TASS Advisors brief analysis on the key changes proposed in the Budget announcements for the financial year 2018-19

1. INDIA BUDGET IMPACT
2018-19
01 FEBRUARY 2018

2. Contents
▪ Snapshot of the year gone by
▪ Key Direct Tax Proposals
▪ Key Indirect Tax Proposals

3. Snapshot of the year gone by

4. Snapshot of the year gone by
▪ Goods and Services Tax (GST) launched on 1 July 2017
▪ Multilateral Convention to give effect to BEPS measures signed
▪ Significant liberalization in FDI norms
▪ New Insolvency law made operational
▪ Task Force created to draft new Income-tax law

5. Key Direct Tax Proposal

6. 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%
▪ All types of compensation (whether capital or revenue in nature) in connection to business or
employment proposed to be taxable as business income or other sources
▪ 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
▪ Gains on transfer of immovable property not to be computed with reference to stamp duty value, where
variation in stamp duty value and sale consideration is not more than 5% of the sale consideration
▪ Exemption from capital gains under section 54EC proposed to be restricted to capital gain on land &
building only. Further, lock-in period being increased from existing 3 to 5 years

7. Corporate Tax
▪ 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 upto 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
▪ Proposal to amend the provisions of Minimum Alternate Tax (‘MAT’) clarifying that the
provisions are not applicable on companies subject to tax on deemed income basis ((oil
and gas, shipping, aircraft operations etc.)
▪ Applicability of Dividend Distribution Tax (‘DDT’) widened to be applicable on deemed
dividends @ 30% (without grossing up)
▪ DDT applicable on accumulated profits of an amalgamating company, post
amalgamation
▪ Transfer of capital asset to a Holding Company/ Wholly Owned Subsidiary for inadequate
consideration does not create notional income

8. Corporate Tax
▪ 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
▪ Provisions of tax deduction at source enhanced to be applicable on charitable trust and
societies. In addition, any expense incurred in cash exceeding INR 10,000 shall be taxable
▪ To impart greater transparency and accountability and to minimize the interface between the tax
payer and tax administration, new scheme of e-assessment introduced
▪ 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

9. Corporate Tax
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.

10. International Tax
▪ 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
▪ Budget 2018 proposes enlarging of the scope of business connection with modified PE Rule as
per Multilateral Instrument (MLI)
▪ “Business connection” shall 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
▪ Introduction of digital PE concept: “Business connection” definition also expanded to include “Significant
Economic presence”; Significant Economic presence includes 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 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
▪ 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

11. Key Indirect Tax Proposal

12. Customs
▪ 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 fulfill Govt.’s commitment to provide and finance education,
health and social security
▪ Reduced rate of surcharge @ 3% applicable in case of import of (i) motor spirit commonly
known as petrol and high speed diesel oil, (ii) silver (including silver plated with gold and
platinum) unwrought or in semi-manufactured form, or in powder form, and (iii) gold (including
gold plated with platinum), unwrought or in semi-manufactured form, or in powder form
▪ 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

13. Central Excise
▪ 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

14. Goods & Service 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

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