Published here is Part II, the concluding section, of our blog piece on the key amendments proposed under Budget 2018 to the Income Tax Act. You can view Part I here. We hope you enjoy reading this as much as we have enjoyed putting this together.
- Amendments in Relation to Income Computation Disclosure Standards (ICDS): Recently, the Delhi High Court had held that some provisions of the ICDS are unconstitutional for want of legislative backing and their variance from applicable judicial precedents. In order to provide a requisite legislative framework for ICDS, the Budget now proposes to make various amendments in the provisions of the IT Act, pertaining to the deduction of marked to market losses computed in accordance with ICDS, for treating the gains or losses, computed in accordance with ICDS, as income or loss and to provide for a method of valuations in cases of inventory, goods, services and securities, etc.
- Facilitating Measures for Companies under Insolvency Proceedings:
- Relief from MAT: The Budget proposes to provide MAT relief for companies whose application for a corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC) has been admitted by the Adjudicating Authority. Accordingly, the aggregate amount of unabsorbed depreciation and loss brought forward shall be allowed to be reduced from the book profit to determine MAT.
- Benefit of carry forward and set off of losses: The provisions of section 79 of the IT Act relating to carry forward and set off losses would not apply to companies whose resolution plan has been approved under the IBC.
- Incentives for Farm Producer Companies (FPCs): The budget proposes that a 100% deduction under section 80P of the IT Act should be extended to FPC that have a total turnover up to INR 1 billion for a period of five years from AY 2019-20 if its income is from marketing of agricultural produce grown by its members, purchase of agricultural implements, seeds, etc. intended for agriculture for supplying them to its members and the processing of the agricultural produce of its members.
- Incentives for Start-ups: In order to encourage start-ups, the definition of ‘eligible business’ for a start-up is proposed to be aligned with the modified definition notified by DIPP. It is further proposed to extend the incorporation date for a start-up for availing benefit under section 80-IAC of the IT Act to March 31st, 2019 and rationalize the condition of turnover for availing the benefit. If a unit located in an IFSC is not a company, the alternate minimum tax under shall be charged at the rate of 9%.
- Measures to Promote an International Financial Services Centre (IFSC): To develop world class IFSC in India, this Budget has proposed to exempt transfer of derivatives and certain securities by a non-resident on a recognised stock exchange located in any IFSC if the consideration is paid or payable in foreign currency.
- Entities to Apply for a Permanent Account Number (PAN): The Budget proposes to amend the IT Act to provide that non-individual entities, which enter into any financial transactions of an amount exceeding INR 0.25 million in a financial year would be required to apply to the Assessing Officer (AO) for allotment of a PAN.
- E-assessment: New Scheme for scrutiny assessment has been proposed to be introduced, popularly called the e-assessment to eliminate the interface between the AO and the taxpayer to the extent it is technologically feasible.
- Standard Deduction on Salary Income: Instead of the existing exemptions regarding transport allowance and reimbursement of medical expenses, a standard deduction of INR 40,000 has been proposed.
- Deductions for Certain Incomes only to be Allowed if Return Filed by Due Date: It has been proposed to extend the scope of Section 80AC to provide that the benefit of deductions under the heading “C-Deductions in respect of certain incomes” of Chapter VIA shall not be allowed unless the return is filed by the due date.
It is clear from the purview of the Budget that it is focused on rationalizing the tax regime and bringing in additional revenue to finance the various measures it has contemplated for social security, creation of employment opportunities and stimulating the rural economy. While the contemplated changes to the tax regime are not as revolutionary as those made by this government in previous years, they are nonetheless significant and will have a major impact on the economic and fiscal outlook for the country. The Budget may lead to a decline in both domestic and foreign portfolio investments in the short term, but must be applauded for largely retaining fiscal discipline, even with the elections in 2019.
* The author was assisted by V.P. Thangadurai. Consultant and Anumeha Saxena, Associate.