1) Standard deduction to salaried individuals and pensioners (Section 16)
Transport allowance and Medical Reimbursement are two tax deductions which almost every salaried taxpayer easily claims. The Finance Act, 2018 eliminated these two tax benefits. The tax benefit from transport allowance is Rs 19,200 p.a. (Rs 1,600 p.m.), while from reimbursement of medical expenses, it is Rs 15,000 p.a. At first, it may appear to be a loss of Rs 34,200 to you (Rs 19,200 + Rs 15,000). But, you don’t need to worry as a standard deduction of Rs 40,000 has been brought in their place. This is, in fact, a good news for you since the overall tax benefit has increased by Rs 5,800 (Rs 40,000 – Rs 34,200).
This tax benefit has also been extended to the pensioners. Pensioners were not allowed any tax benefit of transport allowance and medical reimbursement. Therefore, they can gain Rs 40,000 as tax-free income.
2) Enhanced deduction under section 80D
You must be familiar with this deduction under section 80D that you can claim when you pay a premium for medical insurance giving coverage to you or your family. The tax deduction currently allowed is up to Rs 30,000 of the insurance covers you, your spouse or your children. You can get additional deduction of Rs 30,000 on premium paid if you have a medical cover for your parents aged 60 years and above. If they are aged below 60 years, then the tax deduction cannot exceed Rs 25,000.
However, if anyone of you, your spouse or your parents is not covered under any insurance policy, then you can claim a tax deduction up to Rs 30,000 for the medical expenses incurred on them. Union budget 2018 has extended this benefit to senior citizens as well and increased the deduction limit from Rs 30,000 to Rs 50,000.
3) Increase in the deduction limit under section 80DDB
The tax deduction given to taxpayers for expenses incurred on treatment of his own or any family member’s critical illness has also been raised. Currently, the tax deduction is Rs 80,000 for super senior citizen, Rs 60,000 for senior citizen and Rs 40,000 in any other case.
The upper limit of deduction has been increased to Rs 1,00,000 for both senior as well as super senior citizens but the limit remains the same for the taxpayers up to 60 years of age.
4) Increase in exemption limit on bank interest for senior citizens
In the AY 2019-20, senior citizens will be able to claim deduction up to Rs 50,000 on interest earned from bank deposits, post offices or co-operative banks as per the provisions of a new section 80TTB of the Income Tax Act, 1961. Any senior citizen who claims the tax deduction under section 80TTB will not be allowed to claim the benefits of section 80TTA from AY 2019-20. Section 194A has also been amended to disallow banks from deducting tax from payment of interest up to Rs 50,000 made to a senior citizen.
5) Enhanced tax benefit on gratuity [Section 10(10)]
The tax exemption allowed on gratuity has also been increased in the Union budget 2018. The taxpayers currently get a tax exemption of Rs 10 lakh which will be raised to Rs 20 lakh. The taxpayers receiving gratuity on or after 1st April 2018 will be able to enjoy the increased tax benefit on gratuity.
6) NPS withdrawal exemption extended to non-employees
Employees investing in NPS get exemption up to 40% of the total accumulated balance in their NPS account at the time of withdrawal when they opt out or close the scheme. The budget 2018 has extended this tax benefit to everyone investing in NPS.
7) Long Term Capital Gains(Sec 112A)
LTCG on transfer of Equity Share in a company, unit of an equity oriented fund and unit of business trust is 10% if LTCG is more than Rs 1 lakhs. If LTCG is upto Rs 1 lakhs then it is exempt.
8) Health & Education Cess @ 4%
From Finance Act 2018, Health & Education Cess @ 4% is charged on Net Income Tax Payable in place of Education & Secondary Higher Education Cess of 3%.
9) Rate of Tax in case of Companies
In case of turnover is more than Rs 50 crores in FY 2015-16 and Rs 250 crores or less in FY 2016-17, then rate of tax is increased to 30% from 25%.
In case of turnover is less than Rs 50 crores in FY 2015-16 and more than Rs 250 crores in FY 2016-17, then rate of tax is increased to 30% from 25%.
10) Amendment in Sec 80 DDB
Sec 80 DDB provides deduction to a resident individual and HUF for medical treatment or specified disease of dependent amounting to Rs 60,000/- in case of Senior Citizen (60 years or more) and Rs 80,000/- (80 years or more) in case of Very Senior Citizen. From Finance Act 2018, the deduction which can be allowed under this section increased to Rs 1,00,000/- in case of any type of Senior Citizen.
11) Applicability of Section 40A(3), 40A(3A) and 40(a)(ia) in case of Trusts
From Finance Act 2018, section 40A(3), 40A(3A) and 40(a)(ia) is applicable to religious or charitable trusts.
Accordingly, no deduction is allowable for any expenditure:
a) In case of expenditure exceeding Rs 10,000/- made to a person in a day in cash as per sec 40(A)(3).
b) In case of payment of outstanding Balance exceeding Rs 10,000/- to a person in a day by cash mode as per sec 40(A)(3A).
c) 30% of the amount of expense will be disallowed in case such trust do not deduct any TDS on payments being made to residents as per sec 40(a)(ia).
12) Amendment under presumptive taxation in case of Goods Carriage - Section 44 AE
Section 44 AE of the Act provides a presumptive taxation scheme for the transporters having upto 10 vehicles at any time during the previous year. It provides that such transporters have an option to pay tax on presumptive basis by declaring income @ Rs 7,500/- per month or part thereof per vehicle.
As per Finance Act 2018, vehicles having more than 12 MT gross weight, then instead of Rs 7,500 per month per vehicle, Rs 1,000 per tonne capacity per month per vehicle shall be deemed as Income.
13) Deduction under Sec 80-IAC of the Income Tax Act
Section 80-IAC of the Income Tax Act provides that 100% deduction of profits to start-ups for 3 consecutive years out of 7 years if it is incorporated between 01/04/2016 to 31/03/2018 and the turnover is upto Rs 25 crores per year between 01/04/2016 to 31/03/2021.
As per Finance Act 2018, startups incorporated between 01/04/2019 to 31/03/2021 can also avail the benefit of this section.
14) Mandatory Quoting of PAN in certain cases
From Finance Act 2018, Section 139A of the Act provides that
a) PAN is mandatory for such non-individual entities which enters into financial transaction valuing more than Rs 2,50,000/-.
b) PAN is also mandatory for the authorized signatories like managing director, director, partner, trustee, author, founder, karta, chief executive officer, principal officer of such entities irrespective of their financial transactions and income.
15) Trading in Agricultural Commodities
a) Amendment has been made in Sec 43(5) of the Act in order to provide that trading in agricultural commodities is now considered as non-speculative transaction, previously it was considered as speculative transaction.
b) After the Amendment, loss from trading in agricultural commodities can also be set off from other non-speculative business losses.
c) Further, such losses can now be carried forward for 8 Assessment Years instead of 4 Assessment Years.
16) Prosecution relating to failure to furnish Return of Income
Section 276CC of the Act provides that in case assessee fails to furnish Return of Income upto the end of assessment year, then he shall be liable to following:
a) Imprisonment of 6 months to 7 years with fine, if tax evaded exceeds Rs 25 lakhs.
b) Imprisonment of 3 months to 2 years with fine, if tax evaded is upto Rs 25 lakhs.
The above provisions are not applicable if tax amount is less than Rs 3,000/-.
As per Finance Act 2018, limit of Rs 3,000/- is not applicable to a Company in order to mandate all companies to file Return of Income.
17) Amendment in Section 54 EC (Exemption related to Long Term Capital Gains)
a) Long term capital asset for making any investment under this section means -
i) on or after 01/04/2007 but before 01/04/2018 means any bond issued by NHAI, RECL, redeemable after 3 years and issued on or after 01/04/2007 but before 01/04/2018.
ii) on or after 01/04/2018, means any bond issued by NHAI, RECL redeemable after 5 years and issued on or after 01/04/2018.
b) Long term capital asset means land or building or both.
18) Amendment in Section 43
Explanation 1A - Where a capital asset referred to in clause (via) of section 28 (where inventory is converted or treated as capital asset) is used for the purposes of business or profession, the actual cost of such asset to the assessee shall be the fair market value which has been taken into account for the purposes of the said clause.
19) New Section Inserted Sec 43 AA
1) Subject to the provisions of section 43A, any gain or loss arising on account of any change in foreign exchange rates shall be treated as income or loss, as the case may be, and such gain or loss shall be computed in accordance with the income computation and disclosure standards (ICDS) notified under sub-section (2) of section 145.
2) For the purposes of sub-section (1), gain or loss arising on account of the effects of change in foreign exchange rates shall be in respect of all foreign currency transactions, including those relating to—
(i) monetary items and non-monetary items;
(ii) translation of financial statements of foreign operations;
(iii) forward exchange contracts;
(iv) foreign currency translation reserves.”.
20) Sec - 43CA(Special provision for full value of consideration for transfer of assets other than capital assets in certain cases)
Following proviso shall be inserted in sub-section (1) by Finance Act 2018:
Provided that where the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed 105% of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration.
21) Amendment in Section 47
Following clause (viiab) shall be inserted
any transfer of a capital asset, being-
a) bond or Global Depository Receipt referred to in sec 115AC (1), or
b) rupee denominated bond of an Indian company, or
c) derivative,
made by a non-resident on a recognised stock exchange located in any International Financial Services Centre (IFSC) and where the consideration for such transaction is paid or payable in foreign currency.
22) Amendment in Section 49(Cost with reference to certain mode of acquisition)
Where the capital gain arises from the transfer of a capital asset referred to in clause (via) of section 28, the cost of acquisition of such asset shall be deemed to be the fair market value which has been taken into account for the purposes of the said clause.
23) Amendment in Section 80 JJA (Deductions in respect of employment of new employees)
Provided that in the case of an assessee who is engaged in the business of manufacturing of apparel [or footwear or leather products], the provisions of sub-clause (c) shall have effect as if for the words "240 days", the words "150 days" had been substituted.
Provided further that where an employee is employed during the previous year for a period of less than 240 days or 150 days, as the case may be, but is employed for a period of 240 days or 150 days, as the case may be, in the immediately succeeding year, he shall be deemed to have been employed in the succeeding year and the provisions of this section shall apply accordingly.
24) Amendment in Sec 115 JB (Minimum Alternate Tax)
(a) in Explanation 1,—
(A) after clause (iig), the following clause shall be inserted, namely:––
‘(iih) the aggregate amount of unabsorbed depreciation and loss brought forward in case of a company against whom an application for corporate insolvency resolution process has been admitted by the Adjudicating Authority under section 7 or section 9 or section 10 of the Insolvency and Bankruptcy Code, 2016.
25) Substitution of new sections 145A & 145B in place of section 145A
Section 145A For the purpose of determining the income chargeable under the head “Profits and gains of business or profession”,––
(i) the valuation of inventory shall be made at lower of actual cost or net realisable value computed in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145;
(ii) the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation;
(iii) the inventory being securities not listed on a recognised stock exchange, or listed but not quoted on a recognised stock exchange with regularity from time to time, shall be valued at actual cost initially recognised in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145;
(iv) the inventory being securities other than those referred to in clause (iii), shall be valued at lower of actual cost or net realisable value in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145:
Provided that the inventory being securities held by a scheduled bank or public financial institution shall be valued in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145 after taking into account the extant guidelines issued by the Reserve Bank of India in this regard:
Provided further that the comparison of actual cost and net realisable value of securities shall be made category-wise.
Section 145B
(1) Notwithstanding anything to the contrary contained in section 145, the interest received by an assessee on any compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the previous year in which it is received.
(2) Any claim for escalation of price in a contract or export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realisation is achieved.
(3) The income referred to in sub-clause (xviii) of clause (24) of section 2 shall be deemed to be the income of the previous year in which it is received, if not charged to income-tax in any earlier previous year.’
Do Read -
1. How to Determine Residential Status under Income Tax Act
2. Classification of Financial Markets
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7) Long Term Capital Gains(Sec 112A)
LTCG on transfer of Equity Share in a company, unit of an equity oriented fund and unit of business trust is 10% if LTCG is more than Rs 1 lakhs. If LTCG is upto Rs 1 lakhs then it is exempt.
8) Health & Education Cess @ 4%
From Finance Act 2018, Health & Education Cess @ 4% is charged on Net Income Tax Payable in place of Education & Secondary Higher Education Cess of 3%.
9) Rate of Tax in case of Companies
In case of turnover is more than Rs 50 crores in FY 2015-16 and Rs 250 crores or less in FY 2016-17, then rate of tax is increased to 30% from 25%.
In case of turnover is less than Rs 50 crores in FY 2015-16 and more than Rs 250 crores in FY 2016-17, then rate of tax is increased to 30% from 25%.
10) Amendment in Sec 80 DDB
Sec 80 DDB provides deduction to a resident individual and HUF for medical treatment or specified disease of dependent amounting to Rs 60,000/- in case of Senior Citizen (60 years or more) and Rs 80,000/- (80 years or more) in case of Very Senior Citizen. From Finance Act 2018, the deduction which can be allowed under this section increased to Rs 1,00,000/- in case of any type of Senior Citizen.
11) Applicability of Section 40A(3), 40A(3A) and 40(a)(ia) in case of Trusts
From Finance Act 2018, section 40A(3), 40A(3A) and 40(a)(ia) is applicable to religious or charitable trusts.
Accordingly, no deduction is allowable for any expenditure:
a) In case of expenditure exceeding Rs 10,000/- made to a person in a day in cash as per sec 40(A)(3).
b) In case of payment of outstanding Balance exceeding Rs 10,000/- to a person in a day by cash mode as per sec 40(A)(3A).
c) 30% of the amount of expense will be disallowed in case such trust do not deduct any TDS on payments being made to residents as per sec 40(a)(ia).
12) Amendment under presumptive taxation in case of Goods Carriage - Section 44 AE
Section 44 AE of the Act provides a presumptive taxation scheme for the transporters having upto 10 vehicles at any time during the previous year. It provides that such transporters have an option to pay tax on presumptive basis by declaring income @ Rs 7,500/- per month or part thereof per vehicle.
As per Finance Act 2018, vehicles having more than 12 MT gross weight, then instead of Rs 7,500 per month per vehicle, Rs 1,000 per tonne capacity per month per vehicle shall be deemed as Income.
13) Deduction under Sec 80-IAC of the Income Tax Act
Section 80-IAC of the Income Tax Act provides that 100% deduction of profits to start-ups for 3 consecutive years out of 7 years if it is incorporated between 01/04/2016 to 31/03/2018 and the turnover is upto Rs 25 crores per year between 01/04/2016 to 31/03/2021.
As per Finance Act 2018, startups incorporated between 01/04/2019 to 31/03/2021 can also avail the benefit of this section.
14) Mandatory Quoting of PAN in certain cases
From Finance Act 2018, Section 139A of the Act provides that
a) PAN is mandatory for such non-individual entities which enters into financial transaction valuing more than Rs 2,50,000/-.
b) PAN is also mandatory for the authorized signatories like managing director, director, partner, trustee, author, founder, karta, chief executive officer, principal officer of such entities irrespective of their financial transactions and income.
15) Trading in Agricultural Commodities
a) Amendment has been made in Sec 43(5) of the Act in order to provide that trading in agricultural commodities is now considered as non-speculative transaction, previously it was considered as speculative transaction.
b) After the Amendment, loss from trading in agricultural commodities can also be set off from other non-speculative business losses.
c) Further, such losses can now be carried forward for 8 Assessment Years instead of 4 Assessment Years.
16) Prosecution relating to failure to furnish Return of Income
Section 276CC of the Act provides that in case assessee fails to furnish Return of Income upto the end of assessment year, then he shall be liable to following:
a) Imprisonment of 6 months to 7 years with fine, if tax evaded exceeds Rs 25 lakhs.
b) Imprisonment of 3 months to 2 years with fine, if tax evaded is upto Rs 25 lakhs.
The above provisions are not applicable if tax amount is less than Rs 3,000/-.
As per Finance Act 2018, limit of Rs 3,000/- is not applicable to a Company in order to mandate all companies to file Return of Income.
17) Amendment in Section 54 EC (Exemption related to Long Term Capital Gains)
a) Long term capital asset for making any investment under this section means -
i) on or after 01/04/2007 but before 01/04/2018 means any bond issued by NHAI, RECL, redeemable after 3 years and issued on or after 01/04/2007 but before 01/04/2018.
ii) on or after 01/04/2018, means any bond issued by NHAI, RECL redeemable after 5 years and issued on or after 01/04/2018.
b) Long term capital asset means land or building or both.
18) Amendment in Section 43
Explanation 1A - Where a capital asset referred to in clause (via) of section 28 (where inventory is converted or treated as capital asset) is used for the purposes of business or profession, the actual cost of such asset to the assessee shall be the fair market value which has been taken into account for the purposes of the said clause.
19) New Section Inserted Sec 43 AA
1) Subject to the provisions of section 43A, any gain or loss arising on account of any change in foreign exchange rates shall be treated as income or loss, as the case may be, and such gain or loss shall be computed in accordance with the income computation and disclosure standards (ICDS) notified under sub-section (2) of section 145.
2) For the purposes of sub-section (1), gain or loss arising on account of the effects of change in foreign exchange rates shall be in respect of all foreign currency transactions, including those relating to—
(i) monetary items and non-monetary items;
(ii) translation of financial statements of foreign operations;
(iii) forward exchange contracts;
(iv) foreign currency translation reserves.”.
20) Sec - 43CA(Special provision for full value of consideration for transfer of assets other than capital assets in certain cases)
Following proviso shall be inserted in sub-section (1) by Finance Act 2018:
Provided that where the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed 105% of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration.
21) Amendment in Section 47
Following clause (viiab) shall be inserted
any transfer of a capital asset, being-
a) bond or Global Depository Receipt referred to in sec 115AC (1), or
b) rupee denominated bond of an Indian company, or
c) derivative,
made by a non-resident on a recognised stock exchange located in any International Financial Services Centre (IFSC) and where the consideration for such transaction is paid or payable in foreign currency.
22) Amendment in Section 49(Cost with reference to certain mode of acquisition)
Where the capital gain arises from the transfer of a capital asset referred to in clause (via) of section 28, the cost of acquisition of such asset shall be deemed to be the fair market value which has been taken into account for the purposes of the said clause.
23) Amendment in Section 80 JJA (Deductions in respect of employment of new employees)
Provided that in the case of an assessee who is engaged in the business of manufacturing of apparel [or footwear or leather products], the provisions of sub-clause (c) shall have effect as if for the words "240 days", the words "150 days" had been substituted.
Provided further that where an employee is employed during the previous year for a period of less than 240 days or 150 days, as the case may be, but is employed for a period of 240 days or 150 days, as the case may be, in the immediately succeeding year, he shall be deemed to have been employed in the succeeding year and the provisions of this section shall apply accordingly.
24) Amendment in Sec 115 JB (Minimum Alternate Tax)
(a) in Explanation 1,—
(A) after clause (iig), the following clause shall be inserted, namely:––
‘(iih) the aggregate amount of unabsorbed depreciation and loss brought forward in case of a company against whom an application for corporate insolvency resolution process has been admitted by the Adjudicating Authority under section 7 or section 9 or section 10 of the Insolvency and Bankruptcy Code, 2016.
25) Substitution of new sections 145A & 145B in place of section 145A
Section 145A For the purpose of determining the income chargeable under the head “Profits and gains of business or profession”,––
(i) the valuation of inventory shall be made at lower of actual cost or net realisable value computed in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145;
(ii) the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation;
(iii) the inventory being securities not listed on a recognised stock exchange, or listed but not quoted on a recognised stock exchange with regularity from time to time, shall be valued at actual cost initially recognised in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145;
(iv) the inventory being securities other than those referred to in clause (iii), shall be valued at lower of actual cost or net realisable value in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145:
Provided that the inventory being securities held by a scheduled bank or public financial institution shall be valued in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145 after taking into account the extant guidelines issued by the Reserve Bank of India in this regard:
Provided further that the comparison of actual cost and net realisable value of securities shall be made category-wise.
Section 145B
(1) Notwithstanding anything to the contrary contained in section 145, the interest received by an assessee on any compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the previous year in which it is received.
(2) Any claim for escalation of price in a contract or export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realisation is achieved.
(3) The income referred to in sub-clause (xviii) of clause (24) of section 2 shall be deemed to be the income of the previous year in which it is received, if not charged to income-tax in any earlier previous year.’
Do Read -
1. How to Determine Residential Status under Income Tax Act
2. Classification of Financial Markets
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