The document summarizes important direct tax proposals in India. Some key points include: - No changes proposed to individual tax slabs, thresholds, or surcharges but a new 4% health and education cess is introduced. - Standard deduction of Rs. 40,000 for salaried individuals and increased deductions for senior citizens for health insurance and medical treatments. - Changes to capital gains tax provisions including the removal of long-term capital gains tax exemption and a new provision to calculate tax on long-term capital gains from listed shares. - Corporate tax rate reduced to 25% for companies with turnover up to Rs. 250 crores.

1. Important Direct Tax Proposals

2. INDIVIDUALS

3. • No changes in tax slabs for individuals
• No changes in threshold limits
• No changes in surcharge on tax
• Higher Education Cess and Secondary Education Cess have
been done away with
• But Health and Education Cess introduced @ 4%
Tax Rates

4. SALARIED INDIVIDUALS
• Standard deduction of Rs 40,000/- per annum to be
allowed
• Exemption for transport allowance of Rs 1,600 p.m. =
19,200 p.a. is removed
• Exemption for reimbursement of medical expenses upto
INR 15,000 is removed
• Net benefit in the hands of the salaried person i.e.
reduction in taxable income by Rs 5,800 (40,000 -
19,200 - 15000)

5. SENIOR CITIZEN BENEFITS

6. • Section 80D limit increased from Rs 30,000 to Rs 50,000
• Distinction between senior citizens and very senior citizens
removed
• Single premium health insurance policies having coverage of
more than one year - deduction shall be allowed on
proportionate basis for the number of years for which health
insurance cover is provided
HEALTH INSURANCE PREMIUM
AND MEDICAL TREATMENT

7. Section 80DDB limit in case of payments towards medical treatment of
specified diseases enhanced for all categories of senior citizens
increased:
• Senior citizen from Rs. 60,000/- - Rs 1,00,000/-
• Very senior citizen from Rs. 80,000/- - Rs 1,00,000/-
Thus, the distinction between senior citizens and very senior
citizens is now removed
MEDICAL TREATMENT OF
SPECIFIED DISEASES

8. • 80TTB introduced for senior citizens
• Deduction upto Rs 50,000/- in respect of interest from
• Deposits with banks
• Post Office savings account
• Savings bank account
• Earlier deduction u/s 80 TTA was Rs 10,000/- and that too only for
interest on savings bank account
• No TDS from interest earned from the above deposits till Rs 50,000/-
INTEREST INCOME –
DEDUCTION AND TDS

9. CAPITAL GAINS

10. • Section 10(38) exemption gone after 31st March 2018
• For shares held as on 31st January 2018 special
grandfathering provisions put into place
• A new section 112A to be introduced to calculate tax on the
long term capital gains on listed shares and units of equity
oriented mutual funds transferred on or after 1st April 2018.
ENDING A 14 – YEAR LONG TAX
EXEMPTION ON CAPITAL GAINS

11. Please understand the difference between
• Calculation of income
and
• Calculation of tax on the income
ENDING A 14 – YEAR LONG TAX
EXEMPTION ON CAPITAL GAINS

12. Please note that the method of calculation
of long term capital gains has NOT changed
ENDING A 14 – YEAR LONG TAX
EXEMPTION ON CAPITAL GAINS

13. For calculating TAX on the long term capital gains, special
formula has been given to derive the cost of acquisition
LONG TERM CAPITAL GAINS ON
SHARES AND MUTUAL FUNDS
For shares / units acquired upto 31st January 2018
Cost will be higher of :
a) Actual cost of acquisition and
b) Lower of:
i) Fair Market Value of the shares/units as on 31st January, 2018
ii) Actual consideration received/receivable at the time of transfer
For shares / units acquired after 31st January, 2018
Normal provisions for determining the cost of acquisition would apply

14. “Fair Market Value” means –
❖ Highest price of the capital asset quoted on any recognised stock
exchange on 31st day of January, 2018.
❖ Where the capital asset is not trading on the exchange on 31st day
of January, 2018, the highest price of such asset on such exchange
on a date immediately preceding 31st day of January, 2018 when
such capital asset was traded on such exchange.
LONG TERM CAPITAL GAINS ON
SHARES AND MUTUAL FUNDS

15. LONG TERM CAPITAL GAINS ON
SHARES AND MUTUAL FUNDS
EXAMPLES
Situation 1 Situation 2 Situation
3
A Shares purchased in July 2017 for Rs. 100 Rs. 100 Rs. 100
B Fair Market Value as on 31st January
2018
Rs. 125 Rs. 150 Rs. 125
C Actual Sale Price in August 2018 Rs. 150 Rs. 125 Rs. 90
D Cost to be taken into consideration for
calculating LTCG
To compare actual cost and lower of B
& C
Higher of
100 and 125
i.e. Rs. 125
Higher of 100
and 125
i.e. Rs. 125
Higher of
100 and
90
i.e. Rs.
100
E LTCG = C – D Rs. 25 Rs. NIL Loss of
Rs. 10

16. LONG TERM CAPITAL GAINS ON
SHARES AND MUTUAL FUNDS
In Situation 3, you saw a loss
Can this loss be set off against other capital gains?
This is where the importance of difference between
computation of income and computation of tax on income gets
highlighted

17. • No Indexation benefits of cost available
• Also none of the deductions under Chapter VI-A of the Act will be
available for being reduced from this long term capital gains.
• For non residents, no option of computing capital gains in foreign
currency and then converting into INR.
LONG TERM CAPITAL GAINS ON SHARES
AND MUTUAL FUNDS

18. Unanswered Questions - How much tax is to be
paid
• Gains in excess of Rs. 1,00,000 will be taxed at 10%. Logically, the first Rs.
1,00,000 would not be taxed and only the amount in excess of Rs. 1,00,000 will
be taxed.
• However, Section 112A has been worded in a manner to give rise to doubt
about the taxation of first Rs. 1,00,000 of such type of long term capital gains.
The doubt is whether such Rs. 1,00,000 would not be taxable at all or it would
be included in the normal income of the investor and taxed at the applicable
slab rate. The confusion is on account of the use of the words “balance amount
of total income”.
• Also in cases like bonus shares or right shares or several other legitimate
modes of acquisition, where STT was not paid at the time of acquisition, the
benefit of getting this 10% tax rate on sale of such shares needs to be notified.

19. • Long Term Capital Gains from transfer of any capital asset shall
be exempt if the capital gain is invested into NHAI and REC bonds
for a period of 3 years subject to certain conditions
• Lock in period for holding of bonds increased to 5 years
• Capital gains arising from sale of Land and /or Building only
covered under 54EC (earlier all assets covered) – so when you
sell shares and earn LTCG, you cannot save tax by investing in
54EC bonds
Investment of Long Term Capital Gains
Earned – Section 54EC

20. • Capital gains arising out of transactions in immovable property, the
sale consideration or the stamp duty value, whichever is higher was
adopted.
• The difference is taxed as income in the hands of the seller
• Now, if the difference between value adopted or assessed or
assessable by the authority for the purpose of payment of stamp duty
does not exceed 5% of the consideration received or accruing as a
result of the transfer, no addition would be made to the income by the
assessing officer.
• In short, a margin of 5% is now allowed
OTHER CAPITAL GAINS PROVISIONS – 50C

21. • Certain transactions not regarded as transfer:
• It is proposed that transfer of the following assets, by a non-resident on a recognized
stock exchange located in any International Financial services center shall not be
regarded as a transfer, if the consideration is paid or payable in foreign currency:
• Bond or Global Depository Receipt referred to in sub-section (1) of section 115AC ; or
• Rupee denominated bond of an Indian company; or
• Derivatives
• Conversion of stock in trade into Capital Asset – new provisions
introduced on the lines of conversion of Capital Asset into Stock in
Trade. But there are a few differences
OTHER CAPITAL GAINS PROVISIONS

22. CORPORATE TAXATION

23. • Benefit of reduced corporate tax rate of 25% extended to entities with
gross turnover / gross receipts does not exceed Rs. 250 crores in F.Y.
2016-17
• Additional cess called the “Health and Education Cess on Income – tax”
shall be levied at the rate of 4% on the amount of tax computed, inclusive
of surcharge (wherever applicable)
CORPORATE TAXATION

24. • Effective Corporate tax rates
• As per our Finance Minister this would be beneficial for 99% of
the companies in India
CORPORATE TAXATION

25. • DDT introduced on deemed dividend at the rate of 30% (without grossing
up)
• Deemed dividend means loans/advances to shareholders/entity in which
such shareholder owns substantial interest
• Earlier, such deemed dividend was taxable in the hands of the recipient at
applicable tax rates and not subject to DDT
• Introduction of DDT at the rate of 10% on income distributed by equity
oriented mutual funds
• Private limited companies need to be very careful
DIVIDEND DISTRIBUTION TAX

26. Income from Other Sources

27. Compensation received or
receivable
Any compensation received or receivable, whether
revenue or capital, in connection with the
termination or the modification of the terms and
conditions of any contract relating to its employment
shall be taxable as Income from Other Sources

28. Taxation of Gift of immovable property
 Section 56(2)(x) provides that where any person receiving any
immovable property on or after 1.4.2017, for a consideration less than
stamp duty value of such property by an amount exceeding Rs.
50,000/-, such excess of stamp duty value shall be charged to tax as
income from other sources.
 To minimize hardship in case of such transactions, it is now provided
that where the value adopted or assessed or assessable by the stamp
valuation authority does not exceed by 5% of the consideration
received or accruing, the consideration received or accruing shall be
deemed to be the full value of consideration.

29. PENALTIES

30. Section 276CC – Prosecution for
failure to furnish tax return
• Existing provision: If the tax payable by any person on his total
income on regular assessment after reducing advance tax does not
exceed Rs. 3,000 – No prosecution if tax return not filed
• However, in order to punish certain shell companies and companies
involved in Benami transactions, even if the tax payable by any
company is less than Rs. 3,000 such companies shall still be
punished. But this applies to all companies and not merely shell
companies

31. Penalty for failure to furnish financial
statement/reportable account
• Penalty increased to Rs. 500 per day from Rs 100 per
day
• In case of failure to file the statement even after receipt
of notice from Assessing officer, penalty shall be Rs.
1,000 per day (increased from Rs. 500 per day)

32. MISCELLANEOUS

33. PROMOTION OF START-UPS
In order to promote start ups in India, it is proposed to make following
changes
The definition of eligible business has been liberally expanded
Conditions Existing Amended
Incorporation
On or after 1-04-2016 but before
1-04-2019
On or after 01-04-2016 but before
01-04-2021
Total Turnover
does not exceed
Rs. 25 crore
In any of the previous years
beginning on or after 01-04-2016
but before 01-04-2021
In any of the 7 previous years
beginning from the year in which it
is incorporated.

34. • Scope expanded bring into net every person excluding individuals
who enters into a financial transaction of amount aggregating to Rs
2,50,000 or more in a financial year.
• The managing directors, partners, Karta, CEO of the above will have
to make the application.
• This amendment widens the base of the people who are required to
obtain the PAN. Hence more transactions become traceable and more
people enter the formal economy
Sec 139A – Obtaining PAN

35. •No addition to income under 143(1) as per Form 26AS. For example, if a
assessee follows cash basis of accounting then the AO will take only the
income the TDS of which is claimed in the current year unlike earlier when
the AO used to take all the income which was appearing in the Form
26AS.
•E-assessments to be introduced. This will impart greater transparency
and accountability by eliminating the interface between the officer and the
assessee, optimal utilisation of resources and team-based assessments.
Sec 143(1) - E-Assessment and
Adjustments made to the Return

36. No deductions under Part C of Chapter VI-A of the Act will be
allowed if the return is not filed before the due date as per
section 139(1) of the Act
There is no “hidden bomb” in the Budget!
Others – Deductions not to be allowed
if return is filed late

37. Measure for Insolvent Companies
• For the purpose of computing book profits under MAT - reduction from its
book profits, aggregate amount of depreciation and brought forward loss
(excluding unabsorbed depreciation
• Carry forward and set off its unabsorbed losses under section 79 of the Act
even though the continuity in beneficial ownership of shares carrying not
less than 51% of voting power is absent
• The tax return under this case shall be verified by the insolvency
professional appointed by the adjudicating authority

38. • Under the existing provisions of the clause (12A) of section 10 of the Act,
an employee contribution to NPS was exempt to the extent of 40% of the
total amount payable to him on closure of his account or on his opting
out. This exemption was not available to non-employee assessees.
• In order to provide a level playing field, it is proposed to amend clause
(12A) of section 10 of the Act to extend the said benefit to all assessees.
WITHDRAWALS FROM NPS

39. • Section 47 of the Act is amended so as to provide that transactions in
the following assets, by a non-resident on a recognized stock exchange
located in any International Financial Services Centre shall not be
regarded as transfer, if the consideration is paid or payable in foreign
currency:
i) Bond or Global Depository Receipt,
ii) Rupee denominated bond of an Indian company; or
iii) Derivative.
• AMT @ 9% applicable
INTERNATIONAL FINANCIAL SERVICE CENTRES

40. Measures taken to eliminate black money

41. BLACK MONEY
• Certain changes have been made in Section
115BBE which provides for tax on incomes referred
to in Sections 68/69/69A/69B/69C/69D at a higher
rate of 60%.

42. Thank You
ameet.patel@mca.co.in
You can contact me on:
Manohar Chowdhry & Associates
@patelameet