Our current Finance Minister (FM) is well known for breaking traditions while presenting the budget, this year, the tradition of using only English as the medium of presenting the budget was altered into bilingual speech with the use of English and Hindi combined. Even though English was prominent, many important announcements were made in Hindi, which of course is a great thing.
The speech started with stating Government’s visions and key practices that the Narendra Modi government has achieved or at least tried to achieve in the past 4 years of the NDA tenure. This was an important budget in light of the 2019 general elections and is the last complete budget of the current elected government. As speculated, it was mainly focused on the agricultural and rural economy along with the less privileged sector and senior citizen getting certain benefits. Healthcare, Infrastructure has been given a lot of importance, many major announcements are made in the same. (Major announcements are discussed later)
Major Direct Taxation aspects of the Finance Bill, 2018
The Finance Bill has not altered the Slab rate per se but there is some benefit in the form of Standard deduction to the salaried class of people.
The Important amendment of granting a Standard deduction of Rs. 40,000 to salaried persons is in lieu of (it is in place of / instead of) exemption of Transport allowance and exemption of medical reimbursement earlier allowed to salaried employees.
Transportation allowance is presently exempted @ Rs. 1,600 per month and medical reimbursement is exempted up to Rs. 15,000 per year so total 1,600*12 = Rs. 19,200 + Rs. 15,000 = Rs. 34,200 is already exempted as on date and instead of these two deductions /exemption standard deduction of Rs. 40,000 has been allowed. So net benefit of just Rs. 40,000 – Rs. 34,200 = Rs. 5,800 /- is what will additionally be available to the taxpayer. However, the private employees who were not eligible for any transport allowance and medical reimbursement will surely be able to avail the benefit Rs. 40,000 /- standard deduction completely. However, the transport allowance at enhanced rate shall continue to be available to differently-abled persons. Also, other medical reimbursement benefits in case of hospitalisation etc., for all employees shall continue.
The Education cess @ 2% and Higher Secondary Education Cess @ 1% is subsumed into a single cess called the Health and Education cess @ 4%. Thus, leading to an additional outflow of 1% cess on the amount of Tax and Surcharge.
The tax on Cooperative Societies, Firms/LLP, foreign companies has remained unchanged. Only domestic companies which have a turnover or gross receipts of 250 crores or less in the previous year FY 2016-17 will pay tax @ 25% instead of 30%. (Previously the limit of 250 crores was only 50 crore). However, the rate at which surcharge is applicable for all persons has remained unchanged.
Rate of Income Tax for Individual & HUF for FY 2018 – 19 (AY 2019 – 20)
|Individuals (Below 60 years) and HUF||Resident Senior Citizen* (60 to 80 years)||Resident very Senior Citizen* (Above 80 years)|
|Income Slabs||Tax Rate||Income Slabs||Tax Rate||Income Slabs||Tax Rate|
|Rs. 0 – Rs. 2,50,000||NIL||Rs. 0 – Rs. 3,00,000||NIL||Rs. 0 – Rs. 5,00,000||NIL|
|Rs. 2,50,001 – Rs. 5,00,000||5% of the amount by which the total income exceeds Rs. 2,50,000/-||Rs. 3,00,001 – Rs. 5,00,000||5% of the amount by which the total income exceeds Rs. 3,00,000/-|
|Rs. 5,00,001 – Rs. 10,00,000||Rs. 12,500/- + 20 % of the amount by which the total income exceeds Rs. 5,00,000/-||Rs. 5,00,001 – Rs. 10,00,000||Rs. 10,000/- + 20 % of the amount by which the total income exceeds Rs. 5,00,000/-||Rs. 5,00,001 – Rs. 10,00,000||20 % of the amount by which the total income exceeds Rs. 5,00,000/-|
|Above Rs. 10,00,000||Rs. 1,12,500/- + 30 % of the amount by which the total income exceeds Rs. 10,00,000/-||Above Rs. 10,00,000||Rs. 1,10,000/- + 30 % of the amount by which the total income exceeds Rs. 10,00,000/-||Above Rs. 10,00,001||Rs. 1,00,000/- + 30 % of the amount by which the total income exceeds Rs. 10,00,000/-|
|Health & Education Cess @ 4% (Previously was 3%, now Increased) It will be computed on the aggregate of Income-Tax and Surcharge.|
|Rebate** of Rs. 2,500/- (Maximum) – If Total Income is up to Rs. 3,50,000/- (Section 87A)|
* The benefit of the Senior citizen is applicable only for Resident Individuals as per section 6 of Income Tax Act, 1961. Therefore, the Non-resident senior citizen is not covered and shall be liable to pay tax as per provisions applicable for Individual (Below 60 years) and HUF.
# Surcharge will be applicable over and above Normal Slab Rate Taxes (Only if Total Income exceeds the mentioned limits) otherwise, it won’t be applicable.
** Rebate will be applicable only in the cases where the Total income is up to Rs. 3,50,000/-, in such cases there will be a rebate of maximum Rs. 2,500/- allowed or the tax payable, whichever is lower.
TOTAL INCOME: The sum of all money received, under each head of income, by an individual or organization, which is reduced by the deductions applicable (under Chapter VI-A) is called total income.
Special Benefits for Senior Citizens
To care of those who cared for us is one of the highest honours.
– Arun Jaitley
1. Under Section 80D – Health Insurance Premium and Medical Treatment, the deduction of Rs. 30,000/- were applicable to the Senior citizen which has been enhanced to Rs. 50,000/- for the AY 2019-20.
2. Under Section 80DDB – Enhanced deduction to senior citizens for medical treatment of specified diseases which was Rs. 60,000/- in case of senior citizen and Rs. 80,000/- in case of very senior citizen has been uniformly been enhanced to Rs. 1,00,000/-
3. Under Section 80TTA – Interest Income from Saving Accounts of Rs. 10,000/- is deductible from tax. For Senior Citizen a new Section 80TTB has been inserted to provide a deduction of Rs. 50,000/- in place of Rs. 10,000/- from AY 2019-20.
4. Under Section 194A – TDS from Interest Income has been amended for Senior citizens only. The threshold of Rs. 10,000/- has been increased to Rs. 50,000/-. Therefore, any Interest getting accrued or paid from 1st April 2018, for senior citizen shall not attract TDS up to Rs. 50,000/-.
5. Standard Deduction of Rs. 40,000 shall also be applicable to Senior citizens also in lieu of Transport allowance and Medical reimbursement. However, the transport allowance at enhanced rate shall continue to be available to differently-abled persons. Also, other medical reimbursement benefits in case of hospitalisation etc., for all employees shall continue.
Corporate Taxes Rates Tax FY 2018 – 19 (AY 2019 – 20)
|Turnover Particulars||Type of Tax||Nil to 1 crore||1 crore to 10 crores||10 crores to 250 crores||Exceeding 250 crores|
|Domestic Company||Basic Rate||25%||25%||25%||30%|
|Foreign Company||Basic Rate||40%||40%||40%||40%|
|Firm / Local Authority / Cooperative Society||Basic Rate||30%||30%||30%||30%|
FM has reduced the Domestic Companies tax rate to 25% from 30% for the companies which have turnover up to 250 crores. (MSME Tax) This shall include 99% of companies. Only XL companies will have to bear the tax at the old rate. Since there is no change in the surcharge applicable, therefore it remains as per previous finance acts. Instead of 3% cess of EC & HSEC, there will be a single Health and Education Cess of 4% applicable.
NOTE: Provisions like MAT, AMT and Marginal relief are applicable without any change.
Section 112A – Taxation of Long-Term Capital Gains
Currently, long-term capital gains arising from a transfer of listed equity shares or units of equity-oriented fund or units of business trusts, (assets held for a period of more than one year) are exempt from income-tax under Section 10(38) of the Act. As per newly proposed Section 112A, long-term capital gains arising from a transfer of an equity share, or a unit of an equity-oriented fund or a unit of a business trust shall be taxed at 10% of such capital gains. Such capital gains tax shall be levied in excess of Rs. 1 lakh. This concessional rate of 10% will be applicable if STT has been paid on both acquisition and transfer of such capital asset, in case of equity shares, and paid at the time of transfer in case of a unit of an equity-oriented fund or a unit of a business trust.
The concept of Grandfathering was introduced while levying the tax on LTCG on above-mentioned shares and securities, which means to exempt something from the new law or regulation. Therefore, any gains made up to 31st January 2018 would be totally exempt. Therefore, this tax comes into force for all sales happening from 1st February 2018 and the shares and securities being Long-term capital assets. The long-term capital gains shall be computed without giving effect to the first and second provisos to section 48, i.e. inflation indexation in respect of the cost of acquisitions and improvement if any, and the benefit of computation of capital gains in foreign currency in the case of a non-resident, will not be allowed.
|Full value of Sale Consideration||XXX|
|Less: Transfer Expenses||(XX)|
|Cost of Acquisition|
a. Actual Cost of Acquisition
b. FMV as on 31.01.2018*
c. Amount of sale consideration
d. Lower of (b) or (c)
|Cost of Acquisition – Higher of (a) or (d)||(XXX)|
|Capital gains taxable u/s 112A||XXX|
* The Fair Market Value (FMV) of a listed equity share shall mean its highest price quoted on the stock exchange on January 31, 2018. However, if there is no trading in such shares on such exchange on January 31, 2018, the highest price of such asset on such exchange on a date immediately preceding January 31, 2018. While in case of units which are not listed on the recognized stock exchange, the net asset value of such units as on January 31, 2018, shall be deemed to be its FMV.
If the Capital gains taxable u/s 112A is up to Rs. 1,00,000/- then there will be no tax payable. However, if the amount of gain exceeds Rs. 1,00,000/- then the tax will be payable on the gain above Rs. 1,00,000/-.
The deduction under Chapter VIA shall not be allowed for the purpose of payment of capital gains tax u/s 112A. However, the benefit of Rebate u/s 87A shall be allowed before calculating tax u/s 112A.
NOTE: In case of Capital loss, whether the set off will be allowed to be carried forward or not is not is not explained. Going by the principles of Set off provisions, if a gain is taxable then any loss arising out of the same nature of income would be allowed to be set off. But if the gain is tax-free then any loss of such nature cannot be set off. However, this scheme of calculation, where the base of acquisition of the asset is getting shifted, should the loss be allowed or not. This can lead to fresh litigation and therefore to avoid this, the government is expected to clarify its stand soon.
Further, the complication can increase in the case of Bonus issues or rights issues of shares.
Therefore, presently the Capital gains on Long-Term Shares can be summed up as:
|Nature of Shares||Rate of Tax (%)|
|Resident Investor||Non-Resident Investor|
|Listed Shares (Sold off the Market)||10% / 20%**||10%|
|Listed Shares (STT paid* on Sale and Purchase)||10%||10%|
|* Rate of Tax applicable only for gains exceeding Rs. 1,00,000/- and government is to notify acquisitions in respect of which STT shall not apply.
** After applying Indexation.
These amendments will take effect from 1st April 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.
Section 115AD – Long-Term Capital Gains in case of Foreign Institutional Investors (FIIs)
Consequent to the proposal of withdrawing the exemption u/s 10(38) of Long-term capital gains, such Long term Capital gains in excess of Rs. 1,00,000/- shall be taxable in the hands of FIIs at the rate of 10% u/s 115AD.
Section 115R – Dividend distribution tax on dividend payouts to unitholders in an equity-oriented fund
Under existing provision Section 115R – any income distributed to a unitholder of equity-oriented funds is not chargeable to tax. To provide a level playing field between growth-oriented funds and dividend paying funds, it is proposed to amend the said section to provide that where any income is distributed by a Mutual Fund being, an equity-oriented fund, the mutual fund shall be liable to pay additional income tax at the rate of 10% percent on income so distributed.
This amendment will take effect from 1st April 2018.
Rationalization of section 43CA, section 50C and section 56
At present, while taxing income from capital gains (section 50C), business profits (section 43CA) and other sources (section56) arising out of transactions in immovable property, the sale consideration or stamp duty value, whichever is higher is adopted.
The difference is taxed as income both in the hands of the purchaser and the seller.
It is proposed that No adjustment needs to be made to the full value of consideration in based on stamp duty valuation if the variation is within the range of 5% of sales consideration.
The corresponding amendment in section 43CA, 50C and 56 are made.
These amendments will take effect from 1st April 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.
Rationalisation of provision relating to conversion of stock-in-trade into Capital Asset
Currently, section 45(2) covers conversion of Capital Assets into Stock in Trade. (Post the landmark judgement of “CIT vs. Bai Shirinbai K. Kooka”
But surprisingly, the reverse scenario was not covered in the tax net and in this budget it has been proposed to be brought under tax net i.e. conversion of Stock in Trade into Capital Assets.
Section 28 is also amended so as to provide that any profit or gains arising from the conversion of inventory into a capital asset or its treatment as capital asset shall be charged to tax as business income.
The fair market value of the inventory on the date of conversion shall be deemed to be the full value of the consideration received.
Consequently, corresponding amendments proposed in Section 2(24), 2(42A) & 49.
Rationalisation of provision of Section 54EC
Section 54EC of the Act provides that capital gain, arising from the transfer of a long-term capital asset, invested in the long-term specified asset at any time within a period of six months after the date of such transfer, shall not be charged to tax subject to certain conditions specified in the said section.
The scope of this section now proposed to restrict only to “long-term specified asset” being land or building or both.
It is also proposed to provide that long-term specified asset, for making any investment under the section on or after the 1st day of April, 2018, shall mean any bond, redeemable after five years (The period of holding (lock-in) enhanced from present level of 3 years to proposed 5 years.) and issued on or after 1st day of April, 2018 by the National Highways Authority of India or by the Rural Electrification Corporation Limited or any other bond notified by the Central Government in this behalf.
This amendment will take effect, from 1st April 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.
Other Important Direct Tax Proposal in the Union Budget
Deductions in respect of certain incomes not to be allowed unless return is filed by the due date
Existing provisions contained in the section 80AC of the Act provide that no deduction would be admissible under section 80IA, 80IAB, 80IB, 80C, 80ID and 80IE unless the return of income by the assessee is furnished on or before the due date specified under subsection 139(1).
It is proposed to extend the scope of section 80AC to provide that the benefit of deduction under the entire class of deductions under the heading C – “Deduction in respect of certain incomes” in chapter VIA.
Other deductions in Chapter VI-A continue to be allowed.
Farm Produce Companies
Farm Producer Companies (FPC), having a total turnover up to Rs. 100 Crore shall eligible to deductions u/s 80P.
The benefit shall be available for a period of five years from the financial year 2018-19.
This amendment will take effect from 1st April 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.
Measures for Promoting Start-ups u/s 80-IAC
Section 80-IAC of the Act provides that deduction under this section shall be available to an eligible start-up for 3 consecutive AY out of 7 years at the option of the assessee.
In order to improve the effectiveness of the scheme for promoting start-ups in India, it is proposed to make following changes.
The amendment will take effect, from 1st April 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent assessment years.
Application of Dividend Distribution Tax to Deemed Dividend u/s 2 (22) (e) – Now Taxable to Companies Only
At present dividend distributed by a domestic company is subject to dividend distribution tax payable by such company. However, deemed dividend u/s 2 (22) (e) is taxed in the hands of the recipient at the applicable marginal rate. The taxability of deemed dividend in the hands of the recipient has posed a serious problem of the collection of the tax liability and has also been the subject matter of extensive litigation.
Proposed to delete the Explanation to Chapter XII-D occurring after section 115Q of the Act
Now DDT chargeable u/s 115-O also include dividend u/s 2 (22) (e) in the hands of company @ 30% (without gross-up).
Proposed DDT structure –
|Dividend covered u/s 2 (22) (a) to (d)||DDT @ 15% (with grossing up)|
|Dividend covered u/s 2 (22) (e)||DDT @ 30% (without grossing up)|
Tax neutral transfers
Section 47 provides for certain tax neutral transfers, which includes the transfer of capital assets between the wholly owned subsidiary company and its holding company.
However, no corresponding provision was available in statute book in section 56 under the head “Income from Other Source”
Accordingly, in order to further facilitate the transaction of money or property between a wholly owned subsidiary company and its holding company, it is proposed to amend the section 56 so as to exclude such transfer from its scope.
This amendment will take effect, from 1st April 2018 and shall accordingly, apply in relation to the transaction made on or after 1st April 2018.
Quoting of PAN
It is proposed to use a PAN as Unique Entity Number (UEN) for non-individual entities which enter into a financial transaction of an amount aggregating ₹ 2,50,000 Lakh or more in FY.
In order to link the financial transactions with the natural persons, it is also proposed that the managing director, director, partner, trustee, author, founder, Karta, chief executive officer, principal officer or office of such entities shall also apply for PAN u/s 139A.
Penalty for failure to furnish statement of financial transaction or reportable account u/s 285BA
|Penalty||Existing Penalty||Proposed Penalty|
|Failure to furnish statement of financial transaction or reportable account within the prescribed time||Rs. 100 / day||Rs. 500 / day|
|Failure to furnish the statement of financial transaction or reportable account within the period specified in the notice||Rs. 500 / day||Rs. 1,000 / day|
These amendments will take effect from 1st April 2018.
Recent judicial pronouncements had raised doubts about the legitimacy of the notified ICDS.
In order to regularise the compliance with the notified ICDS by a large number taxpayer so as to prevent any further inconvenience to them, this Union Budget has proposed many amendments in the existing law and inserted new sections for smooth compliance with the ICDS.
It is proposed to bring the amendments retrospectively with effect from 1st April 2017 i.e. the date on which the ICDS was made effective and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years.
Major Indirect Taxation aspects of the Finance Bill, 2018
Amendments to the Customs Act, 1962
Ad-valorem rate of SWS will be on the aggregate of Customs Duty (excluding IGST, GST compensation cess, Anti-Dumping Duty, Safeguard Duty, etc.)- essentially on BCD.
Major Rate Changes in Customs
|Description||Existing BCD Rate||Proposed BCD Rate||Future Price Indicator|
|Specified Radial tyres (Bus and Truck)||10%||15%||Costlier|
|Specified parts of motor vehicles||7.5% -10%||15%||Costlier|
|CKD parts of motorized four and two Wheelers||10%||15%||Costlier|
|CBU Import of Motor vehicle||20%||25%||Costlier|
|Diamond and Precious Stones|
|Capital Goods and Electronics|
|PCBA for chargers of Mobile Phones||Nil||10%||Costlier|
|Silica (used for Telecom / optical fibre cables)||Nil||5%||Costlier|
|Specified Parts for Mfg. of Panels of LCD/LED TV||Nil||10%||Costlier|
|Solar tempered glass for Mfg. of solar cells||5%||Nil||Cheaper|
|Inputs for manufacture of PCBA or moulded plastics for chargers of Mobile Phones||Applicable Rate||Nil|
|Specified Inputs for Manufacture of CNC Machine Tools||7.5%||2.5%||Cheaper|
|Cellular mobile phones||15%||20%||Costlier|
|Specified parts and accessories of cellular mobile phones||7.5% – 10%||15%||Costlier|
|LCD/LED/OLED panels and their parts||7.5% / 10%||15%||Costlier|
|Watches and Clocks|
|Watches and clocks including stopwatches and alarm clocks||10%||20%||Costlier|
|Specified parts of footwear||10%||15%||Costlier|
|Specified Parts of Furniture||10%||20%||Costlier|
Major Non-Taxation Announcement in the Finance Bill, 2018
The announcement of Universal Health Coverage programme by launching a flagship National Health Protection Scheme to cover over 10 crore poor and vulnerable families (approximately 50 crore beneficiaries) providing coverage up to 5 lakh rupees per family per year for secondary and tertiary care hospitalization. This is the most cheered thing of the budget, making it the aam aadmi budget, now the only concern is the smooth implementation of this programme and how the benefit will reach the required masses is still not very clear. Creating the awareness among the beneficiaries is the key to its success. Additionally, there shouldn’t be any procedural complexities while taking the benefit of this scheme of government by the people. Therefore, Implementation will hold the key here.
With the Prime Minister strong desire to double the farmer’s income by 2022, the government had already set the major rabi crops Minimum Selling Price (MSP) at 1.5 times their cost of production. Now, in the budget, the government has decided to implement this resolution as a principle for the rest of crops. The government has decided to keep MSP for the all unannounced crops of Kharif at least at one and half times of their production cost. This decision will prove to be an important step towards doubling the income of our farmers. However, the fool-proof mechanism of deciding what will be the adequate cost of production for every crop, whether will it differ state wise or not are some of the questions that the Niti Ayog, in consultation with Central and State Governments will have to decide upon. Additionally, this will not give any immediate relief to the farmer community since the Kharif crops are grown from July to October and sold thereafter. So, the government needs to come out with all possible answers of the agricultural community and offer them the fair deal as promised in the budget.
The Government is keen in improving conditions of farmers by providing better warehousing conditions, connecting APMC’s to e-NAM (National Agriculture Market), allocating ₹ 2,000 crores for agri-market infrastructure fund, developing Grameen Agricultural markets. The FM in his speech has stated the need for developing a cluster-based method for farming in more scientific manner, Organic farming, setting up long-term irrigation fund and many other allocations for specific purposes. How many of this sees the light of the day will be an interesting thing to witness. Successful implementation of these things at a scale which can make a difference will require coordination and cooperation from different stakeholders.
Other Important Announcements in Budget Speech
Allocation of Rs. in Lakhs
This document is intended for knowledge sharing purpose only. All efforts have been made to ensure the accuracy of information in this publication. The information contained in this document is published for the knowledge of the recipient but is not to be relied upon as authoritative or taken in substitution for the exercise of judgment by any recipient. The publication is a service to all recipients only to provide an overview of the Union Budget Proposals and shall not be construed as professional advice or an authoritative opinion. Whilst due care has been taken in the preparation of this publication and information, I am not responsible for any errors that may have crept in inadvertently and do not accept any liability whatsoever, for any direct or consequential loss howsoever arising from any use of this publication or its contents or otherwise arising in connection herewith.
(Compiled by CA. Siddharth P. Jani, for any queries/suggestion or rectifications kindly write at email@example.com)