India Budget 2018...Changing Landscape (by KCM)

Independent Member of
• Economy
• Direct Taxes
– Business Tax
– International Tax
– Capital Gains
– Personal Taxation
– Other Amendments
• Indirect Taxes
Agenda

GDP estimated at 6.75% in FY 17-18;
Average GDP for 2014-17 - 7.3%
Growth and Fiscal Position
4
7.50%
8%
7.10%
6.75%
7.2% to
7.5%
2014-15 2015-16 2016-17 2017-18 2018-19 (E)
GDP Growth
Fiscal deficit has gone down steadily
from 4.1% in FY 14-15 to 3.5% in FY
17-18, target 3.3% in FY 18-19
4.10% 3.90%
3.50% 3.50% 3.30%
2014-15 2015-16 2016-17 2017-18 2018-19
(Target)
Fiscal Deficit

Growth and Fiscal Position
5

Other Key Indicators
6
• India jumped 30 spots to be ranked 100 in “Ease of Doing Business” by
World Bank
• FDI grew by 8% during FY 17 – USD 60.08 billion in FY 17 vs. USD
55.56 Billion in FY 15.
– FDI of USD 33.75 billion until Q2 FY 18
– FDI in service sector rises to 15% in FY 17
• Industrial sector growth higher at 5.8% in Q2 FY-18 as against 1.6% in
Q1 FY-18

WPI and CPI Inflation
7

• Climate, Climate change & agriculture
– Climate change could pare back agricultural income by 15-25% - unirrigated
lands may get hit harder
• Impact of GST roll-out
– 50% increase in unique indirect taxpayers, 3.4 million new indirect taxpayers
• Formal employment
– Formal non-agricultural payroll is greater than believed (approx. 30-50%
variation)
• Ease of doing business – Roadblock is huge backlog of cases
Economic Survey – Focus Areas
8

• Disinvestment
• Focus on transforming science & technology
– Gross expenditure on R&D tripled in last decade
– 7th largest patent filing office in the world, however, fewer patents per capita
Economic Survey – Focus Areas
9

Direct Tax

• Headline Corporate tax rate continues to be 30%
– Surcharge continues at 0%, 7% and 12%
– Health & Education Cess levied at 4% in lieu of EC & SHEC
• Moving towards Target tax rate of 25%
– 25% Tax for companies with turnover not exceeding Rs. 250 crore for FY
16-17
• Earlier threshold was turnover of Rs. 50 crore for FY 15-16
– Reduced rate continues to apply to manufacturing (and related research)
companies set up and registered on or after 01 April 2016
• No threshold on turnover
• Specified conditions – certain deductions not available
• Provisions relating to special rates of tax (as against only 111A and 112
earlier) to override
Corporate Tax
11

• Levy of long term capital gain tax u/s 112A at 10% without Indexation
– Removal of exemption u/s 10(38)
• Equity shares, Units of equity oriented funds and business trust
• STT paid on purchase and sale of Shares; On Sale of MF units
– Option to pay tax @ 20% with indexation may be available u/s 112 if STT not paid
• Exemption of Capital Gains upto Rs. 1 Lacs
• Grandfathering of gains up to January 31, 2018
– By treating FMV as on Jan 31 as Cost of Acquisition
– However, loss will not be permitted based on such FMV
• 10% distribution tax introduced on distribution by equity oriented mutual
funds to bring parity between growth and dividend plans
Capital Gains Tax
12

Business Tax

• Controversy on validity of ICDS sought to be resolved
– Delhi HC ruling in case of Chamber of Tax Consultants
• Taxability provisions introduced in the Act
– Reference to ICDS for Computation
• Revenue recognition on Construction Contracts
– Percentage of Completion Method (PoCM) mandatory
– Contract Revenue to include Retention money
– Incidental dividend / interest income / gains not to be reduced from Cost
ICDS
14

• Revenue recognition on Service Contract
– PoCM in line with Construction Contract to be applied except
• Project completion method for service contracts < 90 days
• Straight line basis in certain service contracts
• Forex Gain / Loss to be dealt in accordance with ICDS
– Monetary v. Non monetary translation gain / loss
– Underlying exposure v. highly probable transaction in case of forward contracts
– Sec. 43A to override ICDS
• Exchange difference on borrowing for Capital Asset
• Inventory including Securities valuation
– To be valued as per ICDS II / VIII
ICDS
15

• MTM loss in accordance with ICDS allowable u/s 36(1)
– Only MTM forex loss on forward / option / currency swap contracts of underlying
exposure allowed
– MTM loss on commodity forwards, interest rate swaps, etc. are not allowable as
per Section 40A in absence of explicit provision in ICDS
• Government Grants
– Taxable in the year of receipt unless taxed earlier
– At variation with ICDS VII
• Export Incentives / Contract Price Escalation
– Taxable in the year in which reasonable certainty of realization achieved
– Meaning of the term ‘reasonable certainty’
– Conflict with SC decision in case of Excel Industries?
ICDS
16

• DDT levied on Deemed dividend u/s 2(22)(e) at 30%
– To be taxed in the hands of company instead of shareholder
– No grossing up
– Exempt in the hands of shareholder (No 10% HNI Dividend Tax)
• Distribution by amalgamated company be considered as dividends to the
extent of accumulated profit of –
– Amalgamating company (at the time of amalgamation) +
– Amalgamated company (at the time of distribution)
Dividend Tax
17

• Rationalizing provisions exempting profits of eligible Start-ups
• Eligible business = Involvement in innovation, development,
improvement of production or processes or services, or a scaleable
business model with a high potential of employment generation or wealth
creation
– Eligibility criteria widened
• Changes in Eligibility criteria
– Incorporation on or before March 31, 2021 (instead of 2019)
– Turnover < 25 crores upto 7 years from incorporation
• Condition of turnover < 25 cr currently levied for 2016-17 to 2020-21
Incentive for Start Ups
18

• Sec. 80JJAA deduction extended when -
– Employees employed < 240 / 150 days in PY but employed > 240 / 150 days in
subsequent year, deduction available from 2nd year
– Employees employed by footwear and leather manufacturers for 150 days
(instead of 240 days)
• Tax holiday for Producer companies to incentivise agriculture
– Turnover < Rs. 100 crore
– 100% deduction from AY 2019-20 to AY 2014-15
– Eligible business = marketing agricultural produce or processing agricultural
produce of the members or purchasing implements, seeds, etc. for supply to
members
• Filing of return within timelines u/s 139(1) must for claim of deductions u/s
80HH to 80RRB
– Section 80JJAA, 80-IAC, 80PA
Other Deductions
19

• Relief for Companies admitted under Insolvency & Bankruptcy Act
– Set off for aggregate of unabsorbed depreciation and loss
• Instead of lower of unabsorbed depreciation or loss
• MAT provisions not to apply to foreign company taxable on presumptive
basis u/s 44B to 44BBB
• AMT for units in IFSC of non-companies reduced from 18.5% to 9%
– In line with MAT provisions for IFSC unit of Companies
Minimum Alternate Tax
20

• FMV on conversion of inventory to capital asset taxable u/s 28
– Holding period u/s 2(42A) from date of conversion
– FMV to be Cost of Acquisition of Capital asset
• Compensation for termination / modification of business contract taxable
u/s 28
– Provision relating to compensation paid for termination / modification of
employment contract taxable as Other Sources
• Conflict with Section 17(3)(i)
• Agricultural commodity transactions not speculative despite non-
applicability of CTT on the same
Other Provisions
21

International Tax

• Scope widened to include Dependent Agent who
– has / habitually exercises authority to conclude contracts on behalf of NR
– habitually play principle role leading to conclusion of contracts by NR
• In the name of NR
• for transfer of ownership or right to use of property owned / leased by NR
• for provision of services by NR
– habitually maintains stock of goods / merchandise for regular delivery
– habitually secures orders mainly / wholly for NR / group company
• In lines with BEPS Action Plan 7 and MLI
Business Connection
23

• To include Significant Economic Presence
– Transactions w.r.t. goods, services or property carried by NR in India
• Incl. provision of data download / software in India
• Revenue threshold to be prescribed
– Systematic and continuous soliciting of business activities Or engaging in
interaction with > prescribed number of users in India
• Through digital means
• Specially applicable to digital economy transactions
• Not applicable to transactions subject to Equalisation levy
– Exempt under Sec. 10(50)
Business Connection
24

• Due date for filing CbCR extended to 12 months from end of Accounting Year
of Reporting entity
– Delinked with due date u/s 139(1)
• Filing u/s. 286(4) to be completed within 12 months from the end of
Accounting Year of Group Parent
Country by Country Report
25

Personal Taxation

• Standard Deduction from salary – Rs. 40,000 w. e. f. AY 2019-20
– Effectively marginal relief due to withdrawal of exemption on transport
allowance and medical expenditure reimbursement
• Withdrawal from NPS up to 40% exempt in case of all assessee
– Previously only withdrawal by employees were exempt u/s 10(12A)
• Exemption u/s 54EC restricted to long term capital gain on transfer of
land or building
– Lock-in-period of bonds increased from 3 to 5 years
Personal Taxation
27

• Exemption of Interest on deposits with banks and post office up to Rs.
50,000 for senior citizens
– Consequent change in TDS threshold
• Limits for deduction of Mediclaim expenses u/s 80D increased for senior
citizens to Rs. 50,000
• Premium for Mediclaim contracts > 1 year to be claimed proportionately
• Deduction u/s 80DDB increased from 60,000 to 1 Lac
Deductions and Exemptions
28

• Transfers of capital asset between holding and subsidiary exempt u/s 47
also excluded from Sec. 56(2)(x)
• Capital gains on transfer of bond, GDR, derivative on stock exchange in
International Financial Services Centre exempted
• 5% variation from Stamp duty valuation allowable
– Sec. 43CA, 50C, 56(2)(x)
• Rationalisation of presumptive taxation goods carriage business
Other Amendments
29

• No deduction to be allowed for expense or deduction or set off of
losses in case of income assessed by AO u/s 115BBEE
– Relating to income u/s 68, 69, 69A, 69B, 69C, 69D
• Cases covered by Insolvency and Bankruptcy Act not subject to
restriction u/s 79 on Carry forward of losses
• Rationalisation of exemptions to charitable trusts, educational
institutions, hospitals u/s 11 / 10(23C) on application of income
– Sec. 40(a), 40(ia), 40A(3) and 40A(3A) disallowances
30
Other Amendments

• Obtaining PAN mandatory for –
– Non-individual entering into financial transactions > 2.5 Lacs
– Its MD, director, partner, trustee, author, founder, karta, CEO, principle officer,
office bearer
• No addition u/s 143(1) on mismatch of ROI with Form 26AS / 16 / 16A
for return relating to AY 2018-19 & onwards
• E-Assessments to be introduced countrywide basis
– Team based assessment with dynamic jurisdiction
– Functional specialisation will be focused
– Scheme to be notified
31
Other Amendments

Indirect Tax

• Life insurance services provided by Naval Group Insurance to Coast
Guard from 10 September’04 to 30 June’17
• Services provided by Goods & Services Tax Network (GSTN) to Central,
State & Union territory from 28 March’13 to 30 June’17
• Services of giving license or lease to explore or mine petroleum products
is proposed to be exempt from service tax from 1 April’17 to 30 June’17
Service Tax Exemption
33

• Excise duty on Petrol and Diesel - Unbranded & Branded is reduced by
Rs 2 per litre
• Road cess of Rs. 6 per litre on motor spirit is replaced by levy of Rs. 8
per litre as Road & Infrastructure cess on Motor Spirit for financing
infrastructural projects.
• Exemption of 50% on basic Excise, Road & Infrastructure Cess &
Additional excise on Petrol & Diesel manufactured & cleared from four
specified refineries situated in north East India.
• There is no effective change in rate of duties on Petrol and Diesel
Excise
34

• Social Welfare Surcharge is introduced at 10% on imported goods from
2 February,18. (except goods covered in Customs notification
No.11/2018). These items were already exempt under the notification
11/2008 from Education Cess and SHE.
• This surcharge is applicable on the basic customs duty plus cess/duty
under Customs Act except on IGST and Goods & Services
Compensation cess.
• Abolished education cess and Secondary & Higher Education Cess on
imported goods
Social Welfare Surcharge
36

Self - Assessment
• Extended the scope of verification beyond the self-assessment
• Allow the authorities to reassess any self-assessment submitted by importer without
reference to valuation/classification and exemption.
• Valuation methodology for payment of IGST and Compensation Cess for Warehoused
goods sold prior to home consumption.
• To provide legal backing for the risk-based selection of self-assessed Bill of Entry or
Shipping Bill through appropriate selection criteria;
Provisional Assessment
• Includes Export – Consignment
• Board will have power to prescribe the time limit for submission of documents. No time
limit for completing the provisional assessment
Assessment
37

• Power is proposed to be given to the Central Government to exempt goods
imported for repair, further processing or manufacture from whole or any part
of Duty. Under present law such transactions attract duty which is refunded
on export. (Section 25 A inserted)
• Power is proposed to be given to the Central Government to exempt goods
re-imported after export for repair, further processing or manufacture from
whole or any part of custom Duty. Under present law such transactions
attract duty which is refunded on re-export. (Section 25 B inserted).
• Under Section 25 A the items imported for repairs etc. will not necessarily
have been exported from India. Under Section 25 B the items are exported
from India and have to be reimported for repairs etc
Re-export & Re-Import
38

• Changes are proposed in the process of recovery of duties where
there will be pre-notice consultation in cases having no will full mis-
statement. Proposal also includes issuance of supplementary show
cause notice and providing additional time limit. If the demand notice
is not adjudicated even after the extension, it is deemed as if no
demand has been issued. (Section 28)
• The time limit for pronouncing advance ruling is reduced from 6
months to 3 months. (Section 28I)
• Chapter VIIA inserted to provide payments through electronic cash
ledger including advance deposit.
• Option to pay fine in lieu of confiscation (Section 125). If the
redemption fine is not paid within 120 days of exercising this option
then the option shall become void.
Others
39

Goods &
Services Tax

• 50% increase in number of Indirect Tax Payers
• GST tax base is closely linked to the size of state’s economy
• The fear of revenue shifting to consumption state has been allayed
• The increase in unique registration is also heartening as in the earlier
system every tax payer had more than one registration. Sometimes all 3
Excise, Service Tax and VAT.
• B2C account for only 17% of the total transactions. Imagine the loss of
Cenvat in earlier system.
Economic Survey - GST
41

• Close to 1.7 million registration are voluntary (having turnover below
threshold)
• GST tax base is approximately 70 lakh crore, which is about 2.5 times
the Tax base of earlier system. Therefore, the RNR at 15% or just above
would be correct as recommended by the RNR committee.
• Interestingly the Economic Survey gives the figure of share of GST for
manufacturing states like Maharashtra and Gujarat, which does not
indicate any disadvantage due to shifting of tax to destination.
• 0.1% of the firms account for 14% of the turnover but are outside GST
net due to exemptions.
Economic Survey - GST
42

• No changes in existing rates, rules & other regulations
• Name of “Central Board of Excise and Customs” to be known as
“Central Board of Indirect Taxes and Customs.”
Amendment
43

• July’17
– GST implemented from 1 July’17
– Introduced LUT/Bond for Export of Services
• August’17
– Exemption from registration for inter-state job workers up to threshold limit of
Rs. 20 lacs.
– Approval for setting up committee under Anti-profiteering provisions.
– Tax rate for GTA and rent-a-cab was proposed at 12% with full ITC or 5%
with no ITC. There is no ITC for Rent-a-cab payments.
– Extension of due dates for filing of GSTR-1,2,3 and 6 for July’17
Journey
44

• September’17
– GSTR-3B to be filed till the month of December’17
– GST TRANS-1 date extended to 31st October’17.
• October’17
– Threshold Limit for Composition Scheme increased from 75 lakhs to 1 crores.
– RCM on purchase from unregistered dealer is defered till 31st march 2018
– Exporters of Services allowed to make exports without payment of IGST by
furnishing LUT
– Quarterly Return for Taxpayers having turnover upto 1.5 crores
– Announcement of extension to file Tran-1 and also provided to revise Tran-1,
which has already filed till 27 December’17. No further extension is possible as
extended time limit up to 180 days provided in the statue is over on 27
December’17.
Journey
45

• November’17
– Supply of Goods to EOU would be treated as a Deemed Export from 6
November’17
– GSTR 2 & 3 are discontinued till March’18
– GSTR 3B filing extended till March’18
– For GSTR 3B – filing of Nil return the late fee reduced from Rs. 200 to
Rs.20 per day. And for other taxpayers, it is Rs. 50 per day for GSTR-3B.
– Late fee already paid errorneously under column of “Tax” head instead of
“Fee,” will be recredited to Electronic Cash Ledger.
Journey
46

• December’17
– Introduction of E-way bill from 1 February, 2017
– Rate cut for major luxury products from 28% to 18%. Only 52 items are under
higher tax rate.
– GST authority initiated process for providing refund on Export of Goods &
Services made from July 17 onwards.
• January’18
– Late fee reduced from Rs. 200 to Rs.20 per day for nil GSTR-1, GSTR-5, GSTR-
5A and other taxpayer’s Rs. 50 per day
– Cancellation of registration by voluntary registrants before expiry of 1 year
from the date of registration.
• February’18
– E-Way Bill de-notified. To be on trial till 21st February18 for intra state
Journey
47

• Refund in case of GST paid in Excess/under wrong head:
– Refund application in Form GST RFD-01 is to be filed. Currently the
situation is such that the refunds are not processed on time and payment is
delayed. However, the amount is debited immediately from the Electronic
Cash Ledger.
• Refund in case of Export without Payment of duty:
– For refund in case of Export without payment of duty application in Form
RFD-01 was to be filed. As this form was not available on the common
portal, a New Form RFD-01A was introduced to be filed manually by the
exporters to facilitate early Refunds.(Circular no.17/2017 dated 15-11-
2017).
Refunds
48

• Refund in case of Exports with Payment or supplies to SEZ with
payment of Duty:
– For refund in case of Exports or supplies to SEZ with payment of Duty,
details incorporated in Table 6A of GSTR-1 will be sufficient. As in such case,
Shipping Bill would be considered as refund application, refund would be
processed automatically & directly credited to bank account after filing GSTR
1 Return. The Refund amount claimed (IGST/Cess) should not be more than
the amount of IGST/Cess mentioned in column of Zero-rated supplies in
GSTR-3B.
• Refund in case of inverted tax structure.
– Refund of accumulated Input Tax Credit due to inverted rate structure (other
than Nil rated or fully exempt supplies) would be allowed where rate of input
tax is higher than rate of output tax except some specified items like textile
goods. This application is to be filed in RFD-01A.
Refunds
49

E-way Bill - Implementation
50
▪ E-way bill for inter-state movement is notified from 1 February’18.
▪ Below list of states opt to follow the e-way bill system for intra-state transport
from 1st February’18 (now 22nd February 18) :-
➢ Andra Pradesh, Arunachal Pradesh, Bihar, Hariyana, Jharkhand,
Karnataka, Kerala, Puducherry, Sikkim, Tamilnadu, Telanga, Uttar
Pradesh and Uttarakhand.

Transportation
51
▪ Issue of E-way bill in case of Inward or Outward movement of goods for
a) Supply of Goods within the State
b) Transfer of goods within two units having same GSTIN.
c) Semi knocked down/ Complete knocked down
d) Supply of Goods Outside the State
e) Export
f) Import
g) Job work (within & outside state)
h) Brach transfer
i) Cancellation
j) Exhibition or Fairs
k) Line Sales
l) Other

Independent Member of52
Unregistered
Supplier.
Supply to
Registered
Recipient.
Registered
Recipient will
generate E-
Way Bill
Supplier is Unregistered – E Way system

Exemption
53
▪ Transport of goods of less than ₹50,000/.
(where goods are sent in one State to a job worker located in any other
State, the e-way bill shall be generated by the principal irrespective of
the value of consignment).
▪ The goods are being transported by a non-motorised conveyance.
▪ Annexure*-Rule 138(14)- Goods specified in E way bill exemption
category.

Forms
54
Type Description
GST EWB-01 E-way bill form
GST EWB-02 Consolidated E-way bill form to be generated by
transporter
GST EWB-03 Inspection report to be filled up by proper officer
GST EWB-04 Form to upload details by transporter, if vehicle detained
for more than 30 minutes

Validity
55
• Validity period up to One Day.Distance up to 100 Kms.
• One Additional DayFor every 100 km or part
thereof thereafter
Notes:
▪ Commissioner may extend the validity period of e-way bill for certain categories
of goods.
▪ In exceptional case, transporter may generate another e-way bill after updating the
details in Part B of FORM GSTEWB-01.

Penalty
56
▪ Penalty will be leviable of Rs.10,000/- or tax sought to be evaded
whichever is greater as per section 122 of CGST Act,2017.
▪ Transported goods or conveyance shall be liable to detention or seizure
as per section 129 of CGST Act,2017.

India Budget 2018...Changing Landscape (by KCM)

India Budget 2018...Changing Landscape (by KCM)

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