Summary of Finance Bill, 2018 For Income Taxes

Summary of Finance Bill, 2018 For Income Taxes

The Government of India presented the Finance Bill, 2018 before the Parliament of India on 1st Feb 2018. It was the 5th NDA Government Budget and they have come out with a very Populist Budget.

The key Union Budget 2018 Announcements are summarized here under and a detailed summary for Income Tax Provisions.

For Individuals

•  No change in Tax Rates/ Slabs. However, education cess is proposed to be increased from 3% earlier to 4 % and to be known as “Health and Education Cess on income-tax”.
•  Long term capital gain (LTCG) exemption (>INR 1 lac) in respect of listed securities on which STT is paid, is proposed to be withdrawn and will be taxed @ 10% (without indexation). LTCG up to 31.1.2018 will be exempt as the cost of acquisition of these securities will be substituted by the Fair Market Value / Cost as on 31.1.2018 (whichever is higher) when these are sold subsequently.
• Standard Deduction of INR 40,000 proposed for salaried employees. However, benefit of transport allowance of INR 19,200 and Medical Reimbursement of INR 15,000 are being withdrawn. Thus, net benefit to salaried class is only INR 5,800. Benefit of exemption for withdrawal up to 40% from National Pension System Trust (NPS) proposed for all subscribers and not only to employees.
• Dividend Distribution Tax @ 10% applicable on dividends paid by equity-oriented mutual fund.
• No adjustment can be made while processing of return of income on account of mismatch between return and Form 16/16A/Form 26AS.
• Single health insurance premium paid for multiple years to be allowed as deduction proportionately over the years of benefit.
• Benefits for Senior Citizens – Exemption on income of INR 50,000 (earlier INR 10,000) from Bank / post offices, INR 50,000 (earlier INR 30,000) deduction for medical insurance, deduction for medical treatment of specified diseases increased to INR 1 lac (earlier INR 60,000).
• Exemption by way of investment in NHAI/RECL bonds is available only in respect of long-term capital gains arising out of sale of immovable property and the bond holding period increased to a minimum of 5 years.

For Corporates

•  Domestic Companies having total turnover or gross receipts not exceeding INR 250 crores in Financial year (FY) 2016-17 shall be liable to pay tax @ 25% for FY 2018- 19.
• LTCG – Same as applicable to individuals.
• Education cess increased – Same as applicable to individuals.
• PAN to be obtained by any person (excluding individuals) in case aggregate of financial transactions in a year is INR 2.5 lacs or more. All directors, partners, members of such entities also to obtain PAN (including non-resident directors). No adjustment can be made while processing of return of income on account of mismatch between return and Form 16/16A/Form 26AS.
• Business connection in India definition expanded to include any business activities carried through a person who, acting on behalf of the non-resident, habitually concludes contracts or habitually plays the principal role leading to conclusion of contracts by the non-resident.
• Income Computation and Disclosure Standards (ICDS) being given statutory backing in view of decision of Delhi High Court (striking down various ICDS). Marked to market loss computed as per ICDS to be allowed as deduction and gain or loss in Foreign Exchange as per ICDS to be taxed / allowed as deduction (brought under the ambit of the law itself).
• Willful default to file return of income of company to be liable for prosecution irrespective of tax liability.
• E-assessments to be further promoted and difficult to fight with the revenue authorities questioning the jurisdiction.
• Advance / loan to a shareholder holding substantial interest to be liable to Dividend Distribution of tax @ 30%.

For Trusts

• Expenditure incurred without deducting TDS or paid in cash (>INR 10,000) will not be eligible as application of income.

Other points (Customs)

•  Levy of social welfare surcharge on imported goods @ 10% of aggregate of custom duties (BCD+IGST). Abolition of 3% education cess on imported goods.
• Increase in Basic Custom Duty (relevant items): –

10% to 20%

•  Perfumes, beauty creams, hair cream / gel / color, toothpaste, denture fixative pastes and powders, dental floss
• After / Pre- shaves, deodorants, soaps, deodorizers
• Smart watches/wearable devices / other watches
• Mattresses / bedding
• Lamps and lighting fitting
• Clocks 

7.5/10% to 15%

•  Certain parts/accessories of motor vehicles, motor cars, motor cycles
• CKD imports of motor vehicle, motor cars, motor cycles
• LCD/LED/OLED panels and other parts of LCD/LED/OLED TVs

15% to 20%

•  Cellular mobile phones