RECENT AMENDMENTS IN SERVICE TAX

(AFTER FEBRUARY 2016 )

1. Rate of Service Tax:

It is proposed to continue to tax services at the rate of 14% plus Swach Bharat Cess of 0.5% i.e. effective rate of 14.50% till 30/05/2016. W.e.f 01/06/2016 an additional Cess of 0.5% on all taxable services known as Krishi Kalyan Cess to finance and promote initiatives to improve agriculture will be applicable. Thus, the Effective service tax rate from 1st June 2016 is increased from the existing rate of 14.50% to 15%. CENVAT Credit of this new cess will be available. However, no notification has been issued to this effect. It is expected that in due course of time notification to this effect may be issued.

Bifurcation of Service Tax

Basic service tax : 14%

Swachh Bharat Cess : 0.5%

Krishi Kalyan Cess : 0.5%

2. Clarification regarding scope of services of lottery distributor and selling agent:

Explanation 2 in section 65B (44) of the Finance Act, 1994 is being amended so as to clarify that, any activity carried out by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner, of the State Government as per the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998), is leviable to Service Tax.

3. Rationalization of Interest Rate:

This is a welcome move by the Finance Minister, wherein it is proposed to rationalize the Interest rates on delayed payment of duty/tax across all indirect taxes uniformly at 15% per annum. However, in case of Service Tax collected but not deposited to the exchequer, the rate of interest will be 24% per annum from the date on which the Service Tax payment became due. Further, in case of Assessee, whose value of taxable services in the preceding year/years covered by the notice is less than Rs.60 Lakh, the rate of interest on delayed payment of Service Tax will be 12%.[The above changes will come into effect on the day the Finance Bill receives the assent of the President.]

4. Clarity on deemed conclusion of proceedings against person liable under Section 78A:

It is proposed to provide that penalty proceedings under section 78A shall be deemed to be closed in cases where the main demand and penalty proceedings have been closed under section 76 or section 78, by making suitable changes to section 78A by addition of an explanation.

5. Increase in monetary limit for certain offences specified in Section 89:

The Finance Minister has proposed to rationalize the monetary limit in case of offences specified in Clause (a), (b) or (c) of Section 89 of Finance Act, to Rs.2 Crores against the existing limit of Rs.50 Lakhs, for imprisonment.

6. Restriction on power of arrest:

It is proposed to restrict the power to arrest in Service Tax only in situations where the tax payer has collected the tax but not deposited it to the exchequer, and that too above a threshold of Rs.2 Crores. Further, the monetary limit for launching prosecution is being increased from Rs.1 Crore to Rs.2 Crores of Service Tax evasion.

7. Broadening of tax base-Negative List pruned:

With the object of broadening the tax base, the list of services in the Negative List is proposed to be reduced by bringing the following services within the ambit of taxation of services, which were hitherto outside the levy of Service tax:

• Service of transportation of passengers, with or without accompanied belongings, by a stage carriage (w.e.f. 1st June 2016);
  
  
  However, such services by a non-air-conditioned contract carriage will continue to be exempted by way of exemption Notification No. 25/2012-ST, as amended by notification No. 09/2016-ST, dated 1st March 2016
  
  
  The service of transportation of passengers by air-conditioned stage carriage is being taxed at the same level of abatement (60%) as applicable to the transportation of passengers by a contract carriage, with same conditions of non-availment of Cenvat credit.

• Educational services by way of (a) pre-school education and education up to higher and secondary school or equivalent, (b) education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force and (c) education as a part of an approved vocational education course (This amendment would come into effect from the date of enactment of Finance Bill, 2016);
  
  
• Services provided by them by way of transportation of goods by a vessel from outside India up to the customs station in India (w.e.f. 1st June 2016).
  
  However such services by an aircraft will continue to be exempted by way of exemption Notification No. 25/2012-ST, as amended by notification No. 09/2016-ST dated 1st March, 2016.

8. Broadening of tax base-Declared services expanded:

With the object of broadening the tax base, the list of declared services is proposed to be expanded by bringing the Assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof within the ambit of taxation of services, which were hitherto outside the levy of Service.

This is done to as to make it clear that assignment of right to use the spectrum is a service leviable to Service Tax and not sale of intangible goods.

9. Broadening of tax base-Withdrawal of Exemptions:

In order to widen the tax base, the following exemptions are proposed to be withdrawn:

• Services provided by a senior advocate to an advocate or partnership firm of advocates or business entity having turnover up to Rs.10 Lakh in preceding financial year.
• Services provided by a person represented on an arbitral tribunal to an arbitral tribunal;
  
  Further, it has been clarified that the Service tax in above two cases would be payable by the service provider (effective from 1st April 2016).
  
  
  Exemption on transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway;
  
  
  (The above changes would come into effect from the 1st April 2016.)
  
  
  Exemption to construction, erection, commissioning or installation of original works pertaining to monorail or metro, in respect of contracts entered into on or after 1st March 2016;

10. Latest Exemptions:

The Finance Minister has proposed to provide the following new exemptions:

1. The services of life insurance business provided by way of annuity under the National Pension System (NPS) regulated by Pension Fund Regulatory and Development Authority (PFRDA) of India is being exempted from service tax;
2. Services provided by Securities and Exchange Board of India (SEBI) set up under SEBI Act, 1992, by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market are being exempted from service tax.
3. Services provided by Employees Provident Fund Organization (EPFO) to employees are being exempted from service tax.
4. Services provided by Biotechnology Industry Research Assistance Council (BIRAC) approved biotechnology incubators to the incubatees are being exempted from service tax.
5. Services provided by National Centre for Cold Chain Development under Department of Agriculture, Cooperation and Farmers Welfare, Government of India, by way of knowledge dissemination are being exempted from service tax.
6. Services provided by Insurance Regulatory and Development Authority (IRDA) of India are being exempted from service tax.
7. Services of general insurance business provided under, Niramaya Health Insurance scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability in collaboration with private/public insurance companies are being exempted from service tax.
8. The threshold exemption limit of consideration charged for services provided by a performing artist in folk or classical art forms of music, dance or theatre, is being increased from Rs 1 lakh to Rs 1.5 lakh per performance.
9. Services provided by way of skill/vocational training by Deen Dayal Upadhyay Grameen Kaushalya Yojana training partners are being exempted from service tax.
10. Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development & Entrepreneurship are being exempted from service tax.
11. Services by way of construction, erection etc. of a civil structure or any other original works pertaining to the “In-situ Rehabilitation of existing slum dwellers using land as a resource through private participation” component of Housing for All (HFA) (Urban) Mission / Pradhan Mantri Awas Yojana (PMAY), except in respect of such dwelling units of the projects which are not constructed for existing slum dwellers, is being exempted from service tax (w.e.f.1st March, 2016).
12. Services by way of construction, erection etc., of a civil structure or any other original works pertaining to the “Beneficiary-led individual house construction / enhancement” component of Housing for All (HFA) (Urban) Mission/ Pradhan Mantri Awas Yojana (PMAY) is being exempted from service tax (w.e.f.1st March, 2016).
13. Services by way of construction, erection, etc., of original works pertaining to low cost houses up to a carpet area of 60 sq.m per house in a housing project approved by the competent authority under the “Affordable housing in partnership” component of PMAY or any housing scheme of a State Government are being exempted from service tax (w.e.f.1st March, 2016).
14. Services provided by the Indian Institutes of Management (IIM) by way of 2 year full time Post Graduate Programme in Management(PGPM) (other than executive development programme), admissions to which are made through Common Admission Test conducted by IIMs, 5 year Integrated Programme in Management and Fellowship Programme in Management are being exempted from service tax (w.e.f.1st March, 2016).

11. Special Provision for exemption in certain cases:

The Finance Minister has proposed to provide the following which were withdrawn earlier:

Services provided to a Governmental Authority relating to Construction of canal, dam, etc. [Section 101]:

It is proposed that taxable Services provided to an specified authority, board or any other body set up by an Act of Parliament or a State Legislature or established by the government, by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of canal, dam or other irrigation works would not attract Service Tax for the period 1st July 2012 to 29th January 2014.

Where Service tax has already been paid for the above period, refund will be available provided such refund application is made within six months from the date on which the Finance Bill, 2016 receives the assent of the President.

• Services of construction provided to the Government, a local authority or a governmental authority, in respect of construction of govt. schools, hospitals etc.[Section 101]:
• Services of construction of ports, airports

The above two exemptions are proposed to be restored in respect of services provided under contracts which had been entered into prior to 1st March 2015 on payment of applicable stamp duty, with retrospective effect from 1st April 2015 to 29th February 2016.

(The above changes would come into effect retrospectively after enactment of the Finance Bill, 2016.)

12. Other exemption:

In order to avoid an overlap between Service Tax and Excise/ Customs Duty, a new exemption notification has been introduced in relation to information technology software recorded on a media in respect of which the Retail Sale Price is required to be declared under the provisions of the Legal Metrology Act, 2009.

13. Rationalization of Abatements:

• In cases where the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour, abatement of 90% is available with specified conditions. However, this abatement of 90% cannot be claimed in such cases where the invoice, bill or challan issued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation.
• Abatement rates in respect of services by a tour operator in relation to a tour other than above, is being rationalized from 75% and 60% to 70%.
• Services provided by foreman to a chit fund under the Chit Funds Act, 1982 are proposed to be taxed at an abated value of 70% (with abatement of 30%) subject to the condition that CENVAT credit of inputs, input services and capital goods has not been availed.
• For availing abatement of 60% on the gross value of renting of motor-cab services (provided no CENVAT credit has been taken.), the cost of fuel should be included in the consideration charged for providing renting of motor-cab services for availing the abatement.
• A uniform abatement at the rate of 70% is now being prescribed for services of construction of complex, building, civil structure, or a part thereof, subject to fulfillment of the existing conditions.
• It is proposed to continue with the same level of abatement for the service of transport of passengers by rail. However, benefit of CENVAT credit of input services for the said service is now available.
• A reduced abatement rate of 60% with credit of input services is being prescribed for transport of goods in containers by rail by any person other than Indian Railway.
• It is proposed to continue with the same level of abatement for the service of transport of goods by vessel. However, benefit of CENVAT credit of input services for the said service is now available.
• Abatement on transport of used household goods by a Goods Transport Agency (GTA) is being rationalized at the rate of 60% without availment of CENVAT credit on inputs, input services and capital goods by the service provider.

14. Amendments in Reverse Charge Mechanism:

Services provided by a mutual fund agent or distributor to a mutual fund or asset management company It is proposed to provide that the services provided by mutual fund agent/distributor to a mutual fund or asset management company, are being made taxable under forward charge with effect from 1st April 2016, so as to enable the small sub-agents down the distribution chain to avail small scale exemption having threshold turnover of Rs.10 Lakhs per year, subject to fulfillment of other conditions prescribed.

Services by Govt. or Local Authority Currently, Service tax is leviable on ‘Support service’ provided by Government or Local authority and such tax is collected under Reverse Charge mechanism.

It is now proposed to levy Service Tax on ‘Any Service’ instead of ‘Support Service’ provided by Government or Local Authority by expanding the scope of reverse charge to include ‘Any service’ provided by Government or Local authority to a business entity.

15. Section 73- Increase in period of limitation in cases not involving fraud, suppression etc.:

Section 73 of the Finance Act, 1994 is being amended so as to enhance the limitation period by one year, that is, from 18 months to 30 months for short levy/non levy/short payment/non-payment/erroneous refund of Service Tax.

16. Rebate to an exporter of Goods-Retrospective effect to Notification No. 01/2016:

Notification No. 41/2012- ST, dated the 29th June 2012 was amended by notification No.1/2016-ST dated 3rd February, 2016 so as to, inter alia, allow refund of Service Tax on services used beyond the factory or any other place or premises of production or manufacture of the said goods, for the export of the said goods.

Further, time period of one month is proposed to be allowed to the exporters whose claims of refund were earlier rejected in absence of amendment carried out vide notification No.1/2016-ST dated 3rd February 2016.

(This amendment is proposed to be made effective from the date of application of the parent notification i.e. 1 st July 2012).

17. Rationalization of Service Tax Rules, 1994:

• The benefits of (a) quarterly payment of service tax and (b) payment of service tax on receipt basis, which are available to individual and partnership firms, are being extended to One Person Company (‘OPC’) whose aggregate value of services provided is up to Rs.50 Lakhs in the previous financial year.
• The service tax liability on single premium annuity (insurance) policies is being rationalized and the effective alternate service tax rate (composition rate) is being prescribed at 1.4% of the total premium charged, in cases where the amount allocated for investment or savings on behalf of policy holder is not intimated to the policy holder at the time of providing of service.
• Recipient of services availed from foreign shipping line by a business entity located in India will get taxed under reverse charge at the hands of the business entity. 5 (which will come into effect from 1st June 2016)

18. CENVAT Credit:

With a view to simplify and rationalize the CENVAT Credit Rules, 2004, a number of amendments are being carried out in them. Following are the important changes relevant to Service tax:

• Service by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India is being excluded from the definition of ‘exempted service’. This would allow shipping lines to take credit on inputs and input services used in providing the said service.
• It has been provided that the CENVAT Credit shall not be utilized for payment of Infrastructure Cess that would be leviable as per the Finance Bill, 2016.
• It is being provided that CENVAT credit of Service Tax paid on amount charged for assignment by Government or any other person of a natural resource such as radio-frequency spectrum, mines etc. shall be spread over the period of time for which the rights have been assigned. It is also being provided that where the manufacturer of goods or provider of output service further assigns such right to use assigned to him by the Government or any other person, in any financial year, to another person against a consideration, balance CENVAT credit not exceeding the service tax payable on the consideration charged by him for such further assignment, shall be allowed in the same financial year. It is also being provided that CENVAT credit of annual or monthly user charges payable in respect of such assignment shall be allowed in the same financial year.
• Rule 6 of CENVAT Credit Rules, which provides for reversal of credit in respect of inputs and input services used in manufacture of exempted goods or for provision of exempted services, is being redrafted with the objective of simplifying and rationalizing the same without altering the established principles of reversal of such credit.
• Rule 7 of the Rules dealing with distribution of credit on input services by an Input Service Distributor is being completely rewritten to allow an Input Service Distributer to distribute the input service credit to an outsourced manufacturing unit also in addition to its own manufacturing units.
• Rule 9A of the Rules is being amended to provide for filing of an annual return by a manufacturer of final products or provider of output services for each financial year, by the 30th day of November of the succeeding year in the form as specified by a notification by the Board.
• The existing sub- rule (2) of rule 14 prescribes a procedure based on FIFO method for determining whether a particular credit has been utilized. The said sub-rule is being omitted. Now, whether a particular credit has been utilised or not shall be ascertained by examining whether during the period under consideration, the minimum balance of credit in the account of the assessee was equal to or more than the disputed amount of credit.

19. Refund of CENVAT Credit

Notification No. 27/2012 – C.E. (N.T.) is being amended so as to provide that time limit for filing application for refund of CENVAT Credit under Rule 5 of the CENVAT Credit Rules, 2004, in case of export of services, shall be one year from the date of –

• receipt of payment in convertible foreign exchange, where provision of service has been completed prior to receipt of such payment; or
• the date of issue of invoice, where payment for the service has been received in advance prior to the date of issue of the invoice.

20. Indirect tax Dispute Resolution Scheme, 2016

A scheme in respect of cases pending before Commissioner (Appeals) is proposed, wherein the Assessee, after paying the duty, interest and penalty equivalent to 25% of duty, can file a declaration, is being introduced. In such cases the proceedings against the Assessee will be closed and he will also get immunity from prosecution. However, this scheme will not apply in certain specified type of cases.

21. Annual Return

A new concept of furnishing of Annual Return is proposed to be introduced in service tax. Such annual return shall be required to be filed in addition to the existing system of Half Yearly returns.

Key features of the proposed Annual return are as under:

• Annual Return to be filed by All Assessees in addition to existing returns;
• Form and manner to be prescribed by CBEC;
• Return to be filed by 30 th November of succeeding financial year;
• CBEC may exempt certain Assessee or class of Assessees from filing Annual Return;
• Annual return can be revised within one month of date of filing Annual Return;
• Late fees of Rs.100/- per day upto maximum of Rs. 20,000/- for delayed filing of Annual Return;
• No revision of Belated Annual Return.

22. Other

Section 67A is being amended to obtain rule making powers in respect of the Point of Taxation Rules, 2011, so as to provide that the point in time when service has been provided or agreed to be provided shall be determined by rules made in this regard.

Section 93A of the Finance Act, 1994 is being amended so as to empower the Central Government to grant rebate by way of notification as well as the Rules.

(The above amendment in the rules would come into force with effect from the date of enactment of the Finance Bill, 2016).

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Service Tax Rates as applicable from 1st June 2016

Taxability under Service Tax w.e.f. June 1, 2016

S. No.	Particulars	Effective Service Tax Rate	Effective Swachh Bharat Cess Rate	Effective Krishi Kalyan Cess
A.	Generic Service Tax Rate	14%	0.50%	0.50%
B.	Service Tax on Non Taxable Services	0%	0%	0%
	Services provided in Non taxable Territory
	Services listed in Negative List
	Services provided without consideration
C.	Service Tax Rate on Wholly Exempted Services	0%	0%	0%
	Notification No. 25/2012-Service Tax dated 20.06.2012 (Mega Exemption),
	Notification No 33/2012-Service Tax (SSI Exemption),
	Notification No. 14/2012 – Service tax (Import of Technology),
	Notification No 32/2012-Service Tax (Services by TBI / STEP),
	Notification No. 12/2013 (Services to SEZ),
	Notification No. 29/2012- Service Tax (Property tax in renting),
	Notification No. 6/2013-Service Tax (Exemption against Focus Market Scheme Script),
	Notification No. 7/2013-Service Tax (Exemption against Focus Product Scheme Script),
	Notification No. 8/2013-Service Tax (Exemption against Vishesh Krishi and Gram Udyog Yojana),
	Notification No. 11/2015-Service Tax (Exemption against Service Exports from India Scheme),
	Notification No. 10/2015-Service Tax (Exemption against Merchandise Exports from India Scheme)

Rate of Service Tax post 01.06.2016 in case of Abated services

S. No.	Income Heads	Rates Effective From 01.06.2016
		Taxable Value	Effective Service Tax Rate	Effective Swachh Bharat Cess Rate	Effective Krishi Kalyan Cess	Total Effective Tax Rate
1	Services in relation to financial leasing including hire purchase	10%	1.40%	0.05%	0.05%	1.50%
2	Transport of Goods in containers by rail by any person other than Indian Railways	40%	5.60%	02.0%	0.20%	6%
2A	Transport of Goods by Rail other than as specified above	30%	4.20%	0.15%	0.15%	4.50%
3	Transport of Passengers with or without accompanied belongings by Rail	30%	4.20%	0.15%	0.15%	0.15%
4	Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises together with renting of such premises	70%	9.80%	0.35%	0.35%	10.50%
5	Transport of passengers by air with or without accompanied belongings in economy class	40%	5.60%	0.20%	0.20%	6.00%
5A	Transport of passengers by air in higher class	60%	8.40%	0.30%	0.30%	9.00%
6	Renting of inns, hotels, Guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes	60%	8.40%	0.30%	0.30%	9.00%
7	Services of goods transport agency in relation to transportation of goods other than household goods	30%	4.20%	0.15%	0.15%	4.50%
7A	Services of goods transport agency in relation to transportation of household goods	40%	5.60%	0.20%	0.20%	6.00%
8	Services provided by a foreman of chit fund in relation to chit	30%	4.20%	0.15%	0.15%	4.50%
9	Renting of motor cab designed to carry passengers	40%	5.60%	0.20%	0.20%	6.00%
9A	Transport of passengers, with or without accompanied belongings, by a contract carriage other than motor cab or a radio taxi or a stage carriage	40%	5.60%	0.20%	0.20%	6.00%
10	Transport of goods in a vessel	30%	4.20%	0.15%	0.15%	4.50%
11	Services by Tour operator in relation to Solely of arranging or booking accommodation	10%	1.40%	0.05%	0.05%	1.50%
11A	Services by Tour operator in relation to tours other than 15	30%	4.20%	0.15%	0.15%	4.50%
12	Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority	30%	4.20%	0.15%	0.15%	4.50%

Effective Rate of Service Tax post 01.06.2016 in case of Valuation

Particular	Taxable Value	Effective Service Tax Rate	Effective Swachh Bharat Cess Rate	Effective Krishi Kalyan Cess	Total Effective Tax Rate
Works Contract – Original Works	40%	5.60%	0.20%	0.20%	6.00%
Works Contract – Others	70%	9.80%	0.35%	0.35%	10.50%
Restaurant	40%	5.60%	0.20%	0.20%	6.00%
Outdoor Catering	60%	8.40%	0.30%	0.30%	9.00%

Rate of services where alternate rate is provided post 01.06.2016

Service Provider	Services	Effective Service Tax Rate	Effective Swachh Bharat Cess Rate	Effective Krishi Kalyan Cess	Total Effective Tax Rate
Money Changer	Services in relation to purchase or sale of foreign currency for an amount upto rupees 100,000	0.14%	0.005%	0.005%	0.15%
	Services in relation to purchase or sale of foreign currency for an amount exceeding Rs. 100,000 but upto rupees 1000,000	Rs. 140 + 0.07%	Rs. 5 + 0.0025%	Rs. 5 + 0.0025%	Rs. 150 + 0.075%
	Services in relation to purchase or sale of foreign currency for an amount exceeding Rs. 1000,000	Rs. 770 + 0.014%	Rs. 27.5 + 0.0005%	Rs. 27.5 + 0.0005%	Rs. 825 + 0.015%
Lottery	Guarantee payout more than 80%	Rs 8200 on every Rs 10 Lakh (or part thereof)	Rs 293 on every Rs 10 Lakh (or part thereof)	Rs 293 on every Rs 10 Lakh (or part thereof)	Rs 8,786 on every Rs 10 Lakh (or part thereof)
	Guarantee payout less than 80%	Rs 12,800 on every RS 10 Lakh (or part thereof)	Rs 457 on every Rs 10 Lakh (or part thereof)	Rs 457 on every Rs 10 Lakh (or part thereof)	Rs 13,714on every RS 10 Lakh (or part thereof)
Insurance	First year of Policy	3.50%	0.125%	0.125%	3.75%
	Subsequent years	1.75%	0.063%	0.063%	1.88%
Air Travel Agent	Domestic Travel	0.70%	0.025%	0.025%	0.75%
	Foreign Travel	1.40%	0.050%	0.050%	1.50%

Effective Rate of services in case of reverse charge post 01.06.2016

S. No.	Service	Rates Effective from June 1, 2016
		Taxable Value	Effective Service Tax Rate	Effective Swachh Bharat Cess Rate	Effective Krishi Kalyan Cess	Total Effective Tax Rate
1	Rent a Cab - with abatement	40%	5.60%	0.20%	0.20%	6.00%
2	Rent a Cab - without abatement	50%	7.00%	0.25%	0.25%	7.50%
3	Manpower Supply	100%	14.00%	0.50%	0.50%	15.00%
4	Security Services	100%	14.00%	0.50%	0.50%	15.00%
5	Payment to Advocates and Lawyers	100%	14.00%	0.50%	0.50%	15.00%
6	Payment to Sponsorship	100%	14.00%	0.50%	0.50%	15.00%
7	Transportation of Goods By Road	30%	4.20%	0.15%	0.15%	4.50%
8	Payment to Independent |Directors	100%	14.00%	0.50%	0.50%	15.00%
9	Works Contract-For Original Works	20%	2.80%	0.10%	0.10%	3.00%
10	Works Contract For Other Works	35%	4.90%	0.18%	0.18%	5.25%
11	Payment to Arbitral tribunal	100%	14.00%	0.50%	0.50%	15.00%

Key Changes / Amendments to take effect from June 1, 2018

The amendments under the Income tax Act, 1961 (“the Act”) have been discussed in the manner provided below:

 Amendments relating to Corporates

 Amendments relating to Individuals

 Amendments relating to Trusts

 Amendments relating to ICDS

 Amendments having impact on Foreign Currency Inflows

 Common Amendments

Rates of Income tax (FY 2017-18 vs FY 2018-19)

INDIVIDUALS:

Persons	FY 2017-18	FY 2018-19	Change
Individuals (< 60 years – Resident) & Non-Resident
0 – 2,50,000	0%	0%	No Change
2,50,001 – 5,00,000	5%	5%	No Change
5,00,001 – 10,00,000	20%	20%	No Change
Above 10,00,000	30%	30%	No Change
RESIDENT Individuals (>= 60 years)
0 – 3,00,000	0%	0%	No Change
3,00,001 – 5,00,000	5%	5%	No Change
5,00,001 – 10,00,000	20%	20%	No Change
Above 10,00,000	30%	30%	No Change
RESIDENT Individuals (>= 80 years)
0 – 5,00,000	0%	0%	No Change
5,00,001 – 10,00,000	20%	20%	No Change
Above 10,00,000	30%	30%	No Change

Important Points:

Rebate under Section 87A is available to a RESIDENT INDIVIDUAL having total income upto Rs. 3.50 lakhs. The amount of rebate shall be 100% of tax or Rs. 2,500 whichever is lower. Further, rebate shall be given before charging any Cess.

 Cess for FY 2017-18 is 3% (EC & SHEC) and for FY 2018-19 is 4% (HEC).

 TDS is required to be deducted including Surcharge & Cess in case of Non Resident.

 Surcharge is chargeable on Tax whereas Cess is to be charged on Tax plus surcharge.

Surcharge is used by the Government for construction of National Highways.

 Income here means Total Income and not Gross Total Income.

 Marginal Relief is available from the Surcharged tax.

 Based on 1st Schedule to Finance Bill, 2018.

Effective Tax for Individuals:

Particulars	F.Y. 2017-18	F.Y. 2018-19	Budget +/(-)
Income upto Rs. 2.50 lakhs	NIL	NIL	NIL
Income upto Rs. 3.00 lakhs	NIL	NIL	NIL
Income of Rs. 3.50 lakhs	2,575	2,600	+25
Income of Rs. 5.00 lakhs	12,875	13,000	+125
Income of Rs. 10.00 lakhs	1,15,875	1,17,000	+1,125
Income of Rs. 50.00 lakhs	13,51,875	13,65,000	+13,125
Income of Rs. 1 crores	31,86,563	32,17,500	+30,937
Income of Rs. 10 crores	3,53,12,906	3,56,55,750	+3,42,844

The above rates will change in case of resident aged > = 60 years.

The above figures are after considering rebate, surcharge and cess.

Rounding off u/s 288A and 288B has been ignored in the above calculation.

COMPANIES

Persons	F.Y. 2017-18	F.Y. 2018-19	Change
Domestic Companies
Turnover > Rs. 50 cr. in FY 15-16 & > Rs. 250 cr. in FY 16-17	30%	30%	No
Turnover > Rs. 50 cr. in FY 15-16 & <= Rs. 250 cr. in FY 16-17	30%	25%	Yes
Turnover < Rs. 50 cr. in FY 15-16 & > Rs. 250 cr. in FY 16-17	25%	30%	Yes
Turnover < Rs. 50 cr. in FY 15-16 & <= Rs. 250 cr. in FY 16-17	25%	25%	No
Foreign Companies
Tax Rate	40%	40%	No

Domestic Company means a Company which is an Indian Company OR any other Company which has made prescribed arrangements for declaration and payment of dividend in India.

Surcharge is chargeable on Tax whereas Cess is to be charged on Tax plus surcharge.

Surcharge is used by the Government for construction of National Highways.

Marginal Relief is available from the Surcharged tax.

The above discussion is based on Part-I & Part-III of the 1st Schedule to Finance Bill, 2018.

OTHER ASSESSEES

          Tax rate of 30% is applicable to Partnership Firms and LLPs.

     

      Surcharge @ 12% of tax is chargeable in case of Firms, LLPs if income > INR 1 crore.

      HUF/ AOP/ BOI/ AJP/ Trusts are chargeable at same rates as applicable to Individuals. No Change in rates of tax except Cess which has been increased from 3% in F.Y. 2017-18 to 4% in F.Y. 2018-19 in case of all assessees.

         

    Income received by member of HUF from HUF is exempt from tax in hands of member under Section 10 since the same is appropriation of profits.

I Income received by Partner from Firm (except salary, interest, fee, commission etc.) is exempt from tax in hands of Partner under Section 10 since the same is appropriation of profits.

           Amendments relating to Corporates

The Following amendments solely impact the tax liabilities of Corporates: Application of Dividend Distribution Tax (DDT/CDT) to Deemed Dividend – 115-O;

Plugging of lacuna in case of Amalgamation – 2(22);

Deductions from Income of Farm Producer Companies – 80P;

Exemption on Sale of stock of crude oil by Foreign Company – 10(48B);

Benefits to Companies under Insolvency Proceedings – Section 79 & 115JB;

Provisions under the Act till Finance Act, 2017

Section 115-O of the Income tax Act, 1961 (“the Act”) requires a Domestic Company to pay dividend distribution tax (DDT) @ 20.3576% (including surcharge and cess) {WITH NEW CESS, the rate is 20.5553%} in case of declaration of dividend to its shareholders.

Section 115BBDA of the Act provides that in case of resident Individuals, HUF or Firm, if the dividend (other than dividend under Section 2(22)(e) of the Act) is more than Rs. 10 lakhs to a shareholder, then tax @ 10% will be charged from such shareholder. All other dividends covered under Section 115-O are exempt from tax under Section 10(34) of the Act. 115-O further provides that DDT is not applicable to dividends referred to in Section 2(22)(e) of the Act. Section 2(22)(e) provides that if a Closely held Company gives any Loan or Advance (other than trade) to any of its beneficial shareholder holding 10% or more voting power or to any concern in which such shareholder is substantially interested, then such loans and advances shall be deemed to be dividend.

Amendment made by Finance Bill, 2018

Now, Section 115-O and related sections have been amended in order to provide that dividends referred to in Section 2(22)(e) of the Act are also part of Section 115-O and chargeable to DDT @ 30% (instead of 20.5553%).

However, no change has been made in Section 115BBDA and Section 10(34) of the Act. Post Amendment, It can be inferred that:

♦ Deemed Dividend u/s 2(22)(e) is chargeable to DDT @ 30% in hands of closely held co.

♦ Since Section 115BBDA of the Act do not cover above dividend, hence the same is wholly exempt from tax under Section 10(34) of the Act even exceeds Rs. 10 lakhs.

♦ TDS under Section 194 of the Act is not required to be deducted since such dividend is now covered under Section 115-O of the Act. Before amendment, the shareholders of A Ltd. enjoy cash by reduction of capital without implying Section 2(22)(d) of the Act.

Finance Bill, 2018 has made the amendment and provided that at the time of reduction of capital by amalgamated company, accumulated profits of amalgamating company on amalgamation date will also be included. Deductions from Income of Farm Producer Companies

New Section inserted for 100% deduction

♦ A new Section 80PA has been inserted under the Act in order to provide that 100% of the gross total income of Producer Company shall be exempt if following conditions are satisfied:

√ Turnover in the relevant previous year is less than Rs. 100 crores; 

Such Producer Company shall be engaged in marketing, processing of agricultural produce of members, purchase of agricultural implements, seeds, and livestock for the use of members.

√ Deduction can be taken from FY 2018-19 to FY 2024-25.

Important Points

• Producer Company means a body corporate having objects or activities in relation to production, marketing, selling, export of agriculture produce of member, providing machinery, education, consultancy to members in relation to production activities.

• A separate chapter governs the formation and operations of a Producer Company under Indian Company Law

• Exemption on Sale of stock of crude oil by Foreign Company

• The provisions of Section 10(48), 10(48A) and 10(48B) of the Income tax Act, 1961 exempts the following Incomes of a foreign company:

• > Income received in India on account of Sale of crude oil as per the agreement approved by the Central Government – Section 10(48).

• > Income accrue or arise in India on account of storage of crude oil in India and sale of crude oil therefrom in India as per the agreement approved by Central Government – Section 10 (48A).

Now Finance Bill, 2018 has made the amendment that even in case of termination of agreement, exemption benefit under Section 10(48B) will be available to such foreign company. Benefits to Companies under Insolvency Proceedings

Provisions before Amendment

• The provisions of Section 79 of the Income tax Act, 1961 provides that no loss can be carried forward and set off in case of change in shareholding by more than 51% from the loss year to set off year.

• For Example, If Loss relates to FY 2015-16 which is tested for set off in FY 2018 19, at-least 51% of the voting power of shareholders must be same in both years.

• Further, Section 115JB allows the benefit of brought forward losses OR unabsorbed depreciation (as per books), whichever is lower from the Book Profits computed under the provisions of Minimum Alternate Tax (MAT).

• Companies which are under the Insolvency proceedings are under a lose-lose situation due to above two provisions since upon taken over by others, losses will be lapsed. Further, if any of the loss or unabsorbed depreciation as per books is NIL, then there would be no benefit under MAT.

Amendment made by Finance Bill, 2018

• Section 79 of the Act has been amended in order to provide that the provisions of Non Carry forward of loss will not be applicable in case of a Company whose resolution plan has been approved under Insolvency and Bankruptcy Code, 2016 (IBC, 2016).

• Section 115JB of the Act has been amended in order to provide that in place of “Lower of Brought Forward Loss or Unabsorbed Depreciation”,  “Aggregate of Brought Forward Loss and Unabsorbed Depreciation” will be allowed to a Company whose resolution plan has been approved.

• This will benefit the acquisitions of Companies which are under the proceedings of IBC, 2016.

Amendments in relation to Individuals

The Following amendments solely impact the tax liabilities of Individuals:

• Amendments made under the head Salaries –16 and 17

• Enhancement of quantum of deduction of Medical Insurance – 80D;

• Enhancement of quantum of deduction for specified disease – 80DDB;

• Interest Income of Senior Citizens – 80TTA and 80TTB;

Amendments made under the head Salaries

Amendment made by Finance Bill, 2018 in Section 16 and Section 17

♦ Finance Bill, 2018 has introduced Standard Deduction amounting to INR 40,000 from Gross Salary as a benefit to the Salaried Employees. Now, total three deductions are available under the head Salaries:

> Deduction of Professional Tax Paid (for All Employees);

> Deduction of Entertainment Allowance (only for Government Employees);

> Standard deduction of INR 40,000 (for All employees).

♦ It has further withdrawn the benefit of medical reimbursement which was earlier available to the extent of INR 15,000. Further, Exemption upto INR 19,200 w.r.t. transportation allowance for commuting between office and residence has also been withdrawn.

♦ Hence, the benefit which has been given under the head Salaries is nominal i.e. Rs. 5,800. Also, employee is not required to submit any bill as earlier in case of medical reimbursement.

♦ Please note that amendments will apply for Salary Income earned from 

F.Y. 2018-19 onwards.

Enhancement of quantum of deduction of Medical Insurance

Provisions applicable till F.Y. 2017-18

♦ Deduction allowable to Individuals

Self + Spouse + Dependent Children : Rs. 25,000 or less.

AND 

Father + Mother (Dependent or not) : Rs. 25,000 or less.

♦ Increased deduction :

In case the insurance is taken for resident Senior Citizen (>= 60 years), then deduction shall be Rs. 30,000 for each of above instead Rs. 25,000. Further, in case of Super Senior Citizen (age >= 80 years), medical expenditure upto Rs. 30,000 will also be allowed under this section subject to overall limit.

♦ Preventive health check-up

Expenditure incurred on preventive health check-up within above limit can be Rs. 5,000.

♦ Permitted mode of payment

The payment shall be made otherwise than by Cash. Payment in cash for preventive health check-up is permissible.

♦ To HUF: Deduction allowable for any family member upto Rs. 30,000 (check-up not allowed)

♦ Now, Section 80D of the Act has been amended in order to provide that the deduction in respect of Senior Citizen will now be available with a new cap of INR 50,000 instead of INR 30,000.

♦ Further, the benefit of deduction in respect of medical expenditure is also available in case of Senior Citizen having age > = 60 years.

♦ For HUF also, the deduction has been increased from INR 30,000 to INR 50,000.

♦ However, the limit of INR 25,000 is intact for Individuals and family members in case the age is < 60 years.

♦ Post Amendment, the maximum deduction which can be allowed under this section can be INR 1,00,000 if all the insured persons are Senior Citizens.

♦ Further, amount paid for insurance taken for more than one year will now be allowed proportionately. Enhancement of quantum of deduction for specified disease

Section Overview

• Section 80DDB of the Act provides for a deduction to a resident Individual and HUF for medical treatment of specified disease of dependent amounting to INR 60,000 in case of Senior Citizen and INR 80,000 in case of Very Senior Citizen

• Senior Citizen means Individual aged 60 years or more and Very Senior Citizen shall mean Individual with age 80 years or more.

• Specified disease includes Chorea, Cancer etc.

Amendment made by Finance Bill, 2018

• Post Amendment, the deduction which can be allowed under this section can be INR 1,00,000 for any type of Senior Citizen. Interest Income of Senior Citizens

Section Overview

• Section 80TTA of the Act provides that deduction amounting to INR 10,000 (maximum) is allowed to an Individual or HUF for Interest Income earned on saving account.

• Section 80TTA is not applicable on Interest Income earned on Fixed Deposits/ Time Deposits.

• Now, Finance Bill, 2018 has inserted a new Section 80TTB in order to provide that Senior Citizens are allowed a deduction of upto INR 50,000 in respect of Income earned by such Senior Citizens from Deposits (Saving Account, Fixed Deposits and Time Deposits).

• Further, in case of Senior Citizens, TDS will be deducted if the Income exceeds INR 50,000. (Amendment made in Section 194A).

• No deduction under Section 80TTA shall be allowed to such Senior Citizens.

• Only those deposits are covered which are held with Banking Company, Post Office or Co-operative Societies.

Amendments in relation to Trust

Applicability of Section 40A(3), 40A(3A) and Section 40(a)(ia) in case of Trusts

• Income of a religious and charitable trust registered under the Act is taxable under the head “Other Sources”.

• Now, Finance Bill, 2018 has made an amendment in order to provide that provisions of Section 40A(3), 40A(3A) and 40(a)(ia) shall also apply to religious or charitable trusts.

• Accordingly, no deduction is allowable for any expenditure:

> Exceeding INR 10,000 made to a person in a day by cash mode; or

> Payment of Outstanding Balance exceeding INR 10,000 to a person in a day by cash mode;

> 30% of the amount of expense will be disallowed in case such trust do not deduct any TDS on payments being made to residents.

• The same applies to trusts governed by Section 10(23C) and Section 11 & 12 of the Act.

Amendments relating to ICDS

• Income Computation and Disclosure Standards (ICDS) provides the accounting treatment to be given to certain transactions under the head “PGBP” and “Other Sources”.

• The provisions of ICDS have overruled certain judicial precedents given by Hon’ble Supreme Court and various High Courts.

• Hon’ble Delhi High Court in the case of writ petition filed by Chamber of Tax Consultants (CTC) have struck down certain provisions of the ICDS ruling that the same cannot overrule the landmark judgments given by various courts. The reasons for such struck down is that the provisions of ICDS have been introduced vide Rules which have been framed by Central Board of Direct Taxes (CBDT) and do not have any statutory backing from parliament.

• Finance Bill, 2018 has made some amendments under the Income tax Act, 1961 in order to give the statutory backing to the treatment prescribed by ICDS.

• Some new sections and provisions have been inserted which have concluded the treatments as below:

> Mark to Market loss computed in accordance with ICDS shall be allowed as deduction from the Income under PGBP – Section 36(1)(xviii).

> Foreign Exchange Gains/Losses arising on account of change in rates of exchange shall be allowed as deduction in accordance with ICDS. This means that loss and gains of capital nature other than Section 43A are also taxed or allowed as deduction in the year of realization or restatement, as the case may be – Section 43AA.

> Income from Construction Contracts or Service Incomes shall be determined as per percentage of completion method (PCM) (except service contracts for a period of upto 90 days which can be recognized on full completion)– Section 43CB;

> Inventory shall be valued at Cost or NRV whichever is lower computed in manner as per ICDS – Section 145A.

• ICDS continued:

> Listed Securities shall be valued at Cost or NRV whichever is lower (in case held as stock) – Section 145A

> Unlisted/ Unquoted Securities shall be valued at initial cost – Section 145A.

> Interest on compensation or enhanced compensation shall be taxable on receipt basis – Section 145B

> Escalation claims and Export incentives shall be recognized as Income when reasonable certainty is achieved – Section 145B.

> Subsidy, Grant, Cash Incentives, Duty Drawback etc. are recognized as Income of the year in which such amount is received – Section 145B.

• The amendments are retrospective and applicable from FY 2016-17 onwards.

Amendments having impact on Foreign Currency Inflows

♦ Amendment relating to Presence of Digital Companies and Dependent Agents

> Before Amendment, what we see is only physical presence of Non-resident or his dependent agent for the purpose of determining Income accruing or arising in India.

> Finance Bill, 2018 has made an amendment under Section 9 of the Act in order to provide that significant economic presence will also be deemed as “Business Connection” for the purpose of Section 9.

>  Significant Economic Presence means transactions in respect of goods, services or property carried out by a non-resident in India including downloading of software etc. if such transactions exceed the prescribed amount OR by way of soliciting or interacting with prescribed users by digital means.

> Amendment has been made for extending the dependency of agent not only who concludes contracts but also who substantially negotiates contracts on behalf of Non¬resident.

♦ Long-term Capital Gain to FIIs

> Before Amendment, Section 10(38) exempts the income of any person arising from long¬term capital gains on sale of listed shares, units of equity oriented fund etc. The same also includes LTCG of FIIs from such securities.

> Finance Bill, 2018 has made an amendment under Section 115AD of the Act in order to provide that 10% tax will be levied in case such LTCG exceeds Rs. 1 lakh.

> The other discussion of Section 112A of the Act by which section such amendment has been introduced has been discussed under Common Topics.

Common Amendments

The amendments which are not related to a specific person are as follows:

♦ Introduction of LTCG tax on Sale of Listed Securities – Section 112A.

♦ Introduction of DDT on dividend paid by MF on Equity Oriented Units – Section 115R.

♦ Incentives for Employment generation – Section 80JJAA

♦ Rationalization of Section 43CA, Section 50C and Section 56.

♦ Provisions relating to conversion of stock in trade into capital asset .

Other Common Amendments:

> Amendment under presumptive taxation in case of goods carriage – Section 44AE.

> Measures to Promote Start-ups – Section 80-IAC.

> Mandatory Application of PAN in certain cases – Section 139A.

> Trading in agriculture commodities – Section 43(5)

> New Scheme for Scrutiny Assessment – Section 143.

> Prosecution relating to failure to furnish return of income – Section 276CC.

Introduction of LTCG tax on Sale of Listed Securities

♦ Long-term and Short-term criteria (Section 2(42A)):

12 months criteria:

> Listed Shares & Debentures.

> Units of UTI.

> Units of Equity Oriented Fund.

> Zero Coupon Bond.

24 months criteria:

> Unlisted Shares.

> Immovable Property.

36 months criteria:

> All other assets including units of debt owned funds.

♦ We will discuss in this topic tax implications of LTCG on listed shares, Units of Equity Oriented Fund.

♦ Before amendment, Section 10(38) of the Act provides that LTCG arising o transfer of listed equity shares or units of equity oriented fund is exempt from tax provided:

> STT has been paid; and

> transaction of both purchase and sale has been taken on recognized stock exchange.

♦ In order to take the same under tax net, Finance Bill, 2018 has introduced Section 112A of the Act in order to provide that:

> Tax @ 10%  of the LTCG shall be charged.

> The tax will be charged only if LTCG of such nature exceeds Rs. 1 lakh.

> No Benefit of indexation  shall be allowed on such gains.

♦ No tax will be levied if the sale has been made till March 31, 2018 since the budget is applicable from April 01, 2018.

♦ If the asset is acquired on or after February 01, 2018, actual cost will be considered for the purpose of calculation.

Introduction of LTCG tax on Sale of Listed Securities

♦ If the asset is acquired on or before January 31, 2018, then cost of acquisition shall be

> Actual Cost of Acquisition; OR

> Lower of Sale Value or Fair Market Value;

Whichever is higher.

♦ The restriction upto “lower of sale value” is provided so that no long term capital loss shall arise on such computation.

Section overview

♦ Section 115R of the Income tax Act, 1961 provides that a Mutual Fund is required to pay DDT on dividend distributed by it to the unit holders at the rate of:

> 38.83% (25% plus Surcharge plus Cess after grossing up)

– Income distributed to Individual or HUF.

> 49.92% (30% plus Surcharge plus Cess after grossing up)

– Income distributed to any other person.

♦ Section further provides that no DDT is required to be paid in respect of amounts paid to holders of units of equity oriented funds.

Amendment made by Finance Bill, 2018

♦ Finance Bill, 2018 has made an amendment under the Act in order to provide that the amount paid to holders of units of equity oriented funds shall be chargeable to DDT @ 12.94%. (i.e. 10% plus Surcharge plus Cess after grossing up).

Incentives for Employment Generation

♦ Deduction under Section 80JJAA of the Act is allowed to a Tax Audit assessee.

♦ Deduction is allowed @ 30% of the additional employee cost incurred during the previous year for 3 consecutive years i.e. total 90% deduction will be allowed under this Section.

♦ Deduction is allowed only if the following conditions are satisfied:

> There should be an increase in number of employees in current year vis-à-vis preceding financial year.

> Salary or wage shall be paid other than cash mode.

> Only those employees will be treated as additional employees:

√ Whose salary is upto INR 25,000; AND

√ Contributing in provident fund; AND

√ Employed for 240 days or more in the year (150 days or more for apparel industry).

♦ Finance Bill, 2018 has made an amendment to Section 80JJAA of the Act in order to provide that benefit of 150 days or more will also be available to shoes and leather industry.

♦ Further, Employed days (240/150) can be completed subsequent to joining year also. Rationalization of Section 43CA, Section 50C and Section 56

♦ Section 43CA: It provides that in case the consideration for transfer of stock in trade, being land or building, is less than the stamp duty value, then Stamp Duty Value shall be deemed to be the sale price of such stock – Section for PGBP.

♦ Section 50C: It provides that in case the consideration received or receivable from transfer of a capital asset, being land or building, is less than the stamp duty value, then Stamp Duty Value shall be deemed to be the full value of consideration – Section for Capital Gains.

♦ Section 56(2)(x): It provides that in case a person receives any immovable property at a value less than the stamp duty value by INR 50,000, then the balance shall be treated as Income from other sources – Section for Other Sources.

♦ Finance Bill, 2018 has made an amendment under the above sections in order to provide that difference upto 5% between actual consideration and stamp duty value shall be ignored.

♦ The amendments are effective from F.Y. 2018-19 onwards. Provisions relating to conversion of stock into capital asset

♦ Income tax law currently provides provisions for conversion of capital asset into stock in trade. The taxability in such cases shall be as under:

> Fair Market Value on the date of conversion shall be the full value of consideration to be taken for capital gains purpose.

> Actual Cost of capital asset shall be taken as the cost of acquisition of such stock.

> Period of holding will be the period starting from acquisition date to conversion date.

> The Capital Gains are taxable in the year in which stock will be sold.

♦ Amendment: New Provisions have been introduced for the vice-versa cases of conversion of stock-in-trade into capital assets. The taxability in such cases shall be as under:

> The Fair Market Value on the date of conversion shall be deemed to be the Sale price under the head PGBP.

> Cost will be considered as actual cost of purchase of stock-in trade.

Other Common Amendments

Amendment under presumptive taxation scheme in case of Goods Carriage – Section 44AE

♦ Section 44AE of the Act provides a presumptive taxation scheme for the  transporters having upto ten (10) vehicles at any time during the previous year. It provides that such transporters have an option to declare Income @ 7,500 per month or part thereof per vehicle.

♦ Finance Bill, 2018 has made an amendment in Section 44AE of the Act in order to provide that for vehicles having more than 12MT gross weight, then instead of INR 7,500 per month per vehicle, INR 1,000 per tonne capacity per month per vehicle shall be deemed as Income.

Measures to Promote Start-ups

♦ Section 80-IAC of the Income tax Act, 1961 provides 100% deduction to start ups for 3 consecutive years out of seven years if it is incorporated between 01.04.2016 to 31.03.2018 and the turnover is upto INR 25 crores per year between 01.04.2016 to 31.03.2021.

♦ Finance Bill, 2018 has made an amendment in order to provide that start-ups incorporated between 01.04.2019 to 31.03.2021 can also avail the benefit of this Section. Further, turnover limit of INR 25 crores is applicable for first seven years from start date. Start-up can be of such type which can generate employment or create wealth substantially.

Mandatory Application of PAN in certain cases

♦ Section 139A of Act has been amended in order to provide that:

> PAN is mandatory for such non-individual entities which enters into financial transaction valuing more than INR 2.50 lakhs.

> PAN is also mandatory for the authorized signatories of such entities irrespective of their financial transactions and income.

Trading in Agriculture Commodities

♦ Amendment has been made under Section 43(5) of the Act in order to provide that trading in agriculture commodities will also be considered as non-speculative transaction instead of speculative transaction.

♦ Post Amendment, loss from trading in agricultural commodities can also be set off from other non-speculative business losses.

♦ Further, such loss can now be carried forward for 8 AYs instead of 4 AYs.

New Scheme for Scrutiny Assessment

♦ The Government is introducing e-assessment scheme for all assessment proceedings under the Act.

♦ Section 143 have been amended in order to give power to the CG for new scheme which will be laid down as soon as may be in Parliament.

Prosecution relating to failure to furnish return of income

♦ Section 276CC of the Act provides that in case an assessee fails to furnish ROI upto the end of assessment year, then he shall be liable to following:

> Imprisonment of 6 Months – 7 Years with fine: If tax evaded exceeds INR 25 lakhs;

> Imprisonment of 3 Months – 2 Years with fine: If tax evaded is upto INR 25 lakhs.

♦ The above provisions are not applicable if tax amount is less than INR 3,000.

♦ Finance Bill, 2018 has made an amendment under the Act in order to provide that the limit of INR 3,000 is not applicable to a Company in order to mandate all companies to file ROI.

AMENDMENTS UNDER THE INDIRECT TAX LAWS

♦ Since GST Council takes decisions in relation to Goods and Service Tax (GST) Law, no amendment has been brought in by the Hon’ble Finance Minister in Financial Bill, 2018 in respect of GST law.

♦ However, certain amendments have been made under Excise Laws, Service tax Laws and Custom Laws.

♦ Amendments under the Service tax Law have been made for some issues relating to pre GST regime. For example, services given by GSTN to Government is proposed to be exempt from service tax for the period between 28.03.2013 to 30.06.2017.

♦ Amendments made under the Excise laws are on account of some contra adjustments in relation to levy of Excise Duty on Petrol and Diesel resulting into insignificant impact.

Central Board of Excise and Customs (CBEC) has been renamed as “ Central Board of Indirect taxes and Customs (CBIC)

Major changes in Custom Duty rates are as follows:

Particulars	Before Budget	After Budget
Beauty Products	10%	20%
Mobile Phones	15%	20%
All types of Imported Watches	10%	20%
Imported furniture	10%	20%
Sunglasses	10%	0%
CKD (Completely Knock Down) Imports of vehicles	10%	15%
CBU (Completely Build Units) Imports of vehicles	20%	25%
EC and SHEC (Cess)	3%	0%
Social Welfare Surcharge (SWS)	0%	10%
SWS on Gold, Silver and Motor Spirit	0%	3%

       ------------------------------------------------------------------------------------------

Key Changes / Amendments to take effect from June 1, 2016

1. Equalisation Levy

Section 10

Under section 10, a new Clause 50 has been inserted that provides for exemption of income from “specified services” chargeable to equalization levy wherein “specified service” shall have mean as given in section 161(i) of Chapter VIII of the Finance Act, 2016.

Section 40(a) (Expense disallowance provision)

A new clause (ib) has been inserted in section 40(a) that provides that the expenses incurred for “specified services” chargeable under this Chapter shall not be allowed as deduction in case assessee fails to deduct and deposit the equalisation levy with the government. Where it has been deducted in the subsequent year or has been deducted during the previous year but paid after the due date, it shall be allowed as deduction in the previous year in which it has been paid.     

A new Chapter VIII has been inserted in Finance Act, 2016 with respect to Equalisation levy.

2. Income Declaration Scheme, 2016

A one-time disclosure scheme i.e Income Declaration Scheme, 2016 for declaration of undisclosed income of any financial year upto 2015-16 was added in Finance Bill 2016. The same is to be brought w.e.f. June 1, 2016 and it is to remain open up to the date1 to be notified by the Central government in the Official gazette.

Section 153A or 153C (Assessment in cases of search

The Income Declaration Scheme, 2016 shall not be applicable in case where notices have been issued under section 153A or 153C.

3. New Direct Tax Dispute Resolution Scheme, 2016

A new Direct Tax Dispute Resolution Scheme, 2016, has been provided, salient features of which are:

a) The scheme to be applicable to "tax arrears" (including tax, interest or penalty) determined under    the Income-tax Act or the Wealth-tax Act, 1957 in respect of which appeal is pending before CIT(A)/CWT(A) as on February 29, 2016 ;

b) The declarant under the scheme be required to pay tax at the applicable rate plus interest upto the date of assessment. However, in case of disputed tax exceeding rupees ten lakh, 25% of the minimum penalty leviable shall also be required to be paid;

c) Consequent to such declaration, appeal in respect of the disputed income and disputed wealth pending before the Commissioner (Appeals) shall be deemed to be withdrawn.

4. New taxation regime for Securitization Trusts:

Section 115TC (Tax on income from securitization trusts)

Section 115TC provides for situations where a securitization trust defaults in payment of tax and is considered to be assessee in default. Following changes are made therein:

In clause (a), “or security receipt” has been inserted in the definition of “investor”;

In sub-clause (ii), “or” is inserted after the words “Reserve Bank of India”,

A new sub-clause has been added to the definition of securitization trust thereby expanding its definition;

Clause (e) has been added to define “security receipt”, which shall have the same meaning as given in section 2(1)(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

A new Chapter XII-EB i.e. ( Special Provisions relating to tax on accreted income of certain trusts and institutions) has been added to provide for levy of additional income-tax in case of conversion into, or merger with, any non-charitable form or on transfer of assets of a charitable organization on its dissolution to a non-charitable institution. For this, Section 115TD, 115TE and 115TF have been inserted.

Section 194LBC: (TDS on income in respect of investment in securitization trust)

A new section 194LBC is inserted after Section 194LBB.

Sub – section (1) provides that where any income is payable to an investor who is a resident in respect of an investment in a securitisation trust specified in clause (d) of the Explanation occurring after section 115TCA, then the person responsible for making the payment shall deduct tax at source at the rate of 20%, if the payee is an individual or a HUF; or 30% if payee is any other person

Sub – section (2) provides that where any income is payable to an investor a non-resident or a foreign company in respect of an investment in a securitisation trust specified in clause (d) of the Explanation occurring after section 115TCA, then the person responsible for making the payment shall deduct tax at source at the rates in force.

5. TDS Provisions:

Increase in threshold limit of deduction of tax at source on various payments mentioned in the relevant sections :

Present Section	Heads	Existing Threshold Limit (Rs.)	Amended Threshold Limit (Rs.)
192A	Payment of accumulated balance due to an employe	30,000	50,000
194BB	Winnings from Horse Race	5,000	10,000
194C	Payments to Contractors	Aggregate annual limit of 75,000	Aggregate annual limit of 1,00,000
194LA	Payment of Compensation on acquisition of certain Immovable Property	2,00,000	2,50,000
194D	Insurance commission	20,000	15,000
194G	Commission on sale of lottery tickets	1,000	15,000
194H	Commission or brokerage	5,000	15,000

Revision in rates of deduction of tax at source on various payments mentioned in the relevant sections of the Act:

Present Section	Heads	Existing Rate of TDS (%)	Amended Rate (%)
194DA	Payment in respect of Life Insurance Policy	2%	1%
194EE	Payment in respect of NSS Deposits	20%	10%
194D	Insurance Commission	10%	5%
194G	Commission on sale of lottery tickets	10%	5%
194H	Commission or brokerage	10%	5%

6. Section 194K and Section 194L:

Section 194K for tax deducted at source for income in respect of units is omitted. Section 194L for tax deducted at source for payment of compensation on acquisition of Capital Asset is omitted.

7. Section 194LBA (TDS on certain income from units of a business trust):

Sub – section (1) and sub – section(2) is amended for deducting tax at source on payments in respect of distributed income referred to in section 115UA, being of the nature referred to in clause (23FC) of section 10 and in the nature referred to in sub – clause (a) of clause (23FC) of section 10 also.

8. Section 194LBB (TDS on income in respect of units of investment fund):

In order to rationalize the TDS regime in respect of payments made by the investment funds to its investors, it is proposed to amend Sec 194LBB to provide that the person responsible for making the payment to the investor shall deduct income-tax u/s 194LBB at the rate of 10% where the payee is a resident and at the rates in force where the payee is a non-resident. A proviso is inserted which provides that where the payee is a non-resident or a foreign company, no deduction shall be made in case any income is not chargeable to tax under the provisions of the Act.

9. Section 197 (Certificate for lower deduction of tax):

Section 197 is amended to include Section 194LBB, Section 194LBC in the list of sections for which a certificate for deduction of tax at lower rate or no deduction of tax can be obtained.

10. Section 197A:

Sub – section (1A) and (1C) is amended for making the recipients of payments referred to in Sec 194-I also eligible for filing self-declaration in Form no 15G/15H for non-deduction of tax at source.

11. Section 206AA:

In order to reduce compliance burden, Sec. 206AA(7) is amended to provide that the provisions of this section shall also not apply to a non-resident, not being a company, or to a foreign company, in respect of any other payment, other than interest on bonds, subject to such conditions as may be prescribed.

12. Section 206C:

Sub – section (1D) is amended to include consideration for sale of any goods (other than bullion or jewellery) or providing any service for the purpose of collecting tax from buyer. A new clause (iii) is inserted to sub – section (1D) which provides that tax should be collected at source for any goods, other than those referred to in clauses (i) and (ii), or any service if the amount exceeds two hundred thousand rupees.

New sub – section (1E) and (1F) inserted after sub – section (1D).

13. Section 2

• A new clause (23C) has been added to section 2 to define the term “hearing” to include communication of data and documents through electronic mode
• Section 2(37A) is amended to now provide that “rate or rates in force” for purpose of deduction shall include section 194LBB and section 194LBC.

14. Section 92CA (Reference to TPO)

In section 92CA (3A) it has been provided that if assessment proceedings are stayed by a court order or where a reference for exchange of information has been made by the competent authority and time-limit available to TPO is less than 60 days after excluding the time for which assessment was stayed or time taken for receipt of information, then such remaining period shall be extended to 60 days.

15. Section 115O (Dividend distribution tax on companies)

Sub-section 7has been added to section 115O to provide that no tax on distributed profits shall be chargeable in respect of any amount declared, distributed or paid by the specified domestic company by way of dividend (whether interim or otherwise) to a business trust out of its current income on or after the specified date.

16. Section 115QA (Tax on distributed income to shareholders)

Amended Section 115QA provide that the provision shall apply to any buy back of unlisted share undertaken by the company in accordance with the provisions of the law relating to the Companies and not necessarily restricted to Sec 77A of the Companies Act, 1956.

17. Section 115TA (Tax on distributed income to investors)

In section 115TA sub-section (5) has been inserted that provides an exception with a prospective effect, to this section for income distributed by a securitization trust to its investors.

18. Section 124 (jurisdiction of AOs)

Sec 124(3) is amended to specifically provide that cases where search is initiated under section 132 or books of accounts, other documents or any assets are requisitioned under section 132A, no person shall be entitled to call into question the jurisdiction of an Assessing Officer after the expiry of one month from the date on which he was served with a notice under sub-section (1) of section 153A or sub-section (2) of section 153C or after the completion of the assessment, whichever is earlier.

19. Section 133 (Power to call for information by prescribed income-tax authority), 147 (reassessments) and 143 (assessments)

• To expedite the mechanism of assessment, 133C has been amended to provide legislative framework for processing of information and documents obtained from assessee and make the outcome available to the Assessing Officer for necessary action.
• Section 147 defines situations where income chargeable to tax has escaped assessment can be reopened for assessment, as per the amendment- information received by the  department u/s 133C can also be base for detection of cases of income escaping assessment.
• Section 143(1)(a) is amended to expand scope of adjustment which can be made while processing return u/s 143(1)(a) based on data available to the Department in the form of audit report filed by the assessee, returns of earlier years of the assessee, 26AS statement, Form 16, and Form 16A. However, before making any such adjustments, an intimation shall be given to the assessee either in writing or through electronic mode requiring him to respond to such adjustments. The response received, if any, will be duly considered before making any adjustment. However, if no response is received within thirty days of issue of such intimation, the processing shall be carried out incorporating the adjustments.

20. Section 211:

Sub – section (1) which provides that advance tax on current income to be calculated in the manner laid down in Sec. 209 is substituted.

Clause (a) makes assessees other than those mentioned in clause (b) liable to pay advance tax while clause (b) makes an eligible assessee in respect of an eligible business referred to in section 44AD liable to pay advance tax.

21. Section 220:

Provisos are inserted after Sec. 220(2A)(iii) to provide that –

• an order accepting or rejecting application of an assessee shall be passed by the concerned officers within a period of twelve months from the end of the month in which such application is received.
• no order rejecting the application of the assessee under sections 220 / 273A/ 273AA shall be passed without giving the assessee an opportunity of being heard.
• However, in respect of applications pending as on June 1, 2016, the order under said sections shall be passed on or before May 31, 2017.

 22. Section 234C:

Consequential changes are made in Sec. 234C in line with advance tax provisions amended in point no. 12 above.

23. Section 244A:

Interest on refund u/s 244A –

• If return filed after the due date – interest on refund to be payable from the date of filing return
• Interest on refund of self assessment tax- from date of filing return or payment of tax whichever is later.
• For the purpose of determining the order of adjustment of payments received against the taxes due, the prepaid taxes i.e. the TDS, TCS and advance tax shall be adjusted first.
• Further, additional interest of 3% would be payable where the refunds arise on account of appeal effect and there is delay in passing of order giving effect to appellate order beyond 3 months or beyond the period of extension granted by Commissioner or Principal Commissioner. In such cases, interest would be payable for the period from date following the date of expiry of 3 months or extended period as the case may be to the date on which the refund is granted

24. Section 252 (Appellate Tribunal)

• Sub – section (3)(b) is amended which provides that Senior Vice-President of ITAT is precluded from appointed by Central Govt. as President.
• Sub – section 4A is omitted.
• Sub – section (5) is amended which provides that Senior Vice-President is precluded exercising powers and functions of the President as may be delegated to him by the President

25. Section253 (Appeals to Appellate Tribunal):

Sub-sections (2A) and (3A) of section 253 have been omitted in order to expedite the litigation  process and omit filing of appeal by the Assessing Officer against the order of the Dispute Resolution Panel. To give effect to this, relevant amendments are made to sub-section (3A) and (4) of the section.

26. Section 254 (Powers of Appellate Tribunal):

The time limit for rectifying the order of appellate tribunal is now 6 months from the end of the month is which the order was passed.

27. Section 255:

The monetary limit for disposing of the Taxpayer’s case by the Appellate Tribunal is now increased to fifty lakh rupees from fifteen lakh rupees.

28. Section 273A and 273AA:

Section 273A and 273AA is amended to provide time limit for disposing applications made for immunity for penalty. Proposes that order under sub-section (4) for either accepting or rejecting the application in full or part shall be passed within a period of twelve months from the end of the month in which the application under the said subsection is received by the Principal commissioner or the Commissioner.

29. Section 281B:

Sec. 281B is amended to provide that AO shall revoke provisional attachment of assets when assessee furnishes bank guarantee for an amount not less than fair market value of such provisionally attached property or for an amount sufficient to protect the interest of Revenue.

30. Section 282A:

An amendment was proposed in Section 282A(1) so as to provide that notices and documents required to be issued by income-tax authority under the Act shall be issued by such authority either in paper form or in electronic form in accordance with such procedure as may be prescribed.

31. Section 132:

Sec 132A was added to provide that the provisions of chapter VII shall also not apply to taxable commodities transactions entered into by any person on a recognized association located in unit of IFSC where the consideration for such transaction is paid or payable in foreign currency, and thus this transaction was exempted from CTT w.e.f June 1st 2016.

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Changes applicable w.e.f. June 1, 2015

General Provisions:

1. Exemption of TDS on payments to transporters (Section 194C): No TDS will be deducted on payment to those transporters who own ten or less goods carriages at any time during the previous year. The transporter is required to furnish a declaration to that effect along with his PAN, to the person paying or crediting such sum.

2. Furnishing of information in respect of payment to non-resident in Form 15CA/15CB has been made mandatory to all payment irrespective of whether that income is taxable in India or not. Further, penalty u/s 271-I has also been introduced in respect of non-furnishing of information or furnishing of inaccurate information in Form 15CA/15CB of Rs. 1,00,000/-.

3. Fee chargeable on late filing of TDS Return u/s 234E will be considered at the time of processing of the return u/s 200A and if there is any refund/demand that will be determined after adjusting the fees u/s 234E.

4. Concessional Rate of TDS on Income by way of certain bonds and government securities earned by FII/Qualified Foreign Investor as defined u/s 194LD has been extended from 1st June, 2015 to 1st July, 2017.

5. Obtaining or quoting of TAN has been relaxed for certain notified person u/s 203A. However, the category of those person has still to be notified by the CBDT.

6. Processing of TCS return has also been prescribed in the Act on the same lines as in TDS return. (Section 206CB).

7. An assessee can file Form 15G/15H as self-declaration for non-deduction of TDS from life insurance payments on which TDS is applicable u/s 194DA.

Related to Salary (u/s 192)

1. U/s 192 of the Act, after sub-section (2C), the section 192 (2D) has been inserted. For the purpose of estimating income or computing tax deductible under sub-section (1) of the employee, employer will obtain the evidence or proof or particulars of the prescribed claims (including claim for set-off of loss) under the provisions of the Act in such form and manner as may be prescribed.

However, the form and manner still has to be prescribed by the CBDT. (Form 12C has been omitted by the IT (24th Amendment) Rules, 2003 w.e.f. 1-10-2003 which was earlier there for the purpose of declaration of other income other than the income from salary and has been substituted by simple verification/declaration).

Related to Payment of Provident Fund from EFPO

1. TDS on premature withdrawal (Section 192A & 197A): Trustees of RPFs shall, at the time of payment of the accumulated balance due to the employee, deduct tax at source at the rate of 10%, where the aggregate withdrawal is Rs. 30,000/- or more. However, Form No. 15G/15H is available for non-deduction of TDS.

Further, in case PAN is not provided by the assessee, TDS will be deducted at the Maximum Marginal Rate i.e. 34.608%.

Further, the following changes will also be applicable w.e.f. April 1, 2015 in respect of deduction of Tax.

1. 2% additional surcharge to be considered at the time of making payment while deducting TDS.

2. The rate of Income Tax on Royalty or Fee for technical services (as described u/s 115A (1) (b)) has also been reduced from 25% to 10%. (Important while comparing of rate in DTAA or rates as per normal provision under the Act for deduction of TDS u/s 195 on payment to non-resident)

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