How will Budget 2018 impact taxation? This is probably the question uppermost on the minds of most taxpayers. To analyse the impact of the budget on taxes it is important to consider the noteworthy developments related to taxation in the preceding year. The past year saw the roll out of the GST; significant liberalisation in FDI norms; new insolvency law was made operational; task force was created to draft new income tax laws and a multilateral convention to give effect to BEPS measures was signed with a view to curtail tax avoidance.
Impact of Budget on Direct Taxes
Personal Income Tax
- Basic exemption limit and income-tax rates for individuals remain unchanged
- Replacement of transport and medical allowance with a standard deduction of INR 40,000 per annum
- New “Health and Education Cess” @ 4% to replace existing 3% “Education Cess on income-tax” and “Secondary and Higher Education Cess on income-tax”. Resulting in effective increase in maximum marginal rate from 35.54% to 35.88%
- Limit of deduction in respect of health insurance premium and medical treatment of senior citizens proposed to be increased to INR 50,000 existing INR 30,000. Similarly, it is proposed to provide enhanced deduction of INR 100,000 from existing limit of INR 60,000 to senior citizens for medical treatment of specified diseases
- Introduction of deduction of INR 50,000 for interest earned on deposits by senior citizens
- Withdrawal of exemption on long term capital gain arising on sale of equity shares/ mutual funds. Proposal to tax such gains exceeding INR 0.1 million @ 10% without providing indexation benefit
- No change in corporate tax rate for year 2018-19 in the Finance Bill. However, there is a proposal to reduce the corporate income tax rate for domestic companies having turnover up to INR 2500 million in financial year 2016-17 to 25% from 30%
- No change in surcharge rates though new “Health and Education Cess” @ 4% to replace existing 3% “Education Cess on income-tax” and “Secondary and Higher Education Cess on income-tax
- Applicability of Dividend Distribution Tax (‘DDT’) widened to be applicable on deemed dividends @ 30% (without grossing up)
- Transfer of capital asset to a Holding Company/ Wholly Owned Subsidiary for inadequate consideration does not create notional income
- Conversion of stock in trade to capital asset proposed to be charged as business income in the year of such conversion on fair market valuation on the date of conversion
- Scope and ambit of PAN registration enhanced to link financial transaction made by non-individual entities with natural persons. In such cases, PAN registration mandatory for the key personnel including Directors, Partners etc.
- All companies irrespective of income to file return. Prosecution provisions widened in case of non-compliance
Income Computation and Disclosure Standards (ICDS)
- Amendments proposed in respect of certain ICDS provisions (retrospectively from FY 16-17)
- M-T-M or other expected loss computed to be allowed as deduction
- Forex gain/ loss in respect of specified transactions (except those relating to imported capital assets) treated as income/loss
- Income from construction / service contracts taxable on Percentage Completion method
- Certain service contracts taxable on project completion method / straight line method
- Retention money taxable;
- Incidental income (interest, dividend, rental income) to be taxed independently
- Inventory to be valued to cost or NRV whichever is lower; value to be inclusive of any tax/ cess/ duty/ fee etc.
- No change in corporate income tax and surcharge for foreign companies. Though cess increased from existing 3% to 4% resulting in effective tax rate to 43.68% from existing 43.26% as applicable on foreign companies having turnover exceeding INR 100 million
- Clarificatory amendment proposed to rationalize provisions relating to Country-by-Country Report. Due date for filing CBCR by an Indian ultimate holding company or an Indian alternate reporting entity to be 31 March of next accounting year (as against 30 November)
- Indian entity to file CBCR if it is not filed by ultimate parent entity or alternate reporting entity
- Royalty/ fee for technical service payments made by National Technical Research Organisation to non-residents is proposed to be tax exempt
Impact of Budget on Indirect Taxes
- Customs Duty on certain products, such as mobile phones and televisions has been increased with an objective to encourage ‘Make in India’ initiatives
- Definition of ‘Indian Customs Waters’ expanded from ‘contiguous zone’ to ‘Exclusive Economic Zone’
- Finance Bill introduces a 10% Social Welfare Surcharge on import of goods specified in First Schedule to Customs Tariff Act, to fulfil Govt.’s commitment to provide and finance education, health and social security
- Proposal to levy an additional duty of customs viz. Road and Infrastructure Cess on import of goods specified in Sixth Schedule, for the purpose of financing infrastructure projects; On the other hand, abolishes 3% Education and Secondary & Higher Education Cess on imported goods
- Reduction in excise duty on motor spirit known as petrol and high speed diesel oil
- Abolition of Additional Duty of Excise (Road Cess) on motor spirit from existing INR 6 per liter to NIL
- Introduction of Road and Infrastructure Cess on petrol and diesel manufactured in and cleared from 4 specified refineries located in the North East @ INR 4 per liter
Goods & Services Tax
- No proposal/ announcements made on GST in the Finance Bill
- No specific road map or certain deadline to include entire oil & gas sector within the ambit of GST
To get the highlights of Budget 2018, click here.
To explore business opportunities, link with me by clicking on the 'Invite' button on my eBiz Card.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.
Advising companies regarding their tax planning and structuring to achieve a reduced overall tax cost