Union Budget 2018 Analysis

Posted on : Wednesday, February 01, 2018

Here is the List of Major Changes in Income Tax Laws as per Union Budget 2018, that will affect every Taxpayer.

1. Income Tax Slab Rates

No changes have been made to Income Tax Slab Rates and will continue to be same as in Financial Year 2017-18. Education Cess and SHEC has been revised to 4% by the new name Health and Education Cess. Refer tax slab in Mytaxcafe Income Tax Slab 2018-19.

2. EDUCATION CESS AND SHEC:

Education cess and SHEC has been renamed as Health and Education Cess and the rate of same has been increased from 3% to 4% .

3. HIGHER TAKE-HOME WAGES FOR SALARIED PERSONS:

1. Standard deduction of Rs. 40000/- :
   Budget 2018 declares Standard Deduction of Rs. 40000/- on salary income but exemption in case of transport allowances and reimbursement of miscellaneous medical expenses have been withdrawn. However, the transport allowance at enhanced rate shall continue to be available to differentlyabled persons. Also other medical reimbursement benefits in case of hospitalization etc., for all employees shall continue. Although the government has announced higher standard deduction for salaried class but it has withdrawn two major benefits i.e. transport allowance of Rs. 19200 p.a. and medical perquisites of Rs. 15000 p.a. summing upto Rs. 34200 leaving a nominal benefit of Rs. 5800.
2. Women contribution in provident fund reduced to 8% :
   To incentivize employment of more women in the formal sector and to enable higher take-home wages, government has reduced women employees' contribution in provident fund to 8% for first three years of their employment against existing rate of 12% or 10% with no change in employers' contribution. Employees Provident Fund and Miscellaneous Provisions Act, 1952. Thus it will allow women employees to enjoy higher take-home wages.

4. RELIEF TO SENIOR CITIZENS::

Government has given bumper benefits to senior as well as very senior citizens, that are enlisted below:-

1. Interest income on deposits with banks and post offices as well as on all the fixed deposits schemes and recurring deposit schemes have been exempt from income tax to the tune of Rs.50,000/-. Earlier this limit was only upto Rs.10,000/- .
2. TDS shall not be required to be deducted on such income, under section 194A upto amount of Rs.50000/-.
3. Deduction limit u/s 80D has been increased from Rs.30,000/- to Rs. 50,000/- in respect of health insurance premium and/ or medical expenditure .
4. Deduction limit u/s 80DDB in respect of medical expenditure in case of certain critical illness has been raised to Rs. 1,00,000/- for both senior as well as very senior citizens.

5. PRESUMPTIVE INCOME U/S 44AE:

1. It is proposed in the Budget to provide that in respect of heavy goods vehicles (more than 12 tonnes), the presumptive income under section 44AE of the Act shall be computed at the rate of `1000 per tonne per month or part of the month. The assessee may declare a higher amount than that specified above.

6. INCENTIVE FOR PROPERTY SELLERS:

No adjustments shall be made In respect of transactions in immovable property where the circle rate value does not exceed 5% of the consideration on such transaction. Let us understand its merit with an instance. As earlier the actual value of property sold was Rs. 5,20,000 and its circle rate was Rs. 5,40,000 then the tax was levied on increased circle rate i.e on Rs. 5,40,000. Taking the same case for the financial year 2018-2019 the tax will be levied on Rs. 5,20,000 as the difference between the actual sale value and circle rate is less than 5%. Where such difference exceeds 5% of the consideration then higher of the circle rate or sale consideration will be taken for levying the tax on property sold. Let us understand this by citing another example. In the second case let us take actual value of property sold to be for Rs. 5,20,000/- and its circle rate Rs. 5,50,000/- then tax will be charged on Rs. 5,50,000/- as now the difference exceeds 5% of the consideration.

7. LONG TERM CAPITAL GAINS ON SALE OF SHARES AND MUTUAL FUNDS:

The return on investment in equity share in a company or a unit of an equity oriented fund or a unit of a business trust shall be chargeable to tax at the rate of 10% in case such long term capital gain exceeds Rs.1 lakh without indexation.

METHOD TO CALCULATE LONG TERM CAPITAL GAIN:-

1. Determine whether the shares are transferred before or after 31st Jan, 2018.
2. In case such shares are transferred after 31st Jan, 2018 then long term capital gain is calculated as per the existing method.
3. In case such shares are transferred before 31st Jan, 2018 then following method is adopted:
   1. the actual cost of acquisition of such asset; and
   2. the lower of-
      1. the fair market value of such asset; and
      2. the full of consideration received or accruing as a result of transfer of capital asset.
4. Cost of acquisition shall not be indexed.
5. Difference between the amount as in A and B above shall be Long Term Capital Gain.

Fair market value has been defined to mean-

1. In a case where the capital asset is listed on any recognized stock exchange ,the highest price of the capital asset quoted such exchange on the 31st day of January ,2018. However,where there is no trading in such asset on such exchange on the 31st day of January,2018, the highest price of such asset on such exchange on a date immediately preceding the 31st day of January ,2018 when such asset was traded on such exchange shall be the fair market value; and
2. In a case where the capital asset is a unit and is not listed on recognized stock exchange, the net asset value of such asset as on the 31st day of January , 2018.

8. ENHANCEMENT IN LOCK-IN PERIOD TO 5 YEARS IN CASE OF 54EC CAPITAL BONDS:

Finance Minister has proposed to increase the lock-in period of the bonds to 5 years for availing exemption u/s 54EC, issued on or after 1st day of April, 2018 by the National Highways Authority of India or by the Rural Electrification Corporation Limited or any other bond notified by the Central Government in this behalf provided the investment in capital gain bonds shall be available only in respect of long-term capital gains arising out of sale of immoveable property within a period of six months after the date of such transfer. Earlier this lock-in period was upto 3 years.

9. DEDUCTIONS :

1. Taxation on Withdrawal from National Pension Scheme Trust:
   In the case of National Pension Scheme withdrawals up to 60% shall be liable to tax and only 40% of the corpus at the time of retirement shall be exempt. This scheme is now applicable to all the subscribers rather than just to employees.
2. Health Insurance premiums – Section 80D:
   In a case where premium for health insurance for multiple years has been paid in one year, the deduction shall be allowed proportionately over the years for which the benefit of health insurance is available.
3. Avail deduction under Chapter VIA-C:
   It is proposed to mandate that in order to avail benefit of any deduction under ‘Chapter VIA-C- Deduction in respect of certain incomes’, the persons have to file return within due date specified under section 139(1) of the Act i.e. return has to be filled within due date to avail the exemption. Noteably, the sections that fall under this ambit are 80IA, 80IAB, 80IAC, 80IB, 80IBA, 80IC, 80ID, 80IE, 80JJA, 80JJAA, 80LA, 80P, 80QQB and 80RRB.
4. Period extended for start-ups:
   Government has proposed to extend the incorporation date for a start-up for availing benefit in the form of deduction of an amount equal to 100%, of the profits and gains derived from business for three consecutive assessment year under section 80-IAC of the Act to 31st March, 2021 from 31st March, 2019. The definition of ‘eligible business’ for a start-up is proposed to be aligned with the modified definition notified by DIPP.

10. COMPULSORY ALLOTMENT OF PAN:

It is has been made compulsory for every entity not being individuals, which enters into any financial transaction of an amount aggregating to Rs.2.50 Lakh or more in a financial year shall be required to apply for a permanent account number (PAN). It is also proposed that directors, partners, principal officers, office bearer or any person competent to act on behalf of such entities shall also apply for PAN.

11. ENTERPRISE ID:

The Government will evolve a Scheme to assign every individual enterprise, major or small, in India a unique ID.

12. BUMPER BENEFIT TO CO-OPERATIVE SOCIETIES:

100% deduction is allowed to co-operative societies registered as Farmer Producer Companies and having annual turnover upto Rs. 100 Crores in respect of their profits derived from such activities for a period of 5 years from F.Y. 2018-2019.

13. REDUCED TAX RATES FOR COMPANIES:

1. Corporate Tax Rate Reduced To 25% :
   Government has announced that to extend the benefit of corporate tax rates of 25% to companies who have reported turnover up to Rs. 250 crore in the financial year 2016-17, the existing turnover is only upto Rs. 50 crore.
2. Special Rates In Respect Of Specified Income:
   It is proposed to provide that the concessional tax rate of 25% for new domestic companies engaged in manufacturing shall be subject to the special rates in respect of specified income provided under Chapter XII of the Act.

14. TRUSTS AND INSTITUTIONS:

1. Disallowance Of Expenditure Exceeding Rs. 10000/-, if incurred cash:
   In order to promote cashless economy the Union Budget lays down that there would be no restriction on these entities for incurring expenditure in cash but payments exceeding Rs.10,000/- in cash made by such entities shall be disallowed and the same shall be subject to tax in case of audit trail.
2. Enhancing TDS Compliance:
   Further, in order to improve TDS compliance by these entities, government provides that in case of non- deduction of tax, 30% of the amount shall be disallowed and the same shall be taxed.

15. INCENTIVE TO TRADE IN AGRICULTURAL COMMODITY DERIVATIVES:

The Government has provided that trading in agricultural commodity derivatives on a recognized stock exchange shall not be treated as a speculative transaction even if no Commodities Transaction Tax (CTT) has been paid in respect of those derivative transactions.

16. GENERAL:

1. PROMOTING TRADE ACROSS INTERNATIONAL BORDERS:
   In order to promote trade across international borders in securities in IFSC, the government proposes to exempt transfer of derivatives and certain securities by non-resident from capital gain tax. Further, non-corporate taxpayers operating in IFSC shall be charged Alternate Minimum Tax (AMT) at concessional rate of 9% at par with Minimum Alternate Tax (MAT) applicable for corporates.
2. Amount of penalty multiplied on failure to furnish an annual information return:
   Penalty for failure to furnish an annual information return u/s 285A(1) within time period specified u/s 285B(2)or within the period specified in the notice issued u/s 285B(5) propose to enhance from Rs. 100/- to Rs. 500/- and from Rs. 500/- to Rs. 1000/- respectively.

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