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Top 10 Amendments Proposed in Finance Bill 2018

On February 1, 2018, the Finance Minister Arun Jaitley presented his last full budget contrary to the expectations, the budget has not extended any benefits to the honest taxpayers. Neither the maximum basic exemption limit nor the slab rates have been revised. Moreover, the current budget has severely impacted the retail and institutional investors by introducing the tax on long-term capital gains from listed equity shares.

1. The top 10 amendments proposed by the Finance Bill, 2018 are given below:
1.1 Standard deduction reintroduced for salaried person:-
The Finance Bill, 2018 reintroduced the standard deduction of up to Rs. 40,000 from the salary income. Such deduction is allowed in lieu of transport allowance and reimbursement of medical expenses. Currently, a deduction of Rs. 19,200 is allowed from salary income in respect to transport allowance and Rs. 15,000 for the medical reimbursement. The net saving in taxable income for salaried persons shall be Rs. 5,800, while for pensioner's the net savings shall be Rs. 40,000.

No more exemption for the capital gains arising from listed equity shares
1.2 Currently, long-term capital gains arising from transfer of listed equity shares or units of equity oriented fund or of business trusts are exempt from income-tax under Section 10(38) of the Act. This exemption is proposed to be withdrawn and a new section is inserted to tax such capital gains.

As per new proposed Section 112A, long-term capital gains arising from transfer of an equity share, or a unit of an equity oriented fund or a unit of a business trust shall be taxed at 10% of such capital gains. The tax on capital gains shall be levied in excess of Rs. 1 lakh. However, an option is given to the investors to assume cost of acquisitions of such shares or units different from the actual cost at which it was bought. Tax at the rate of 10% shall be charged without giving the benefit of indexation to the investor's.

Slight variation of sales consideration from stamp value is acceptable:-
1.3 As per the current provisions, when a taxpayers claims that the sales consideration received by him from transfer of an immovable property is less than the value adopted by the Stamp valuation authorities, then the stamp value is deemed as the actual sales consideration. Deeming the stamp value as the sales consideration shall result in higher amount of capital gains even if the seller has not gained anything due to such higher stamp valuation. Further, such difference in the stamp value and the actual consideration disclosed by the parties is also taxed in the hands of the buyers.

In order to minimize hardship's in case of genuine transactions in the real estate sector, it is proposed to provide that no adjustments shall be made in a case where the variation between stamp duty value and the sale consideration is not more than five percent of the sale consideration.

Sec. 54EC exemption only for immovable properties
1.4 Section 54EC of the Act provides exemptions up to Rs. 50 lakhs if any long-term capital gain is invested in the specified bonds of NHAI and RECL within a period of six months after the date of such transfer. Such investments in these bonds have a lock-in period of 3 years.

It is proposed that exemption under Section 54EC shall be allowed only if long-term capital gains arising from transfer of an immovable property (land or building or both) is invested in above said specified bonds. The lock-in period of such bonds has also been increased to 5 years.

Amendments vis-à-vis ICDS
1.5 The ICDS-related proposals in the Finance Bill of 2018 are sequel to the Delhi High Court's ruling in the case of Chamber of Tax Consultants v. Union of India (2017) 87 taxmann.com 92 (Delhi). All requirements of ICDS, which are in direct conflict with the Income-tax Act or Court rulings, have been proposed to be incorporated in Income-tax Act.

Disallowance of expenditure paid in cash by Trusts
1.6 Currently, there are no restrictions on mode of payments by charitable or religious trusts or institutions. There are also no checks on whether such trusts or institutions follow TDS provisions or not. This has led to lack of an audit trail for verification of application of income.

In order to encourage a cash-less economy and to reduce the generation and circulation of black money, it is proposed that trusts or institutions will also be required to follow the provisions of TDS and application of income shall be allowed only for those payments which are in excess of Rs. 10,000 which are made through banking channels.

Consequently, the provisions of TDS disallowance under section 40(a)(ia) and disallowance of expenses under section 40A(3) and 40A(3A) shall be applicable while computing the application of income in case of trusts or institutions.

Deemed dividend isn't taxable in hands of receivers
1.7 Currently, deemed dividend's as specified in section 2(22)(e) are out of the ambit of Dividend Distribution Tax (DDT). Therefore, the deemed dividend arising from loan or advance by closely held companies are taxable in the hands of the shareholders.

The taxability of deemed dividend in the hands of recipient has posed serious problems in collection of the tax liability and has also been the subject matter of extensive litigations. Now it is proposed to bring deemed dividends also under the scope of dividend distribution tax. Therefore, companies are now liable to pay DDT on the deemed dividend. Further, the deemed dividend as referred to in Section 2(22)(e) is proposed to be taxed at the rate of 30%.

New deduction for senior citizens in respect of bank interest
1.8 Keeping in view the fixed and restricted sources of income of senior citizens, a new section 80TTB is proposed to be inserted. This provision would allow deduction of up to Rs. 50,000 to the senior citizen who have earned interest income from deposits with banks or post office's or co-operative's banks. Interest earned on saving deposits and fixed deposits, both shall be eligible for deduction under this provision.

Deduction under Section 80TTA shall not be available to senior citizens in respect of interest on saving deposits. Further, corresponding amendment has been proposed to Section 194A to provide that no tax shall be deducted at source from payments of interest to a senior citizens up to Rs. 50,000.

New deduction introduced for Farm Producer Companies
1.9 To promote agricultural activities a new section 80PA is proposed to be inserted. This new provision proposes 100% deductions of profits for a period of 5 years to farm producer companies. This deduction is allowed to farm producer companies who have total turnover of up to Rs. 100 crores during the financial year.

Limit of Deduction under Section 80D is enhanced for senior citizens
1.10 Currently, an individual taxpayer can claim deduction of up to Rs. 30,000 in respect of payment made by him for the medical insurance for himself, his spouse or children. He is allowed to claim additional deduction of Rs. 30,000 for the payment made for the medical insurance policy for his parents. The deduction of Rs. 30,000 is reduced to Rs. 25,000 if age of the insured persons is less than 60 years. In other words, if none of the family member is a senior citizen (i.e., less than 60 years of age), the deduction is limited to Rs. 50,000. If either parents or any of his family member is a senior citizen (i.e., above 60 years of age), the deduction shall be up to Rs. 55,000. If age of parents and family member's is above 60 years, the deduction up to Rs. 60,000 can be claimed under Section 80D.

The limit of Rs. 30,000 is proposed to be increased to Rs. 50,000. In nutshell, an individual taxpayer can claim deduction of up to Rs. 1 lakh under Section 80D if he or his family members and his parents are of 60 years or above.

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