Highlights of Union Budget 2018

ARAJ and Associates
1 | P a g e Chartered Accountants Union Budget 2018 Highlights
UNION BUDGET 2018 HIGHLIGHTS
(DIRECT TAX PROPOSALS)

ARAJ and Associates
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for the advice on any particular matter. Subscribers and readers should seek appropriate
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Associates, its partners, employees expressly disclaim any and all liability to any person, whether
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Few Signification Budget Proposals other than Direct Taxes
 Amendment in Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) to provide that earlier rate of 8.33% of Government
contribution in EPF for all sectors (except textile sector wherein rate was 12%) be replaced by 12% for new employees for 3
years.
 Amendment in Employees Provident Fund and Miscellaneous Provisions Act, 1952 to to reduce women employees'
contribution to 8% for first three years of their employment against existing rate of 12% or 10% with no change in employers'
contribution.
 Special provision for exemption from service tax in certain cases relating to life insurance services provided by Naval Group
Insurance Fund to personnel of Coast Guard, retrospectively.
 Special provision for exemption from service tax in certain cases relating to services provided or agreed to be provided by
Goods and Services Tax Network, retrospectively
 Special provision for retrospective exemption from service tax on Government’s share of profit petroleum.
 Increase in customs duty on mobile phones from 15% to 20%, on some of their parts and accessories to 15% and on certain
parts of TVs to 15%.
 Reduction in customs duty on raw cashew from 5% to 2.5%.
 The Education Cess and Secondary and Higher Education Cess on imported goods abolished, and in its place impose a
Social Welfare Surcharge, at the rate of 10% of the aggregate duties of Customs, on imported goods, to provide for social
welfare schemes of the Government. Goods which were hitherto exempt from Education Cesses on imported goods will,
however, be exempt from this Surcharge. In addition, certain specified goods, will attract the proposed Surcharge at the rate
of 3% of the aggregate duties of customs only.

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Revised Rates under Income Tax for F Y 2018-19 onwards
A. Individual, Hindu undivided family, association of persons, body of individuals, artificial juridical person.
(i) The rates of income-tax in the case of every individual (other than those mentioned in (ii) and (iii) below) or Hindu undivided family or every
association of persons or body of individuals, whether incorporated or not, or every artificial juridical person
Upto ₹ 2,50,000 Nil.
₹ 2,50,001 to ₹ 5,00,000 5 per cent.
₹ 5,00,001 to ₹ 10,00,000 20 per cent.
Above ₹ 10,00,000 30 per cent.
(ii) In the case of every individual, being a resident in India, who is of the age of sixty years or more but less than eighty years at any time
during the previous year,-
Upto ₹ 3,00,000 Nil.
₹ 3,00,001 to ₹ 5,00,000 5 per cent.
₹ 5,00,001 to ₹ 10,00,000 20 per cent.
(iii) in the case of every individual, being a resident in India, who is of the age of eighty years or more at any time during the previous year,-
Upto ₹ 5,00,000 Nil.
₹ 5,00,001 to ₹ 10,00,000 20 per cent.
The amount of income-tax computed in accordance with the preceding provisions of this Paragraph shall be increased by a surcharge at the
rate of,-

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(i) ten per cent. of such income-tax in case of a person having a total income exceeding fifty lakh rupees but not exceeding one crore
rupees; and
(ii) fifteen per cent. of such income-tax in case of a person having a total income exceeding one crore rupees.
Rebate u/s 87A: Rebate u/s 87A 2500 and rebate of 2500 will be available only if the total income of the Individual is below Rs.3,50,000
B. Co-operative Societies
Net Income Range Rate
of
Tax
Up to Rs. 10,000 10%
Rs. 10,000 - Rs. 20,000 20%
Rs. 20,000 and above 30%
Note 1: - Add Surcharge - 12% if income exceeds Rs. 1 Crores - with marginal relief.
Note 2: - Add Health and Education Cess - 4 % of Income Tax
C. Companies
Company Rate of
Income Tax
In case of domestic company (turnover not exceeding Rs. 250 crore in P. Y. 2016-17) 25%
Companies other than above 30%
In case of foreign Company
- Royalty received from Government or an Indian Concern in pursuance of an agreement made by it with the Indian concern
after March 31, but before April 1, 1976, or fees for rendering technical services in pursuance of an agreement made by it
50%

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after February 29, 1964 but before April 1, 1976 and where such agreement has, in either case, been approved by central
Government
- Other Income 40%
Notes:
Note 1: - Add Surcharge - Surcharge is 7% of income-tax, in case of domestic companies and 2% in case of foreign companies if net income
exceeds Rs.1 crore but not exceeding Rs. 10 Crore in either case. Rate of Surcharge will be 12% of income-tax in case of domestic
companies and 5% in case of foreign companies if net income exceeds Rs.10 Crore in either case. Surcharge is subject to marginal Relief.
Note 2: - Add Health and Education Cess - 4 % of Income Tax.
C. Firms and Local Authority
Rate of Tax is 30%.
Notes:
Note 1: - Add Surcharge - 12% if income exceeds Rs. 1 Crores - with marginal relief.
Note 2: - Add Health and Education Cess - 4 % of Income Tax

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AMENDMENT IN MAIN PROVISION
Sections
Involved
Existing Provision Proposed Amendment Impact
Enhancement in Deductions from Taxable Income
Section 80D-
Deductions available
to senior citizens in
respect of health
insurance premium
and medical
premium (w.e.f 1st
April, 2019)
Section 80D, inter-alia, provides that a
deduction up to Rs 30,000/- shall be
allowed 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.
It is proposed to raise the monetary limit of
deduction from Rs. 30,000 to Rs. 50,000 and
same provisions have been made applicable
for senior citizen and very senior citizen.
In case of single premium health insurance
policies having cover of more than one 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.
Increased deduction of
Rs.50000/- in case of
senior citizens.
Section 80DDB -
Payment for medical
treatment of
specified diseases.
(w.e.f. 1st April,
2019)
Section 80DDB of the Act, inter-alia,
provide that a deduction is available to an
individual and Hindu undivided family with
regard to amount paid for medical
treatment of specified diseases in respect
of very senior citizen up to Rs 80,000/-
and in case of senior citizens upto Rs
60,000/- subject to specified conditions.
It is proposed to amend the provisions of
section 80DDB of the Act so as to raise this
monetary limit of deduction to Rs 1,00,000/- for
both senior citizens and very senior citizens.
Increased deduction of
Rs.100000 making the
same at par for senior and
very senior citizen.

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Section 80TTA and
194A- Deduction in
respect of payment
of interest income to
senior citizen.(w.e.f.
1st April 2019)
Section 80TTA provides for the Deduction
of Rs.10,000 in respect of interest income
from savings bank account.
It is proposed to insert a new section 80TTB so
as to allow a deduction up to Rs 50,000/- in
respect of interest income from deposits held
by senior citizens.
However, this section shall not apply to non-
senior citizens. Further, the threshold limit for
TDS (deduction of tax) at source on interest
income for senior citizens has also proposed to
be increased from Rs. 10,000 to Rs. 50,000.
Additional deduction from
gross total income for
senior citizens only upto
interest income of
Rs.50,000/- and
corresponding
amendment in TDS.
Section 16 -Certain
deductions in
computing the
income under the
head "Salary" (w.e.f.
01st April 2019)
Provides for certain deductions in
computing the income under the head
Salaries.
It is proposed to allow a standard deduction
up to Rs 40,000/- or the amount of salary
received, whichever is less. The deduction in
respect of transport allowance (except in
case of differently abled persons) and
reimbursement of medical expenses proposed
to be withdrawn.
Additional effective
deduction of Rs.5,800/-
i.e. Rs.40,000/- proposed
deduction – (minus)
existing deduction of
Rs.19200 in case of
Transport allowance and
Rs.15000/- for medical
reimbursements.
Changes in Presumption Taxation
Section 44AE -
Presumptive Income
in case of goods
carriage.
(w.e.f. 01st
April
2019)
Section 44AE, provides that, the profits
and gains shall be deemed to be an
amount equal to seven thousand five
hundred rupees per month or part of a
month for each goods carriage or the
amount claimed to be actually earned by
the assessee, whichever is higher. The
only condition which needs to be fulfilled is
that the assessee should not have owned
It is proposed to amend the section 44AE of
the Act to provide that, in the case of heavy
goods vehicle (more than 12MT gross vehicle
weight) the income would be INR 1000 per ton
of gross vehicle weight or unladen weight (the
weight of a vehicle when not loaded with
goods) as the case may be, per month or part
of a month for each goods vehicle or the
amount claimed to be actually earned by the
Change in income from
7500 per month to
Rs.1000/- per Ton of
Vehicle Weight per month
or part of the month in
respect of heavy vehicle.

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more than 10 goods carriages at any time
during the previous year.
assessee, whichever is higher. However for
other vehicles, the existing provisions will
prevail.
Changes in Deemed Divided Provisions
2(22) Meaning of
Dividend (w.e.f. 01st
April, 2019 i.e. A Y
2019-20)
Accumulated profits’ for the purposes of
the said clause, as all profits of the
company up to the date of distribution or
payment or liquidation, subject to certain
conditions
It is proposed to insert a new Explanation 2A
in clause (22) of section 2 of the Act to widen
the scope of the term ‘accumulated profits’ so
as to provide that in the case of an
amalgamated company, accumulated profits,
whether capitalised or not, or losses as the
case may be, shall be increased by the
accumulated profits of the amalgamating
company, whether capitalized or not, on the
date of amalgamation.
Presently the companies
are resorting to abusive
arrangements in order to
escape liability of paying
tax on distributed profits.
Under such
arrangements, companies
with large accumulated
profits adopt the
amalgamation route to
reduce capital and
circumvent the provisions
of sub-clause (d) of
clause (22) of section 2 of
the Act. Therefore in order
to curb such schemes,
this amendment is
proposed.
115O- Dividend Tax
on distributable
profits.
No DDT on deemed dividend defined u/s
2(22)(e) of the Act.
Deemed dividend u/s 2(22)(e) is proposed to
be taxed at the rate of 30 per cent. (without
grossing up) in order to prevent camouflaging
Now the company paying
loans and advances
which are deemed

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dividend in various ways such as loans and
advances.
dividend u/s 2(22)(e) of
the Act are required to
deposit DDT @ 30%
(without grossing up).
However, No
consequential
amendment has been
made in TDS provision for
deduction of Tax in case
of deemed dividend.
Section 271 FA
Penalty for failure to
furnish statement of
financial transaction
or reportable
account. (w.e.f. 1st
April, 2018.)
The Existing provisions of the Section
provided that if a person who is required to
furnish the statement of financial
transaction or reportable account under
sub-section (1) of section 285BA, fails to
furnish such statement within the
prescribed time, he shall be liable to pay
penalty of one hundred rupees for every
day of default. The proviso to the said
section further provides that in case such
person fails to furnish the statement of
financial transaction or reportable account
within the period specified in the notice
issued under sub-section (5) of section
285BA, he shall be liable to pay penalty of
five hundred rupees for every day of
default.
It is proposed to amend the section 271FA so
as to increase the penalty leviable from one
hundred rupees to five hundred rupees and
from five hundred rupees to one thousand
rupees, for each day of continuing default.
Penalty for non filing of
AIR information has been
increased.

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Section 271J
Appeal against
penalty imposed by
Commissioner.
(w.e.f 01st April
2018)
Section 253 provided that any assessee
aggrieved by the orders mentioned under
sub section 1 of the said section may
appeal to the appellate tribunal against
such order.
It is proposed to amend clause (a) of the said
sub-section so as to also make an order
passed by a Commissioner (Appeals) under
section 271J appealable before the Appellate
Tribunal.
Appeal can be filed
against order passed u/s
271J by CIT(A) in respect
of incorrect information or
certificate by Accountant
or merchant banker or
registered valuer.
Royalty and FTS
payment by NTRO
to a non-resident
to be tax-exempt.
(w.e.f. 01st April
2018)
Section 195 requires a person to deduct
tax at the time of payment or credit to a
non-resident.
It is proposed to amend section 10 so as to
provide that the income arising to non-resident,
not being a company, or a foreign company, by
way of royalty from, or fees for technical
services rendered in or outside India to, the
NTRO will be exempt from income tax.
Consequently, NTRO will not be required to
deduct tax at source on such payments.
-
80JJAA Incentive
for employment
generation. (w.e.f.
01st April 2019)
Under section 80-JJAA of the Act, 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.
However, the minimum period of employment
is relaxed to 150 days in the case of apparel
industry. In order to encourage creation of new
employment, it is proposed to extend this
relaxation to footwear and leather industry.
It is also proposed to rationalize this deduction
of 30% by allowing the benefit 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.
Relief for Footwear
industry and also in case
new eligible employee
employed for less than
the required period but
continued to employ for
minimum period in
succeeding year, he shall
qualify to be new
employee in the
succeeding year.

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Measures to
promote start-ups.
(w.e.f. 01st April
2018)
Section 80-IAC of the Act, inter alia,
provides that deduction under this section
shall be available to an eligible start-up for
three consecutive assessment years out of
seven years at the option of the assessee,
if-
(i) it is incorporated on or after the 1st
day of April, 2016 but before the 1st day of
April, 2019;
(ii) the total turnover of its business
does not exceed twenty-five crore rupees
in any of the previous years beginning on
or after the 1st day of April, 2016 and
ending on the 31st day of March, 2021;
and
(iii) it is engaged in the eligible
business which involves innovation,
development, deployment or
commercialization of new products,
processes or services driven by
technology or intellectual property.
It is proposed to make the following changes in
the taxation regimes for the start ups:-
(i) The benefit would also be available to start
ups incorporated on or after the 1st day of April
2019 but before the 1st day of April, 2021;
(ii) The requirement of the turnover not
exceeding Rs 25 Crore would apply to seven
previous years commencing from the date of
incorporation;
(iii) The definition of eligible business has been
expanded to provide that the benefit would be
available if it is engaged in innovation,
development or improvement of products or
processes or services, or a scalable business
model with a high potential of employment
generation or wealth creation
-
Section 80 P (w.e.f.
01st April 2019)
Section 80P provides for 100 percent
deduction in respect of profit of
cooperative society which provide
assistance to its members engaged in
It is proposed to extend similar benefit to Farm
Producer Companies (FPC), having a total
turnover upto Rs 100 Crore, whose gross total
income includes any income from-
Relief similar to available
in case of Cooperative
societies engaged in
primary agriculture

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primary agricultural activities.
(i) the marketing of agricultural produce
grown by its members, or
(i) the purchase of agricultural implements,
seeds, livestock or other articles intended for
agriculture for the purpose of supplying them
to its members, or
(iii) 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
activities.
Changes with respect to Exemption in case of Long Term Listed Securities.
10(38), 112A (New
Insertion) w.e.f A Y
2019-20.
No Tax on gain earned on sale of Equity
Shares or unit of equity oriented funds or
unit of business trust held for or more
than one year i.e. exempt u/s 10(38) of
the Act provided all conditions are
satisfied.
It is proposed to tax long term capital gains or
units of equity oriented funds or unit of
business trust @ 10% on long term capital
gain exceeding INR 100,000/- without any
indexation, cost of improvement or forex
benefit in case of Non-resident assessee.
However, the cost of securities (Acquired
before 01.02.2018) shall be calculated higher
of the following:-
a. Cost of acquisition of such asset: and
b. the lower of –
i. the fair market value of such asset; and
Now the transaction in
listed equity shares
involvind long term gain
will be subject to tax
@10% on difference of
sale consideration and
Higher of (cost of
acquisition and [lower of
fair market value as on
31.01.2018 or
consideration receivable].
For example, if an equity
share is purchased six

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ii. the full value of consideration received
or accruing as a result of the transfer of
the capital asset.
The meaning of fair value shall be, in case of
listed equity shares, highest quote on 31st
January, 2018 if traded on that date or
immediately preceding trade date and in case
of unlisted security the net asset value of such
asset as on the 31st day of January, 2018.
Further, the meaning of equity oriented funds
has been also amended.
No Deduction shall be allowed u/c VIA and
rebate u/s 87A from such capital gain.
Further, requirement of payment of STT at the
time of transfer shall not apply in case of sale
on Recog. Stock Exchange in International
Financial Services Centre( IFSC) and the
consideration of such transfer is received or
receivable in foreign currency.
Central Government is also empowered to
notify certain acquisition of securities on which
condition of payment of STT is not applicable.
(like preferential allotment etc.)
months before 31st
January, 2018 at 100/-
and the highest price
quoted on 31st January,
2018 in respect of this
share is 120/-, there will
be no tax on the gain of
20/- if this share is sold
after one year from the
date of purchase.
However, any gain in
excess of 20 earned after
31st January, 2018 will be
taxed at 10% if this share
is sold after 31st July,
2018. However, the
amendment will take
effect from 01.04.2018
and will not be applicable
on any transaction of sale
on or before 31.03.2018.

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Section 115AD-
Tax on income of
Foreign Institutional
Investors from
securities (w.e.f. 01st
April 2019)
Under the existing provisions, long term
capital gains arising from transfer of long
term capital asset being equity shares of
a company or a unit of equity oriented
fund or a unit of business trusts, is
exempt from income-tax under clause
(38) of section 10 of the Act.
It is proposed to withdraw the exemption under
section 10(38) and as a consequence, such
long term capital gain shall be taxable in the
hands of the Foreign Institutional Investor. The
tax shall be levied only on an amount of gain
exceeding Rs. 1,00,000.
Consequential
amendment in section
115AD as made in 112A
of the Act.
Section 115R -
Dividend Distribution
Tax on dividends
paid to the Unit
Holders of an equity
oriented fund.( w.e.f.
01st April 2018).
Section 115R provides for the payment of
additional income tax by the specified
company or a Mutual Fund at the rate
specified under this section. Earlier no
such requirement was in case of equity
oriented fund.
The said section is amended 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 an additional
income tax @ 10% on the income so
distributed.
Extending the Scope of Business Connection
9 (Dependent Agent)
w.e.f A Y 2019-20.
Under the existing provisions of
Explanation 2 to clause (i) of sub-section
(1) of section 9, "business connection"
includes business activities carried on by
non-resident through dependent agents.
The scope of "business connection"
under the Act is similar to the provisions
relating to Dependent Agent Permanent
Establishment (DAPE) in India’s Double
Taxation Avoidance Agreements
(DTAAs). In terms of the DAPE rules in
tax treaties, if any person acting on behalf
of the non-resident, is habitually
Suitable amendments have been made to
wider the scope of business connection as
referred to in provisions of Explanation 2 to
clause (i) of sub-section (1) of section 9 to
align the same with Article 5(4) and Article 5(5)
of Double Tax Avoidance Agreement as
amended/after adoption of Article 12 of
Multilateral Convention to Implement Tax
Treaty Related Measures. In pursuance of the
same it is proposed that business connection
shall also include any business activities
carried through a person who, acting on behalf
of the non-resident, habitually concludes
Now the agent would
include not only a person
who habitually concludes
contracts on behalf of the
non-resident, but also a
person who habitually
plays a principal role
leading to the conclusion
of contracts, thus aligning
the provision of DTAA
with Domestic law.

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authorised to conclude contracts for the
non-resident, then such agent would
constitute a PE in the source country.
However, in many cases, with a view to
avoid establishing a permanent
establishment (hereafter referred to as
'PE') under Article 5(5) of the DTAA, the
person acting on the behalf of the non-
resident, negotiates the contract but does
not conclude the contract. Further, under
paragraph 4 of Article 5 of the DTAAs, a
PE is deemed not to exist when a place
of business is engaged solely in certain
activities such as maintenance of stocks
of goods for storage, display, delivery or
processing, purchasing of goods or
merchandise, collection of information.
This exclusion applies only when these
activities are preparatory or auxiliary in
relation to the business as a whole.
contracts or habitually plays the principal role
leading to conclusion of contracts by the non-
resident.
9 w.e.f A Y 2019-20. No Provisions in DTAA or Income Tax Act
to tax transaction without physical
presence of Non-Residents through PE
except certain transactions. Therefore,
transactions through digital mode without
physical presence are out of tax purview.
Now it is proposed to tax transactions on the
basis of concept called significant economic
presence on the basis of recommendation of
OECD under its BEPS Action Plan 1,
according to which a non-resident enterprise
would create a taxable presence in a country if
it has a significance economic presence in that
country on the basis of factors that have a
Now the entities who
having no presence in
india but having customer
base in india through
digital/electronic media
will also be liable to
income tax subject to
certain criteria.

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purposeful and sustained interaction.
In view of the above, it is proposed to amend
clause (i) of sub-section (1) of section 9 of the
Act to provide that 'significant economic
presence' in India shall also constitute
'business connection'. Further, “significant
economic presence” for this purpose, shall
mean-
(i) any 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 from such
transaction or transactions during the
previous year exceeds the amount as may
be prescribed; or
(ii) systematic and continuous soliciting of its
business activities or engaging in
interaction with such number of users as
may be prescribed, in India through digital
means.
It is further proposed to provide that only so
much of income as is attributable to such
transactions or activities shall be deemed to
accrue or arise in India. It is further proposed

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to provide that the transactions or activities
shall constitute significant economic presence
in India, whether or not the non-resident has a
residence or place of business in India or
renders services in India. Further, threshold of
“revenue” and the “users” in India will be
decided after consultation with the
stakeholders. Further, it is also clarified that
unless corresponding modifications to PE rules
are made in the DTAAs, the cross border
business profits will continue to be taxed as
per the existing treaty rules.
Measures to Promote International Financial Services Centre (IFSC)
47 (neutrality relating
to certain transfer)
w.e.f A Y 2019-20.
No such relaxation currently In order to promote the development of world
class financial infrastructure in India, it is
proposed to amend the section 47 of the Act
so as to provide that transactions in the
following assets, by a non-resident on a
recognized stock exchange located in any
International Financial Services Centre shall
not be regarded as transfer, if the
consideration is paid or payable in foreign
currency:—
(i) bond or Global Depository Receipt, as
referred to in sub-section (1) of section
115AC; or
(ii) rupee denominated bond of an Indian
company; or
Such transaction will not
be regarded as transfer
under capital gains.

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(iii) derivative.
115JC, 115JF
w.e.f A Y 2019-20.
Currently tax @ 18.50 % Proposed Tax @ 9% Relaxation and almost the
tax rated is reduced to
half of earlier levy.
Relief in Minimum Alternate Tax (MAT)
115JB w.e.f A Y
2018-19
Lower of brought forward loss or
unabsorbed depreciation as per books of
accounts is eligible to be set off against
Book Profit.
It is proposed to amend section 115JB to
provide that the aggregate amount of
unabsorbed depreciation and loss brought
forward (excluding unabsorbed depreciation)
shall be allowed to be reduced from the book
profit, if a company’s application for corporate
insolvency resolution process under the
Insolvency and Bankruptcy Code, 2016 has
been admitted by the Adjudicating Authority.
Big relief for such
companies as they would
be able to reduce the
entire amount of losses
appearing in balance
sheet against the book
profits.
115JB w.r.e.f. A Y
2001-02.
Clarificatory amendment It is proposed in section 115JB of the Act to
provide that the provisions of section 115JB of
the Act shall not be applicable and shall be
deemed never to have been applicable to an
assessee, being a foreign company, if- its total
income comprises solely of profits and gains
from business referred to in section 44B or
section 44BB or section 44BBA or section
44BBB and such income has been offered to
tax at the rates specified in the said sections.
Only clarificatory
amendment.
Facilitating Insolvency Resolution

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79 w.e.f A Y 2018-19 Carry forward and set off of losses in a
closely held company shall be allowed
only if there is a continuity in the
beneficial owner of the shares carrying
not less than 51 percent. of the voting
power, on the last day of the year or
years in which the loss was incurred.
It is proposed to relax the such condition in
section 79 in case of companies, whose
resolution plan has been approved under the
Insolvency and Bankruptcy Code, 2016, after
affording a reasonable opportunity of being
heard to the jurisdictional Principal
Commissioner or Commissioner.
Big relief for such
companies as no impact
of change in shareholding
to their brought forward
losses due to rider of
section 79.
140 w.e.f A Y 2018-
19.
No provision of signing by any other
person in case of Insolvency and
Bankruptcy.
It is proposed that during the resolution
process under the Insolvency and Bankruptcy
Code, 2016, the return shall be verified by an
insolvency professional appointed by the
Adjudicating Authority under the Insolvency
and Bankruptcy Code, 2016
Clarificatory in nature.
New scheme for scrutiny assessment
143 w.e.f. 01st
April
2018
Normal face to face or e-assessment
option.
It is proposed to prescribe a new scheme for
the purpose of making assessments so as to
impart greater transparency and
accountability, by eliminating the interface
between the Assessing Officer and the
assessee, optimal utilization of the resources,
and introduction of team-based assessment.
The income tax
department has moved
towards name less and
face less scrutiny
assessment on PAN India
basis. The scheme would
be released and notified
accordingly.
Rationalization Measures
Section 116(7), 117
and 118 of Finance
Act, 2013. w.e.f A Y
2018-19.
Definition of taxable commodities
transaction to mean a transaction of sale
of commodity derivatives in respect of
commodities, other than agricultural
commodities, traded in recognised
In order to align the definition of “taxable
commodities transaction” with instruments
allowed for transaction in commodity
derivatives, it is proposed to amend the clause
(7) of section 116 so as to include “options in

ARAJ and Associates
association.
The rate at which a commodities
transaction tax in respect of every
commodities transaction, being sale of
commodity derivative shall be chargeable
and such tax shall be payable by the
seller.
commodity futures” in the definition of “taxable
commodities transactions.
In order to propose rates for option on
commodity derivative, it is proposed to amend
the provisions of section 117 so as to
prescribe the rate at which sale of an option on
commodity derivative shall be chargeable and
such tax shall be payable by the seller and
where option is exercised, such tax shall be
chargeable and such tax shall be payable by
the purchaser.
276CC (Prosecution
for non filing of
return) w.e.f. 01st
April 2018
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, if 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 INR 3000.
In order to prevent abuse of the said proviso
by shell companies or by companies holding
Benami properties, it is proposed to amend the
provisions and they are liable for imprisonment
even if no such tax payable.
Now in case of companies
the return filing is
mandatory even if there is
no tax payable.
143(1) Prima-facie
adjustment in return
of income w.e.f A Y
2018-19.
Sub-clause (vi) of the said clause
provides for adjustment 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.
With a view to restrict the scope of
adjustments, it is proposed to insert a new
proviso to the said clause to provide that no
adjustment under sub-clause (vi) of the said
clause shall be made in respect of any return
furnished on or after the assessment year
commencing on the first day of April, 2018.
The difference in income
shown in return of income
and amount credited in
form 26AS/Form 16/16A
was earlier subjected to
adjustment in intimation
generated u/s 143(1)(a) of
the Act, although CBDT

ARAJ and Associates
has issued a circular
relaxing such adjustments
subject to opportunity
given to assessee.
However, in case of any
return filed after 01st
April
2018 no such adjustment
would be made u/s
143(1)(a) of the Act.
286 (Country by
Country Report in
case of applicability
of Transfer Pricing
Provisions) w.e.f A Y
2017-18.
- Rationalization of time limits for filing Country
by Country Report), in the case of parent entity
or Alternative Reporting Entity (ARE), resident
in India
Relaxation in time limit of
filing of CbCR, mandatory
filing of CbCR even no
such requirement of filing
this report in country of
resident of parent
company etc..
115BA w.e.f A Y
2017-18.
25% tax subject to no deduction of
various deductions like investment linked
and accelerated depreciation for
companies registered on or after 01st
March, 2016 and engaged in
manufacturing, production, research or
distribution.
There are certain incomes which are subject to
a scheduler tax, at a rate which is lower or
higher than 25 per cent. Consequently tax
payers have been subjected to unintended
hardship or unwarranted relief. Accordingly
it is proposed to amend section 115BA so as
to clarify that the provisions of section 115BA
is restricted to the income from the
business of manufacturing, production,
research or distribution referred to therein;
and income which are at present taxed at a
scheduler rate will continue to be so taxed.
Various income which are
either subject to low rate
of tax or high rate of tax
would be taxable at the
prescribed rates only. The
income from business
would only be subject to
lower rate of tax of 25%
subject to fulfillment of
other conditions.

ARAJ and Associates
10(12A) exemption of
withdrawal of NPS.
w.e.f A Y 2019-20.
Under the existing provisions of the
clause (12A) of section 10 of the Act, an
employee contributing to the NPS is
allowed an exemption in respect of 40%
of the total amount payable to him on
closure of his account or on his opting out
In order to provide a level playing field, it is
proposed to amend clause (12A) of section 10
of the Act to extend the said benefit to all
subscribers.
Extension of exemption
u/s 10(12A) to non
employee assessee’s.
80AC w.e.f A Y
2018-19.
No deduction u/s 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
It is substituted and scope of 80AC is
extended to all deductions under the heading
“C.—Deductions in respect of certain incomes”
in Chapter VIA. Thus, no deduction will be
allowable unless the return is filed timely on or
before the due date specified under sub-
section (1) of section 139 of the Act.
Under section 80AC all
deductions are covered
so that timely compliance
for filing of return be made
by taxpayer.
43CA, section 50C
and section 56
(Applicability of
Stamp duty
valuation) w.e.f A Y
2019-20.
The sale consideration or stamp duty
value, whichever is higher is adopted for
calculating profit. The difference is taxed
as income both in the hands of the
purchaser and the seller.
In order to minimize hardship in case of
genuine transactions in the real estate sector,
it is proposed to provide that no adjustments
shall be made in a case where the variation
between stamp duty value and the sale
consideration is not more than five percent of
the sale consideration.
Where the difference
between stamp duly value
and consideration is 5%
of consideration, then the
consideration shall be
deemed to be fair value.
Section 28, 56 -
Charging Section for
Business Income and
Other sources. (w.e.f.
01st April 2019)
Under the existing provisions, certain
types of compensation receipts are
taxable under section 28. However, a
large segment of compensation receipts
in connection with the business and
employment is out of the purview of
taxation leading to base erosion and
revenue loss.
It is proposed to amend section 28 of the Act
to provide that any compensation received or
receivable, whether revenue or capital, in
connection with the termination or the
modification of the terms and conditions of any
contract relating to its business shall be
taxable as business income.
It is further proposed that any compensation
Specific Receipts under
dispute whether revenue
or capital in nature is
brought to tax with a view
provide clarity.

ARAJ and Associates
received or receivable, whether in the nature of
revenue or capital, in connection with the
termination or the modification of the terms
and conditions of any contract relating to its
employment shall be taxable under section 56
of the Act.
2(24), 2(42A), 28, 45,
49 w.e.f A Y 2019-
20.
No such provision currently governing
conversion of stock in trade to Capital
Asset.
Section 28: Any profit or gains arising from
conversion of inventory into capital asset or its
treatment as capital asset shall be charged to
tax as business income. It is also proposed to
provide that the fair market value of the
inventory on the date of conversion or
treatment determined in the prescribed
manner, shall be deemed to be the full value of
the consideration received or accruing as a
result of such conversion or treatment.
Section 2(24): Include such fair market value
in the definition of income.
Section 2(42A): Period of holding of such
capital asset shall be reckoned from the date
of conversion or treatment.
Section 49: For the purposes of computation
of capital gains arising on transfer of such
capital assets, the fair market value on the
date of conversion shall be the cost of
acquisition.
Now, the conversion of
stock in trade into capital
asset will be deemed as
business profits in the
year of conversion and for
capital purpose cost
would be deemed to be
fair market value at the
time of conversion and
period of holding would be
counted from the date of
conversion.
56 (Transfers without
consideration) w.e.f
A Y 2019-20
The transfers referred to in clause (iv)
and clause (v) of section 47 have not
been excluded from the scope of section
In order to further facilitate the transaction of
money or property between a wholly owned
subsidiary company and its holding company,
Transaction without
consideration among
subsidiary and holding

ARAJ and Associates
56 it is proposed to amend the section 56 so as to
exclude such transfer from its scope.
companies is kept out of
newly amended section
56(x) and thus such
transaction shall not be
considered as income in
the hand of recipients.
54EC (Investment in
Bonds) w.e.f A Y
2019-20.
Currently all long term capital assets are
eligible for making investment in specified
bonds. Further, lockin period of
investment was 3 years.
It is proposed that gain arising from transfer of
Land or Building or both would be eligible for
making investment in long-term specified asset
being specified bonds. Now the bonds
redeemable after five years and issued on or
after 01st
April, 2018 would be eligible for
deduction.
Major take-away as
earlier this deduction was
available for all long term
capital assets but now
applicable only for land
and building.
115BBE w.e.f A Y
2017-18.
Sub-section (2) of said section provides
that no deduction in respect of any
expenditure or allowance or set-off of any
loss shall be allowed to the assessee
under any provision of the Act in
computing his income referred to in
clause (a) of sub-section (1) i.e. in case of
return filed by the assessee, however not
in case of income assessed by Assessing
officer.
In order to rationalize the provisions of section
115BBE, it is proposed to amend the said sub-
section (2) so as to also include income
referred to in clause (b) of sub-section (1), so
that it also applies to assessed income by
assessing officer.
As per the existing
provisions clause (a)
where the total income
includes any income
referred to in section 68,
section 69, section 69A,
section 69B, section 69C
or section 69D and
reflected in the return of
income furnished under
section 139, no deduction
in respect of any
expenditure or
allowance or set off of any
loss shall be allowed to
the assessee under any

ARAJ and Associates
provision of this Act in
computing his income.
However, this rider of no
allowance of expenditure
was contained in
subsection (2) which
contain only clause (a)
and not clause (b).
Therefore, assessee may
claim that losses or
expenditure against
addition made u/s
69/68/69A/69B by the
assessing officer should
be allowable. However, in
order to plug the same it
is proposed to amend sub
section (2) and include
clause (b) w.r.e.f A Y
2017-18.
36, 40A, 43AA,
43CB, 145A, 145B,
Amendment in
relation to ICDS.
w.e.f A Y 2017-18.
The hon’ble Delhi High Court has strike
down various provision of ICDS due lack
of jurisdiction.
It is proposed to:-
i. amend section 36 of the Act to provide that
marked to market loss or other expected
loss as computed in the manner provided in
income computation and disclosure
standards notified under sub-section (2) of
section 145, shall be allowed deduction.
ii. amend 40A of the Act to provide that no
deduction or allowance in respect of
The earlier position in
view of ICDS has been
reinstated with some
additional measures
w.r.e.f A Y 2017-18.

ARAJ and Associates
marked to market loss or other expected
loss shall be allowed except as allowable
under newly inserted clause (xviii) of sub-
section(1) of section 36
iii. insert a new section 43AA in the Act to
provide that, subject to the provisions of
section 43A, any gain or loss arising on
account of effects of changes in foreign
exchange rates in respect of specified
foreign currency transactions shall be
treated as income or loss, which shall be
computed in the manner provided in ICDS
as notified under sub-section (2) of section
145.
iv. insert a new section 43CB in the Act to
provide that profits arising from a
construction contract or a contract for
providing services shall be determined on
the basis of percentage of completion
method except for certain service contracts,
and that the contract revenue shall include
retention money, and contract cost shall not
be reduced by incidental interest, dividend
and capital gains.
v. amend section 145A of the Act to provide
that, for the purpose of determining the
income chargeable under the head “Profits
and gains of business or profession,—

ARAJ and Associates
(a) the valuation of inventory shall be
made at lower of actual cost or net
realizable value computed in the
manner provided in income
computation and disclosure standards
notified under (2) of section 145.
(b) the valuation of purchase and sale of
goods or services and of inventory
shall be adjusted to include the
amount of any tax, duty, cess or fee
actually paid or incurred by the
assessee to bring the goods or
services to the place of its location and
condition as on the date of valuation.
(c) inventory being securities not listed, or
listed but not quoted, on a recognised
stock exchange, shall be valued at
actual cost initially recognised in the
manner provided in income
computation and disclosure standards
notified under (2) of section 145.
(d) inventory being listed securities, shall
be valued at lower of actual cost or net
realisable value in the manner
provided in income computation and
disclosure standards notified under (2)

ARAJ and Associates
of section 145 and for this purpose the
comparison of actual cost and net
realisable value shall be done
category-wise
vi. insert a new section 145B in the Act to
provide that
(a) interest received by an assessee on
compensation or on enhanced
compensation, shall be deemed to be
the income of the year in which it is
received.
(b) the claim for escalation of price in a
contract or export incentives shall be
deemed to be the income of the
previous year in which reasonable
certainty of its realisation is achieved.
(c) income referred to in sub-clause (xviii)
of clause (24) of section 2 shall be
deemed to be the income of the
previous year in which it is received, if
not charged to income tax for any
earlier previous year.
193 (Interest on
securities) w.e.f 01st
April, 2018.
New insertion for TDS on 7.75% GOI
Savings (Taxable) Bonds, 2018.
TDS @ 10% with a threshold limit of INR
10,000/-.
-
***

Highlights of Union Budget 2018

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Highlights of Union Budget 2018