Reform. Perform. Transform. - SKP Group€¦ · Interest on bank deposits tax free up to INR 50,000...

Union Budget 2018

Highlights

Reform. Perform. Transform.

www.skpgroup.com/budget2018

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Winner of India Tax Firm of the Year 2016 at the Asia Tax Awards

Direct Tax Proposals

Indirect Tax Proposals

Coverage

205-02-2018

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Typical Scenario

305-02-2018

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Direct Tax Proposals

405-02-2018

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No change in income-tax slabs, tax rates and surcharge

Education Cess increased from 3% to 4% - renamed as “Health and Education Cess”

Standard deduction of INR 40,000 introduced for the salaried taxpayer

Exemption for transport allowance of INR 19,200 will be removed

Exemption for reimbursement of medical expenses of INR 15,000 will be removed

Increased deductions for medical insurance and expenditure on specified diseases for senior citizens

Interest on bank deposits tax free up to INR 50,000 for senior citizens (> 60 years of age)

Interest on savings account will be fully taxable for senior citizens

Withdrawal from NPS will be tax-exempt for 40% of contribution – benefit extended to all taxpayers

Individuals

505-02-2018

Key Takeaways Beneficial to provide reimbursement of motor car running and maintenance expenses (?) Tax on interest on savings account for senior citizens needs to be rectified

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Corporate tax rate reduced to 25% for companies with turnover up to INR 250 crore in 2016-17

No change in rate of surcharge

Education Cess increased from 3% to 4%, renamed as “Health and Education Cess”

Corporate Entities

605-02-2018

Key Takeaways Companies set up from 1 April 2017 not eligible for lower rate of tax Firms, LLPs not eligible for lower rate of tax MAT remains unchanged @ 18.50% - the gap reduces

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Deemed dividend to attract Dividend Distribution Tax (DDT) @ 30%

Making loan or advance to a shareholder holding 10% or more shares, or

Making loan or advance to a concern in which above shareholder holds 20% or more stake, or

Incurring expenses for the benefit of the above shareholder

DDT not required to be grossed up

Effective rate of DDT would be 34.944%

Corporate Entities

705-02-2018

Key Takeaways Shift of burden from Tax payer receiving income to the Company Commercial substance needs to be established for financing transactions Repayment of loan does not prevent application of deemed dividend provisions Expenses incurred on behalf of shareholder and subsequently reimbursed – could trigger deemed dividend

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Tax @ 10% levied on long-term capital gains on equity shares and equity-oriented mutual fund units

Applicable to all taxpayers

Concessional tax rate to apply for gains above INR 1 lac

STT should have been paid at the time of purchase and sale

Gains below INR 1 lac taxed are not exempt – taxed at normal slab rates

Applicable on gains earned on or after 1 April 2018

Any gains earned up to 31 March 2018 will continue to remain exempt

Gains up to 31 January 2018 grandfathered

For sale made from 1 April 2018, cost of acquisition will be higher of

A = Actual Cost of Acquisition

B = Fair Market Value as on 31 January 2018 or consideration received, whichever is lower

FMV will be the highest price quoted on 31 January 2018

Cost indexation benefit not available

Equity-oriented mutual fund to pay dividend distribution tax (DDT) at 10%

Widening of Tax Base | Long-Term Capital Gains on Listed Securities

805-02-2018

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Widening of Tax Base | Long-Term Capital Gains on Listed Securities

905-02-2018

Particulars Situation 1 Situation 2 Situation 3 Situation 4

[A] Cost of Acquisition 100 100 100 100

[B] Price on 31 Jan 2018 120 120 90 90

[B] Sale Consideration 150 110 150 70

Cost of Acquisition 120 110 100 100

Taxable LTCG 30 0 50 (30)

Key Takeaways Long term capital gains up to INR 1 lac is intended to be exempt – needs to be rectified Promoter shareholding/bonus shares/trust structures may not enjoy concessional rate

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Prosecution provisions for companies defaulting in filing returns expanded

Presently prosecution can be launched only if self-assessment tax exceeds INR 3,000

Prosecution can now be launched irrespective of tax liability

Compensation received by a taxpayer on termination/modification in terms of contract to be taxable

Business income for a businessman

Income from other sources for a salaried person

Definition of ‘deemed dividend’ amended

Accumulated reserves of amalgamating company on date of amalgamation to be considered for computing DDT –effective from 1 April 2017 onwards

Widening of Tax Base

1005-02-2018

Key Takeaways Not filing tax returns would be more risky Compensation received by a professional – whether taxable? Expenses incurred on obtaining compensation (e.g. legal expenses) could be deductible for a salaried person

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Definition of ‘Business Connection’ widened

Where an Indian agent (including an Indian subsidiary) plays a principal role in concluding a contract by the non-resident parent, PE exposure could arise

If PE is constituted, part of the profit earned by the non-resident could be taxable in India @ 40% base rate

Amendments in line with BEPS multilateral instrument to which Indian is a signatory

Business Connection

1105-02-2018

Key Takeaways Tax risk may increase of marketing operations of foreign companies Tax treaty benefit could be available – but would need Tax Residency Certificate Risk exposure would vary country to country and their positions on MLI Goods and now “Services” also covered

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Entities having substantial economic footprint but no physical presence in India are out of the tax net

A nexus rule to tax digital economy – significant economic presence to result in business connection in India

Income attributable to nexus with India will be taxable at base rate of 40%

Significant economic presence means

Case 1

transaction in respect of any goods, services or property carried out by a non-resident in India

including provision of download of data or software in India,

if the aggregate of payments arising for such transactions during the previous year exceeds prescribed amount

Case 2

systematic and continuous soliciting of business activities or

engaging in interaction with such number of users

as may be prescribed,

in India through digital means

Taxing Digital Economy

1205-02-2018

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Rules and conditions to be prescribed by the Government after consultation with stakeholders

Express clarification that in absence of amendment in definition of PE under tax treaties, the taxation of profits will continue to be governed as per existing rules

Taxing Digital Economy

1305-02-2018

Key Takeaways Digital PE may not result in tax liability soon Co-operation from India’s treaty partners critical Digital PE may also cover non-digital transactions Enforcement could be a challenge Determining income attributable to Digital PE could be complex Tax on Digital PE different than equalisation levy Thresholds for application of Digital PE will be announced in due course Payer may have withholding tax obligations

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Existing Section 80JJAA

Benefit available to all businesses where there is an increase in number of employees over earlier year

30% of salary paid to additional employees is allowed as an additional deduction for three (3) years

For a salary of INR 100 in first year, deduction allowed is INR 190 over 3 years

Certain Conditions

Employee should work for a minimum period of 240 days during the year (150 days for manufacture of apparel)

Salary of additional employees should not be more than INR 25,000 per month (excluding employer PF)

Budget Proposal

If an employee works for less than 240 days in year 1 but works for 240 days in year 2, deduction of 30% will start from year 2

Incentives | Employment Generation

1405-02-2018

Key Takeaways Significant incentive to boost employment generation Period served in year 2 should meet the 240 day criteria (and not aggregate period of year 1 and year 2)

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Start-ups

Requirement of innovation driven by technology or intellectual property removed

Improvement of products, processes and systems to qualify for tax holiday

Scalable business with high potential for employment generation or wealth creation eligible for tax holiday

Turnover of start-up should not exceed INR 25 crore for 7 years from year of incorporation

Should file income-tax return within due date

Others

Benefit under section 54EC restricted to long term capital gains from transfer of land or building

Presently, this benefit is available for all long term capital assets

5 year 100% tax holiday introduced for farm producer companies with turnover less than INR 100 crore

Other Incentives

1505-02-2018

Key Takeaways While eligibility conditions for start-ups are relaxed, approval from DIPP still necessary to claim tax holiday What constitutes high potential for employment generation or wealth creation?

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MAT provisions rationalised for companies under insolvency proceedings

Aggregate of unabsorbed depreciation and loss brought forward can be reduced from book profit

Brought forward losses can be carried forward even if shareholding changes by more than 49%

Section 79 not to apply in such cases

An opportunity of hearing to however be provided to the tax authorities

Tax return of companies under insolvency proceedings process to be signed by appointed insolvency professional

Facilitating Insolvency Resolution

1605-02-2018

Key Takeaways MAT benefits would apply only once the insolvency application is admitted by Adjudicating Authority Section 79 relaxation would apply only once the insolvency plan is approved

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Legislative foundation laid for prescribing extensive procedure for e-assessment proceedings

Team based assessments

Dynamic jurisdiction

Could be functional latest by 31 March 2020

Sale value of immovable property to be accepted if stamp value is within 5% of consideration

Sale Value = 100, Stamp Value = 104 – Sale Value will be accepted

Sale Value = 100, Stamp Value = 107 – Stamp Value will be considered as consideration

CPC not to be make adjustments based on variance with Form 26AS data

Tax holiday for affordable housing projects to be denied if tax return not filed on time

Transfer of capital assets between holding company and wholly owned subsidiary to be tax exempt even under gift tax provisions

Rationalisation Measures

1705-02-2018

Key Takeaways5% tolerance band for real estate transactions not like a basic exemption

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ICDS required certain adjustments to taxable income irrespective of accounting treatment provided in books

ICDS were challenged before the Delhi High Court

Constitutional validity of ICDS was upheld

But most provisions struck down as outside the scope of the law as laid down by several Supreme Court rulings

Budget 2018 effectively nullifies Delhi High Court ruling

Various provisions struck down by the Delhi High Court are now incorporated in the law

ICDS kept applicable from 1 April 2017 itself – compliance to be undertaken if not done already

Income Computation and Disclosure Standards (ICDS)

1805-02-2018

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Country-by-Country Report (CbCR) provisions rationalised

Timeline for furnishing CbCR extended from 9 months to 12 months

No change in due date for furnishing Master File

If parent entity is not required to file CbCR due to home country laws, Indian entity will have to prepare and furnish CbCR in India

CbCR exemption provided only where

India has an automatic information exchange agreement, and

Agreement provides for exchange of CbCR – new clarification

Transfer Pricing

1905-02-2018

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Provisions clarified for taxation of stock-in-trade converted to capital asset

FMV on conversion less cost of acquisition – taxed as business income

Sale consideration less above FMV – taxed as capital gains

Holding period for capital gains considered from date of conversion

Penalty levied on professionals for inaccurate reports/certificates can be appealed before ITAT

Others

2005-02-2018

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Indirect Tax Proposals

2105-02-2018

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First Budget post introduction of GST

Excise and Service Tax already subsumed under GST

Proposals in the Union Budget 2018 limited to Customs duty as GST Council empowered with making changes in the GST legislation

Central Board of Excise and Customs (CBEC) to be renamed as Central Board of Indirect Taxes and Customs (CBIC)

Overview

2205-02-2018

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Customs

2305-02-2018

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Key Products Old BCD Rate New BCD Rate

Cellular Mobile Phones 15 20

Specified Parts and Accessories of Cellular Mobile Phones 7.5/10 15

Printed Circuit Board Assembly and Moulded Plastics of Charger/Adapter of Cellular Mobile Phones

Nil 10

LCD/LED/OLED Panels and Others Parts of LCD/LED/OLED TVs 7.5/10 15

Truck and Bus Radial Tyres 10 15

Specified Parts/Accessories of Motor Vehicles, Motor Cars, Motor Cycles 7.5/10 15

Preform of Silica for Manufacture of Optical Fibre/Cables for Telecommunication Nil 5

Customs

2405-02-2018

Measures to Incentivize Domestic Value Addition and Strengthen Make-in-India Initiative Increase in custom duty in certain sectors like electronics, auto components, footwear, furniture and food

processing

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Introduction of Social Welfare Surcharge (SWS) (effective from 2 February 2018) Social Welfare Surcharge introduced to finance education, health and social security

*exemption provided from levy of SWS on IGST and GST Compensation Cess

Customs

2505-02-2018

Tariff Heading Goods Rate

Any Chapter All imported goods (Except certain Exemptions)10% of aggregate duties of customs*

2710, 7106, 7108 Motor Spirit, Silver and Gold3% of aggregate duties of customs

Any ChapterSpecified Goods which were exempted from Customs Education and Secondary and Higher Education Cess

Exempted

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Customs

2605-02-2018

Ease of Doing Business and Digitalisation (effective from enactment of Finance Bill, 2018)

Advance Rulings

Scope to apply for Advance Ruling has been broadened by omitting definition for ‘activity’ and amending definition for ‘advance ruling’ to include the questions raised by the applicant in respect of any goods prior to its importation or exportation

Extended to all person either holding a Importer Exporter code Number or exporting any goods to India or with a justifiable cause to the satisfaction of the Authority

Time limit to pronounce the Advance Ruling in writing reduced to three months (from six months) from the receipt of application

Introducing the Electronic Credit Ledger to ease the payments for importer and exporters through the ledger instead of transaction wise payment as being done at present

Notices and Orders may be issued electronically for clearances and removal of goods for importation, exportation, deposit in warehouse, home consumption, etc.

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Customs

2705-02-2018

Anti-Evasion (effective from enactment of Finance Bill, 2018)

Applicability of Customs Act extended also “to any offence or contravention thereunder committed outside India by any person”

Erstwhile judgement – Shafeek P.K (2015 (325) E.L.T 199 – Tri Bangalore) now ineffective

Recovery of tax provisions streamlined

‘Pre- notice consultation’ to be conducted before issuance of SCN

Grant of facility to issue a supplementary notice which will be akin to SCN

Time-limit for determination of duty under recovery proceedings curtail to a fixed period of 6 months in normal cases and 1 year in case of fraud or willful suppression (extendable to further 6 months and 1 year)

Special provision of premise audit introduced

Power to Central Government to enter into a agreement with any country outside India for reciprocal exchange of information for facilitation of trade

Scope of verification by officer broadened to include declarations made in bill of entry or shipping bill in addition to self-assessment. However, the selection of cases for verification to be primarily on risk evaluation.

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Customs

2805-02-2018

Other Proposals (effective from enactment of Finance Bill, 2018, unless otherwise)

Levy of IGST/GST Compensation Cess on Warehoused Goods

Valuation prescribed in for levy of IGST and GST Compensation Cess for warehoused goods sold before clearance for home consumptions

Extension of Limit for Indian Customs Water

Limit of ‘Indian Customs Water’ into the sea from the existing ‘Contiguous Zone of India’ to ‘Exclusive Economic Zone’ under section 7 of Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976

Introduction of Road and Infrastructure Cess (RIC) (effective 2 February 2018)

Introduced as an Additional Duty of Customs on imported motor spirits

To be computed at a rate of INR 8 per litre

Other amendments in lieu of RIC

Imported motor spirits have been exempted from the Additional Duty of Customs (CVD)

Additional Duty of Customs (Road Cess) applicable at a rate of INR 6 per litre abolished

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Retrospective exemptions under Service tax legislation provided to

Services provided by GSTN to Government (from 28 March 2013 to 30 June 2017)

Life insurance services to coast guards by Naval Group Insurance Fund (from 10 September 2004 to 30 June 2017)

Government’s share of profit petroleum for services by the Government by way of grant of license/lease to explore or mine petroleum crude or natural gas or both (from 1 April 2016 to 30 June 2017)

Refund for such excess service tax can be claimed within 6 months from date of finance bill receiving assent

Clarity awaited on powers to issue notices and audit under erstwhile legislation (Guwahati High Court in case of Mascot Entrade)

Overview

3005-02-2018

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3105-02-2018

Goods and Services Tax (GST)

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Legislative Updates | Tax Rate Changes

3205-02-2018

Rates reduced on number of goods and services – w.e.f. 25 Jan 2018

Rates increased on cigarette filter rods and rice bran

Royalty/IPR on which customs is applicable exempted from GST

Goods Services

Sale of old and used motor cars Specified goods of agricultural sector Household items such as LPG cylinders

Construction of metro and monorail projects Common effluent treatment plant services

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Legislative Updates | Other Changes

3305-02-2018

Changes effective 25 January 2018

Deferment of GST on Transferrable Development Rights (TDR) until possession or right in the property is transferred to the land owner

Exempt supplies to not include exempt interest or discount earned on value of deposits, loans or advances (except in case of banking company and financial institution including NBFCs)

Clarity on Taxability of Certain Goods/Services

Supplies to Indian Railways shall be at applicable GST rates of the products

Services by doctors/consultants/technicians hired by hospitals to be treated as not liable to tax (tribunal decision in case of Apollo Hospitals)

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Changes effective 23 Jan 2018

Relaxation in registration provisions – by removing 1 year time limit for cancellation

Penalties on delayed returns reduced

Extension of due date to file ISD returns

Clarity awaited on requirement to file mismatch returns

Procedural and Administrative Updates

3405-02-2018

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Mandatory implementation of E-way bills from 1 Feb 2018 for all inter-state transactions

States have time to implement e-way bill for intra-state transactions up to 31 May 2017

W.e.f. 1 June 2018 mandatory implementation of e-way bills for all intra-state transaction

Common e-way bill portal notified - www.ewaybill.gst.gov.in

E-way bills generated on common portal will be valid in all states for transportation

GSTN to capture data for returns from e-way bill portal

Provisions to carry out implementation and regulation of e-way bills in place

However, clarity on various practical aspects such as extension of validity of e-ways – still emerging

Update on E- Way Bills

3505-02-2018

http://www.ewaybill.gst.gov.in/

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Reform. Perform. Transform. - SKP Group€¦ · Interest on bank deposits tax free up to INR 50,000...

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Transcript of Reform. Perform. Transform. - SKP Group€¦ · Interest on bank deposits tax free up to INR 50,000...