Finance Bill 2018<\/a> in a tabular format. He has then compared the amendments with the existing law and explained the precise impact of the proposed amendments. He has also systematically bifurcated the amendments based on whether they have financial implications or make changes in compliance procedures or affect the departmental procedure. The format prepared by the author makes it easy to come to grips with all the changes in one glance<\/strong><\/p>\nDirect Tax changes proposed in the Union Budget, 2018<\/u><\/strong><\/p>\n<\/p>\n
\n\nS. <\/u><\/strong>
\n No.<\/u><\/strong><\/td>\nSection<\/u><\/strong><\/td>\nPre-Amendment Provision<\/u><\/strong><\/td>\nAmendment<\/u><\/strong><\/td>\nImpact<\/u><\/strong><\/td>\n<\/tr>\n\nAmendments having Financial Implication<\/u><\/strong><\/td>\n<\/tr>\n\n| 1.<\/td>\n | 1st Sch. of F.A.<\/td>\n | \n\n- EC at 2% and SHEC at 1%<\/span><\/li>\n<\/ul>\n<\/td>\n
\n\n- Health and Education Cess @ 4%<\/span><\/li>\n<\/ul>\n<\/td>\n
\n\n- Increase in cess by 1%<\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
\n| 2.<\/td>\n | 1st Sch. of F.A.<\/td>\n | \n\n- Tax rate for domestic companies with turnover up to ₹50<\/u><\/strong> crores in preceding year – 25%<\/span><\/li>\n<\/ul>\n<\/td>\n
\n\n- Tax rate for domestic companies with turnover up to ₹250<\/u><\/strong> crores in preceding year – 25%<\/span><\/li>\n<\/ul>\n<\/td>\n
\n\n- Reduced tax rate of 25% extended to domestic companies with turnover up to ₹250 crores from ₹50 crores.<\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
\n| 3. <\/td>\n | 2 (22)(d)<\/td>\n | \n\n- Introduction of new Explanation 2A in S. 2(22)(d)<\/span><\/li>\n<\/ul>\n<\/td>\n
\n\n- Widens the scope of the term ‘accumulated profits’ so as to provide that in the case of an amalgamated company, accumulated profits, whether capitalised or not, or losses as the case may be, shall be increased by the accumulated profits of the amalgamating company, whether capitalized or not, on the date of amalgamation<\/span><\/li>\n<\/ul>\n<\/td>\n
\n\n- Prevents abuse of amalgamation route to circumvent rigours of s. 2(22)(d) on account of reduction of capital. <\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
\n| 4.<\/td>\n | 115O & 115Q<\/td>\n | \n\n- Deemed dividend u\/s 2(22)(e) presently taxable in hands of recipient at applicable rate.<\/span><\/li>\n<\/ul>\n
<\/p>\n \n- No provision for Dividend Distribution Tax (DDT) u\/s 115O in case of amount of the nature prescribed in s. 2(22)(e)<\/span><\/li>\n<\/ul>\n<\/td>\n
\n\n- Deemed dividend u\/s 2(22)(e) now brought within the scope of s. 115O<\/span><\/li>\n<\/ul>\n
<\/p>\n \n- DDT at 30% without grossing up.<\/span><\/li>\n<\/ul>\n
\n- No longer taxable in the hands of recipient.<\/span><\/li>\n<\/ul>\n<\/td>\n
\n\n- Would improve tax compliance of s. 2(22)(e) as company would now be liable to pay DDT<\/span><\/li>\n<\/ul>\n
<\/p>\n \n- Taxable at flat 30%<\/span><\/li>\n<\/ul>\n
\n- Consequent amendment may also be made in Tax Audit Report to improve compliance <\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
\n| 5.<\/td>\n | 10(38), 112A & 115R<\/td>\n | \n\n- Long Term Capital Gain (LTCG) on STT paid equity share or equity oriented funds was exempt<\/span><\/li>\n<\/ul>\n<\/td>\n
\n\n- Exemption removed from FY 18-19<\/span><\/li>\n<\/ul>\n
<\/p>\n \n- LTCG now taxed at concessional rate of 10% (without indexation)<\/span><\/li>\n<\/ul>\n
\n- Additional income tax on Mutual Funds at 10% on distribution to investors for equity oriented funds<\/span><\/li>\n<\/ul>\n
<\/p>\n \n- Gains accrued up to <\/span>31-01-2018 grandfathered by s. 112(6) which says that Cost of Capital Asset acquired before 31-01-2018 shall be higher of <\/li>\n<\/ul>\n
\n- Actual Cost, or <\/span><\/li>\n<\/ul>\n
<\/p>\n \n- Lower of <\/span><\/li>\n
- Fair Market Value (FMV) as at <\/span>31-01-2018; or<\/li>\n
- Full Value of Consideration received on transfer <\/span><\/li>\n<\/ul>\n<\/td>\n
\n\n- LTCG on transfer of listed shares which was until now exempt, has now been made taxable<\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
\n| 6.<\/td>\n | 11 & 10(23C) <\/td>\n | \n\n- No provision for disallowance in case of non-deduction of TDS or payment in cash for charitable\/religious trust <\/span><\/li>\n<\/ul>\n<\/td>\n
\n\n- S. 40(a)(ia) and 40A(3) extended to institutions claiming exemption u\/s 10(23C) and s. 11<\/span><\/li>\n<\/ul>\n<\/td>\n
\n\n- Would prevent fake accumulation by these organisations<\/span><\/li>\n<\/ul>\n
<\/p>\n \n- But, would adversely affect operation of genuine trusts<\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
\n| 7.<\/td>\n | 9<\/td>\n | \n\n- Clause (a) of explanation 2 of s. 9(1)(a) until now included in the definition of “business connection”, any business activity carried out through a person who, acting on behalf of the non-resident has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident<\/u>,<\/strong> unless his activities are limited to the purchase of goods or merchandise for the non-resident; <\/span><\/li>\n<\/ul>\n<\/td>\n
\n\n- Amended clause (a) explanation 2 of s. 9(1)(a) provides that definition of "business connection" shall include any business activity carried out through a person who, acting on behalf of the non-resident has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident<\/strong> or habitually concludes contracts or habitually plays the principal role leading to conclusion of contracts by that non-resident<\/u><\/strong> and the contracts are––<\/span><\/li>\n<\/ul>\n
<\/p>\n \n- in the name of the non-resident; or<\/span><\/li>\n<\/ul>\n
\n- for the transfer of the ownership of, or for the granting of the right to use, property owned by that non-resident or that non-resident has the right to use; or<\/span><\/li>\n<\/ul>\n
<\/p>\n \n- for the provision of services by the non-resident; or”; <\/span><\/li>\n<\/ul>\n<\/td>\n
\n\n- Aligns the definition of business connection in domestic law with BEPS Action Plan 7 which advocates to extend the concept of ‘Dependent Agency Permanent Establishment’ to include not only a person who habitually concludes contracts on behalf of the non-resident, but also a person who habitually plays a principal role leading to the conclusion of contracts. <\/span><\/li>\n<\/ul>\n
<\/p>\n \n- Further, Article 12 of Multi Lateral Instruments (MLI) also provides for similar provision for artificial avoidance of PE through commissionaire arrangements. <\/span><\/li>\n<\/ul>\n
\n- Thus, change was brought to align liberal provision of domestic law with anti-abusive provision of MLI<\/span><\/li>\n<\/ul>\n
<\/p>\n \n- Would affect companies like Microsoft whose Indian entities merely play role in conclusion of contract without actually finalising.<\/span><\/li>\n<\/ul>\n
\n- Ambiguous in so far as it uses the word PRINCIPAL role. Would be a matter of litigation on what constitutes principal. <\/span><\/li>\n<\/ul>\n
<\/p>\n \n- Immaterial in cases where Non Resident (NR) is governed by DTAA or after MLI comes in force, other country has not adopted Article 12 of MLI <\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
\n| 8.<\/td>\n | 9<\/td>\n | \n\n- Insertion of new explanation 2A to section 9(1)(a)<\/span><\/li>\n<\/ul>\n<\/td>\n
\n\n- Provides that significant economic presence (SEP)<\/u> of NR shall constitutes a business connection.<\/span><\/li>\n<\/ul>\n
<\/p>\n \n- Significant economic presence shall mean–<\/span><\/li>\n<\/ul>\n
\n- transaction in<\/strong><\/span> respect of any goods, services or property<\/u> carried out<\/strong> by a non-resident in India<\/strong> including<\/strong> provision of download of data or software in India<\/strong>, if the aggregate of payments arising from such transaction or transactions during the previous year exceeds such amount as may be prescribed; or<\/li>\n<\/ul>\n
<\/p>\n \n- systematic and continuous soliciting<\/strong><\/span> of business activities or engaging in interaction with such number of users<\/strong> as may be prescribed, in India through digital means:<\/li>\n<\/ul>\n
\n- Immaterial whether or not the non-resident has a residence or place of business in <\/u><\/span>India<\/u> or renders services<\/strong> in <\/u>India<\/u> (1st proviso)<\/u> <\/li>\n<\/ul>\n
<\/p>\n \n- Only so much of income as is attributable to the transactions or activities referred above shall be deemed to accrue or arise in <\/span>India. (2nd proviso) <\/li>\n<\/ul>\n<\/td>\n
\n\n- Introduces the concept of Digital PE under domestic law by adopting BEPS action plan 1.<\/span><\/li>\n<\/ul>\n
<\/p>\n \n- Immaterial as NR would still get protection of DTAA.<\/span><\/li>\n<\/ul>\n
\n- Would require amendment in all DTAAs signed by <\/span>India as such concept is not in MLI<\/li>\n<\/ul>\n
<\/p>\n \n- Language of the provision has been pathetically drafted –<\/span><\/li>\n<\/ul>\n
\n- Leaves a lot of room for confusion. Taxes transaction in Goods, services and property “carried out by NR”<\/u> in <\/span>India. Highly litigative as in cases where a NR opens a website from which a customer could order without NR’s assistance, technically it is customer who carried out transaction and not NR. <\/li>\n<\/ul>\n
<\/p>\n \n- Further, transaction should be carried out in <\/u><\/span>India<\/u>. Again litigative, because if a NR has a website in USA which is logged onto by a resident to carry out transaction, can this be termed as transaction carried out in <\/u>India<\/u> <\/u>? <\/li>\n<\/ul>\n
<\/p>\n \n- 1st proviso covers only SERVICES whereas clause (a) covers goods, services and property. Needs clarification by government<\/span><\/li>\n<\/ul>\n
\n- Clause (b) requires needs to be redrafted as it is ambiguous .“systematic and continuous soliciting of business activities”<\/u><\/strong><\/span><\/li>\n
- No threshold for this part. <\/span><\/li>\n
- What constitutes systematic and continues ? <\/span><\/li>\n
- How to measure this ? <\/span><\/li>\n
- What is soliciting ?<\/span><\/li>\n
- Does this cover all business activity ?<\/span><\/li>\n<\/ul>\n
<\/p>\n \n- This provision would even make ordinary residents (non-business assessee) liable for deduction u\/s 195 ?<\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
\n| 9.<\/td>\n | 28 & 56<\/td>\n | \n\n- Compensation which are in the nature of capital receipts are not taxable <\/span><\/li>\n<\/ul>\n<\/td>\n
\n\n- Inserts clause (e) to s. 28 to tax any compensation, whether revenue or capital, in connection with the termination or the modification of the terms and conditions of any contract<\/strong> relating to business <\/span><\/li>\n<\/ul>\n
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