BUDGET 2018 HIGHLIGHTS – DIRECT TAXES

TAX RATES

No change in tax rates and basic exemption limit

Tax rates continue to be same for A.Y. 2019-20 as applicable for A.Y. 2018-19. Further, there is no change in the basic exemption limit.

Health and Education Cess:

“Education Cess on income-tax” @2% and “Secondary and Higher Education Cess on income-tax” @1% is levied.

Effective amendment: A new cess named “Health and Education Cess is proposed to be levied @ 4% of income-tax including surcharge, if applicable, in place of existing cess of “Education Cess and “Secondary and Higher Education Cess on income-tax”.

PERSONAL TAXATION

  • Relief to salaried employees

At present an employee is entitled for exemption of Rs. 19,200/- (Rs. 38,400/- for physically handicapped or blind or deaf and dump employees) towards transport allowance and exemption of Rs. 15,000 in respect of reimbursement of medical expenses. No Standard deduction is allowed.

Effective amendment:

A standard deduction of maximumof Rs. 40,000/-shall be allowed to salaried employees in lieu of present exemption in respect of transport allowance and reimbursement of medical expenses. The net benefit is only Rs. 5,800/- which would be further reduced due to increase in cess by 1%. However, benefit of enhanced transport allowance to differently able persons shall be allowed. Moreover this standard deduction shall be available to all pensioners (government & non-government) as well.

  • Deduction in respect of interest income to senior citizen

A deduction upto maximum of Rs. 10,000/- is allowed under section 80TTA to an assessee in respect of interest income from savings account.

Effective amendment:

A new section 80TTB has been inserted to enhance such deduction to Rs. 50,000/- from the existing limit of Rs. 10,000/- for senior citizens. Moreover, the benefit of such deduction has been extended to interest on fixed deposits and recurring deposits banks and any other institution including Post Office.

  • Deductions available to senior citizens in respect of health insurance premium and medical treatment

Section 80D, inter-alia, provides that a deduction uptoRs 30,000/- to an assessee, being an individual or a Hindu undivided family, in respect of payments towards annual premium on health insurance policy, or preventive health check-up, of a senior citizen, or medical expenditure in respect of very senior citizen.

Effective amendment:

Section 80D has been amended to increase such limit of deduction from Rs. 30,000/- to Rs. 50,000/- for resident senior citizens, who is of the age of 60 years or more during the previous year.

Senior citizens not covered by insurance can claim reimbursement of medical expenditure uptoRs. 50,000/-. Earlier this benefit was available only for very senior citizens.

Further, in case of single premium health insurance policies to effect or to keep in force insurance on the health for more than a 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.

  • Enhanced deduction to senior citizens for medical treatment of specified diseases

Section 80DDB, inter-alia, provide that a deduction shall be available to an individual and Hindu undivided family in respect of an amount paid for medical treatment of specified diseases uptoRs 80,000/- in case of very senior citizen and uptoRs. 60,000/- in case of senior citizens.

Effective amendment:

The above deduction has been increasedto Rs. 1,00,000/- for both senior citizens and very senior citizens in place of existing deduction of uptoRs. 80,000/- and Rs. 60,000/- in respect of very senior citizen and senior citizens, respectively.

  • Extending the benefit of exemption of withdrawal from NPS to non-employee subscribers

The existing provisions of the clause (12A) of section 10 of the Act provides an exemption of 40% of the total amount payable to an employee contributing to the NPS on closure of his account or on his opting out. This exemption is 17 not available to non-employee subscribers.

Effective amendment:

Now this section has been amended to extend the benefit of such exemption to all assesses. Also as compared to earlier provision where out of the permissible withdrawal of 60% of the deposit, only 40% was exempt; but now entire 60% withdrawal will be exempt from tax. However, benefit of exemption under clause (12B) for partial withdrawal continues to be restricted to employees alone.

Proposed Amendment: Section 54EC proposed to restrict the exemption in respect of capital gain arising from the transfer of a long-term capital asset, being land or building or both only and not other capital assets. Further, the period for redemption of long-term specified asset, being a bond increased from three years to five years.

INCOME COMPUTATION DISCLOSURE STANDARDS (ICDSs)

The central government has notified ten ICDSs effective from A.Y. 2017-18.These are applicable to all assesses (other than an individual or a Hindu undivided family who are not subject to tax audit under section 44AB of the said Act) for the purposes of computation of income chargeable to income-tax under the head “Profits and gains of business or profession” or “Income from other sources”.

Proposed Amendment: The Delhi High Court in case of Chamber of Tax Consultants &AnrVs. Union Of India &Ors has held that certain provisions of ICDSs are ultra vires the Income-tax Act, 1961. In order to bring certainty, the following amendments are proposed to be effected with retrospective effect from A.Y. 2017-18, in the Income-tax Act in line with the ICDSs:

Table

BUSINESS TAXATION

Incentives to micro and SMEs

Domestic companies whose turnover was less than Rs. 50 crore in financial year 2015-16 was liable to pay corporate tax @25% in FY 2017-18.

Proposed amendment: The benefit of concessional rate of corporate [email protected]% is proposed to be extended to domestic companies whose total turnover or gross receipt in the previous year 2016-17 does not exceed Rs. 250 crores.

Charitable Trusts: To go digital for claiming exemption

Last year, the post demonetisation Union Budget witnessed changes in tax laws denying benefit of deductions from business income in respect of expenditure for which cash payment exceeds Rs.10,000 . However, such changes were not incorporated in the special taxation regime applicable to charitable trusts. Hence, charitable trusts were availing benefits even in respect of application of income by way of cash payments.

Proposed amendment: This year, the restrictive provisions are proposed to be made applicable to charitable trusts governed by the special taxation regime under section 10(23C) and 11 and 12. Furthermore, non-deduction of tax at source would now attract disallowance in the hands of the charitable trust also. This is a positive measure for bringing charitable trusts into the digital net.

Deduction in respect of employment of new employees

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 under section 80JJAA.

However, the minimum period of employment is relaxed to 150 days in the case of apparel industry.

Proposed amendment: Section 80JJAA proposed to be amended to extend this relaxation to footwear and leather industry. Further, the deduction of 30% would also be available 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. Such deduction would be available from the subsequent year.

Deduction in respect of income of Farm Producer Companies

Section 80P provides for 100 percent deduction in respect of profit of cooperative society which provide assistance to its members engaged in primary agricultural activities.

Proposed amendment: This benefit proposed to be extended to Farm Producer Companies (FPC), having a total turnover uptoRs 100 crore, whose gross total income includes any income from-

the marketing of agricultural produce grown by its members, or

the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or

the processing of the agricultural produce of its members.

The benefit shall be available for a period of five years from the financial year 2018-19.

Dividend Distribution tax on deemed dividend

Dividend distributed by a domestic company is subject to dividend distribution tax payable by such company. However, deemed dividend under section of 2(22)(e) is taxed in the hands of the recipient and no dividend distribution tax is currently being levied.

Proposed amendment: It is proposed to tax deemed dividend referred under section 2(22)(e) in the hands of company. Dividend distribution tax @30% without grossing up is proposed to be levied on the company.

Expanding scope of accumulated profits for deeming dividend

Accumulated profits for deeming dividend has been provided in section 2(22) as all profits of the company upto the date of distribution or payment or liquidation, subject to certain conditions.

Proposed amendment: The scope of accumulated profits for deeming dividend would include, in a case of amalgamated company, the accumulated profits of the amalgamating company also, whether capitalised or not, on the date of amalgamation.

RETURN OF INCOME AND ASSESSMENT PROCEDURE

Mandatory filing of return to claim deduction under the heading C in Chapter VIA

Section 80AC provides that no deduction would be admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE, unless the return of income by the assessee is furnished on or before the due date specified under sub-section (1) of section 139 of the Act.

Proposed amendment: It is proposed to extend the scope of section 80AC to provide that the benefit of deduction under the heading “C.—Deductions in respect of certain incomes” in Chapter VIA shall not be allowed unless the return of income is filed by the due date. It will now include its scope section 80P, 80PA, 80QQB and 80RRB.

Entities to apply for Permanent Account Number in certain cases

Section 139A, inter-alia, provides that every person specified therein and who has not been allotted a permanent account number shall apply to the Assessing Officer for allotment of a Permanent Account Number (PAN).

Proposed amendment: Section 139A proposed to be amended to provide that non-individual entities, which enters into a financial transaction of an amount aggregating to Rs. 2,50,000 or more in a financial year shall be required to apply to the Assessing Officer for allotment of PAN. Further, 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 would also apply to the Assessing Officer for allotment of PAN.

Prosecution for failure to furnish return

Section 276CC provides that if a person willfully fails to furnish in due time the return of income which he is required to furnish, he shall be punishable with imprisonment for a term, as specified therein, with fine. However, a person shall not be proceeded against under the said section for failure to furnish return if the tax payable by him on the total income determined on regular assessment as reduced by the advance tax, if any, paid and any tax deducted at source, does not exceed Rs. 3,000.

Proposed amendment: It is proposed to exclude company from such exemption of prosecution. Therefore, companies would be liable for prosecution for failure to furnish return even if there is no tax liability.

Rationalisation of prima-facie adjustments during processing of return of income

Section 143(1) provides for processing of return of income made under section 139, or in response to a notice under section 142(1). At the time of processing of return, the total income or loss shall be computed after making the adjustment, inter alia, in respect of 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.

Proposed amendment: It is proposed to restrict the scope of adjustments in processing of return by providing that aforesaid adjustment shall not be made in respect of any return furnished on or after the assessment year commencing on the first day of April, 2018.

E-Assessments: A tax-payer friendly measure

The budget proposal to notify an electronic mode for assessment across the country will significantly reduce harassment of tax payers by the tax authorities and usher in greater efficiency and transparency in the assessment procedure.