Union Budget 2018: Expert Analysis by VGNC
Union Budget 2018:
Expert Analysis by VGNC
Vipin Garg gives a crisp analysis
of union Budget 2018; discusses positives and negatives and explains why he
feels the Budget will thrust the world’s largest democracy ahead on its agenda
of growth.
Amidst the usual
speculation of budgetary reforms, theexpectation
of common people and the world at large looking forward to the budget of one of
the fastest growing economy, the finance minister presented the Union Budget 2018.
Abstaining from all the temptation to make union budget a mirror of recent USA
tax reforms, the Finance Minister presented a budget that was more focused on
promoting the aspirations of New and Growing India and consolidate gains.
“The
highlight of Union Budget 2018 being therural
economy, agriculture, healthcare, infrastructure and MSMEs was not a surprise
at all. It was evident that the finance minister will aim for bullseye by
laying a robust foundation for growing economy to stand on and push the economy
ahead.” – Vipin Garg
The budget
brings transformational changes to all the crucial sectors while taking
additional measures for ensuring consistent growth. Alternative
investment and outbound direct investment are slightly touched in this
budget.
With the
Union Budget 2018, the Government’s intention to seek development through
reliance on technological advancement has continued. The emphasis has been
placed on theuse of technology for
various sectors, including education sector with thetheme of – blackboard to
digital board.
The
blockchain technology has been acknowledged which is a necessary element of thedigital economy. Mandatory e-audits by tax
authorities is a step forward to digitisation of theeconomy and Government processes.
Budget Highlights
Direct Taxes
Personal tax
·
No
change in tax slabs or tax rates for individual taxpayers.
·
Health
andEducation Cess at the rate of 4% of tax and surcharge to take place of
Education Cess and Secondary and Higher Education Cess
·
Standard
deduction provided from salary income in lieu of reimbursement of medical
expenses and transport allowance to be upto INR 40,000
·
Increased
sops for senior citizens
Company Tax
Business
Income Snippets
·
Rate
of income-tax to be 25% for domestic company if the total turnover or gross
receiptsof the FY 2016-17 does not exceed INR 2.5bn
·
Introduction
of retrospective amendments to regularise the compliance with the notified ICDS
·
Deemed
dividends u/s 2(22)(e) of the Act, on account of advancing loans and advances
to be subject to Dividend Distribution Tax
at 30%
·
Benefit
allowed to anew employee who is employed
for less than 240 days during thefirstyear
but continues to remain employed for 240 days in the subsequent year.
·
Minimum
employment period of 150 days extended to footwear and leather industry
·
Rationalisation
of provisions for companies seeking resolution under IBC, 2016, includingrelief
under MAT, relaxation from rigours of
section 79 of the Act, etc.
·
The
exemption on LTCG on listed securities to be withdrawn, subject to
grandfathering
·
In
respect of section 50C and section 56 of the Act, no adjustment to be made in
casevariation between stamp duty value and the sale consideration is not more
than 5% of the sale consideration
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.
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.
Partnership Firm/
LLP
Tax rates
remain unchanged except for “Health and Education cess”.
Effective tax rate of 31.2% if taxable income is less than INR 10 million and
34.94% if taxable income exceeds INR 10 million.
Individuals/
HUF/ BOI
Tax rates
remain unchanged except for effective increase in the rate of cess by 1% as
“Health and Education cess”.
MAT/ AMT
Tax rates
of both MAT and
AMT remain unchanged at 18.5% (plus applicable surcharge) except for
effective increase in the rate of cess by 1% as “Health and Education cess”.
Tax on
Dividends
Rate of DDT remains
unchanged at 15% (plus applicable surcharge of 12%) except for effective increase
in the rate of cess by 1% as “Health and Education cess”.
Further,
scope of DDT expanded to include deemed dividend under section 2(22)(e) and the
rate prescribed thereto is 30% (plus applicable surcharge and cess).
Non-resident
taxation
·
Dependent
agent to include habitual conclusion of contracts and principal role played in
conclusion of contracts
·
Significant
economic presence – business models which do not require physical presence
·
MAT
provisions not to apply to foreign companies opting for presumptive taxation
regime
Others
·
Plan
to be chalked to roll out e-assessment nationwide to impart greater
transparencyand accountability
·
Penal
and prosecution provisions made stringent for failure to furnish tax returns
/statement of financial transactions
·
Time-lines
for furnishing CbCR
extended to 12 months from the end of reportingaccounting year
·
Return
to be filed within timelines for claiming deductions for computing total income
Indirect Taxes
·
Amendments
made in Customs Act, 1962 from the perspective of ease of doing business and trade
facilitation like revised guidelines for Advance Rulings, electronic ledger,
customs automated system for clearances and dispute resolution
·
Rates
of Basic Customs Duty increased for various goods such as radial tyres; buses,
cars, truck and motorcycles in CKD condition; mobile phones; and smart watches
·
Rates
of Basic Customs Duty decreased for few goods such as inputs or parts for
manufacture of PCBA/ moulded plastics of charger/ adapter of cellular mobile
phones
·
Education
Cess and Secondary and Higher Education Cess replaced with Social
WelfareSurcharge to be levied on aggregate of duties of Customs except IGST and
GST
·
Compensation
cess in addition to other duties
·
Amendments
made in the taxation structure of petrol and high speed diesel by introducing
·
Road
and Infrastructure Cess without any change in effective rate of duty
Transfer
Pricing
As part of
the implementation of the BEPS Action Plan 13 regarding Three Tier TP Documentation,
India had introduced Country by Country Report (CbCR) requirements effective
from AY 2017-18. This required certain Indian headquartered MNEs, and in some cases
Indian affiliates of foreign headquartered MNEs, to file CbCR in India
reporting countrywisedetails of revenue, profits, taxes, number of employees,
etc. It is proposed to amend these provisions to align with OECD’s
recommendations as follows:
Ø The time limit for furnishing the
CbCR shall be 12 months from the end of the reporting accounting year, as
compared to the earlier time limit of return filing date; and
Ø CbCR shall also be required to be
filed in India by Indian affiliates of foreign headquartered MNEs, if there is
no obligation to file CbCR in the home jurisdiction and the parent has not
designated any Alternate Reporting Entity outside India.
Ø The above amendments are
clarificatory in nature and are applicable from AY 2017-18.
Customs Duty
Being the
first budget after the implementation of GST, the changes were primarily
limited to customs only. While there was no change in the merit rate of basic
customs duty, tofurther encourage “Make in India,” basic customs duty on
specified goods of food processing,electronics, auto sector, etc. was
increased. Apart from that, the focus was to align the customs law to ensure
ease of doing business and meeting the commitments of the Trade Facilitation
Agreement.
Rate of duty
Ø Median rate of basic customs duty
retained at 10%
Changes in Customs Act, 1962
Ø Scope of the Customs Act, 1962
expanded to cover any offence or contravention committedoutside India by any
person.
Ø “Assessment” to now include specific
aspects such as classification, duty, valuation,exemption or concession of duty
etc..
Ø “Indian customs waters” expanded to
exclusive economic zones.
Ø Expansion in scope of provisional
assessment to include exports as well.
Ø Process of pre-notice consultation
by the authorities before issuance of demand notice forrecovery of duty or
refund in cases other than collusion, suppression, etc.
Ø Supplementary show cause notice to
be issued in specified cases and subject to conditions.
Ø Definite time frame provided for
adjudication of demand notices including their extension.In the event the
demand notice is not adjudicated within the specified time periodincluding
extension, it would be deemed that no notice was issued.
Ø In cases where the extended period
due to collusion, suppression of facts, etc. is set asideby the appellate
authority, the demand pertaining to normal period of 2 years will sustainand a
proceeding will be undertaken on that basis.
Ø Expansion of the term “applicant” to
include any import or exporter, or any otherperson with justiciable cause to
the satisfaction of the authority.
Ø Empowering the Central Government to
include any matter on which Advance Rulingcan be sought.
Ø Reducing time limit for
pronouncement of ruling from 6 months to 3 months.
Ø Permitting appeal to the appellate
authority against ruling by the applicant or thecustoms authorities.
Ø Facility of electronic ledger for
payment of duty, interest, penalty, fee, etc., automatedsystem-based clearance
and audit notified.
Ø The requirement to pay redemption fine dispensed
with in cases of voluntary payment of alldues. Further, the option to pay
redemption fine to be void, if not paid within 120 daysfrom the date such
option was extended.
Ø Commissioner Appeals empowered to
remand cases to original adjudicating authority inspecific cases or
circumstances.
Ø Central Government to enter into an
agreement or arrangement for exchangeof information with any country for
facilitation of trade and enforcement of the CustomsAct, 1962.
Ø Valuation methodology for
computation of IGST and Compensation Cess for warehoused goods sold prior to
clearance for home consumption or export prescribed.
Central
Excise
Amendments
have been made in the taxation structure of petrol (motor spirit) and
high-speed diesel but the effective rate of duty on these products will remain
unchanged.
Excise duty on petrol and diesel (effective
from 02 February 2018)
Ø Road and Infrastructure Cess at INR
8 per litreto be levied on petrol and high-speed diesel.
Ø Abolishment ofadditional excise duty
of INR 6 per litre previously levied on petrol (vide Finance (No. 2) Act, 1998)
and high-speed diesel (vide Finance Act, 1999).
Ø Petrol and high-speed dieselbasic
excise dutyto be reduced by INR 2 per litre.
Ø No change in Special Additional
Excise Duty.
The net impact of
duty on petrol and high-speed diesel will remain unchanged.
Other exemptions (effective from 02 February 2018)
In line
with the excise duty exemptions accorded previously, the following exemptions
are also harmonised:
1) Road and Infrastructure cess levied
for the following products are exempt subject to payment of appropriate excise duties on petrol and diesel and GST on ethanol or
bio-dieselused for making such blends.
(i)
5% ethanol blended petrol.
(ii)
10% ethanol blended petrol.
(iii)
Bio-diesel, up to 20% volume.
2) 5 percent exemption from excise duty (i.e. Basic Excise Duty, Road and
Infrastructure Cess and Special Additional Excise Duty) on petrol and diesel
manufactured and cleared from four oil refineries in north-east India.
Service Tax
The retrospective exemption has been accorded to certain services from thelevy of service tax.
v Life insurance services provided by the Naval Group Insurance Fund
to personnel of coast guard under the Group Insurance Schemes of the Central
Government exempt from 10 September 2004.
v Services provided by the GST Network to the Central or State
Governments or the Union Territory administration exempt from 28 March 2013.
v Grant of license or lease for exploration of petroleum crude or natural gas by the Government for which the
Government receives a share of the profit petroleum exempt from 01 April 2016.
Refund can be claimed within 6 months from
enactment of the Finance Bill, 2018.
In conclusion, it is evident that the Union
Budget 2018 is building a strong foundation of New India. By placing reliance on technological advancement, the Finance
Minister has supported the growth-oriented
vision of the Prime Minister of thefastest growing economy.
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