Inclusion - DHC Budget Snapshot...for availing deduction u/s 80JJAA in respect of employment of new employees extended to footwear and leather industry. In respect of other industries

InclusionI N D I A B U D G E T 2 0 1 8 - 1 9

DIRECT TAXat a glance

1 BUDGET SNAPSHOT DIRECT TAX 01-05

INDIA BUDGET 2018-19

Non-Corporate Assessee No change in income tax basic exemption limit.

Standard Deduction reintroduced in case of salaried individual to the extent of H 40,000. On the other hand deduction of transport allowance and reimbursement of medical expenses is withdrawn.

Deduction u/s 80D for health insurance premium and/or medical expenditure in case of senior citizen raised from H 30,000 to H 50,000.

Deduction for medical expenditure u/s 80DDB for critical illness raised from H 60,000 [for senior citizens] & H 80,000 [for very senior citizens] to H 1,00,000.

Deduction u/s 80TTB on Interest income on deposits, both savings & fixed, with banks and post offices for senior citizens increased from H 10,000 to H 50,000. TDS u/s 194A not to apply on such interest.

Extension of benefit of exemption u/s 10(12A) on withdrawal up to 40% from National Pension System Trust (NPS) to all individual subscribers and not only to employees.

Exemption u/s 54EC hitherto available against all Long Term Capital Assets now proposed to be restricted to gains arising only from transfer of immovable property, subject to investment in specified bonds redeemable after 5 years as against 3 years.

Corporate Assessee Corporate Tax Rate for domestic companies

having annual turnover or gross receipts ≤ H 250 Crs. in FY 2016-17 shall be 25%. For other companies, Corporate Tax Rate remains unchanged @ 30%.

For the purpose of computing deemed dividend u/s 2(22), “accumulated profit” of the amalgamated company shall be increased by the accumulated profit of the amalgamating company (whether capitalized or not) on the date of amalgamation.

DDT @ 30% without grossing up payable by companies on deemed dividend u/s 2(22)(e).

Relaxed condition of employment for 150 days available to apparel manufacturing business for availing deduction u/s 80JJAA in respect of employment of new employees extended to footwear and leather industry. In respect of other industries restriction for employment for 240/150 days in a year is relaxed. Henceforth, deduction would be available if employee continues to remain employed for 240/150 days in subsequent year.

For companies seeking insolvency resolution under IBC, 2016, relief from restrictions on carry forward of losses u/s 79 as well as deduction of aggregate of brought forward loss and unabsorbed depreciation while computing Book Profit u/s 115JB provided.

Sec. 56(2)(x) amended to exclude income from inter-se transfer of capital assets between Holding Company & its wholly owned subsidiary as specified under Sec. 47(iv) and 47(v).

Corporate entities not immune from prosecution u/s 276CC for non-furnishing of return of income even if the amount of tax payable is ≤ H 3000.

Sec. 115BA amended retrospectively from AY 2017-18 to clarify that only income from business of manufacturing, production, research or distribution of newly set up domestic companies shall be taxed at concessional rate of 25%. All other income shall be taxed at other applicable rates as provided under the Act.

Deduction of 100% of profits granted u/s 80PA to Farm Producer Companies having turnover upto H 100 Crs. for 5 years.

International Taxation and Transfer Pricing Sec. 9(1)(i) amended to widen the scope of

“Business Connection” (in line with BEPS Action Plan 7 read with Article 12 of Multi Lateral Instrument) to include business activities of non-



residents through Dependent Agents habitually playing principal role in conclusion of contracts in the name of non-resident or for transfer of ownership or right to use property belonging to non-resident or provision of services by non-resident.

Sec. 9(1)(i) amended to widen the scope of “Business Connection” (in line with BEPS Action Plan 1) to include “Significant Economic Presence” of non-resident in respect of certain transactions whether or not non-resident has a residence or place of business or renders service in India. While there is no clarity in the draft legislation, from the perusal of Memorandum, it is intended to be applied to transactions undertaken through digital means.

Sec. 10(48B) amended to extend exemption to Foreign Companies on sale of leftover stock of crude oil even in cases where the agreement or the arrangement specified u/s 10(48A) is terminated in accordance with the terms mentioned therein.

Sec. 10(6D) inserted to provide exemption to non-residents in respect of payments made by National Technical Research Organisation by way of royalty or fees for technical services rendered in or outside India - applicable retrospectively from FY 2017-18 (AY 2018-19).

Sec. 115AD amended to provide that Long-term capital gains arising in the hands of Foreign Institutional Investor (FII) from transfer of equity shares of a company or a unit of equity oriented fund or a unit of business trusts taxable @ 10% on capital gains exceeding H 1,00,000.

Sec. 286 amended to rationalise Country by Country Report (CbCR) provisions inter-alia including extending the due date of filing such report to 12 months from the end of the reportable accounting year - Indian Constituent entity to file CbCR even if its parent entity outside India has no obligation to file the report in its

country - applicable retrospectively from FY 2016-17 (AY 2017-18).

Sec. 46 of The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 amended to also empower Joint Director to approve order imposing penalty and to also vest power to impose penalty exceeding H 5 lakhs with Assistant Director or Deputy Director. Sec. 55 amended to also authorise Principal Director General or Director General to issue instructions, or directions for the institution of proceedings - applicable from 1st April, 2018.

MAT not applicable to Foreign companies engaged in specified business u/s 44B to 44BBB (being shipping business, exploration of mineral oils, operations of Aircraft & Turnkey Power Projects) with retrospective effect from AY 2001-02.

Other Relevant Proposals Education cess and Secondary & Higher

Education Cess, renamed as Health & Education Cess with enhancement in rate from 3% to 4%.

Exemption u/s 10(38) on long term capital gains in excess of H 1,00,000 arising on sale of listed shares or unit of equity oriented funds or business trust withdrawn w.e.f. 01-04-2018. Gain arising on sale of such capital assets to be taxed @ 10% without indexation benefit. Notional gain arising as on 31-01-2018 to be considered as part of cost of acquisition and hence no LTCG tax on same. Concessional rate of 10% to apply if STT paid on acquisition & transfer of equity shares or on transfer of unit of equity oriented fund or business trust.

Imposition of tax @ 10% on distribution of income by an equity oriented fund to its unit holders by amendment to Sec. 115R.

No adjustment shall be made in the hands of seller and purchaser if difference between actual consideration and stamp value is upto 5% of



actual consideration of immovable property for the purpose of Sec. 50C, Sec. 43CA and Sec. 56.

Sec. 28(via) inserted to tax conversion of stock-in-trade to capital asset. FMV of the inventory on the date of conversion to be considered as business income. Corresponding amendment in Sec. 2(42A) & Sec. 49 to determine period of holding & cost of acquisition respectively and to tax capital gain on sale of such asset.

Tax Holiday for start-ups u/s 80-IAC is allowed if incorporated between 01-04-2016 and 31-03-2019. The same is extended to start-ups incorporated till 31-03-2021.

Scope of Sec. 80AC to file return of income on time in order to avail the deduction u/s 80IA, 80IAB, 80IB, 80IC, 80ID & 80IE now extended for all deductions covered under heading "C.—Deductions in respect of certain incomes" in Chapter VIA.

Trading in agricultural commodity derivatives to be treated as non-speculative transaction, even though it is not chargeable to CTT.

Trusts or institutions to follow provisions of TDS and to make payment of all expenses in excess of H 10,000 through banking channels. Provisions of Sec. 40(a)(ia), Sec. 40A(3)&(3A) to apply as well.

TDS to be applicable u/s 193 on person responsible for paying to a resident any interest on 7.75% Savings (Taxable) Bonds, 2018, if interest payable on such bonds exceeds H 10,000 during the financial year.

Transfer of GDRs, Rupee Denominated Bonds of an Indian Company and derivatives by non-resident on recognised stock exchange located in IFSC not chargeable to Capital Gains Tax as it would not be considered as transfer u/s 47 if consideration is payable in foreign currency.

In case of a unit located in an IFSC which derives income solely in convertible foreign exchange,

the rate of AMT u/s 115JF shall be 9% instead of existing 18.50%.

W.e.f. 01-04-2018, non-individual assessee to apply for allotment of PAN if it enters into a financial transaction of H 2,50,000 or more in a financial year. Directors, partners, trustees, karta or any person competent to act on behalf of it also need to apply for allotment of PAN.

No allowance for any deduction of expenditure or set off of any losses against income assessed u/s 68 to 69D and taxable at higher rate of 60% u/s 115BBE.

Various provisions of ICDS relating to marked to market losses, foreign exchange fluctuation gain/loss, contract revenue/cost under Construction Contract, valuation of inventories which were difficult to be implemented either due to non-availability of specific provisions under the Act or due to judicial precedence have been proposed to be made applicable w.r.e.f. AY 2017-18 by inserting/amending specific provisions [Sec. 36(1)(xviii), Sec. 40A(13), Sec. 43AA, Sec. 43CB, Sec. 145A & Sec. 145B].

Subsidies and incentives hitherto taxable u/s 2(24)(xviii) on accrual basis, henceforth shall be taxable in the year of receipt, if not charged to tax in earlier years.

Presumptive income u/s 44AE for heavy goods vehicles ( i.e. more than 12 MT gross vehicle weight) to be computed at higher of (a) H 1000 per MT of gross vehicle weight or unladen weight for every month or part of month or (b) Amount actually earned per month. In case of other goods carriage, presumptive income shall continue to be computed at H 7,500 for every month or part of the month.

Compensation received in connection with the termination or modification of the terms and conditions of any contract relating to business or



employment shall be taxable as business income u/s 28 and income from other sources u/s 56 respectively.

Penalty on failure to furnish statement of financial transaction or reportable account increased as under:-

H 500 per day for non furnishing of report within due date u/s 285BA(1).

H 1,000 per day for non furnishing of report within time prescribed in notice u/s 285BA(5) issued by prescribed IT Authority.

General and administrative New scheme for scrutiny assessment eliminating

interface with assessee may be notified by Central Government to ensure greater efficiency, transparency, accountability and enable team based assessment with dynamic jurisdiction.

No adjustment with respect to discrepancy in income disclosed in return of income and as

appearing in Form 26AS while processing return u/s 143(1).

CTT proposed to be levied [@ 0.05% of option premium] on sale of options on commodity derivative and [@ 0.0001% of settlement price] on sale of options on commodity derivative where option is exercised.

Income-tax Authority shall cease to act as an Authority for Advance Rulings for the purposes of the Customs Act, 1962 on and from the date of appointment of the Customs Authority for Advance Rulings. Qualification for appointment for Revenue Member in relation to income tax matter also proposed to be amended whereby only IRS officer is eligible to become Revenue Member.

Appeal can be filed before ITAT against penalty order of AO u/s 271J for incorrect information furnished by Accountant/Merchant Banker/Registered Valuer.



INDIRECT TAXat a glance

6 BUDGET SNAPSHOT INDIRECT TAX 06-09


Goods and Services Tax First budget after the roll out of the Goods and

Services Tax in July 2017.

No changes proposed in the GST law.

Service Tax (subsumed in GST) Retroactive Exemptions till 30th June 2017

provided in respect of following:

Services provided by the Goods and Services Tax Network (GSTN) to the Central Government/State Governments/Union Territories from 28th March 2013 to 30th June 2017.

Services provided by the Government by way of grant of license or lease to explore or mine petroleum crude or natural gas or both from 1st April 2016 to to 30th June 2017.

Services provided by Naval Group Insurance Fund by way of life insurance to personnel of Coast Guard under the Group Insurance Schemes from 10th September 2004 to 30th June 2017.

Central Excise (Non-GST items) Introduction of Road and Infrastructure Cess as

an Additional Duty of Excise on Motor Spirit (MS) such as petrol and High Speed Diesel oil (HSD) @ H 8/- per litre.

Additional Duty of Excise (Road Cess) leviable on import of MS and HSD oil are being fully exempted.

Customs Peak rate of duty remains unchanged.

Education Cess & Secondary Higher education Cess to be abolished.

Social Welfare Surcharge (SWS) introduced at 3% on import of MS, HSD, Gold and Silver and at 10% on other imported goods, which is to be charged on Basic Customs Duty (SWS not to be charged on IGST, GST compensation cess, Anti dumping duty, Safeguard duty etc.).

Thrust to further incentivise the domestic value addition and “Make in India” in some sectors like food processing, electronics, auto components, footwear and furniture.

Increase in Import Duty:

Description Existing BCD rate

Proposed BCD rate

Fruit juices and vegetable juices including cranberry juice

30% 50%

Perfumes and toiletry preparations

10% 20%

Automobile parts such as Truck and Bus radial tyres, accessories of motor vehicles, motor cars, and motor cycles

7.5%/10% 15%

Imitation Jewellery, Cellular mobile phones

15% 20%

Specified parts and accessories including lithium ion battery of cellular mobile phones & LCD/LED/OLED panels and other parts of LCD/LED/OLED TVs

7.5%/10% 15%

Smart watches / wearable devices, Watches and Clocks

10% 20%

Silk fabrics, Furniture & its part, Toys and Games

10% 20%

Decrease in Import Duty:


Proposed BCD rate

Solar tempered glass used in manufacture of Solar cells

5% Nil

Goods used for manufacture of CNC Machine Tools

7.5% 2.5%



Rationalisation of BCD for various Refractory items:


Proposed BCD rate

Articles of stone containing Magnesite, Dolomite or Chromite

10% 7.5%

Bricks, Blocks, Tiles and Ceramic goods of siliceous fossil meals

10% 7.5%

Refractory Bricks, Blocks, Tiles and similar Refractory Ceramic, Constructional goods, other than those of siliceous fossil meals, other Refractory Ceramic goods

5% 7.5%

Levy of Export Duty:

Electrodes of a kind used for furnaces @20% (However, exempted for the time being, hence effective duty – NIL).

Procedural Simplification : To smoothen dispute resolution processes and to reduce litigation, amendments are being made to provide for:

Pre-notice consultation in cases not involving fraud, misrepresentation, wilful misstatement, suppression etc. before the issue of demand notice.

Issuance of supplementary show cause notice in specified circumstances and within prescribed time limits.

Definite timelines for adjudication of demand notices.

o Within 6 months extendable to one year.

o Within one year extendable to two years in case of collusion, willful misstatement, suppression.

Deemed closure of show cause notice proceedings if not adjudicated within prescribed time limits.

In case where similar matter is pending in Court, Settlement Commission, etc. time limit for adjudication of demand notice shall not apply for such period.

Audit of assessment of imports, exports and persons effecting such import or export.

The ambit of the term ‘assessment’ and ‘re-assessment’ has been expanded by amending the definition to include activities/factors such as classification, valuation, exemption, concession, quantity, weight and measure, origin or any other specific factor, which may have impact on the computation of Customs duty.

Definition of ‘Indian Customs Waters’ has been amended to extend its limit to ‘Exclusive Economic Zone’ of India.

Amendments proposed in the Act to empower Government to exempt goods:

Imported for repair, further processing or manufacture.

Re-imported for repair, further processing or manufacture after exports.

Commissioner (Appeals) to be empowered to remand matters where order has been passed:

without adhering to the principles of natural justice.

where no speaking order issued against reassessment.

where refund disallowed without discussing evidence produced.

Amendments has been proposed for deemed closure of proceedings relating to the confiscation of the goods and imposition of redemption with the closure of proceedings for notices/co-notices.



Scope of Customs Act has been expanded to include any offence or contravention committed thereunder outside India by any person.

Appeal provisions against Advance Ruling or an order passed by Customs Authority for Advance Rulings to the Appellate Authority proposed to be inserted.

Facility of Electronic Cash Ledger has been introduced for payment of duty, interest and penalty.

Audit provisions are introduced in the Customs Act.

New provisions are inserted in Customs Act regarding reciprocal arrangement for exchange of information in connection with specified Customs matters, with other countries.

Miscellaneous CBEC to be renamed as CBIC (Central Board of

Indirect Taxes and Customs).



Contact usTo know more about Baker Tilly DHC, please visit www.bakertillydhc.co.in or any of our offices as mentioned below:

Corporate Office701, Leela Business Park, Andheri Kurla Road, Andheri (E), Mumbai 400 059 Tel: +91 (22) 66729999

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B-405, Siciliaa, B T Kawade Marg, Ghorpadi Gaon, Pune 411 001

10 BUDGET SNAPSHOT


http://www.bakertillydhc.co.in

Baker Tilly DHC Pvt. Ltd is a private limited company incorporated in India and an independent member of Baker Tilly International. Baker Tilly International Limited is an English company. Baker Tilly International provides no professional services to clients. Each member firm is a separate and independent legal entity and each describes itself as such. Baker Tilly DHC Pvt. Ltd is not Baker Tilly International’s agent and does not have the authority to bind Baker Tilly International or act on Baker Tilly International’s behalf. None of Baker Tilly International, Baker Tilly DHC Pvt. Ltd nor any of the other member firms of Baker Tilly International has any liability for each other’s acts or omissions. In addition, neither Baker Tilly International nor any other member firm as a right to exercise management control over any other member firm.

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Inclusion - DHC Budget Snapshot...for availing deduction u/s 80JJAA in respect of employment of new employees extended to footwear and leather industry. In respect of other industries