BUDGET HIGHLIGHTS- DIRECT TAXES

• There is no change in the tax slab. However, Education cess and Secondary and Higher Education cess have been increased from total of 3 to 4 % and to be known as Health and Education cess.

• Domestic Companies having total turnover or gross receipts not exceeding Rs 250 crores in financial year 2016-17 shall be liable to pay tax at 25% as against present ceiling of Rs 50 crore.

• Long term capital gain exemption under section 10(38) in respect of listed STT paid shares being withdrawn and will be taxed at 10% under Section 112A. Further, such tax will be liable for TDS. However, capital gain up to 31.1.2018 shall grandfathered i.e. not be taxed as cost of acquisition will be taken as Fair Market Value as on 31.01.2018.

• Standard deduction of Rs 40,000/- for salaried employees. However, benefit of Transport allowance of Rs 19,200/- and Medical Reimbursement of Rs 15,000/- under Section 17(2) have to be withdrawn. Thus, net benefit to salaries class only Rs 5,800/-.

• Provision of Section 43CA, 50C and 56(2)(x) being amended to allow 5%  of sale consideration in variation vis-a-vis stamp duty value.

• Provision of section 40(ia) and 40A(3) and 40A(3A)have been made applicable to Charitable Trust . Hence,  expenditure incurred without deduction of tax and in cash will not be eligible as application of income under section 10(23C) and section 11(1)(a).

• Agriculture Commodity Derivates income /loss not to be considered as speculative under section 43(5).

• Income Computation and Disclosure Standards (ICDS) have been given statutory backing in view of Delhi High Court decision.

• Marked to market loss computed as per Income Computation Disclosure Scheme(ICDS) to be allowed under section 36.

• Gain or loss in Foreign Exchange as per Income Computation Disclosure Scheme(ICDS) to be allowed under new section 43AA.

• Construction Contract income to be computed on percentage completion method as per Income Computation Disclosure Scheme(ICDS).

• Valuation of inventory including securities to be as per Income Computation Disclosure Scheme(ICDS).

• Interest on compensation, enhanced compensation claim or enhancement claim, subsidy and incentives to be taxed in the year of receipt only as per new Section 145B.

• Conversion of stock in trade to capital asset to be charged as business income in the year of conversion on fair market value on the date of conversion.

• Benefit of investment in Bonds under section 54EC, to be restricted to Capital gain on land and building only. Further, period of holding being increased from 3 years to 5 years.

• PAN to be obtained by all entities including HUF other than individuals in case aggregate of financial transaction in a year is Rs 2,50,000 or more. All directors, partners, members of such entities also to obtain PAN.

• All companies irrespective of income have to file return and in case it is not filed, such companies will be liable for prosecution irrespective of the fact whether it has tax liability of Rs 3,000 or not.

• Assessments to be E-assessment under new section 143(3A)

• No adjustment under section 143(1) while processing on account of mismatch with 26AS and 16A.

• Deemed dividend to be taxed in the hands of the company itself as Dividend Distribution Tax @ 30%.

• Penalty for non-filing of financial return as required under section 285BA being increased to Rs 500 per day.

BUDGET HIGHLIGHTS- INDIRECT TAXES

CUSTOMS

• Proposed reduction in Customs duty on inputs and raw materials like mineral fuels, metals, renewable energy etc. to reduce costs.

• Changes in Customs and Excise / CV duty to address the problem of duty inversions in certain sectors as under:

ü  Chemicals & Petrochemicals

ü  Textiles

ü  Metals

ü  Automobiles

ü  Renewable Energy

• Changes in Customs duty to provide adequate protection to domestic industry as under:

ü  Food processing

ü  Electronics / Hardware

• Promotion of cashless transactions and promote domestic manufacturing of devices used thereof.

• While excise duty cut of Rs 2 /litre on unbranded diesel and petrol is a strong positive in the Budget.

• Exemption may be provided on such of the goods, which are imported for the purposes of repair, further processing or manufacture, as, may be specified therein, from custom duty subject to the prescribed conditions.

• Similarly, exemption may be provided in relation to such of the goods which are re-imported after being exported for the purposes of repair, further processing or manufacture, as may be specified therein, from custom duty subject to the certain conditions.

• Where an order for refund under section 27(2) is modified in any appeal and the amount of refund so determined is less than the amount refunded, the excess amount so refunded shall be recovered along with interest at the rate fixed by the Central Government under section 28AA, from the date of refund up to the date of recovery.

• The definition of advance ruling have been amended as under:

‘(b) "advance ruling" means a written decision on any of the questions referred to in section 28H raised by the applicant in his application in respect of any goods prior to its importation or exportation'

• The proper officer may carry out the audit of assessment of imported goods or export goods or of an auditee under Custom Act either in his office or in the premises of the auditee in such manner as may be prescribed. For the purposes of this section, "auditee" means a person who is subject to an audit under this section and includes an importer or exporter or custodian approved under section 45 or licensee of a warehouse and any other person concerned directly or indirectly in clearing, forwarding, stocking, carrying, selling or purchasing of imported goods or export goods or dutiable goods.

• Notification No 50/2017-Customs amended by Finance Bill, 2018 as under:

"Notification No. 65/2017-Customs dated 8th July 2017 amending notification No. 50/2017- Customs dated 30th June 2017 is proposed to be given retrospective effect so as to exempt integrated tax leviable under section 3(7) of the Customs Tariff Act, 1975 on aircrafts, aircraft engines and other aircraft parts imported under cross-border lease during the period from the 1st July, 2017 to the 7th July, 2017 subject to the payment of Integrated tax leviable under section 5(1) of the IGST Act, 2017 on the said supply."

SERVICE TAX

• Special provision for retrospective exemption from service tax in certain cases relating to life insurance services provided by Naval Group Insurance Fund to personnel of Coast Guard during the period commencing from the 10th day of September, 2004 and ending with the 30th day of June, 2017 (both days inclusive).

• Special provision for retrospective exemption from service tax in certain cases relating to services provided or agreed to be provided by Goods and Services Tax Network during the period commencing from the 28th day of March, 2013 and ending with the 30th day of June, 2017 (both days inclusive)

• Special provision for retrospective exemption from service tax on Government's share of profit petroleum during the period commencing from the 1st day of April, 2016 and ending with the 30th day of June, 2017 (both days inclusive).

Note : an application for the claim of refund of service tax in relation to above provisions shall be made within a period of six months from the date on which the Finance Bill, 2018 receives the assent of the President

GENERAL

• Name of Central Board of Excise and Customs is being changed to Central Board of Indirect Taxes and Customs with consequential amendments in the following Acts: -

i. The Central Boards of Revenue Act, 1963 (54 of 1963)

ii. The Customs Act, 1962 (52 of 1962)

iii. The Central Goods and Services Tax Act, 2017 (12 of 2017)

• Following enactment have been repealed:

ü  Additional duty of Customs on Motor Spirit commonly known as Petrol is being abolished by repealing section 103 of the Finance Act (No.2), 1998.

ü  Additional duty of Excise on Motor Spirit commonly known as Petrol is being abolished by repealing section 111 of the Finance Act (No.2), 1998.

ü  Additional duty of Customs on High Speed Diesel oil is being abolished by repealing section 116 of the Finance Act, 1999.

ü  Additional duty of Excise on High Speed Diesel oil is being abolished by repealing section 133 of the Finance Act, 1999.

ü  Education Cess on imported goods is being abolished by omitting Chapter VI of the Finance Act (No.2), 2004.

ü  Secondary and Higher Education Cess on imported goods is being abolished by omitting Chapter VI of the Finance Act, 2007.

The Goods and Services Tax (GST) Council has put in place an elaborate framework for division of taxpayers between the state and central tax authorities, in a move aimed at bringing clarity and effectiveness in the administration of the new indirect tax regime. 

Finance Minister said that he expected convergence of two Goods and Services Tax (GST) rates into one in the coming days, though ruling out a single rate of taxation under the new indirect tax regime.The GST Council may decide on convergence of rates at appropriate time organized by The Economist magazine.

He, however, ruled out a single standard GST rate as it would be inflationary for a disparate range of consumers and added that one tax rate was inequitable. He noted that GST implementation was quite smooth without any major glitches. All goods and services under the pan-India GST regime, which has subsumed multiple central and state levies, have been categorized in four tax slabs of 5, 12, 18 and 28 per cent, besides those items that attract zero tax.

The Finance Minister had earlier said that he can converge some taxation in the future. 12 per cent and 18 per cent can be converged into one. But if we make a single rate of 15 per cent now, then items like food, which is consumed by poor people, will get hit. Touching upon the resolution of non-performing assets (NPAs) of public sector banks (PSBs), Finance Minister said that it was not possible to have a surgical solution to bad loans.

Government is trying to resolve the NPA issue of PSBs on a priority basis and has taken various steps in this regard.  Finance Minister said the Government was actively considering PSB merger as banking decisions need to be taken on commercial considerations. He added that depending on affordability, the recapitalization needs of banks would be met.

 (SOURCE: BUSINESS STANDARD DATED 01.09.2017)

The Q1 GDP numbers are concerning the government. He said the GDP data from Q1 challenges the government to revive and improve the growth rate.  India's GDP growth slumped to a three-year low of 5.7 per cent during April-June.  Manufacturing growth has gone down from 3.1 per cent to 1.6 per cent. Finance Minister reasoned that the decline is due to the impact of GST. Finance Minister said that most manufacturers were destocking and their sales continued to increase, leading to an improvement in the services growth. The finance minister said that if that was the trend, this would be the bottoming out as far as manufacturing was concerned, and that it would only improve from here.  Finance Minister said that it was a positive trend that the global economy was at a high, and that would lead to a continuation of FDI, which would help the economy. The monsoon seemed largely normal, which would ensure that the growth numbers. Finance Minister also said that domestic public investment would continue to be high. 

Finance Minister said another factor to consider would be the insolvency proceedings would also stabilize the banking sector. The Finance Minister said that the Q1 numbers reflected the pre-GST trend were manufacturers de-stocked and waited for the new GST rates.  Finance Minister also said that depending on revenue flexibility, there will be a need for both the state and central Government to ensure that capital expenditure and not just revenue must be treated carefully, looking for investments. 

(SOURCE: THE ECONOMIC TIMES DATED 31.08.2017)

The goods and services tax (GST) regime was rolled out on July 1 to replace multiple tax slabs across the country and ease trade. Indivjal Dhasmana takes a look at the several decisions the Government took after the introduction of the indirect tax regime to ensure the roll-out was as smooth as possible.

GST Council holds out-of-turn meeting via video conferencing; raises cess on cigarettes. Earlier, cigarettes were taxed at the peak rate of 28%, along with a cess of 5%. This was lower than what was levied in the pre-GST era. The additional tax will give Rs 5,000 crore extra revenue to the exchequer that will be used to compensate the states.

The Central Board of Excise and Customs (CBEC) clarifies integrated GST (IGST) will be levied only when goods are cleared by the Customs, in case of high-sea transactions; this clears ambiguity whether tax being levied for each leg of a transaction.

The Council cuts rate on job works for the textile sector to 5% from 18%, approves e-way bill without revising a threshold of Rs 50,000 and allows setting up of screening panels under the anti-profiteering measure. Rates on inputs specific to tractors cut to 18% from 28%, on Government works contract cut to 12% from 18%. Rates on other services — including rent-a-car, job work in newspaper printing, entry to planetariums — reduced. Council recommends the Centre come out with an amendment in the compensation Bill to increase the ceiling on cess on luxury cars from 15% to 25%.

Cabinet clears ordinance to increase ceiling on cess on luxury cars, SUVs up to 25% from 15%. CBEC notifies e-way bill; exempts items of mass consumption such as vegetables, fruits, food grain, meat, bread, curd, books, jewellery, judicial and non-judicial stamp papers, newspapers, khadi, raw silk, Indian flag, cheques, municipal waste, liquefied petroleum gas for cooking, kerosene, heating aids and currency.

 (SOURCE: BUSINESS STANDARD DATED 01.09.2017)

A day after finance minister said that goods and services tax (GST) collections in the first month had been better than expected, the Government indicated that the kitty could swell further as more taxpayers file their returns and small traders who are part of the compensation scheme also paid up, triggering expectations that rates could moderate in the months ahead if receipts continue to be robust. It would be prudent to wait for sometime to assess a long-term trend. One has to study the pattern over several months. It has started off well... one has to see how it progresses over the next few months.

The minister was, however, clear that benefits of the GST regime should go to the common man, while luxury goods and products such as cigarettes will face a higher levy. At the time of rollout, Finance Minister had publicly said tax buoyancy and a wider tax base could help the Government and the state Governments moderate tax rates. He had said there was a possibility of converging the two standard rates - 12% and 18% -over a period of time, if collections were healthy.

Government officials said it was too early to comment on changes in rates given that the new tax regime was settling down. But early trends from July have raised expectations that some of the shortfall in Centre's receipts for the current financial year due to lower RBI dividend and a lower-than-budgeted collection from the telecom sector could be bridged through higher GST collections.

While the tax base has been expanded, which has resulted in addition of around 15 lakh tax payers, PM during his monthly meeting with state chief secretaries asked for a further push to get more traders to register to achieve a quantum jump in this regard within a month. At the same time, Finance Minister also issued a warning to evaders.

 (SOURCE: TIMES OF INDIA DATED 31.08.2017)

The GST regime was widely expected to widen the tax base of the country. But it was unexpected that Kolkata and West Bengal will be front runners in GSTN registrations, because as per official records the State is a laggard when it comes to business. On July 7, the GST authorities opened the window for registration of entities which were not registered under VAT, excise and service tax. As on Monday, Kolkata tops the list with 79,954 new registrations. This is 9 per cent of the 8.57 lakh new registrations from 21 major cities.

Lucknow stands second with 69,804 new registrations followed by Chennai (68,243), Mumbai (62,675), and Vadodara (61,472). Delhi, a key trading centre, reported 45,715 new registrations. Overall, West Bengal reported 1.5 lakh new registrations which is 10 per cent of the national total of 15 lakh registrations till August 21.

 (SOURCE: BUSINESS LINE DATED 22.08.2017)

Upstream oil and gas companies can avail an input tax credit (ITC) on Goods and Services Tax paid only on the value added products that are manufactured and covered under GST. This clarification was given by the government in response to a query asking whether ONGC would be eligible to avail credit of five per cent GST paid on specified goods procured by it for petroleum operations. In an official statement, the Ministry of Petroleum and Natural Gas said that in few cases in Gujarat and Mumbai where some value added products (VAP) are being manufactured which are covered under GST, credit on common inputs would be available on proportionate basis. In few cases, the credit would be available on invoice level for inputs which are meant for exclusive use for supply of value added products.

But, the Government maintained that the main output of ONGC, that is crude oil and natural gas, are outside levy of GST and output would be subject to levy of existing taxes, central excise (oil cess), VAT/CST etc. Accordingly, since GST is not payable on output, the credit of input would not be available. In response to another query, the Government said ITC will not be available for GST paid on procurement of goods and services in exploration and production operations that are used for production of crude oil and natural gas.

The Government also said Mumbai and Offshore are covered under Separate GST Registration. So the establishments covered under Maharashtra Registration and Offshore Registration would be treated as establishments of distinct persons. Accordingly, the goods procured under Mumbai GST Registration would be subject to levy of Integrated Goods and Services Tax (IGST) if transferred to Offshore.

(SOURCE: BUSINESS LINE DATED 22.08.2017)