Budget Highlights 2018-19 On Tax: Direct Taxes & Indirect Taxes

High anticipation on budget on Feb-1st

We have complied budget Highlights of 2018-2019.

Personal Taxation : Budget Highlights – DIRECT TAXES



Tax Rates

No Change in income tax slab or tax rates or surcharge

Education cess substituted with Health and Education cess of 4%

Standard Deduction

Standard deduction of INR 40,000 or amount of salary received whichever is less.

However transport allowance for INR 19200 and medical reimbursement for INR 15,000 was previously available and post this proposal , a bundled exemption of INR 40,000 is available i.e. only an increase of INR 5800.

Transport allowance exemption is available only for differently abled person.

Capital Gains

Provisions of section 54EC – The lock-in period for investment of specified bonds under 54EC is increased to 5 years from 3 years. This is pertaining to capital gains arising from long term capital assets, being land or building or both. This amendment is effective April 1, 2018

Senior Citizen Deductions – health insurance premium and medical treatment

Section 80D provides a deduction in respect of payments towards annual premium on health insurance policy or preventive health check-up of a senior citizen or medical expenditure in respect of very senior citizen. This has been proposed to increase from INR 30,000 to INR 50,000.

Section 80DDB provides deduction to individuals or HUF‟s in respect of amount paid for medical treatment of specified diseases. The deduction value is proposed to be increased to INR 100,000 from INR 60,000

Withdrawal from NPS S c h e me

An employee contributing to NPS is allowed an exemption in respect of 40% of the total amount payable to him on closure of his account or his opting out. This was previously not allowed to non-employee subscribers. However, it is proposed to extend the said benefit to all subscribers

Deduction in respect of interest income to senior citizen

Deduction of INR 10,000 is allowed under 80TTA with respect to interest income from savings account. It is proposed to allow a deduction of INR 50,000 in respect of interest income from deposits held by senior citizens.

Also it is proposed to amend section 194A to raise the threshold for deduction of TDS on interest income from 10,000 to 50,000

PF / Pension

As a measure to incentivise employment of women in formal sector and to enable higher take home wages, women employees contribution for first three years of employment is proposed to be reduced to 8%. However, employer contribution to continue at current rates.

Non-Corporate Assesses – Tax
Assesses (less than <) 60 Years


FY 2018-19

Tax rate

0- 2,50,000


2,50,001- 5,00,000*


5,00,001- 10,00,000


10,00,000 Plus


Surcharge Applicable to Individual Income

FY 2018-19

Tax rate

0- 5,00,000


50,00,001- 1,00,00,000


1,00,00,000 plus


Assesses (more than >) 60 years and (less than <) 80 years  / Senior Citizens

FY 2018-19

Tax rate

0- 3,00,000


300001- 500000*


5,00,001- 10,00,000


10,00,000 Plus


Assesses (more than>) 80 years 

FY 2018-19

Tax rate

0- 5,00,000


5,00,001- 10,00,000


10,00,000 Plus


Corporate Assesses – Tax 

Sub Category


Tax Rates

Corporate tax rate reduced to 25% (plus applicable surcharge and cess) for domestic companies with total turnover or gross receipts not exceeding INR250 Crores for assessment year 2017-18

Health and Education Cess at 4% instead of Education Cess of 3%

MAT relief for Companies undergoing Corporate Insolvency Resolution Process

It is proposed to amend section 115JB to provide that the aggregate amount of unabsorbed deprec iation and loss brought forward (excluding unabsorbed depreciation) shall be allowed to be reduced from the book profit, if a company‟s application for corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 has been admitted by the Adjudicating Authority.

Benefit of carry forward and set off of losses pertaining to companies undergoing corporate insolvency resolution process

Section 79 of the act provides for carry forward and set off of losses in a closely held company only if there is a continuity in the beneficial owner of the shares carrying not less than 51% of the voting power on the last day of the year or years in which the loss is incurred.

In case of company seeking insolvency resolution involves change in the beneficial owners of shares is beyond the persmissible limit under section 79. Therefore, it is proposed to relax the rigors of section 79 in insolvency cases.

Measures to promote Start ups

Deduction under 80 IAC shall be available to eligible start-ups for consecutive three out of seven assessment years if it

> is incorporated on or after 1 April 2018 but before 1 April 2020,

> turnover doesn‟t exceed INR 25crores for seven previous years

> if it is engaged in innovation, development or improvement of products or processes or services, or a scalable business model with a high potential of employment generation or wealth creation.

International financial services centre (IFSC)

It is proposed to amend section 47 of the act to provide that transactions pertaining to transfer of a capital asset being bond or global depository receipt under 115AC, through recognised stock exchange located in international financial services centre be exempt where consideration is paid in foreign currency.

Alternate Minimum Tax for a unit located in International Financial Services Center to be 9% (plus applicable surcharge and cess)

Application of dividend distribution tax to deemed dividend

Deemed Dividend under section 2(22)(e) is taxed in the hands of the recipient at the applicable marginal rate.

Now it is proposed to bring deemed dividend under section 115 O and proposed to be taxed at 30%, without grossing up.

Royalty and FTS payment by NTRO

Section 195 requires a person to deduct to deduct tax at the time of payment or credit to a non resident.

The national technical research organization (NTRO), it is proposed to amend section 10 so as to provide that the income arising to the non resident , not being a company or foreign company, by way of royalty from or fees for technical services rendered in or outside india to the NTRO will be exempt from income tax.

Aligning the scope of business connection with modified PE Rule as per Multilateral instrument

Business connection amended in section 9 to include any business activities carried through a person who, acting on behalf of the non-resident, habitually concludes contracts or habitually plays the principal role leading to conclusion of contracts by the non-resident. It is further proposed that the contracts should be-

o in the name of the non-resident; or

o for the transfer of the ownership of, or for the granting of the righttouse, property owned by that non-resident or that the non-resident has the right to use; or

o for the provision of services by that non-resident.

Business Connection to include significant economic presence

Explanation 2 to the section 9 which defines „business connection‟ is also narrow in its scope since it limits the taxability of certain activities or transactions of non- resident to those carried out through a dependent agent. Therefore, emerging business models such as digitized businesses, which do not require physical presence of itself or any agent in India, is not covered within the scope of clause (i) of sub-section (1) of section 9 of the Act.

In view of the above, it is proposed to amend clause (i) of sub-section (1) of section 9 of the Act to provide that ‘significant economic presence’ in India shall also constitute ‘business connection’. Further, “significant economic presence” for this purpose ,shall mean-

o any transaction in respect of any goods, services or property carried out by a non-resident in India including provision of download of data or software in India if the aggregate of payments arising from such transaction or transactions during the previous year exceeds the amount as may be prescribed; or

a systematic and continuous soliciting of its business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means.

The existing tax treaties would not be impacted by the concept of significant economic presence, however, attempts will be made to include the concept in the future Indian tax treaties.

Amendments in relation to notified Income Computation and Disclosure Standards.

Several provisions of the Act, as regards applicability of Income Computation and Disclosure Standards, stand amended. This is expected to ensure a higher level of certainty in relation to ICDS

Long term capital gain tax on sale of equity shares etc.

Long term capital gains on sale of an equity share of a listed company or a unit of an equity oriented fund or unit of a business trust by all assessees (including FII) in excess of INR 100,000 shall be taxable at 10% subject to satisfaction of certain conditions.

Equity Oriented Mutual funds to be liable to pay tax at the rate of 10% on income distributed to unit holders

Tax on transfer of immovable property

No adjustments to sale consideration, in respect of transfer of immovable property, will be required if the difference between the stamp duty value and sale consideration on transfer of immovable property is not more than 5%.

Rationalisation of provisions relating to country by country

Section 286 of the Act, contains provisions relating to specific reporting regime in the form of country by country report (CbCR) in respect of international group. The following amendments are propsed to be made so as to improve the effectiveness and reduce the compliance burden of such reporting :

The time allowed for furnishing the CbCR, in the case of parent entity or Alternative Reporting Entity (ARE), resident in India, is proposed to be extended to twelve months from the end of reporting accounting year;

> constituent entity resident in India, having a non-resident parent, shall also furnish CbCR in case its parent entity outside India has no obligation to file the report of the nature referred to in sub-section (2) in the latter‟s country or territory

> the time allowed for furnishing the CbCR, in the case of constituent entity resident in India, having a non-resident parent, shall be twelve months from the end of reporting accounting year;

> the due date for furnishing of CbCR by the the ARE of an international group, the parent entity of which is outside India, with the tax authority of the country or territory of which it is resident, will be the due date specified by that country or territory;

> Agreement would mean an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A, and also an agreement for exchange of the report referred to in sub-section (2) and sub-section (4) as may be notified by the Central Government;

> “reporting accounting year” has been defined to mean the accounting year in respect of which the financial and operational results are required to be reflected in the report referred to in sub-section (2) and sub-section (4).

Deduction in respect of income of Farm producer companies

100% deduction in respect of income of farm producer companies for period of 5 years introduced (having turnover upto INR 100 crores)

Tax treatment of transactions in respect of trading in agricultural commodity derivatives

Trading of agricultural commodity derivatives which is even not charged to commodity transaction tax shall be treated as non-speculative


* Disallowance for certain cash payments would be applicable to certain entities claiming benefit of section 10(23C)

* New scheme for scrutiny assessments (e-assessments) to be introduced by way of notification

* Compensation (capital or revenue) for termination or modification of a contract relating to business to be taxable as business income and relating to employment to be taxable as income from other sources

* Conversion of stock-in-trade to capital asset to be taxable as business income at the fair market value („FMV‟) as on date of conversion

Excise Duties :



Excise duty on Petrol and Diesel

Changes in Basic Excise Duty on motor spirit (petrol) and high speed diesel oil (effective from February 2, 2018)


Existing Rate / litre

Revised Rate / litre

Unbranded Petrol



Branded Petrol



Unbranded Diesel



Branded Diesel



> Additional Duty of Excise (Road Cess) of INR 6 per litre on motor spirit (petrol) and high speed diesel oil will be abolished upon enactment of the Finance Bill, 2018.

> Road and Infrastructure Cess levied on petrol and high-speed diesel at INR 8 per litre.

> Upto the enactment of Bill, levy of road cess has been exempted on domestically manufactured and produced petrol and high speed diesel.

Other exemptions

The following products are exempt from Road and Infrastructure cess subject to payment of appropriate excise duties on petrol and diesel and GST on ethanol or bio- diesel used for making such blends.

(i) 5% ethanol blended petrol. (ii) 10% ethanol blended petrol. (iii) Bio-diesel, up to 20% volume.

Service Tax : 



Retrospective exemptions granted

>> Life Insurance services provided to Coast Guard personnel by the Naval Group Insurance Fund (for the period 10 September 2004 to 30 June 2017)

>> Services by Goods and Services Tax Network to Central Government, State Government or Union Territories (for the period 28 March 2013 to 30 June 2017) are proposed to be exempted from service tax.

>> Government‟s share of profit petroleum on services by Government by way of grant of license or lease to explore / mine petroleum crude or natural gas or both (for the period 1 April 2016 to 30 June 2017).

>> Refund can be claimed within 6 months from enactment of the Finance Bill, 2018.

Customs Duty :




> Central Board of Excise and Customs to be renamed as the Central Board of Indirect Taxes and Customs (effective from date of enactment of Finance Bill)


> “Assessment” will include specific aspects such as classification, duty, valuation, exemption or concession of duty etc.

Rate of customs duty

> Rate of basic customs duty is 10%

Change in Customs Tariff Act, 1975

> IGST Valuation methodology and compensation cess for Warehoused goods sold prior to clearance for home consumption or export has been prescribed.

Social Welfare Surcharge

> A new levy in form of Social welfare surcharge at the standard rate of 10% on aggregate of customs duties has been introduced effective immediately. This e x c l u d e s S a f e g u a r d d u t i e s , C V D , A n t i – d u mp i n g d u t y a n d S o c i a l W e l f a r e Surcharge. Certain goods exempt from SWS and certain items such as Petrol, HSD, Gold and Silver are at 3% ( Notification 11/12/13 of 2018 ).

Road and Infrastructure Cess

> The existing Road Cess (levied at INR 6 per litre) on Petrol and High Speed Diesel has been replaced with the new Road and Infrastructure Cess (to be levied at INR 8 per litre). However, the total duty incidence on import of both the products remains the same due to change in CVD


> The scope of Customs Act has been expanded to apply to any offence or contravention committed outside India by any person unless specified otherwise.

Indian Customs Waters

> Definition of „Indian Customs Waters‟ has been amended to extend its limit to „Exclusive Economic Zone‟ of India upto 200 nautical miles from 12 nautical miles.

Redemption Penalty

> Requirement to pay redemption fine dispensed with in cases of voluntary payment of all dues. Further, the option to pay redemption fine to be void, if not paid within 120 days from the date such option was extended.

Risk based Selection

> Provisions introduced in Customs Act, 1962 to provide legal backing for verification of risk based selection of self-assessment through customs automated system. The methodology of Risk based Selection has been codified in the law

Show Cause notice

· Process of pre-notice consultation by the authorities before issuance of demand notice for recovery of duty or refund in cases other than collusion, suppression, etc. This is intended to enable ease of the process and to minimise litigation.

> Provision introduced for issuance of supplementary SCN in specified circumstances.

Revised guidelines for Advance Ruling

> Applicant to include any importer or exporter or any other person with justiciable cause to the satisfaction of the authority.

> Application for advance ruling is to be made to Custom Authority for Advance Rulings (CAAR) (Principal Commissioner or Commissioner of Customs)

> The time limit for pronouncement of ruling is reduced from 6 months to 3 months.

> Appeal against the order of CAAR can be made before Authority for Advance Ruling under the Income Tax Act.

Education and SHE Cess

> Education cess and secondary and higher education cess abolished

Time Limits

> Time limits set for adjudication proceedings except in certain cases. In the event that proceedings are not completed within the time frame, it shall be deemed as if no notice is issued.


> Government is now empowered to exempt goods which are imported for repair, further processing or manufacture, Re-imported for repair, further processing or manufacture after exports.

E Payments

> A Facility of electronic cash ledger has been introduced and the payment of duty, interest and penalty is possible through such cash ledger

Basic Customs Duty Rates on – some products


Raw Cashew
Bricks, blocks , tiles, ceramic goods
Solar tempered glass for manufacture of panels etc

Basic Customs Duty Rates on – some products


Crude Edible Vegetable Oil

Refined edible vegetable Oil

Food Preparations ( certain exclusions )

Perfumes, beauty, make up preparations etc

Specified parts of mobile phones

Truck and Bus radial tyres

Woven fabrics of Silk

LCD and LED panels

Footwear and parts of footwear

Refractory bricks and ceramic goods

Cut and polished coloured gem stones

Diamonds including lab grown, semi processed , half cut, broken etc , Non industrial diamonds

Imitation jewellery
Spark ignition engines of certain motor vehicles Compression ignition engines of certain motor vehicles Mattresses
Scent and toilet sprays
Cigarette lighters

Compile by NMR & Associates Chartered Accounts
For any information/assistance Contact: CA. NAGARAJ MUTT RACHAIAH

e-Mail ca.rajmrn@gmail.com | nmrandassociates@gmail.com

Cell: +91 9980 662 817 | Phone +91 8023 464 517



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