India Union Budget - 2018

Another year passes by where India is seen as one of the fastest growing economy in the world. Maintaining
the position and promising a higher growth rate in the coming years, the budget of 2018 was one of the
balanced budgets from a Government which focuses on the growth agenda and believes in the ideology of
Maximum Governance, Minimum Government.
The focus sectors of the budget were farmers, agriculture productivity and infrastructure, infrastructure
development, education and employment which would have far reaching impacts and results in medium and
long term. The Government is committed to the path of fiscal consolidation which would build a stronger and
consistent global economy.
Considering the tax proposals, they have been mainly aimed towards building of MSME industries, closing
global and international tax loopholes and adopting transparency and information exchange rules as per global
standards. Further, considering the individuals, right respect is shown to the senior citizens by providing vital
deductions which would help them channelize their funds in the right avenues.
The twist of the tale in the budget and major consideration was withdrawal of long term capital gain exemption
on sale of equity shares and equity linked mutual funds and taxing the same at a concessional rate providing
certain benefits of grandfathering and higher cost of acquisition. Although this was a talk of the town for some
time now, the implication of such amendment was unknown. Considering the balanced approach taken by the
government and understanding that the exemption is not the only motivation for the investors to invest in
Indian economy but the growth potential, such amendment is not likely to disrupt the capital markets at this
point of time.
Through this document we have analyzed the Income tax proposals so that you can understand its implications
on you and your business.
Trust you will find the publication useful. Happy reading!!
In case you need any further clarification please feel free to e-mail me at akshaykenkre@transprice.in.
Thanks a lot.
Best Regards,
Akshay Kenkre
Managing Partner
TransPrice
Preface
2

3
Table of Content
Economic Highlights 4
- Economy Overview
Rates of Taxes 6
International Taxation 10
Corporate Taxation 12
Tax incentives – Individuals &
Corporates
Glossary 19
3
Capital Gains 8
Transfer Pricing 15
About TransPrice 20
17

Economic Indicators
Performance
FY 2017-18
Targets
FY 2018-19
% %
GDP Growth 6.50 7.50
Fiscal Deficit to GDP 3.50 3.30
Inflation CPI terms (Q3) 3.30 3.00
0
2
4
6
8
10
12
Growth rate Inflation (CPI) Fiscal Deficit
Interplay - Economic Indicators
Economy Overview
“Minimum Government and Maximum Governance” has been the motto of Indian Government since year
2014. Keeping this vision, the government took several reforms and measures to achieve the desired
objective. Some of the initiatives were Goods and Services Tax (GST), Demonetisation, Digital
transformation, Insolvency and Bankruptcy code have been some of the highlights in the policy reforms.
The economy has performed well since past few years and is on path of growth. India is one of the fastest
growing economy in the world and despite a few revolutionary shocks in the form of reforms, the
economy was quick in terms of recovery to move towards the expected target of growth.
It is expected that India would achieve a 6.5% growth in the FY 2017-18; targeted to achieve a growth of
7.5% in FY 2018-19 and is poised to resume high growth rate of 8% plus in the coming financial years.
The stress has been on upliftment of farmers, poor and other vulnerable sections of Indian society, as well
as development of agriculture economy and productivity, infrastructure, health, education and
employment.
%
FY
5

Rates of Taxes
▪ No change in the individual rate of taxes and surcharge
▪ For FY 2018-19 , additional surcharge to be levied called the “Health and Education Cess on income-tax”
shall be levied at the rate of 4% on taxes plus surcharge (as applicable)
▪ “Education Cess and Higher Secondary Education Cess” to continue for applicable rates until FY 2017-18.
Such Education Cess and Higher Secondary Cess to discontinue from FY 2018-19
▪ The rates of tax for Co-operative Societies, Firms (including LLPs), AOP, BOI and Local Authorities remain
at same level
▪ In case of domestic company, rate of tax reduced to 25% if the total turnover/ gross receipts in the
previous year 2016-17 does not exceed Rs. 250 crores. Surcharge to continue at the applicable levels
▪ Current and proposed slabs for individuals (No change):
▪ Additional INR 40,000 standard deduction provided, and the existing exemption in respect of Transport
Allowance (except for differently abled) [Rs. 1,600 per month i.e. Rs. 19,200 per annum] and
reimbursement of medical expenses [Rs. 15,000 per annum] is proposed to be withdrawn. Additional
benefit for salaried individuals - Rs. 5,800 per annum
▪ Transaction in real estate attracts dual taxation under Capital gains (Section 50C) or business profits
(Section 43CA) for the seller and Income from other sources (Section 56) for the receiver of the property
(purchaser) if the sale consideration is lower than the stamp duty value. Such a position could be
created due to location and quality of land parcels in an area covered by such stamp duty rates. To
reduce hardship, it is proposed to provide no adjustments if the difference between the stamp duty
rates and sale consideration is not more than 5% of sale consideration.
▪ Applicability for obtaining of PAN as per Section 139A to cover non-individual persons who have
undertaken a financial transaction of Rs. 250,000 or more; and any person competent to act on behalf
of such entities including a managing director, director, partner, trustee, author, founder, karta, CEO,
principal officer or office bearer of such non-individual person.
7
Income Slabs As per Finance Bill 2018
where the total income does not exceed Rs.
2,50,000
Nil
where the total income exceeds Rs. 2,50,000
but does not exceed Rs. 5,00,000
5 per cent of the amount by which the total
income exceeds Rs. 2,50,000;
where the total income exceeds Rs. 5,00,000
but does not exceed Rs. 10,00,000
Rs. 12,500 plus 20 per cent. of the amount by
which the total income exceeds Rs. 5,00,000;
where the total income exceeds Rs. 10,00,000 Rs. 1,12,500 plus 30 per cent. of the amount by
which the total income exceeds Rs. 10,00,000.

4
Roadmap & PrioritiesCapital Gains
8

Capital Gains
A. Long Term Capital Gains on sale of listed equity share or unit of equity oriented fund
Current Position (For FY 2017-18)
Income arising from transfer of long term capital asset being and equity share in a company or a unit of an
equity oriented fund, where Security Transaction Tax is paid, is exempt from Long Term Capital Gain tax as
per Section 10(38).
Proposed Position (FY 2018-19)
▪ Abolishment of the exemption under Section 10(38) in order to minimize economic distortion and curb
erosion of tax base
▪ Introduction of new Section 112A to provide for Long Term Capital Gain (LTCG) from transfer of listed
equity share or unit of equity oriented fund or unit of a business trust, where Security Transaction Tax is
paid; would be taxed at the concessional rate of 10% without any indexation (domestic or foreign
currency) over and above the LTCG of Rs. 100,000
▪ For calculation of LTCG, the cost of acquisition shall be deemed to be higher of
▪ (1) Actual cost of acquisition; or
▪ (2) Lower of:
(2A) Fair Market Value (FMV) of such asset as on 31 January 2018 [FMV defined as highest price
of capital asset quoted on stock exchange on 31 January 2018]; and
(2B) Full value of consideration received or accruing as a result of transfer of the capital asset
The provision would be applicable for all transactions from 1 April 2018, while the exemption under Section
10(38) to continue for FY 2017-18 i.e. until 31 March 2018
B. Dividend Distribution tax on dividend payouts to unit holders in equity unit fund
To provide a level paying field between the growth oriented funds and dividend paying funds, it is
proposed that any income distributed by a Mutual Fund being an equity oriented mutual fund to pay an
additional income tax at the rate of 10 percent on income so distributed.
C. Tax Neutral Transfers
Post its incorporation in year 2017, Section 56(x) – Income from other sources i.e. transfer for inadequate
consideration, transfer of capital assets from subsidiary to holding company and from holding to subsidiary
company, which are exempt under Section 47(iv) and (v) came under the tax bracket. To neutralize the
effect of taxes on any such transfer it is proposed to include such exclusions in Section 56.
D. Capital gain re-investment scheme amended
Amendment in Section 54EC
▪ Investment based deduction under section 54EC restricted to long term capital gains arising from
transfer of land or building or both (AY 2019-20).
▪ Lock in period of investment in Bonds is increased from 3 years to 5 years (AY 2019-20).
9

International Taxation
Widening of term – “business connection”
International taxation mainly deals in allocation of taxing rights between the source and residence country.
Business connection is a terminology similar to that of a permanent establishment in the tax treaties
(DTAA), which through fulfillment of conditions could hold activities of a non-resident to result in business
in a country of source, thereby invoking source country taxation for taxing the profits made by such non-
resident in a country of source. In short, business connection like permanent establishment is an essential
criteria to tax business profits in the country of source. The scope of business connection is similar to
Dependent Agent Permanent Establishment (DAPE), which has recently undergone changes initiated by the
BEPS project and adopted in the form of Multilateral Agreements (MLI), which have ultimately increased
the scope of Bilateral Tax Treaties that India has concluded with treaty partners.
The change in treaties now hold that an agent necessarily does not have to conclude contract but could
play a principal role in concluding contracts, and this could be a substantial condition to hold such
dependent agent as a Permanent Establishment in the country of source. Such a change to the tax treaties
made the domestic legislation more favorable, thereby leaving a possibility that a taxpayer may choose
domestic legislation to circumvent such treaty provision. Keeping this in mind, Section 9 has been amended
to make suitable modifications to the definition of business connection to include such principal role in
conclusion of contracts by an agent.
It is further proposed that the contracts should be (i) in the name of the non-resident (ii) for the transfer of
the ownership of, or for the granting of rights to use, property owned by the non –resident or that the non
–resident has the right to use or (ii) for the provisions of services by that non-resident.
Significant Economic Presence
Taxation of a business in country of source could be only though establishment of business connection or
through a permanent establishment. Both the concepts use a nexus approach based on physical presence.
However due to advent of technology, physical presence do not hold good any more and this could lead to
base erosion of taxes for the source country. As per Action Plan 1 of the BEPS project on Digital Economy, a
new nexus approach is proposed in the form of Significant Economic Presence test based on the factors
that have a purposeful and sustained interaction with the economy by the aid of technology and other
automated tools.
Therefore it is proposed to include Significant economic presence as a business connection and it shall
mean:
(i) Any transaction in respect of any goods, services, or property carried out by a non–resident in India
including provision of download of data or software in India if the aggregate of payments arising from
such transaction or transactions during the pervious year exceeds the amount as may be prescribed
(ii) Systematic and continuous soliciting of its business activities or engaging in interaction with such
number of users as may be prescribed, in India through digital means.
Such a test would be applicable from FY 2018-19 i.e. for transactions post 1 April 2018.
11

Corporate Taxation
13
• Compensation receipts whether in nature of revenue and capital in connection with termination or
modification in terms and condition of any contract to be now specifically included as business income
• Widening the scope of ‘accumulated profits’ in the definition of ‘Dividend’: The Finance Bill 2018; in
the definition of ‘dividend’ under section 2(22), has proposed to insert a new explanation ‘2A’ which
states that: The ‘accumulated profits’ (capitalized as well as uncapitalized) of an amalgamating company
shall be included in the ‘accumulated profits’ (capitalized as well as uncapitalized) of the amalgamated
company
• Applicability of DDT to ‘deemed dividend’: Deemed dividend as defined under Section 2(22)(e) will now
get covered under the scope of the DDT provisions (Sec 115O). However, the DDT rate applicable to
such deemed dividend shall be 30% (no grossing up required). In view of this proposal, sec 115Q is
amended and the amended provision would now state that a company not deducting DDT on such
dividend shall be treated as a ‘company deemed to be in default’.
• TDS and cash expenditures in case of certain trusts/ institutions : Section 10(23C) and section 11 have
been amended in the following manner:
• Charitable or religious funds/ institutions; universities or educational institutions and hospitals
or other similar institutions that are covered under section 10(23C) shall be disallowed 30% of
the expenditures incurred by them if tax is not deducted at source while making payments. In
other words, section 40(a)(ia) which is applicable to businesses shall be made applicable to
them.
• Also, if the total payments made to a person in a day exceed Rs. 10,000; then the entire cash
expenditure shall be disallowed. In other words, section 40A(3) and section 40A(3A) which is
applicable to businesses shall be made applicable to them.
• Presumptive taxation scheme (business of plying, hiring or leasing goods carriages)
• In case of a person carrying on business of plying, hiring or leasing heavy goods carriages, the
taxable income shall be equal to Rs. 1,000 per ton of gross vehicle weight or unladen weight for
every month or part of the month during the period of holding such heavy goods carriages or an
amount claimed by the person – whichever is higher.
• Other than heavy goods carriages, the existing rate of Rs. 7,500 per month or part thereof per
vehicle shall prevail.
• Benefit of carry forward and set off of losses (Section 79)
• Provision of section 79 not applicable to companies whose resolution plan has been approved
under the Insolvency and Bankruptcy Code, 2016 (AY 2018-19)
• The return of income shall be verified by insolvency professional appointed by the Adjudicating
Authority under the Insolvency and Bankruptcy Code, 2016 (AY 2018-19)
• Scope of inclusion of income not included in the return of Income but appearing in the Form 26AS or
Form 16A or Form 16 to be restricted from 1 April 2018

Corporate Taxation
14
▪ Changes in Minimum Alternate Tax (MAT) (Section 115JB)
▪ If company’s application for corporate insolvency processed under Bankruptcy Code, 2016, then
aggregate unabsorbed depreciation and brought forward book loss (excluding unabsorbed
depreciation) will be allowed as deduction. (AY 2018-19)
▪ The above amendment is also applicable to company’s whose application for insolvency is
admitted. (AY 2018-19)
▪ MAT is not applicable to foreign companies whose total income comprises solely profits and gains
from business referred under section 44B, 44BB, 44BBA or 44BBB. (Applicable for AY 2001-02)
▪ Insertion of subsection (via) to section 28 to include fair market value of the stock-in-trade as business
income on conversion of stock-in-trade in to capital asset. (AY 2019-20)
▪ Sub Section (2) of Section 115BBE amended to restrict any deduction of expenses or set of any losses
against income determined by Assessing Office under section 68, Section 69, Section 69A, Section 69B,
Section 69C and Section 69D of the Act. (AY 2017-18)
Amendments in relation to Income Computation Disclosure Standards (ICDS) (AY 2017-18)
▪ Insertion of clause (xvii) in subsection (1) of section 36 of the Act, to allow deduction in respect of
marked to market loss or other expected loss as computed in accordance ICDS
▪ Amendment in Section 40A of the Act, to disallow the excess losses which are not computed accordance
with ICDS or allowed in Section 36(1)(xvii) of the Act
▪ Insertion of section 43AA to consider foreign exchange gain/loss computed in accordance with ICDS as
an income/loss, subject to provision of section 43A of the Act
▪ Insertion of Section 43CB to provide that the computation of profit and gains from construction
contracts or contract for providing services shall be made on the basis of percentage of completion
method in accordance with ICDS
▪ For the purpose of percentage of completion method, contract revenue should include retention money
and project cost should not be reduced by incidental income I.e. Interest, dividends or capital gain
Section 145A amended to provide:
▪ Valuation of inventory should be made at lower of actual cost or net realizable value computed in
accordance with the ICDS
▪ Inclusive method for accounting i.e. value of purchase and sales should be determined including any tax,
duty, cess or fee actually paid or incurred by the assessee to bring the goods or services to the place of
its location and condition as on the date of valuation
▪ Inventory being securities not listed, or listed but not quoted, on a recognized stock exchange, shall be
valued at actual cost initially recognized as provided in ICDS
▪ Inventory being listed securities, shall be valued at lower of actual cost or net realizable value as
provided in ICDS
Newly inserted section 145B to provide that:
▪ Interest received by assessee on compensation or enhanced compensation shall be taxable in year of
receipt
▪ Claim for escalation in contract price and export incentive should be recognized as income in year in
which reasonable certainty of its realization is achieved
▪ Subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by
whatever name called) by the Central Government or a State Government or any authority or body or
agency in cash or kind to the assessee shall be taxable in year in which it is received by the assessee

Transfer Pricing
Section 286 contains provisions relating to specific reporting regime in the form of Country-by-Country
Report (CbCR) in respect of an international group. Based on the model legislation of Action Plan 13 of Base
Erosion and Profit Shifting (BEPS) of the Organisation for Economic Co-operation and Development (OECD)
and others, following amendments are proposed to be made so as to improve the effectiveness and reduce
the compliance burden of such reporting:
(i) the time allowed for furnishing the Country-by-Country Report (CbCR), in the case of parent entity or
Alternative Reporting Entity (ARE), resident in India, is proposed to be extended to twelve months from the
end of reporting accounting year;
(ii) constituent entity resident in India, having a non-resident parent, shall also furnish CbCR in case its
parent entity outside India has no obligation to file the report of the nature referred to in sub-section (2) in
the latter’s country or territory;
(iii) the time allowed for furnishing the CbCR, in the case of constituent entity resident in India, having a
non-resident parent, shall be twelve months from the end of reporting accounting year;
(iv) the due date for furnishing of CbCR by the the ARE of an international group, the parent entity of which
is outside India, with the tax authority of the country or territory of which it is resident, will be the due date
specified by that country or territory;
(v) Agreement would mean an agreement referred to in sub-section (1) of section 90 or sub-section (1) of
section 90A, and also an agreement for exchange of the report referred to in sub-section (2) and sub-
section (4) as may be notified by the Central Government;
(vi) “reporting accounting year” has been defined to mean the accounting year in respect of which the
financial and operational results are required to be reflected in the report referred to in sub-section (2) and
sub-section (4)
These amendments will take effect retrospectively from 1st April 2017 and will accordingly, apply in relation
to the assessment year 2017-18 and subsequent years.
16

Tax Incentive – Individuals
and corporates
17

Tax Incentives
Individuals:
• Deduction under Section 80D – Increase in limit from Rs. 30,000 to Rs. 50,000 (Applicable for senior
citizens). Increase of single premium health insurance, deduction will be allowed on proportionate basis
(AY 2019-20)
• Deduction under section 80DDB: Increase in limit from Rs. 60,000 in respect of senior citizen to Rs.
100,000 and; Rs. 80,000 in respects of very senior citizen to Rs. 100,000
• Insertion of new section 80TTB for senior citizen allowing saving interest deduction up to Rs. 50,000
• Non-applicability of section 194A, to interest on FD to senior citizen up to Rs. 50000 (AY 2018-19)
Corporates:
Insertion of new section 80PA
• 100% profit deduction to farm producer company having turnover up to Rs. 100 crores
• Benefit available for 5 years from FY 2018-19
Changes in section 80-IAC (Profit deduction to start-up)
• Benefit extended to start-up incorporated on or after 1 April 2019 but before 1 April 2021
• Turnover should not exceed Rs. 25 crores in next seven years from the date of incorporation
IFSC – measures to promote International FSC
• Insertion of clause 47(viiab) Transfer of capital assets by non-resident on recognized stock exchange in
IFSC being Bond or global depository receipts as referred in sub-section (I) of section 115A, Rupee
denominated bond of an Indian company or a derivative
• Reduction in rate of AMT from 18.5% to 9% in 115JC (AY 2019-20)
Changes in 80JJAA
• Reduction in minimum period from 240 days to 150 days in apparel industry, footware and leather
• Current provision also applicable to employee employed less than a minimum period in current year
remains an employee for minimum period in the subsequent year
Tax Scrutiny:
In order to make assessment transparent effort has been made to eliminate interface between assessing
officer and the taxpayer by making assessments online. It is thereby proposed to prescribe a new scheme
by insertion of Section 143(3A) for scrutiny assessments by way of notification in the Official Gazette.
18

Glossary
Act – Income-Tax, 1961 FY - Financial Year
AMT – Alternative Minimum Tax GST – Goods and Service Tax
ARE – Alternate Reporting Entity
HUF – Hindu Undivided Family
BEPS – Base Erosion And Profit Shifting ICDS - Income Computation and Disclosure Standard
CbCR – Country by Country Reporting
IFSC - International Financial Services Centre
CEO – Chief Executive Officer LTCG – Long Term Capital Gain
DAPE – Dependent Agent Permanent
Establishment
MAT – Minimum Alternate Tax
DDT – Dividend Distribution Tax MLI – Multilateral Instruments
DTAA – Double Tax Avoidance Agreement
OECD – Organisation for Economic Co-operation and
Development
DAPE – Dependent Agent Permanent
Establishment
PAN – Permanent Account Number
FMV – Fair Market Value TDS – Tax Deducted at Source
19

About TransPrice:
TransPrice is a tax firm focused on Transfer Pricing and international taxation. The firm's vision is 'to
provide high quality Tax and Transfer Pricing solutions and be an advisor of choice for the Indian
businesses'. TransPrice is a member firm of Quantera Global, a leading transfer pricing and valuation
specialist firm worldwide.
As much as an MNE would like to optimize its tax results, it equally would like to be compliant with laws of
the land for a smooth business operation. We understand that tax planning and compliance are one of the
key drivers for any Multinational Corporation in India and we provide expert tax solutions to balance the
two.
We add value with plethora of tax planning and structuring activities that helps you build effective tax
structures. We are aware that documentation is the heart of any Transfer Pricing solutions and we believe
in elaborate, extensive and contemporaneous documentation for our clients.
We advocate specialization and believe that focus is vital for expert advice, especially in the field of Tax
and Transfer Pricing , where every issue is unique..
We at TransPrice are strong advocates of research and knowledge base. Our continuous learnings and
updates in the field of Taxation and Transfer Pricing help us and our clients to stay up to date on various
key issues in an around Taxation and Transfer Pricing fraternity.
TransPrice releases a weekly dossier 'TransPrice Times', which provides fornightly updates to our clients,
members and associates.
20

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