BUDGET 2018 HIGHLIGHTS – DIRECT TAXES
Health and Education Cess
Section No. Proposed to be amended/inserted
36 & 40A
ICDS I: Accounting Policies
ICDS I provides that marked to market losses would not be allowed unless the same is in accordance with any other ICDS. Therefore, only Marked to market losses specifically permitted under any other ICDS would be allowable as deduction under section 36. Other marked to market losses would not be allowed as per section 40A.
ICDS VI: Effects of changes in Foreign exchange rates
Any gain or loss arising on account of effects of changes in foreign exchange rates in respect of specified foreign currency transactions shall be treated as income or loss.
ICDS III: Construction Contract
Profits arising from a construction contract or a contract for providing services shall be determined on the basis of percentage of completion method as per ICDS III except for certain service contracts. Contract revenue shall include retention money, and contract cost shall not be reduced by incidental interest, dividend and capital gains.
ICDS II : Valuation of Inventory
Valuation of inventory shall be made at lower of actual cost or net realizable value computed as per ICDS II: Valuation of Inventories. However, inventories being securities not listed on a recognised stock exchange with regularity from time to time, has to be valued at actual cost initially recognised . Other securities held as inventory would be valued at lower of actual cost or net realisable value.
Last year, the post demonetisation Union Budget witnessed changes in tax laws denying benefit of deductions from business income in respect of expenditure for which cash payment exceeds Rs.10,000 . However, such changes were not incorporated in the special taxation regime applicable to charitable trusts. Hence, charitable trusts were availing benefits even in respect of application of income by way of cash payments.
Proposed amendment: This year, the restrictive provisions are proposed to be made applicable to charitable trusts governed by the special taxation regime under section 10(23C) and 11 and 12. Furthermore, nondeduction of tax at source would now attract disallowance in the hands of the charitable trust also. This is a positive measure for bringing charitable trusts into the digital net.
Deduction in respect of employment of new employees
A deduction of 30% is allowed in addition to normal deduction of 100% in respect of emoluments paid to eligible new employees who have been employed for a minimum period of 240 days during the year under section 80JJAA.
However, the minimum period of employment is relaxed to 150 days in the case of apparel industry.
Proposed amendment: Section 80JJAA proposed to be amended to extend this relaxation to footwear and leather industry. Further, the deduction of 30% would also be available for a new employee who is employed for less than the minimum period during the first year but continues to remain employed for the minimum period in subsequent year. Such deduction would be available from the subsequent year.
Deduction in respect of income of Farm Producer Companies
Section 80P provides for 100 percent deduction in respect of profit of cooperative society which provide assistance to its members engaged in primary agricultural activities.
Proposed amendment: This benefit proposed to be extended to Farm Producer Companies (FPC), having a total turnover upto Rs 100 crore, whose gross total income includes any income from-
(i) the marketing of agricultural produce grown by its members, or
(ii) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or
(iii) the processing of the agricultural produce of its members.
The benefit shall be available for a period of five years from the financial year 2018-19.
Dividend Distribution tax on deemed dividend
Dividend distributed by a domestic company is subject to dividend distribution tax payable by such company. However, deemed dividend under section of 2(22)(e) is taxed in the hands of the recipient and no dividend distribution tax is currently being levied.
Proposed amendment: It is proposed to tax deemed dividend referred under section 2(22)(e) in the hands of company. Dividend distribution tax @30% without grossing up is proposed to be levied on the company.
Expanding scope of accumulated profits for deeming dividend
Accumulated profits for deeming dividend has been provided in section 2(22) as all profits of the company upto the date of distribution or payment or liquidation, subject to certain conditions.
Proposed amendment: The scope of accumulated profits for deeming dividend would include, in a case of amalgamated company, the accumulated profits of the amalgamating company also, whether capitalised or not, on the date of amalgamation.
Proposed amendment: It is proposed to extend the scope of section 80AC to provide that the benefit of deduction under the heading “C.—Deductions in respect of certain incomes” in Chapter VIA shall not be allowed unless the return of income is filed by the due date. It will now include its scope section 80P, 80PA, 80QQB and 80RRB.
Entities to apply for Permanent Account Number in certain cases
Section 139A, inter-alia, provides that every person specified therein and who has not been allotted a permanent account number shall apply to the Assessing Officer for allotment of a Permanent Account Number (PAN).
Proposed amendment: Section 139A proposed to be amended to provide that non-individual entities, which enters into a financial transaction of an amount aggregating to Rs. 2,50,000 or more in a financial year shall be required to apply to the Assessing Officer for allotment of PAN. Further, the managing director, director, partner, trustee, author, founder, karta, chief executive officer, principal officer or office bearer or any person competent to act on behalf of such entities would also apply to the Assessing Officer for allotment of PAN.
Prosecution for failure to furnish return
Section 276CC provides that if a person willfully fails to furnish in due time the return of income which he is required to furnish, he shall be punishable with imprisonment for a term, as specified therein, with fine. However, a person shall not be proceeded against under the said section for failure to furnish return if the tax payable by him on the total income determined on regular assessment as reduced by the advance tax, if any, paid and any tax deducted at source, does not exceed Rs. 3,000.
Proposed amendment: It is proposed to exclude company from such exemption of prosecution. Therefore, companies would be liable for prosecution for failure to furnish return even if there is no tax liability.
Rationalisation of prima-facie adjustments during processing of return of income
Section 143(1) provides for processing of return of income made under section 139, or in response to a notice under section 142(1). At the time of processing of return, the total income or loss shall be computed after making the adjustment, inter alia, in respect of addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return.
Proposed amendment: It is proposed to restrict the scope of adjustments in processing of return by providing that aforesaid adjustment shall not be made in respect of any return furnished on or after the assessment year commencing on the first day of April, 2018.
E-Assessments: A tax-payer friendly measure
The budget proposal to notify an electronic mode for assessment across the country will significantly reduce harassment of tax payers by the tax authorities and usher in greater efficiency and transparency in the assessment procedure.