

Education Cess and Secondary and Higher Education Cess

are being fully exempted from Social Welfare Surcharge.

Abolition of Education Cess and Secondary & Higher

Education Cess

• Education Cess (2%) and Secondary & Higher Education Cess

(1%) leviable on imported goods, including imported petrol and

high speed diesel oil, are being abolished. Till the enactment

of the Finance Bill, 2018, the said cesses leviable on imported

goods are being exempted.


Road and Infrastructure Cess

Imported petrol and high speed diesel oil

• A new levy, as an additional duty of customs, called the

Road and Infrastructure Cess would come into effect

immediately, which to be imposed on imported petrol and

high speed diesel oil at the rate of INR 8 per litre.

Domestically manufactured and produced petrol and high

speed diesel oil

• A new levy, as an additional duty of excise, called the Road

and Infrastructure Cess would come into effect immediately,

which to be imposed on domestically manufactured and

produced petrol and high speed diesel oil at the rate of INR

8 per litre.

• Road and Infrastructure Cess is exempted on ethanol

blended petrol and diesel blended with bio-diesel, where

appropriate duties of excise have been paid on domestically

manufactured and produced petrol and high speed diesel oil

and GST has been paid on ethanol or bio-diesel used for

making such blend.

• Road and Infrastructure Cess to the extent of 50% is being

exempted on petrol and diesel manufactured in and cleared

from four specified oil refineries located in North East region.

Other

• Basic excise duty on domestically manufactured and

produced petrol and high speed diesel oil (both branded and

unbranded) is being reduced by Rs. 2 per litre.

• Road and Infrastructure Cess leviable as CVD on imported

petrol and high speed diesel oil is being exempted.

• Effectively, there is no change in the total duty leviable on

imported / domestically manufactured and produced petrol and

high speed diesel oil.

Abolition of Road Cess

• Road Cess, levied as additional duty of customs, at the rate of

INR 6 per litre on imported petrol and high speed diesel oil is

being abolished. Till the enactment of the Finance Bill, 2018,

the said Road Cess leviable on imported petrol and high speed

diesel oil is being exempted.

• Road Cess, levied as additional duty of excise, at the rate of

INR 6 per litre on domestically manufactured and produced

petrol and high speed diesel oil is being abolished. Till the

enactment of the Finance Bill, 2018, the said Road Cess

leviable on domestically manufactured and produced petrol

and high speed diesel oil is being exempted.


Goods and Services tax

50% increase in unique indirect tax payers under GST

State-wise distribution of the tax base

Estimated turnover and type of the new filers under GST

Share of turnover

B2B 34.0%

B2C 16.8%

Exports 29.8%

Nil 19.4%

Total 100.0%


Service tax

Retrospective exemptions

• Services provided or agreed to be provided by the Naval

Group Insurance Fund by way of life insurance to personnel

of Coast Guard, under Group Insurance Schemes of the

Central Government, are proposed to be exempted from

service tax for the period commencing from 10 September

2004 and ending with 30 June 2017.

• Services provided or agreed to be provided by the Goods

and Services Tax Network (GSTN) to the Central

Government or State Governments or Union territories

administration, are proposed to be exempted from service

tax for the period commencing from 28 March 2013 to 30

June 2017.

• Consideration paid to the Government in the form of

Government’s share of profit petroleum in respect of

services provided or agreed to be provided by the

Government by way of grant of license or lease to explore or

mine petroleum, crude or natural gas or both, is proposed to

be exempted from service tax for the period commencing

from 1 April 2016 to 30 June 2017


Foreword


Direct taxes

Indirect taxes

Contact us


Contact us

Khozema Anajwalla

Lead Partner – National Assurance &

International Practice Partner

Tel : +91-98201 99196

Email : [email protected]

Paresh Shah

Lead Partner – Direct Tax and Regulatory

Tel : +91-98210 25075


Amitabh Khemka

Lead Partner – Global Indirect Taxes

Tel : +91-98212 98432


Disclaimer: This publication contains general information only, and none of KNAV International Limited, its

member firms, or their related entities (collectively, the “KNAV Association”) is, by means of this

publication, rendering professional advice or services. Before making any decision or taking any action

that may affect your finances or your business, you should consult a qualified professional adviser. No

entity in the KNAV Association shall be responsible for any loss whatsoever sustained by any person who

relies on this publication.

Vaibhav Manek

Lead Partner – Business Advisory

Tel : +91-98676 70620



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About us

KNAV refers to one or more of KNAV International Limited (KNAV International); a not-for profit, non-practicing, non-trading

corporation incorporated in Georgia; USA and its association of member firms, each of which is a legally separate and

independent entity. KNAV International is a charter umbrella organization that does not provide services to clients. Services

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© KNAV, 2018. All rights reserved. Budget... · 2019-03-29 · arising from transfer of a long term capital asset, being an equity share in a company or a unit of an equity oriented