INDIA BUDGET 2018-19

Economic Indicators

The figures for FY18 show that the Indian economy faced a temporary slowdown on the back of reform measures such as GST and demonetisation. While the economy continues to be the seventh largest in the world (third largest in PPP terms), the growth rates are at a four-year low. Both IMF and World Bank estimate that India’s economy will grow by 6.7% in FY 2017-18. Advance estimates by CSO suggest that the economy will grow by 6.5% in this fiscal year.

Subdued domestic demand, especially in the first half of the year, remained the major concern for the economy. The GDP at market prices in Q1 FY 2017-18 was recorded at 5.72%, which was the lowest in 12 quarters. Partially, this was due to sluggish performance by the industry segment. Apart from this, growth in Government expenditure, which was the key driver in the previous year, also fell in this year. In the first half of 2017-18, the Government Final Consumption Expenditure grew by 10.7% as opposed to 16.5% in the same period of the previous year.

However, notably, India is still one of the best performing economies in the world, despite this temporary blip. GDP growth has averaged 7.3% for the period from 2014-15 to 2017-18, which is the highest among the major economies of the world. The growth is around 4% higher than world average of last 3 years and nearly 3% more than the average growth achieved by EMDEs.

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The economy has shown signs of recovery in the second half of the year. Industrial production for instance has picked up after bottoming out in June 2017. In November, IIP growth surged to a 25-month high on the back of a manufacturing boost. Similarly, other metrics such as vehicle sales, cement production and bank credit present an optimistic scenario for the economy.

Broad Economic Indicators
GDP growth	The GDP is expected to grow at 6.5% this fiscal (2017-18), according to the first advance estimates of the CSO as against 7.1% in the previous year. This is primarily due to a lower growth in agriculture (2.1% v. 4.9% in 2016-17) and industry (4.4% v. 5.6% in 2016-17). Services, on the other hand, are expected to grow faster in this fiscal year (8.3% from 7.8% in 2016-17).
Inflation	Retail inflation fell sharply in the first half of the year, declining to a five-year low of 1.6% in June 2017. This was partly due to a fall in global crude prices, food prices and because of lower domestic demand. Post June 2017, there was a continuous rise in inflation, rising up to 5.21%. However, the average for the year to date (April to December) stood at 3.23%, which was lower than 5.47% during the same period in previous year.
Fiscal deficit	Fiscal deficit as percentage of GDP for FY 2017-18 is revised to 3.5% from 3.2% budgeted. Further, the Government aims to bring down fiscal deficit to 3.3% of GDP in FY 2018-19. This is on account of rising revenue deficit to 2.6%
CPI and IIP	The CPI inflation has been volatile throughout FY 2017 with the average rate of ~3.4 per cent (until November 2017). The CPI based inflation declined to 3.3 per cent in FY 2018 (April-December) from 4.8 per
Trade deficit	India’s trade deficit increased by 33% during April to November 2017, when it stood at $102.1 billion, as opposed to USD67.8 billion in the corresponding period of the previous year. This was primarily due to a 22% increase in imports as against only 11% increase in exports. Both oil and non-oil imports grew in roughly the same proportion.
Currency	The rupee appreciated by 4.14%, as it stood at an average of 64.4 per USD during April 2017 to January 2018 against an average of 67.19 per USD during the same period in the previous year.
Industry & Manufacturing	The Industrial sector grew at 5.8 per cent in 2Q of FY 2018 compared to 1.6 per cent in 1Q of FY 2018. This was on account of a healthy growth of 7 per cent in the Manufacturing sector in 2Q of FY 2018. The Service sector is expected to grow at 8.3 per cent in FY 2018 as compared to the growth rate of 7.7 per cent in FY 2017.
Indian trade	India’s merchandise exports have been on a positive trajectory from August 2016 to December 2017, except for a decline of 1.1 per cent in the month of October 2017. During April- December 2017, the exports growth rate stood at 12.1 per cent, propelled by increased exports of engineering goods and petroleum products

·         Moody’s Investors Service upgraded India’s sovereign rating from Baa3 to Baa2, and changed the outlook from stable to positive thus endorsing the Government’s reform policy. India achieved a record production of food grains, estimated at 27.57 crore tonne. The agricultural sector grew at a healthy rate of 4.9 per cent in FY 2017 due to a favourable monsoon season.

·         Foreign investments: India has emerged as a favourable market for FIIs owing to interest differential, stronger economic growth amongst other emerging nations, better government policies and opening of capital markets. In 2017, India received USD30.8 billion in FII flows compared to USD3.2 billion in 2016. Nearly three-fourth of the total FIIs were invested in the debt market due to a favourable interest rate differential in India vis-à-vis developed nations.

o   Further, RBI’s decision to make an upward revision in FPIs’ holding limit in government securities also aided the capital flow into the debt market. The equity market also received inflows of over USD7.8 billion in 2017 fuelled by the Government’s push to drive economic reforms along with positive investor sentiment. Aided by significant institutional investments, the Sensex gained over 27 per cent in 2017.

·         During the year, India’s imports outpaced exports, owing to the increased inbound shipments of gold and other precious stones along with increased crude oil prices. In April- December 2017, imports grew at a YoY rate of 21.8 per cent. As a result, India’s trade deficit widened to USD74.5 billion in 1H of FY 2018 as against USD43.4 billion in 1H of FY 2017

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         The Government revised its fiscal deficit target for FY 2018, on account of volatility in tax revenues post GST implementation. The Government expects only 11 months worth of GST revenues to accrue in its account during FY 2018.

Fiscal consolidation

Continuing on fiscal consolidation path, the Government had set the fiscal deficit target of 3.2% for FY 2017-18 down from 3.5% in FY 2016-17. This was aimed to be achieved despite uncertainties arising out of implementation of GST, demonetisation and rising crude oil prices.

There was a slippage in fiscal deficit target by 0.3% in FY 2017-18 as the fiscal deficit was revised to 3.5% of GDP for FY 2017-18. Similarly, revenue deficit is revised upward to 2.6% in FY 2017-18 from budget target of 1.9% of GDP.

One of the reason is the shortfall in non-tax revenue collection and rise in expenditure in this financial year. The non-tax revenue collection during April-November 2017 declined by 39% to INR 1.05 trillion over non-tax revenue collection of INR 1.75 trillion in the corresponding period of the previous year. Total expenditure in the year 2017-18 has increased by 3% over budget estimate.

Further, fiscal deficit is pegged at 3.3% for FY 2018-19. This looks achievable, given the upward trajectory in growth, buoyant direct taxes and stabilisation in the GST.

The Government has proposed to accept the recommendations of the Fiscal Reform and Budget Management Committee relating to adopting debt rule and to bring down the centre’s debt-to-GDP ratio to 40%. Currently, the debt-to-GDP ratio for the centre alone is approximately 48%. An announcement with regard to timelines of achieving this target may be done in future. Further, the Government has also accepted the recommendation to use the fiscal deficit target as the key operational parameter.

Impact of demonetisation

The Government withdrew the status of legal tender of INR 500 and 1000 currency notes on 8 November, 2016, thereby, withdrawing 86% of the currency in circulation. There are various opinions on the probable impacts of demonetisation on the economy, both on its short-term and long-term impacts. Economic survey suggests that the negative impact of demonetisation has receded as the cash-to-GDP ratio has stabilised and has forecasted growth to be between 7% and 7.5% in FY 2018-19. Some of the impacts can be noted as follows:

·         The withdrawal of high value currency notes led to a liquidity shock, thereby, affected demand and production, especially in informal cash driven sectors. This might have contributed to the slow growth rate realised in first half of FY18.

·         Economic Survey 2017-18 finds demonetisation-cum-GST has increased tax base by 1.8 million additional taxpayers, though these new filers did not contribute any taxes as they were close to thresholds of o.25 million. However, in the long run, with income growth, this may increase revenue of the Government.

·         Demonetisation, along with various measures taken by Government to promote digital payment, boosted transactions through systems such as NEFT, debit and credit cards, cheques, prepaid wallets, UPI and mobile banking, etc. As per the RBI’s Annual Report, in the month of December 2016, transactions of 957 million were made, as compared to 671 million in the preceding month, but the volume has since come down to 862 million

Budget Financials and Outlook

Outlook

·         For the current fiscal year (2017-18), the CSO estimates the GDP to grow by 6.5%. The estimates by the Economic Survey on the other hand as well as by multilateral agencies such as the IMF and World Bank suggest that growth may be somewhere in the range of 6.7-6.75%.

·         The growth is expected to further increase in the next fiscal year, with the Economic Survey forecasting a growth rate in the range of 7-7.5%. This is in line with the predictions by IMF (7.4%) and World Bank (7.3%). These figures would mean that India would overtake China as the fastest growing major economy in the world.

·         The growth projections seem achievable given the recent signs of revival in investment activity as well as a spike in bank credit. More importantly, the Government’s intention to go ahead with gritty reforms may boost growth rates. Bank recapitalisation and implementation of the IBC 2016 is likely to boost credit growth and investments. The smoothening of the GST processes along with further liberalisation of FDI will also help in spurring growth.

·         A spike in oil prices in the next fiscal year could pose as a downside risk for the economy. Oil prices have risen by around 14% in the current fiscal and are projected to further rise by roughly 12% in 2018-19 (IMF). As per the CEA, GDP may be impacted by 0.2-0.3%, inflation will be higher by 0.2-0.3% and current account deficit will widen if oil prices were to rise by USD 10 per barrel.

·         From a macro perspective, India will need to deal with two vulnerabilities: fiscal and current accounts. Both of these tend to deteriorate when oil prices pick up rapidly. On the fiscal front, the increased tax base post demonetisation and GST should result in a more comfortable position in the medium term. As far as the current account is concerned, raising the growth trajectory of exports will be crucial in order to avoid further deterioration. The economic survey highlights that reviving manufacturing and making the sector internationally competitive have been the twin goals of the Make in India program. Hence, this shift in policy is expected to boost exports and reduce the deficit in the current account.

·         Favourable global conditions are further expected to help the Indian economy meet its growth ambitions. As per the IMF, world output is expected to grow by 3.9% in 2019 and 2020. This forecast reflects the expectation that favourable global financial conditions and strong sentiment will help maintain the recent acceleration in export demand.

Budget 2018- Highlights & Key Policy Announcements

The Union Budget 2018 focuses on strengthening agriculture and rural economy, better health care to economically weaker sections of society, providing benefits to senior citizens, infrastructure development and improving quality of education in the country.

Agriculture and rural economy

·         Government to develop and upgrade rural markets into GrAMs. These e-NAM linked GrAMs exempted from APMC regulations will allow farmers to sell directly to consumers.

·         With a view to realise better prices for farmers, the NITI Aayog, in discussion with the Central Government and State Governments will implement an appropriate mechanism.

·         The Government will promote cluster-based development of agricultural commodities and regions.

·         State Governments to put in place a mechanism under which distribution companies could purchase surplus solar power from farmers at reasonably remunerative rates.

Health, education and social protection

·         “Revitalising Infrastructure and Systems in Education by 2022” to be launched to increase investment in research and related infrastructure in educational and health institutions.

·         To improve the quality of education, the Government proposes to introduce digital means for imparting education and training teachers.

·         Private sector participation, through Corporate Social Responsibility initiatives, is to be encouraged towards adopting health and wellness centres set up under the National Health Policy, 2017.

·         National Health Protection Scheme to be launched for providing coverage of up to INR 500,000 per poor family per year for secondary and tertiary care.

MSMEs and employment

·         The Government proposes to promulgate a framework to help MSMEs address issues of non-performing assets and stressed accounts.

·         It is proposed to review the refinancing policy and eligibility criteria set up under MUDRA Yojana to help refinancing of Non-Banking Finance Companies.

·         The Ministry of Finance is considering a policy framework, along with other institutional development measures, to facilitate the growth of Fintech companies in India.

·         Policy announcements are expected for strengthening the regulatory framework to enable investments by AIFs in India.

·         To give impetus to employment generation in the country, the following measures have been proposed:

·         The Government to contribute 12% in Employee Provident Fund for new employees in all sectors for a period of 3 years;

·         EPF contribution for women employees to be lowered to 8% for the first 3 years without any change in employer’s contribution; and

·         Fixed term employment facility to be extended to all sectors.

Infrastructure and financial sector development

·         Ten prominent tourist attractions to be developed further as iconic tourism destinations, with special focus on infrastructure and skill development, development of technology, attracting private investment, branding and marketing.

·         Investment in seaplane activities to be encouraged with a view to promote tourism and emergency medical care.

·         Proposal by SEBI to mandate large corporates to meet one-fourth of their funding needs through the bond market.

·         Stamp duty regime on financial securities transactions to be reformed.

·         Government to establish a unified authority for regulating all financial services in International Financial Service Centres to ensure a coherent and integrated regulatory framework for them.

·         Continuing focus on the fast changing digital world, the NITI Aayog to initiate a national program on artificial intelligence, including research and development of its applications.

·         For further investment in the digital ecosystem, the Department of Science & Technology to launch a Mission on Cyber Physical Systems to establish Centres of Excellence.

·         Government to take measures to eliminate the use of crypto-currencies in financing illegal activities or as part of payment systems.

·         Government to introduce a policy for toll systems on “pay as you use” basis to promote electronic payments further.

Building institutions and improving public service delivery

·         In the defence sector, the Government is proposing two defence industrial production corridors and a Defence Production Policy, 2018 to promote Make in India by public/ private sectors and MSMEs.

·         National Logistics Portal to be developed by the Department of Commerce to bring together all stakeholders through a single window online marketplace.

·         RBI Act to be amended to institutionalise and uncollateralised deposit facility, which would help the RBI manage excess liquidity.

·         Government to review existing guidelines and introduce a coherent and integrated Outward Direct Investment Policy.

·         Government to introduce a separate policy for hybrid instruments to help attract foreign investment in niche areas.

·         REIT, InvITs and AIFs to be brought within the ambit of penalty provisions for non-compliance of listing/ de-listing conditions. In addition, investment advisors to be covered for non-compliance with SEBI regulations.

Key reforms in 2017-18

In the current fiscal year, the Government continued with its reform agenda. Some of the most notable reform measures are as follows:

Goods & Services Tax

On 1 July, 2017 the Government launched the GST, which has replaced the complex multiple indirect tax structure. The act transformed India into one market with one tax rate.

PSU bank recapitalisation

In October 2017, the Finance ministry announced INR 2.11 trillion recapitalisation plan for PSU banks over the next two years. Of the total amount, INR 1.35 trillion would come from recapitalisation bonds, INR 181.39 billion from the centre’s budgetary funds and the remaining INR 580 billion would be mopped up from capital market by diluting the Government’s equity. Capital infusion was a long-standing demand of state-owned banks, as the asset qualities of these banks have grossly worsened due to increasing non-performing assets. The Government’s announcement also led to improvements in the country’s sovereign rating.

Disinvestment

With objectives to efficiently manage its investment in CPSEs and exit from the non-strategic business, Government launched DIPAM scheme in 2016. The proceeds from disinvestment in FY 2017-18 stood INR 1 trillion as against budgeted INR 725 billion for 2017-18. The Government took various measures with regard to disinvestment, which require mention here. In February 2017, the Government launched procedure for time bound listing of CPSEs on stock exchanges. The Government also approved listing of 14 CPSEs (including two insurance companies) on the stock exchanges. During the current financial year, four IPO issues of HUDCO, Cochin Shipyard Ltd. (CSL), General Insurance Corporation and New India Assurance Company, Ltd. have been successfully listed on the stock exchange. Further, the Government sold its entire stake in HPCL to ONGC, which would fetch INR 369.15 billion for the Government. In November 2017, the Government launched Bharat 22 ETF comprising shares of 22 CPSEs to raise money from the market, which received an overwhelming across all classes of investors. In June 2017, the Government formally approved the privatisation of national airline Air India Ltd. and five of its subsidiaries and allowed foreign airlines to own up to 49% stake in national carrier.

Dynamic fuel pricing

In June 2017, India joined the league of select countries such as the USA and Australia where fuel prices are revised on a daily basis. The three state-owned oil marketing companies -- Indian Oil, Bharat Petroleum Corporation and Hindustan Petroleum Corporation -- are since rolling-out the daily dynamic pricing mechanism for petrol and diesel. Under the dynamic pricing scheme, petrol and diesel prices are revised on a daily basis in sync with global crude oil prices.

Banking Regulation (Amendment) Bill, 2017

In August 2017, the Government passed the Banking Regulation (Amendment) Bill, 2017, which empowers the Reserve Bank of India (RBI) to give directions to banks to act against loan defaulters. The bill came after an ordinance was promulgated in May, as immediate action was required to combat the unacceptably high levels of stressed assets in the banking system.

Liberalisation of FDI policy

The Government of India, in continuity with its motto of attracting foreign investment and ease of doing business in India, has made changes to the FDI policy across sectors in single brand retail trading, 100% FDI is permitted under the automatic route. For real estate broking services, it is clarified that such services do not amount to real estate business and 100% FDI is permitted under the automatic route.

                                                  

Tax Proposals

Tax rates

Foreign company

Corporate tax rates remain unchanged at 40% (plus applicable surcharge and cess). It has been proposed to replace Education cess of 3% by Health & Education cess of 4%. Effective tax rates shall be as under.

Particulars	Taxable income <= INR 10mn	INR 10 million < taxable income <= INR 100mn	Taxable income > INR 100mn
Corporate tax	40.00%	40.00%	40.00%
Surcharge	-	2.00%	5.00%
Corporate tax + Surcharge	40.00%	40.80%	42.00%
Health and Education cess thereon	4.00%	4.00%	4.00%
Effective tax rate	41.60%	42.43%	43.68%

Domestic company

Corporate tax rate reduced to 25% (plus applicable surcharge and cess) for domestic companies having total turnover/ gross receipts not exceeding INR 2.5bn in the FY 2016-17. In other cases, the tax rates remain unchanged at 30% (plus applicable surcharge and cess). It has been proposed to replace Education cess of 3% by Health & Education cess of 4%. Effective tax rates are as under.

For a domestic company having total turnover/ gross receipts not exceeding INR 2.5bn in the FY 2016-17

Particulars	Taxable income <= INR 10mn	INR 10 million < taxable income <= INR 100mn	Taxable income > INR 100mn
Corporate tax	25.00%	25.00%	25.00%
Surcharge	-	7.00%	12.00%
Corporate tax + Surcharge	25.00%	26.75%	28.00%
Health and Education cess thereon	4.00%	4.00%	4.00%
Effective tax rate	26.00%	27.82%	29.12%

Sops for senior citizens

It has been proposed to increase the deductions available to senior citizens towards interest, health insurance and medical expenses as outlined below.

Section	Description	Existing (INR)	Proposed (INR)
Section 80 D	Health insurance and medical treatment	30,000	50,000
Section 80 DDB*	Medical treatment for specified ailments	60,000/80,000	100,000
Section 80 TTB **	Interest from banks/ post office (including FD interest)	10,000 (under section 80TTA)	50,000

The above proposals will effectively increase the deduction available for senior citizens by up to INR 100,000.

*For the purpose of section 80 DDB, the distinction between senior citizen and very senior citizen has been removed.

** The scope of deduction has been widened to include interest earned on fixed deposits and post office deposits under the proposed insertion of section 80TTB for senior citizens.

Tax deduction at source in respect of interest income to senior citizen

Section 194A of the Act is proposed to be amended so as to raise the threshold for deduction of tax at source on interest income for senior citizens from existing INR 10,000 to INR 50,000.

The proposed amendment shall be applicable with effect from 01 April, 2018.

National Pension Scheme (NPS)

It is proposed to extend the exemption available in respect of withdrawal (on closure or opting out) from the NPS scheme to all subscribers.

Currently, exemption of 40% of the amount payable was allowed to employees.

The proposed amendment shall be effective from 01 April, 2018.

Business income

Amendments in relation to ICDS

The Central Government had notified 10 ICDS under section 145(2), effective from 01 April, 2016, for the purpose of computation of income chargeable under the head business income or IFOS. In order to provide statutory backing to ICDS, it is proposed to amend / introduce certain provisions to provide for computation of income in line with ICDS provisions.

It is proposed to:

·         Allow deduction for marked to market loss or other expected loss, as computed in the manner provided in ICDS under section 36 of the Act.

·         Provide that any gain or loss arising due to changes in foreign exchange rates in respect of all foreign currency transactions shall be treated as income or loss, which shall be computed in the manner provided in ICDS. The proposed amendment is subject to the provisions of section 43A of the Act, which deals with treatment of foreign exchange fluctuations in specified cases.

·         Provide that:

Ø  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

Ø   the contract revenue shall include retention money, and

Ø   the contract cost shall not be reduced by incidental interest, dividend and capital gains.

·         Amend section 145A of the Act to provide that:

Ø  Valuation of inventory shall be made at lower of actual cost or NRV, computed in the manner provided in ICDS;

Ø  Valuation of purchase and sale of goods or services and of inventory shall include the amount of any tax, duty, cess or fee actually paid or incurred by the taxpayer to bring the goods or services to the place of its location and condition as on the date of valuation;

Ø  Inventory, being unlisted securities, or listed but not quoted regularly on a recognised stock exchange, shall be valued at actual cost initially recognised in the manner provided in ICDS;

Ø  Inventory, being listed securities (other than referred above), shall be valued at lower of actual cost or NRV in the manner provided in ICDS and for this purpose the comparison of actual cost and NRV shall be done category wise.

·         Insert a new section 145B in the Act to provide that:

Ø  Interest received by a taxpayer on compensation or on enhanced compensation, shall be deemed to be the income of the year in which it is received;

Ø  The claim for escalation of price in a contract or export incentives shall be deemed to be the income of the tax year in which reasonable certainty of its realisation is achieved;

Ø  Specified subsidy, grant, etc. shall be deemed to be the income of the tax year in which it is received, if not charged to income tax for any earlier tax year.

These amendments are proposed to bring certainty in the wake of a recent judicial pronouncement in relation to the applicability of ICDS. These provisions will take effect retrospectively from 01 April, 2017 and, accordingly, will apply from AY 2017-18 onwards.

Relief under MAT for Companies under Insolvency Resolution Process

It has been proposed to amend section 115JB of the Act to allow the reduction of aggregate amount of unabsorbed depreciation and brought forward loss (excluding unabsorbed depreciation) while computing book profit of companies for which application for corporate insolvency resolution process has been admitted under IBC 2016. This amendment has been proposed to remove the barrier for rehabilitating companies seeking such insolvency resolution.

Under current provisions, the lower of brought forward loss and unabsorbed depreciation, as per books of account, is allowed to be reduced while computing book profits under section 115JB of the Act. Hence, where the brought forward loss or unabsorbed depreciation is Nil, no deduction is allowed.

The proposed amendment will take effect from 01 April, 2018 and, accordingly, will apply from AY 2018-19 onwards.

Verification of return in case of corporate insolvency

It is proposed to amend section 140 of the Act to provide that during the resolution process under the IBC 2016, the return of income of a company shall be verified by an insolvency professional appointed by the Adjudicating Authority under the IBC 2016.

The proposed amendment will take effect from 01 April, 2018 and will apply to the returns to be filed on or after the said date.

Personal Tax

No change in tax slabs or rates for individual taxpayers.

Standard deduction from salary income

It is proposed to introduce a standard deduction from salary income up to INR 40,000 in lieu of reimbursement of medical expenses and transport allowance.

Currently, reimbursement of medical expenses is not taxable up to INR 15,000 and transport allowance is exempt up to INR 19,200.

The proposed amendment shall be effective from 01 April, 2019.

Cess

It is proposed to replace the existing 3% Education Cess by a 4% Health and Education Cess. This Cess like Education Cess would be applicable on income tax including surcharge and shall be effective from 01 April, 2018.

Other provisions

E-assessment

With a view to roll out e-assessment across the country so as to impart greater transparency and accountability, it is proposed to amend the Act to empower the Central Government to notify a new scheme for scrutiny assessments to achieve the desired purpose. The proposed amendment would enable the assessment to be carried out without any personal interface between the Taxpayer and the Revenue Authorities.

Rationalisation of prima-facie adjustments during processing of return of income

Currently, section 143 of the Act provides for processing of return of income with certain adjustments, including the addition of income appearing in Form 26AS which has not been included while computing the total income in the return.

It is now proposed that no such adjustments in respect of difference in income reported in the return and form 26AS shall be made in respect of any return furnished on or after 01 April, 2018.

Requirement to obtain PAN in certain cases

It is proposed to amend section 139A of the Act to provide that entities, other than individuals, which enter into a financial transaction amounting to INR 0.25mn or more would be required to obtain a PAN.

Further, in order to link the financial transactions undertaken by such entities with natural persons, it is proposed that managing director, director, partner, trustee, author, founder, karta, chief executive officer, principal officer or office bearer of such entity or any person competent to act on behalf of such entity shall also be required to obtain PAN.

The proposed amendment will take effect from 01 April, 2018.

Prosecution for failure to furnish return of income

Section 276CC of the Act is proposed to be amended, to provide that prosecution shall lie against companies for non-filing of return, whether or not any tax is payable.

The aforementioned proposal has been made in order to prevent abuse of the existing provision by shell companies or by companies holding benami properties, etc. The proposed amendment will take effect from 01 April, 2018.

Tax deduction at source and manner of payment in respect of certain exempt entities

It is proposed that in the case of charitable or religious trusts or institutions as per section 10(23C) or section 11 of the Act, cash expenditure exceeding INR 10,000 in a day [as per section 40A(3) and section 40A(3A)] and 30% of the sum payable to a resident, on which there is default, tax deduction at source [as per section 40(a)(ia)] shall be disallowed.

The amendment has been proposed to encourage a less cash-dependent economy and to reduce the generation and circulation of black money.

The proposed amendment shall be effective from 01 April, 2019 and will accordingly apply from AY 2019-20 onwards.

DDT on dividend payouts to unit holders in an equity- oriented fund

Section 115R of the Act provides for tax on income distributed by a specified company or Mutual Fund to its unit holders. It is proposed to amend section 115R 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 additional income tax at 10% on the income so distributed.

Under the existing provision, no additional income tax is payable by the Mutual Fund.

This amendment is proposed with a view to provide a level playing field between growth-oriented funds and dividend-paying funds, in view of new capital gain tax regime for unit holders of equity-oriented funds. The proposed amendment shall take effect from 01 April, 2018

Tax deduction at source on 7.75% Savings (Taxable) Bonds, 2018

Currently, tax is deducted at source at the time of payment or credit of interest in excess of INR 10,000 to a resident on 8% Savings (Taxable) Bonds, 2003. The existing 8% Savings (Taxable) Bonds, 2003 under section 193 of the Act, have been replaced with new 7.75% Savings (Taxable) Bonds, 2018.

It is proposed that the payer would undertake TDS at the time of making payment of interest in excess of INR 10,000 to residents on 7.75% Savings (Taxable) Bonds, 2018.

The proposed amendment shall be applicable from 01 April, 2018

Structure of AAR

In view of the proposed amendments in the Customs Act creating a new Customs Authority for Advance Ruling, it is proposed to provide that the AAR constituted under the Act shall act as an appellate authority in respect of the rulings given by the customs authority for Advance Ruling.

The proposed amendment shall be applicable from 01 April, 2018.

Increase in penalty under section 271FA of the Act

It is proposed to enhance the penalty leviable under section 271FA of the Act for failure to furnish statement of financial transaction or reportable account, as required under section 285BA of the Act, within the prescribed time from INR 100 to INR 500 for each day of continuing default.

It is further proposed to enhance the penalty from existing INR 500 to INR 1,000 for each day of continuing default in case of failure to furnish statement of financial transaction or reportable account within the period specified in the notice issued by the revenue authority.

The proposed amendment shall be applicable from 01 April, 2018.

Summary of Budget 2018-19

·         Finance Minister Shri Arun Jaitley presents general Budget 2018-19 in Parliament.

·         Budget is guided by mission to strengthen agriculture, rural development, health, education, employment, MSME and infrastructure sectors

·         Government says, a series of structural reforms will propel India among the fastest growing economies of the world. Country firmly on course to achieve over 8 % growth as manufacturing, services and exports back on good growth path.

·         MSP for all unannounced kharif crops will be one and half times of their production cost like majority of Rabi crops: Institutional Farm Credit raised to 11 lakh crore in 2018-19 from 8.5 lakh crore in 2014-15.

·         22,000 rural haats to be developed and upgraded into Gramin Agricultural Markets to protect the interests of 86% small and marginal farmers. 

·         “Operation Greens” launched to address price fluctuations in potato, tomato and onion for benefit of farmers and consumers.

·         Two New Funds of Rs10,000 crore announced for Fisheries and Animal Husbandry sectors;   Re-structured National Bamboo Mission gets  Rs.1290 crore.

·         Loans to Women Self Help Groups will increase to Rs.75,000 crore in 2019 from 42,500 crore last year.

·         Higher targets for Ujjwala, Saubhagya and Swachh Mission to cater to lower and middle class in providing free LPG connections, electricity and toilets.

·         Outlay on health, education and social protection will be 1.38 lakh crore. Tribal students to get Ekalavya Residential School in each tribal block by 2022. Welfare fund for SCs gets a boost.

·         World’s largest Health Protection Scheme covering over 10 crore poor and vulnerable families launched with a family limit upto 5 lakh rupees for secondary and tertiary treatment.

·         Fiscal Deficit pegged at 3.5 %, projected at 3.3 % for 2018-19.

·         Rs. 5.97 lakh crore allocation for infrastructure

·         Ten prominent sites to be developed as Iconic tourist destinations

·         NITI Aayog to initiate a national programme on Artificial Intelligence(AI)

·         Centres of excellence to be set up on robotics, AI, Internet of things etc

·         Disinvestment crossed target of Rs 72,500 crore to reach Rs 1,00,000 crore

·         Comprehensive Gold Policy on the anvil to develop yellow metal as an asset class

·         100 percent deduction proposed to companies registered as Farmer Producer Companies with an annual turnover upto Rs. 100 crore on profit derived from such activities, for five years from 2018-19. 

·         Deduction of 30 percent on emoluments paid to new employees Under Section 80-JJAA to be relaxed to 150 days for footwear and leather industry, to create more employment. 

·          No adjustment in respect of transactions in immovable property where Circle Rate value does not exceed 5 percent of consideration. 

·         Proposal to extend reduced rate of 25 percent currently available for companies with turnover of less than 50 crore (in Financial Year 2015-16), to companies reporting turnover up to Rs. 250 crore in Financial Year 2016-17,  to benefit micro, small and medium enterprises.

·         Standard Deduction of Rs. 40,000 in place of present exemption for transport allowance and reimbursement of miscellaneous medical expenses. 2.5 crore salaried employees and pensioners to benefit.

·         Relief to Senior Citizens  proposed:-

• Exemption of interest income on deposits with banks and post offices to be increased from Rs. 10,000 to Rs. 50,000.
• TDS  not required to be deducted under section 194A. Benefit also available for interest from all fixed deposit schemes and recurring deposit schemes.
• Hike in deduction limit for health insurance premium and/ or medical expenditure from Rs. 30,000 to Rs. 50,000 under section 80D.
• Increase in deduction limit for medical expenditure for certain critical illness from Rs. 60,000 (in case of senior citizens) and from Rs. 80,000 (in case of very senior citizens) to Rs. 1 lakh for all senior citizens, under section 80DDB.

·         Proposed to extend Pradhan Mantri Vaya Vandana Yojana up to March, 2020. Current investment limit  proposed to be increased to Rs. 15 lakh from the existing limit of Rs. 7.5 lakh per senior citizen. 

·         More concessions for International Financial Services Centre (IFSC),  to promote trade in stock exchanges located in IFSC. 

·         To control cash economy, payments exceeding Rs. 10,000 in cash made by trusts and institutions to be disallowed and would be subject to tax. 

·          Tax on Long Term Capital Gains exceeding Rs. 1 lakh at the rate of 10 percent, without allowing any indexation benefit. However, all gains up to 31^st January, 2018 will be grandfathered.

·          Proposal to introduce tax on distributed income by equity oriented mutual funds at the rate of 10 percent.

·         Proposal to increase cess on personal income tax and corporation tax to 4 percent from present 3 percent.

·          Proposal to roll out E-assessment across the country to almost eliminate person to person contact leading to greater efficiency and transparency in direct tax collection.

·          Proposed changes in customs duty to promote creation of more jobs in the country  and also to incentivise domestic value addition and Make in India in sectors such as food processing, electronics, auto components, footwear and furniture.