Union Budget Analysis 2017-18 | U.S.Gandhi & Co

Contents

Foreward 2

Statistics 3

Budget Flash 6

Tax Rates 10

Start-ups 13

Real estate business, house property, capital gains on immovable property 14

Cash Transactions 16

Scrutiny Assessment, Search & Seizure, Survey 17

Taxation of Non-Residents, Transfer Pricing & International Taxation 19

Procedural: Return Filing, TDS, TCS, Refund 22

Corporate Restructuring 24

Other Points 25

Indirect Tax Proposals 27

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Foreward The Indian economy ended the last fiscal on a high with growth for the full year touching 7.6% amidst a struggling global economy and a worsening investment climate. In the current fiscal, the domestic economy has continued to show resilience even in the wake of deteriorating global conditions and increased protectionist measures. The ongoing fiscal can be seen as the year where a number of game changing initiatives were agreed upon such as the passage of the constitutional amendment bill for GST and Bankruptcy code bill. Notwithstanding demonetization, the economy stands at the cusp of noteworthy changes with a move towards GST and an unified tax regime along with a thrust on greater cash accountability and digitization across payment channels. As is the case with any big change, it comes with short term adjustment costs for longer term gains. However, these gains are not a given and can only be realized if there is continuous push towards achieving stated goals. The narrative across the world is also changing fast with uncertainty rising on the back of protectionist rhetoric gaining ground. Most multilateral agencies expect global growth to recover in the current year, which should help the Indian economy. But, it is unlikely to be a smooth ride with major events waiting to unfold. Negotiations between Britain and the EU on BREXIT, fiscal and monetary policy shifts within the US, evolving political scenario in the Eurozone and China managing its growth slowdown are just some of the many unknowns that policymakers and market participants have to contend with. As we move ahead, there are new challenges as some of the gains enjoyed last year may not be there in the next year. Inflation can be one such challenge as oil and broader commodity prices have started to move up in a meaningful way after a gap of more than two years. Domestic agricultural growth assumes a greater significance in such a scenario, as policy makers will need to keep a vigilant eye on any spike in prices. A major overhaul of the taxation regime with introduction of the Goods and Services Tax (GST) and the General Anti-Avoidance Rule (GAAR) could also mean some disruption over the near term. That said, there are positives that brighten the outlook such as financial inclusion, focus on affordable housing and infrastructure and stable macro indicators that demonstrate the strength of the economy. Safe to say that a new path will have new challenges and India seems adequately equipped to face such a situation confidently.

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Statistics

Following are the sources and composition of revenue and expenditure for FY 2016-17:






Budget Flash

Personal Income Tax

● Individual tax slab rate remain unchanged except for where taxable income is between Rs.2.50 lakhs to Rs. 5 lakhs tax rate is reduced to 5% from 10%.

● Rebate of Rs. 2,500/- available to assessee’s who are individual & HUF and having income up to Rs. 3.50 lakhs.

● Surcharge @ 10% is to be levied where income of an individual is between Rs.50 lakhs to Rs. 1 crore. Surcharge @ 15% for income above 1 crore continues.

● Holding period for computing long term capital gain in case of immovable property is reduced to 2 years from 3 years.

● Base year for calculating indexed cost shall be 01/04/2001 in place of 01/04/1981 for all assets.

● Liability to pay capital gains tax in the case of joint development agreement shall arise when the project is completed.






● New section 269ST has been introduced with respect to cash payments of Rs. 3 lakhs or above. Penalty @ 100% of the amount shall be leviable on contraventions of the provision.

● Revised return can be filed within 12 months from the end of financial year. ● Simple one-page ITR for individuals having income up to Rs. 5 lakhs other than

business income. ● An Individual and HUF, being a payer (other than those liable for tax audit) shall be

liable to deduct TDS @ 5% u/s. 194-IB of the Act where monthly rent payment exceeds Rs. 50,000/- p.m.

● Investment in any bond redeemable after three years which has been notified by the Central Government in this behalf shall also be eligible for exemption u/s. 54EC of the Act.

● Interest on housing loans shall be restricted to Rs. 2 lakhs. The excess interest paid shall be allowed to be carried forward for next 8 assessment years.

Corporate Tax

● For companies having turnover up to Rs. 50 crores, tax rate reduced to 25%. ● Presumptive taxable income u/s 44AD shall be 6% of non-cash turnover. ● MAT credit can be carried forward up to 15 years from 10 years. ● Threshold limit for audit of business entities opting for presumptive income scheme

increased from Rs. 1 crore to 2 crore. ● Threshold for maintenance of books of accounts for individuals increased; in case of

business turnover to 25 lakhs and incase of income to 2.5 lakhs. ● NPA allowance increased to 8.50% from 7.50% for schedule and co-operative banks. ● Interest taxable on actual receipt instead of accrual basis in respect of NPA accounts

of all schedule and co-operative banks. ● Start-ups can carry forward losses provided holding of the original promoter

continues. ● Profit exemption is available to start-ups for 3 years out of 7 years which was

previously 3 years out of 5 years. ● Withholding tax rate changed to 5% u/s 194LC & 194 LD of the Act on interest income

earned by foreign entities/FII’s and QFI’s on their external commercial borrowings and on their investments in Government securities and rupee denominated corporate bonds.

● TDS rate on payments to person engaged only in the business of operation of call center shall be @2% u/s. 194J

● TDS on insurance commission u/s 194D payable to individual shall be exempt provided a self-declaration is filed.

● Person referred to in under section 40A(2)(b) are to be excluded from the scope of section 92BA of the Act.






● Cash expenditure in excess of Rs. 10,000/- shall be disallowed. ● In case of presumptive income for professionals with receipt up to Rs. 50 lakhs,

advance tax can be paid in one installment instead of four installments. ● Income tax assessments to be completed in 18 months for AY 2018-2019 and 12

months for AY 2019-2020 onwards. ● No notional income for house property held as stock-in-trade up to 1 from the end of

financial year in which completion certificate is received. ● Exemption to foreign companies on income arising on account of sale of leftover

stock of crude oil in India shall be available even after the expiry of an agreement subject to such conditions as notified by the Central Government.

● Section 115BBG to provide that where the total income of the assessee includes any income from transfer of carbon credit, such income shall be taxable at the concessional rate of ten per cent (plus applicable surcharge and cess) on the gross amount of such income.

Custom Duty

● Basic custom duty on LNG reduced from 5% to 2.50%. ● POS card reader, fingerprint reader, iris scanner and its parts and components to be

exempt from BCD, CVD and SAD.

Excise Duty

● POS card reader, fingerprint reader, iris scanner and its parts and components to be exempt from Excise duty.

Other Proposals

● Provisions of section 115BBDA shall not apply to domestic company and certain funds, trusts, institutions, etc.

● Interest u/s 234C shall not be applicable to dividend income received. ● Conversion of preference shares of the company into equity shares of the same

company shall not be regarded as transfer. Further the cost and the period of holding of the preference shares shall be considered the same for equity shares.

● Maximum cash donation to be received by political party from any one source shall be Rs. 2,000/-.

● Interest on income tax refund shall be granted from the date of claim of refund/order to the date on which refund has been granted @ 0.50% p.m. or part thereof.

● Scope of Income from Other Sources has been widened to include all the persons






other than certain trust or institutions u/s 56(2)(vii) any sum of money or any property which is received without consideration or for inadequate consideration in excess of the specified limit of Rs. 50,000/-.

● Late filing fees for income tax return has been increased to maximum of Rs. 10,000/-. ● Foreign Portfolio Investor (FPI) Category I & II exempted from indirect transfer

provision. ● Indirect transfer provision shall not apply in case of redemption of shares or interests

outside India as a result of or arising out of redemption or sale of investment in India which is chargeable to tax in India.






Tax Rates Individual, H.U.F., A.O.P. or B.O.I. (Individual Taxation):

Individual Resident Senior citizen (60 – 80

years)

Resident Super Senior Citizen (80 years &

above)

New Rate

Old Rate

Up to Rs. 2,50,000

Up to Rs. 3,00,000

Up to Rs. 5,00,000

NIL NIL

Rs. 2,50,001 to Rs. 5,00,000

Rs. 3,00,001 to Rs. 5,00,000

N.A. 5% 10%

Rs. 5,00,001 to Rs. 10,00,000

Rs. 5,00,001 to Rs. 10,00,000

Rs. 5,00,001 to Rs. 10,00,000

20% 20%

Above Rs. 10,00,001

Above Rs. 10,00,001

Above Rs. 10,00,001

30% 30%






Surcharge has been introduced on individuals having a total taxable income exceeding Rs. 50 lakhs upto Rs. 1 Crore at 10%. Surcharge of 15% for individuals having a total taxable income exceeding Rs. 1 Crore continues. Education Cess @ 3% to be charged on income tax and surcharge.

Rebate u/s 87A : It is proposed to reduce the maximum amount of rebate allowable under section 87A from existing Rs. 5000/- to Rs. 2500/- for resident individuals whose total income does not exceed Rs. 3,50,000/-

Partnership Firms, Co-operative Societies & Local Authorities:

The income tax rates for co-operative societies, local authorities and partnership firms continue to be the 30%. The amount of income tax will be increased by surcharge of 12 % where the total income exceeds Rs. 1 crore. Education Cess @ 3% to be charged on income tax and surcharge.

Corporate Taxation:

The taxation rates for companies are as follows:

Domestic Company

Particulars

Turnover < Rs. 50 Crores in F.Y. 2015-16 Turnover > 50 crores in FY 2015-16

Taxable Income < 10 crores but > 1 crore

Taxable Income > 10 crores

Taxable Income < Rs. 5 Crore

Taxable Income > Rs.5 Crores but < Rs. 10 Crore

Taxable Income > Rs. 10 Crore

Tax Rate 25% 25% 29% 30% 30% Surcharge 7% 12% 7% 7% 12%

Tax + Surcharge 26.75% 28.00% 31.03% 32.10% 33.60% Education Cess 3% 3% 3% 3% 3% Effective Tax

Rate 27.55% 28.84% 31.96% 33.06% 34.61%

* For computing tax @ 25% turnover of FY 2015-16 shall be less than 50 crores.

The rates of income tax for a foreign company continue to remain the same for A.Y. 2018-19. The amount of income tax will be increased by surcharge of 2% where the total income






exceeds Rs. 1 Crore but below Rs. 10 Crores and 5% where the total income exceeds Rs. 10 Crores.

MAT

MAT credit can now be carried forward up to 15 assessment years.

Computation of tax deduction for SEZ units

It is proposed to clarify that the amount of deduction referred in section 10AA with respect to profit and gains of Unit operating in SEZ shall be allowed from the total income of the assessee before giving effect to provisions of the section 10AA of the Act.

Tax on dividend income received by AOP, BOI, etc.

It is proposed to expand the scope of Section 115BBDA to include AOP, BOI, Local Authority, Co-operative Societies having dividend income in excess of Rs. 10 Lacs to be charged tax @ 10% on such income.






Start-ups Carry forward and set off of loss in case of start-ups

It is proposed to amend section 79 of the Act to provide that the start-ups are permitted to carry forward and set off losses for 7 years from the date of incorporation even after the introduction of new shareholders.

Extending the period for claiming deduction by start-ups

It is proposed to provide that deduction under section 80-IAC can be claimed by an eligible start-up for any three consecutive assessment years out of seven years beginning from the year in which such eligible start-up is incorporated.






Real estate business, house property, capital gains on immovable property Capital Gains in case of Joint Development Agreement

It is proposed to insert a new sub-section (5A) in section 45 to provide that in case individual or HUF , who enters into a Joint Development Agreement, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority.

For determining the full value of consideration received or accrued, the stamp duty value of his share in such project as increased by any monetary consideration received shall be considered.

It is also proposed to insert a new section 194-IC so as to provide that tax @ 10% is to be deducted on monetary consideration payable under the agreement.

Capital Gains on sale of Immovable Property

It is proposed to amend Section 2(42A) of the Act by reducing the holding period from 36 months to 24 months in the case of immovable property, land or building or both to qualify as a long term capital asset.

Relaxation of tax holiday conditions to promote affordable housing

It is proposed to amend section 80-IBA to include the following: ● Size of Residential Unit to be measured using “Carpet area” as against “built-up area”. ● Restrictions of 30 square meters on the size of residential units not to apply to places

located within 25 kms from the municipal limits of Chennai, Delhi, Kolkata and Mumbai.

● Time Limit for project completion to be extended to 5 years from 3 years.

Shifting base year for computation of capital gains

It is proposed to amend Section 55 of the Act and change the base year of 1981 to 2001 for computing indexed cost of acquisition.

Notional income for house property held as stock in trade after one year of receiving completion certificate

It is proposed to amend Section 23 of the Act to provide that in case of real estate developers, unsold inventory shall be chargeable to notional rent after the end of one year






from the end on the financial year in which certificate of completion of construction of property is obtained.

Restriction on set-off of loss from House property

It is proposed that set-off of loss under the head "Income from house property" against any other head of income shall be restricted to Rs. 2 Lacs for any assessment year under section 71. However, the unabsorbed loss shall be allowed to be carried forward for set-off in 8 subsequent years.






Cash Transactions Restriction on Cash Donations

It has been proposed to amend Section 80G of the Act to reduce deduction available in respect of cash donations, from the existing threshold of Rs. 10,000/- to Rs. 2,000/-

Disallowance of Cash Business Expenditure

It has been proposed to amend the provisions of Section 40A(3) & 40A(3A) of the Act, to provide that any expenditure for a sum exceeding Rs. 10,000/- made in cash shall be disallowed.

Measures for promoting digital payments in case of small unorganized businesses

It is proposed to amend Section 44AD of the Act to reduce the existing rate of presumptive income from 8% to 6% received by non-cash means in case of assessee having turnover less than Rs. 2 Crores.

Restriction on cash transactions

It is proposed to provide that no person shall receive payment or aggregate of payments of an amount of Rs. 3,00,000/- or more from a person in a day or in respect of a single transaction by cash, if received a penalty equal to the amount of receipt shall be levied.

Transparency in Electoral Funding

It is proposed to amend the provisions of section 13A to provide for additional conditions for availing the benefit of the said section which are

(i) No donations of Rs. 2,000/- or more is received by cash.

(ii) Political parties have to furnish return of income in accordance with the provisions of 139(4B) on or before the due date under section 139.

Political parties shall not be required to furnish the name and address of donors who contribute by way of electoral bond.






Scrutiny Assessment, Search & Seizure, Survey Time-limit for completing assessment

It is proposed to substitute the provisions of section 153 with the following changes in time limit from the existing time limits:

Sr. No. Particulars Current A.Y. 18-19 A.Y. 19-20

onwards 1 Scrutiny assessment and

reassessment 21 months 18 months 12 months

2 Reassessments 9 months 12 months 12 months

3 Assessment in pursuance of order of CIT(A) & ITAT

9 months 12 months 12 months

4 Order giving effect 3 months 12 months 12 months

However, in respect of cases pending as on 1st June 2016, the time limit for passing such order is proposed to be extended to 31.12.2017.

These amendments will take effect retrospectively from 1st June, 2016.

It is also proposed to provide that period of limitation for making the assessment or reassessment in case of other person referred to in section 153C, shall be as available in case of person on whom search is conducted or twelve months from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other persons, whichever is later.

Reason to believe to conduct a search, etc. not to be disclosed

A retrospective amendment is proposed to be inserted in the form of an Explanation to section 132 (1) and 132 (1A) of the Act to declare that the 'reason to believe' or 'reason to suspect', as the case may be, shall not be disclosed to any person or any authority or the Appellate Tribunal to conduct a search under section 132 or to make requisition under section 132A.

Power of provisional attachment and to make reference to Valuation Officer to authorized officer

It is proposed to provide for provisional attachment of any property belonging to the assessee during the course of a search or seizure or within a period of 60 days from the






date on which the last of the authorizations for search was executed for protecting the interest of revenue. It has been proposed that such provisional attachment shall cease to have effect after the expiry of six months from the date of order of such attachment.

It is further proposed to provide that in a case of search, for the purpose of estimation of fair market value of a property, the authorized officer may make a reference to a Valuation Officer referred to in section 142A.

Rationalization of the provisions in respect of power to call for information

It is proposed to provide that the power in respect of inquiry or proceeding u/s 133(6) of the Act, may also be exercised by the Joint Director, the Deputy Director and the Assistant Director.

Extension of the power to survey

It is proposed to widen the scope of the survey to include any place, at which an activity for charitable purpose is carried on.

Search and seizure operation extended to 10 years

It is proposed that section 153A relating to search assessments be amended to provide that notice under the said section can be issued for an assessment year or years beyond the sixth assessment year already provided up to the tenth assessment year where tangible evidence(s) are found during a search or seizure operation (including 132A cases) and the same is represented in the form of undisclosed investment in any asset provided:

(i) the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income which has escaped assessment amounts to or is likely to amount to Rs. 50 Lacs or more in one year or in aggregate in the relevant four assessment years (falling beyond the sixth year);

(ii) such income escaping assessment is represented in the form of asset;

(iii) the income escaping assessment or part thereof relates to such year or years.

Provided search under section 132 is initiated or requisition under section 132A is made on or after the 1st day of April, 2017.






Taxation of Non-Residents, Transfer Pricing & International Taxation Taxability of gains on unlisted securities for non-residents

It has been clarified that the transfer of share of company in which public are not substantially interested by a non-resident shall be chargeable to tax at the rate of 10% retrospectively from 1 st April, 2013 and will, accordingly apply to A.Y. 2013-14 and subsequent assessment years.

Clarity on applicability of indirect transfer provisions The indirect transfer provisions are proposed to be amended to clarify that they shall not apply to any asset or capital asset being investment held by non-resident, directly or indirectly, in a Foreign Institutional Investor registered as Category-I or Category II under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992.

The proposed amendment is in the nature of clarification and is applicable retrospectively with effect from assessment year 2012-13.

Concessional tax rate on interest in case of external commercial borrowing and extension of benefit to Rupee Denominated Bonds

It is proposed to amend section 194LC to provide that the sunset date for concessional tax rate of 5% on following interest income be extended till 30th June, 2020:

● Interest payable before 1st July 2020 to FPIs on government securities and qualifying

corporate bonds ● Interest in respect of monies borrowed before 1st July, 2020 in foreign currency or by

the way of rupee denominated (masala) bonds or through long term foreign currency bonds.

Exemption of Income of Foreign Company from sale of leftover stock of crude oil

It is proposed to insert a new clause (48B) in section 10 of the Act so as to provide that any income accruing or arising to a foreign company on account of sale of leftover stock of crude oil from a facility in India to any person resident in India after the expiry of an agreement or an arrangement shall be now exempt subject to conditions as may be notified by the Central Government.






Cost of acquisition in Tax neutral demerger of a foreign company

It is proposed to amend Section 49 of the Act so as to provide that the cost of acquisition of shares of an Indian Company shall be the same in the hands of the resulting Foreign company as it was in the hands of the Demerged Foreign Company in case of transfer of these shares.

Extension of capital gains exemption to Rupee Denominated Bonds Currently, gains arising on account of appreciation of rupee against foreign currency at the time of redemption of Rupee Denominated Bond of an Indian company is to be excluded from full value of consideration only in those instances where the bonds were initially subscribed by the non-resident. It is proposed to extend the benefit even to those non-residents who are not the initial subscribers and have acquired such bonds subsequently.

Further, with a view to facilitate transfer of Rupee Denominated Bonds issued by an Indian company outside India from a non-resident to another non-resident, it is also proposed that such transfer will not be regarded as a taxable transfer.

Claim of credit for foreign tax paid in cases of dispute It is proposed that where the credit for foreign taxes paid is not given for the relevant assessment year on the grounds that the payment of such foreign tax was in dispute, the tax officer shall rectify the assessment order or an intimation, if the taxpayer within six months from the end of the month in which the dispute is settled furnishes the following documents:

● proof of settlement of such dispute; ● evidence that the foreign tax liability has been discharged; and ● an undertaking that credit of such foreign tax paid has not been directly or indirectly

claimed or shall not be claimed for any other assessment year.

Scope of section 92BA of the Income-tax Act relating to Specified Domestic Transactions

It is proposed to amend section 92BA of the Act to exclude expenditure in respect of which payment has been made by the assessee to a person referred in Section 40A(2)(b). It is also proposed to make a consequential amendment in section 40A(2)(b).

Definition of person responsible for paying in case of payments made to non-residents

It is proposed to amend section 195(6) of the Act to provide that in the case of furnishing of information relating to payments to non-residents, not being a company or to a foreign company, of any sum, whether or not chargeable to tax, “person responsible for paying”






shall be the payer himself, or, if the payer is a company, the company itself including the principal officer thereof w.e.f. 1 st April, 2017.

Limitation of Interest deduction in certain cases

It is proposed to insert a new section 94B to provide that interest expenses claimed by an entity to its associated enterprises shall be restricted to 30% of its earnings before interest, taxes, depreciation and amortization (EBITDA) or interest paid or payable to associated enterprise, whichever is less.

The provisions shall allow for carry forward of disallowed interest expense to eight assessment years and deduction against the income computed under the head "Profits and gains of business or profession” to the extent of maximum allowable interest expenditure.

The provision shall be applicable only when the interest expense exceeds Rs. 1 Crore.

Amendments to the structure of AAR

With a view to promote ease of doing business, it is proposed to merge the AAR for income-tax, central excise, customs duty and service tax. It is further proposed that

● a former Chief Justice of a High Court, or a person who has been a High Court Judge for at least seven years shall also be eligible to be Chairman of the AAR;

● if the Chairman is unable to discharge his functions owing to absence, illness or any other reason, or in the event that the office of the Chairman falls vacant, the senior-most Vice-chairman shall discharge the functions of the Chairman until the new Chairman enters upon his office or until the incumbent Chairman resumes his duties.

This amendment is proposed with retrospective effect from 1 April 2017.






Procedural: Return Filing, TDS, TCS, Refund

Relaxation in payment of advance tax for certain professionals

It is proposed to make amendments in Section 234C(1) to provide that in respect of an assessee as per Section 44ADA, interest under the said section shall be levied, if the advance tax paid on or before the 15th March is less than the tax due on the returned income.

It is also proposed to provide that the shortfall in advance tax paid arising out of income referred to in Section 115BBDA, the interest under Section 234C shall not be levied. TDS on rent payments made by Individuals & HUF It is proposed to insert a new Section 194IB to provide for deduction of TDS on payment of rent by Individuals and H.U.F. who are not liable to tax audit u/s 44AB of the Income Tax Act, 1961. The TDS @ 5% is to be deducted on rent payments exceeding Rs. 50,000/- per month. The deductor is not required to obtain TAN.

This amendment is applicable with effect from 1 st June, 2017.

Enabling of Filing of Form 15G/15H for insurance commission payments

It is proposed to amend the provisions of section 194D by making the recipients of insurance commission eligible for filing self-declaration in Form 15G/15H for non-deduction of tax at source.

This amendment will take effect from 1st June, 2017.

Reduction in TDS in the case of Fees for professional or technical services under section 194J

It is proposed to amend section 194J of the Act to reduce the rate of TDS from 10% to 2% on any sum paid by way of professional or technical fees, being a person engaged in the business of operation of call center.

This amendment will take effect from 1 st June, 2017.

Disallowance for non-deduction of tax from payment to resident in case of income from other sources.

It is proposed to amend the section 58 so as to provide that provisions of section 40(a)(ia) of 30% disallowance of payments made to residents without deduction of tax shall apply in computing income chargeable under the head "income from other sources"






Exemption from tax collection at source under sub-section (1F) of section 206C in case of certain specified buyers

It is proposed to amend Section 206C of the Act to exempt a class of buyers from paying tax collected at source in respect sale of motor vehicle exceeding rupees ten lakhs. The class of buyers to be exempted are Central Government, State Government, Embassy, High Commission, legation, Commission, Consulate, Trade Representation of a Foreign State, Local Authority, Public Sector Company which is engaged in the business of carrying passengers.

Strengthening of PAN quoting mechanism in the TCS regime

It is proposed to insert new section 206CC to provide any person paying any sum or amount, on which tax is collectible at source shall furnish his PAN to the person responsible for collecting such tax failing which tax shall be collected at the twice the rate mentioned in the relevant section or 5% whichever is higher.

Fee for delayed filing of return

It is proposed to insert a new section 234F in the Act to provide that a fee for delay in furnishing of return u/s 139(1).

The proposed fee structure is as follows: (i) a fee of Rs. 5,000/- shall be payable, if the return is furnished after the due date but on

or before the 31st day of December of the assessment year; (ii) a fee of Rs. 10,000/- shall be payable in any other case.

However, where the total income does not exceed Rs. 5,00,000, it is proposed that the fee amount shall not exceed Rs. 1,000/-.

These amendments will take effect from 1st April, 2018.

Mandatory of processing of return

It is proposed to cease the section 143(1D) of the Act. Hence, now processing of return of return under section 143(1) shall be mandatory even for the cases selected under scrutiny from AY 2017-18 onwards.






Corporate Restructuring Tax neutral conversion of Preference Shares to Equity Shares

It is proposed to amend section 47 to provide that the conversion of preference share of a company into its equity share shall not be regarded as transfer.

Withdrawal of exemption of long term capital gains tax

It is proposed to amend section 10(38) to provide that exemption under this section for income arising on transfer of long term equity shares acquired or on after 1st day of October, 2004 shall be available only if at the time of acquisition of share it was chargeable to Securities Transactions Tax under Chapter VII of the Finance (No 2) Act, 2004. However, the provisions shall not apply in cases where shares have been allotted in IPO, FPO, bonus or rights issue by a listed company.

Period of holding and cost for units in a mutual fund scheme to be deemed that of for consolidated mutual fund schemes. It is proposed, for the purpose of computing capital gains, period of holding as well as the cost of acquisition in respect of unit or units received on account of the consolidation of mutual fund schemes, there shall be included the period for which the units of consolidating mutual fund schemes were held by assesse. Thus, the cost of acquisition in the consolidating mutual fund schemes shall be deemed to be the cost of acquisition for consolidated mutual fund schemes.

Fair Market Value to be full value of consideration on transfer of unquoted shares

It is proposed to insert a new section 50CA for computing income under the head "Capital gains" arised on transfer of unquoted share of a company. Hence, it is proposed that the Fair Market Value (FMV) shall be deemed to be the full value of consideration where the consideration received is less than FMV.






Other Points Deduction under section National Pension Scheme (NPS)

It is proposed to amend section 80CCD so as to increase the upper limit of ten per cent of gross total income to twenty per cent in case of individual other than employee.

Tax-exemption to partial withdrawal from National Pension System (NPS)

It is proposed to amend the section 10 so as to provide exemption to partial withdrawal not exceeding 25% of the contribution made by an employee.

Interest on refund due to deductor

It is proposed to insert a new subsection (1B) in Section 244A to provide, in addition to the refund amount due to the deductor, he shall receive simple interest at 0.50% per month or part of the month from the date on which claim for refund is made in the prescribed form or in case of an order passed in appeal, from the date on which the tax is paid, to the date on which refund is granted.

This amendment will take effect from 1 st April, 2017.

Penalty on professionals for furnishing incorrect information in statutory report or certificate

It is proposed to insert a new section 271J so as to provide that if an accountant or a merchant banker or a registered valuer, furnishes incorrect information in a report or certificate under any provisions of the Act or the rules made thereunder, the Assessing Officer or the Commissioner (Appeals) may direct him to pay a sum of Rs. 10,000/- for each such report or certificate by way of penalty.

Threshold limit for maintenance of books of accounts enhanced

It is proposed to amend Section 44AA of the Act, to increase the monetary limits from income of Rs. 1,20,000/- to Rs. 2,50,000/- or turnover from Rs. 10,00,000/- to Rs. 25,00,000/- in case of Individuals and HUFs carrying on business or profession.

Enhancement in threshold limit for tax audit for person opting presumptive income

It is proposed to amend the Section 44AB to increase the threshold limit for audit of business entities who opt for presumptive income from Rs. 1 Crore to Rs. 2 Crores.

This amendment will take effect from 1 st April, 2017.






Increase in deduction limit in respect of provision for bad and doubtful debts for banks

It is proposed to amend the sub-clause (a) of section 36(1) (viia) of the Act in relation to deduction of provision of bad & doubtful debts by enhancing the present limit of 7.50% to 8.50% of the amount of the total income (before this deduction & Chp VI-A). However, other conditions remain unchanged.

Income from Transfer of Carbon Credits

It is proposed to insert a new section 115BBG to provide that if the total income of the assessee includes income from transfer of carbon credits, such income shall be taxable at the concessional rate of 10% on the gross amount of such income. No expenditure shall be allowed.

Tax on receipt of sum of money or property without consideration or for inadequate consideration

It is proposed to insert a new clause (x) in sub-section (2) of section 56 so as to provide that receipt of the sum of money or the property by any person without consideration or for inadequate consideration in excess of Rs. 50,000 shall be chargeable to tax in the hands of the recipient under the head "Income from other sources". However, in this regard, certain exceptions have also been specifically provided.






Indirect Tax Proposals

Service Tax

Manufacturing services now under mega exemption list.

Clause stating “Services by way of carrying out any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption “ along with definition of “process amounting to manufacture” is proposed to be omitted from the negative list (sec. 65B clause 40) and added to the mega exemption list (notification no. 25/2012).






New Exemptions.

Life insurance services provided or agreed to be provided by army, navy and air force group insurance funds to members of army, navy, air force under group insurance schemes of central government for the period 10/09/2004 to 01/02/2016 shall be exempt from service tax.

No service tax shall be leviable on industrial plots granted on long term lease which is of 30 years or more by State Government industrial development corporation to industrial units from 01/06/2007 to 21/09/2016.

In the above cases refund of service tax collected shall be made. Application for which shall be made within 6 months from the date on which the finance bill becomes the finance act.

Amendment to Rule 2 A (Determination of Value) Rules, 2006.

In case of works contract which involves transfer of goods and land or undivided share of land, the value of service portion shall not include value of property in such land or undivided portion of land.

Other legislative changes.

S. No. 9B of notification no. 25/2012 is amended to remove the word ‘residential’.

Under the Regional Connectivity Scheme (RCS), service tax exemption is provided for the amount of Viability Gap Funding (VGF) payable to the selected airline operator for transport services of passengers, with or without belongings embarking from Regional Connectivity Scheme (RCS) airport, for a period of one year from commencement of operations of RCS airport.

No need to reverse common input credit by banks.

Banks and financial institutions including NBFC’s providing services by way of extending deposits, loans or advances shall not reverse the common input tax credit claimed in providing exempted and taxable services.

Customs

Principal of unjust enrichment:

Refund of excess duty paid by the importer before obtaining clearance order for home consumption where such excess payment is evident from bill of entry and where the duty actually payable is reflected in the reassessed bill, shall be outside the purview of unjust enrichment.






Documents to be submitted by the person in charge at the time of import:

Where a person in charge of conveyance or any other person as notified enters India shall deliver to the proper officer the following:

The passenger and crew arrival manifest;

Passenger name record information of arriving passengers in the prescribed form, manner and time.

Where not provided shall be liable to penalty not exceeding Rs. 50,000/-.

Documents to be submitted by the person in charge at the time of export:

Where a person in charge of conveyance or any other person as notified at the time of departure shall deliver to the proper officer the following:

The passenger and crew arrival manifest;

Passenger name record information of arriving passengers in the prescribed form, manner and time.

Where not provided shall be liable to penalty not exceeding Rs. 50,000/-.

Time limit for submission of Bill of entry:

It is now mandatory to file bill of entry before the end of the next day (excl. holidays) following the day on which vehicle/vessel/aircraft arrived at the customs station. Charges may be levied for late presentation.

It can also be filed within 30 days of the expected arrival.

Payment of Custom Duty:

Payment of custom duty shall be made as follows:

In case of self assessment: on the date of presentation of BOE

In case of assessment, reassessment or provisional assessment: within one day from the date on which BOE is returned.

In case of deferred payment: from such due date as may be specified.

Where one fails to do so interest shall be levied at the rates: > 10% and < 36% as may be specified.






Amendments to Customs Tariff Act Amendments affecting BCD

Commodity Rate of Duty

From To Cashewnut, roasted, salted or roasted and salted 30% 45%

RO membrane element for household type filters 7.50% 10%

Amendments affecting export duty


From To Other aluminium ores and concentrates 0% 30%






Other Proposals involving changes in BCD, CVD, SAD, and Export Duty Rates

Commodity BCD

From To Other aluminium ores including laterite ED- 0% ED- 15%

Liquefied Natural Gas 5% 2.50% o-Xylene 2.50% 0%

Medium Quality and Qualified Terephthalic Acid 7.50% 5%

2-Ethyl Anthraquinone 7.50% 2.50% Clay 2 Powder (Alumax) 7.50% 5% Vinyl Polyethylene Glycol 10% 7.50% Nylon mono filament yam 7.50% 5%

Wattle extract and Myrobalan fruit extract 7.50% 2.50%

Co-polymer coated MS tapes/stainless steel tapes 0% 10%

Nickel 2.50% 0% MgO coated cold rolled steel coils 10% 5%

Hot rolled coils 12.50% 10% Solar tempered glass 5% 0% Ball screws and linear motion guides 7.50% 2.50% CNC systems 10% 2.50% Resin and catalyst 7.50% 5% Machinery items for fuel cell based power generating systems 10%/7.5% 5%

All items of machinery required for balance of systems operating on biogas/ bio-methane/by-product hydrogen

10%/7.5% 5%

Parts of mfg. of LED lights or fixtures incl. lamps Applicable BCD 5% inputs to mfg. LED driver and MCPCB for LED lights incl. lamps Applicable BCD 5%

Miniaturized POS card reader for m-POS Applicable BCD 0% Parts and components for manufacture of miniaturized POS card reader for m-POS Applicable BCD 0%






Commodity CVD & SAD

From To Parts of raw material for solar tempered glass CVD 12.5% CVD 6%

Resin and catalyst CVD 12.5% SAD 4%

CVD 0% SAD 0%

Machinery items for fuel cell based power generating systems CVD 12.5% CVD 6%


CVD 12.5% CVD 6%

Membrane Sheet and Tricot CVD 12.5% CVD 6% Parts of mfg. of LED lights or fixtures incl. lamps Applicable CVD CVD 6%

Miniaturized POS card reader for m-POS Applicable CVD, SAD

CVD 0% SAD 0%

Parts and components for manufacture of miniaturized POS card reader for m-POS

Applicable CVD, SAD

CVD 0% SAD 0%

Silver medallion, silver coins, content of silver not below 99.9%, semi- manufactured silver articles CVD 0% CVD 12.5%

Others

Commodity Rate

From To Limit of duty free import of eligible items for manufacture of leather footwear or synthetic footwear or other leather products

3% of FOB value of goods exported

5% of FOB value of goods exported

De-minimis customs duties exemption limit for goods imported through parcels, packets and letters

Duty payable not exceeding Rs.100 per

consignment

Duty payable not exceeding Rs.1000 per

consignment

Excise Rectification of error by settlement commission:

The settlement commission can amend the order passed by it, in order to rectify any error apparent on face of record.

Time Limit for remission of duty:

Time limit of 3 months which is further extendable by 6 months granted for remission of duty.






Amendment to Cenvat Credit Rules, 2004:

Time limit of 3 months provided for approval of request regarding transfer of Cenvat credit on shifting, sale, merger, etc. of the factory.

Excise Rate on motor vehicles for transport of more than 13 persons falling under specified items of First schedule shall be 12.50%.

Changes in rates


From To

Cigar and cheroots 12.5% or Rs. 3,755 per thousand, whichever

is higher

12.5% or Rs. 4,006 per thousand, whichever

is higher

Cigarillos 12.5% or Rs. 3,755 per thousand, whichever

is higher


is higher

Cigarettes of tobacco substitutes Rs. 3,755 per thousand

Rs. 4,006 per thousand

Cigarillos of tobacco substitutes 12.5% or Rs. 3,755 per thousand, whichever

is higher


is higher

Others of tobacco substitutes 12.5% or Rs. 3,755 per thousand, whichever

is higher


is higher







From To Panmasala 6% 9% Unmanufactured tobacco 4.20% 8.30% Paper rolled biris – handmade Rs.21 per thousand Rs.28 per thousand Paper rolled biris – machine made Rs.21 per thousand Rs.78 per thousand Solar tempered glass 0% 6% Parts/raw materials for mfg. of tempered glass 12.50% 6%

Resin and catalyst 12.50% 0% Machinery items for fuel cell based power generating systems 12.50% 6%


12.50% 6%

Membrane Sheet and Tricot 12.50% 6% Parts of mfg. of LED lights or fixtures incl. lamps Applicable Duty 6%

Miniaturized POS card reader for m-POS Applicable Duty 0% Parts and components for manufacture of miniaturized POS card reader for m-POS

Applicable Duty 0%

Waste and scrap of precious metals or metals clad with precious metals arising in course of manufacture of goods falling in Chapter 71. Strips, wires, sheets, plates and foils of silver Articles of silver jewellery, other than those studded with diamond, ruby, emerald or sapphire Silver coin of purity 99.9% and above, bearing a brand name when manufactured from silver on which appropriate duty of customs or excise has been paid

0% 0%, if no cenvat credit is claimed







From To Non-filter Cigarettes of length not exceeding 65mm Rs. 215 per thousand Rs. 311 per thousand

Non-filter Cigarettes of length exceeding 65mm but not exceeding 70mm

Rs.370 per thousand Rs. 541 per thousand

Filter Cigarettes of length not exceeding 65mm Rs. 215 per thousand Rs. 311 per thousand

Filter Cigarettes of length exceeding 65mm but not exceeding 70mm Rs. 260 per thousand Rs. 386 per thousand

Filter Cigarettes of length exceeding 70mm but not exceeding 75mm Rs.370 per thousand Rs. 541 per thousand

Other Cigarettes Rs.560 per thousand Rs. 811 per thousand Chewing tobacco (including filter khaini) 10% 12%

Jarda scented tobacco 10% 12% Pan Masala containing Tobacco (Gutkha) 10% 12%






Kunal Gandhi - Partner Add: 215, Sundervilla, S.V.Road, Santacruz (W), Mumbai-400054, India Mobile: +91 9821458072 Tel: +91 2226601159/2259 Fax: +91 2226600059 Mail: [email protected] Website: usgandhigroup.com









Union Budget Analysis 2017-18 | U.S.Gandhi & Co

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Transcript of Union Budget Analysis 2017-18 | U.S.Gandhi & Co