Union Budget 2017 Impact

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Budget 2017: Decoding the highlights of Budget on Indian Economy

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Budget 2017 Impact India’s Leading ‘e’ Compliance Solutions Company http://gstinindia.in /

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MAJOR CHANGES: DIRECT TAX http ://gstinindia.in /

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Tax rate for individuals in the 2.50- 5 lacs income slab slashed to 5% from 10%. Rebate u/s 87A available to resident individual reduced from Rs. 5,000 to Rs. 2,500 and applicable upto income of Rs. 3.50 lacs only. 10% surcharge for income of individuals between Rs.  50 Lakh to Rs. 1 crores . 15% surcharge on individual income above Rs. 1 crore to remain. Single page Income Tax return proposed for small non-business assessees having income uptoRs . 5 lacs . People filing I-T returns for the first time under this category will not come under govt. scrutiny unless there is specific information regarding his high value transactions. INDIVIDUALS http ://gstinindia.in /

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Section 10 to be amended to provide exemption to partial withdrawal upto 25% from National Pension System (NPS). In order to provide parity between an individual who is an employee and an individual who is self-employed, it is proposed to amend section 80CCD so as to increase the upper limit of 10% of gross total income to 20% in case of individual other than employee. No deduction u/s 80CCG from assessment year 2018-19 to a resident individual for investment made in listed equity shares etc. 6% presumptive tax for turnover uptoRs . 2 crores for non-cash payments. http ://gstinindia.in /

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CORPORATES For companies with turnover upto Rs . 50cr, income tax @ 25%. MAT/AMT Credit can be carried forward for 15 years instead of 10 years. Sec 115JB to be amended to provide the framework for computation of book profit for Ind AS compliant companies in the year of adoption and thereafter.   PROFESSIONALS Professional who declares profits and gains in accordance with presumptive taxation regime provided under section 44ADA shall also be liable to pay advance tax in one instalment on or before the 15th of March. In order to ensure that the person furnishing report or certificate undertakes due diligence before making such certification, it is proposed to insert a new section 271J so as to provide that if a Chartered Accountant or a Merchant Banker or a Registered Valuer , furnishes incorrect information in a report or certificate under any provisions of the Act or the rules, he shall have to pay a sum of Rs. 10,000/- for each such report or certificate by way of penalty. http ://gstinindia.in /

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INCOME TAX RETURNS Set-off of loss under the head "Income from house property" against any other head of income shall be restricted to Rs. 2 lacs for any assessment year. However, the unabsorbed loss shall be allowed to be carried forward for set-off in subsequent years. Change in period of limitation for scrutiny assessment to 18 months for AY 18-19 & 12 months from AY 19-20. Time period for revising a tax return is being reduced to 12 months. Late filing fee of Rs. 5,000/- if the return is furnished by 31st December of assessment year & Rs. 10,000/- after that. However, if the total income does not exceed Rs. 5 lacs, late fee shall be Rs. 1,000 /-. Provisions of section 271F in respect of penalty for failure to furnish return of income shall not apply in respect of assessment year 2018-19 and onwards. Simple interest to be paid on refund @1.50% pm in the period, from the date on which claim for refund is made or in case of an order passed in appeal, from the date on which the tax is paid, to the date on which refund is granted. http://gstinindia.in /

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 CAPITAL GAINS Period of holding for land and building for LTCG reduced from 36 to 24 months. Shifting base year from 1981 to 2001 for computation of capital gains. Where consideration for transfer of unquoted share of a company is less than the Fair Market Value (FMV) of such share, FMV shall be deemed to be the full value of consideration for the purposes of computing Capital gains. (Sec 50CA). Conversion of preference share of a company into its equity share shall not be regarded as transfer. STT left untouched. In case of an individual or Hindu undivided family, who enters into a joint development agreement for a project, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority. http ://gstinindia.in /

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TDS/TCS No deduction u/s 194LA where such payment is made in respect of any award or agreement which has been exempted from levy of income-tax under section 96 (except those made under section 46) of RFCTLARR Act. (New law namely Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013). TDS @ 5% to be deducted by individuals and HUF not liable to tax audit on rent payments exceeding Rs. 50,000/- p.m. once in a year. No requirement of TAN. TDS @ 10% u/s 194-IC to be deducted by developer on amount credited or paid by developer to resident as consideration in Joint Development Agreement. TCS at 1% of sale consideration on cash sale of jewellery exceeding Rs. 5 lacs withdrawn. TCS @ twice the rate or 5%, whichever is higher, if PAN not furnished to collector. (section 206CC). Individuals and HUFs can file self-declaration in Form.No.15G/15H for non-deduction of tax at source in respect insurance commission referred to in section 194D. http ://gstinindia.in /

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MISCELLANEOUS Maintenance of books of accounts if sale proceeds exceed 25 lacs (10 lacs ) or if income exceeds Rs. 2.50 lacs (1.20 lacs ). Penalty equal to amount of cash transactions above Rs 3 lakh. No deduction for expenditure of more than Rs. 10,000 in cash (halved from Rs. 20,000 now). No deduction u/s 80G for donation exceeding Rs. 2,000 in cash (reduced from Rs. 10,000/- earlier). 'Reason to believe' or 'reason to suspect' to conduct a search etc , shall not be disclosed to any person or any authority or the Appellate Tribunal. No notional rent for first year on buildings held in stock by builders. No anonymous donations exceeding Rs. 2000 can be received by political parties from a single source. No TCS for purchase of motor vehicles exceeding Rs. 10 lacs by Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; local authority, a public sector company which is engaged in the business of carrying passengers. TDS reduced u/s 194J from 10% to 2% in case of payments to call centres . http ://gstinindia.in /

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MAJOR CHANGES: INDIRECT TAX The Union Finance Minister reiterated resolve to implement the Goods and Service Tax (GST) by stating that the GST Council has reached to a consensus on most of the issues and that the Government is prepared for the change. The highlight is that he did not mention any prospective date for GST. As per the Minister, on the fiscal front, not many changes have been made in the Service Tax and Central Excise Law in view of the prospective GST which would replace the respective legislations. Some Changes, however, have been made in the tax law to rationalize few tax positions and structure of quasi-judicial bodies. http ://gstinindia.in /

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Service Tax Shifting an entry from Negative list to exemption list ( w.e.f . date of enactment of the Finance Bill, 2017) The activity of “the process amounting to manufacture” in the negative list has been excluded from the list. For this purpose, entry (f) of Section 66D of the Finance Act, 1994 omitted. The same activity has been brought under exemption list under NN. 25/2012-ST. The definition of “process amounting to manufacture” in Section 65B (40) has also been omitted and got mention as clause ( ya ) of Para 2 of NN. 25/2012-ST, dated 20-06-2012. In essence, no change in the effective tax position – the only change is in the placement of the provision in the exemption list rather than negative list. Retrospective exemption for long lease of Industrial Plot ( w.e.f . date of enactment of the Finance Bill, 2017) Exemption granted from Service Tax on onetime upfront amount (premium, salami, cost, price, development charge or by whatever name called) charged for long term lease (30 years or above) of industrial plot by State Government Industrial Development Corporation / Undertaking to industrial units. http ://gstinindia.in /

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Exemption granted from Service Tax on the services of Life Insurance to members of the Army, Navy and Airforce, by the Army, Naval, Airforce Group Insurance Funds under the Group Insurance Scheme of the Central Government. The period of exemption is from 10th September 2004 to 1st February 2016 (there seems is to be an error, the date should have been 1st February 2017). This is a retrospective exemption. Since exemption is retrospective, refund application can be made within six months of the enactment of the Finance Bill, 2017. A prospective exemption has been granted for the same activity by amending NN. 25/2012-ST, dated 20-06-2012 effective from 02nd February 2017 (Ref. Notification No. 07/2017-ST). Retrospective exemption for Services of Life Insurance to Armed Forces ( w.e.f . date of enactment of the Finance Bill, 2017) The period of exemption is from 01st June 2007 to 21st September 2016 (both days inclusive). This is a retrospective exemption. Since exemption is retrospective, refund application can be made within six months of the enactment of the Finance Bill, 2017. http ://gstinindia.in /

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Scope of existing exemption extended ( w.e.f . 02 nd February 2017) The existing exemption under entry 9B of NN. 25/2012-ST for the specified courses of Indian Institute of Management (IIM) has been expanded in scope. Hitherto, the exemption was available for two years full time residential post-graduate programme in management. Now the exemption is available even if such programme is non-residential. Retrospective amendment in Valuation Rules ( w.e.f . date of enactment of the Finance Bill, 2017) Rule 2A of the Service Tax (Determination of Value) Rules, 2006 (Valuation Rules) is proposed to be amended w.e.f 01-07-2010 to make CLEAR the value of service portion in execution of works contract involving transfer of Goods and land or undivided share of land. Prospective exemptions granted ( w.e.f . 02 nd February 2017) Exemption from Service Tax provided in respect of the amount of Viability Gap Funding (VGF) payable to the selected Airline Operators for services of transport of Passengers by Air, embarking from or terminating in Airport under the Regional Connectivity Scheme (RCS). The exemption is available for a period of one year from the date of commencement of operations of the Airport under RCS as notified by the Ministry of Civil Aviation. (Entry 23A inserted in NN. 25/2012-ST) Exemption to services of life insurance provided by the Army, Naval & Airforce group insurance funds to the members of these forces. (Entry 26D inserted in NN. 25/2012-ST) http ://gstinindia.in /

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Note that since the Valuation Rules and the abatement NN. 26/2012-ST got amended/ substituted many times since 01-07-2010 to date, the respective amendments in the rules have been marked separately for the applicable rules and abatement during different periods of time. The above amendments would apply retrospectively and would prevail over the decision of any Court or quasi-judicial authorities . The amended valuation mechanism broadly provides as under : Value of service portion in the works contract shall be equivalent to the Gross amount charged for the contract less the value of property in goods and land or undivided share of land transferred involved in the execution of the said contract . In case above method of valuation is not followed, an alternate method of valuation would be composite method where the entire value of works contract including land would be chargeable to service tax at an abated value equivalent to 25% to 30% of the value of the contract with the given conditions over the period of time. The conditions for the abated rate and respective CENVAT Credit are same as have been provided under the Abatement Notification(s) as applicable over the different period of time involved. http ://gstinindia.in /

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The value of service in case of such works contracts which involve the value of goods and land both, has been a matter of dispute under Service Tax Law since long time. In the recent past, a Delhi High Court judgment questioned the incidence of service tax in case of construction contracts involving value of land, in the absence of any mechanism to compute the value of service portion in such contracts. Though in the existing law an abatement has been prescribed for such works contracts, but in the absence of any corresponding rules, the High Court was of the view that the said abatement alone was not sufficient to define the value of taxable service including land as a component of value. Based on this view, the High Court held that service tax could not be levied on such works contracts. This view is stark opposite to the intent of the Government to charge service tax on such contracts. In order to do away with the contentions raised with this judgment, changes have been made in the Valuation Rules by the Finance Bill, 2017 vide Section 128 read with schedule VI thereto. Background http ://gstinindia.in /

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Central Excise & Service Tax The Finance Bill, 2017 has made same changes in the Central Excise and Service Tax Law with respect to the institution of ‘Advance Ruling’ and ‘Settlement Commission’. Advance Ruling Authority (ARA) under the Income Tax Act has been made the Central Authority for the Service Tax, Central Excise and Customs Law also (“New Authority”). The capacity of the New Authority is accordingly going to be enhanced. The present Advance Ruling Authority for the Service Tax, Central Excise and Customs Law would stop existing. The ongoing proceedings with the present ARA will get transferred to the new authority. The fee for making application for advance ruling has been enhanced from Rs. 2,500/- to Rs. 10,000/-. The time limit for pronouncing advance ruling by the Authority has been extended from ninety days to Six months. Amendments in Institution of Advance Ruling ( w.e.f . date of enactment of the Finance Bill, 2017) http ://gstinindia.in /

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Amendments in Institution of Settlement Commission( w.e.f . date of enactment of the Finance Bill, 2017) The scope of approaching to Settlement Commission has been enhanced. Now any person other than an assessee , having a case under adjudication which is relating to the case of an assessee already gone to the settlement commission, can also make an application to the Settlement Commission. The powers of the Settlement Commission to take records from specified Central Excise Officer has been extended to include Principal Additional Director General or Additional Director General of Central Excise Intelligence . The settlement Commission has been granted the powers to rectify an error apparent on the record suo-motu or on behest of any of the parties to the case. http ://gstinindia.in /

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CENVAT Credit ( w.e.f . 02 nd February 2017) Specific provision for Banking Cos., FIs and NBFCs under Rule 6 of CCR Amendment has been made in the manner of computation of value of turnover of Banking Companies and Financial Institutions including Non-Banking Financial Companies for the purpose of computing the proportionate CENVAT Credit under sub-rule (3) and (3A) of Rule 6 of the CENVAT Credit Rules, 2004. Hitherto, for computing the “value” for the purpose of ascertaining the eligible amount of CENVAT Credit, the value of services by way of extending deposits, loans or advances was not included in the total value, in so far as the consideration was by way of interest of discount. The amendment has now been made to provide that such exclusion from the total value, for the purpose of computing eligible credit, would not be allowed for Banking Companies and Financial Institutions including Non-Banking Financial Companies, engaged in providing services by way of extending deposits, loans or advances. This is kind of rationalization of existing law as a major part of income of such institutions constitute interest or discounts; and excluding this from the value was not leading to fair computation of input credit. http ://gstinindia.in /

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No Research & Development Cesson Import of Technology ( w.e.f . 01 st April 2017) The R&D Cess Act, 1986 proposed to be repealed. The repeal of this Act shall not affect any other enactment in which it has been applied, incorporate or referred to; or the validity, invalidity, effect or consequences of anything already done or suffered, any right, title, obligation or liability already acquired. The proceeds of duties levied under this Act immediately before the repeal shall be collected and paid by the collecting agencies into the Reserve Bank of India. In service tax law, NN. 14/2012-ST exempts the taxable services involving import of technology from so much of service tax, which is equivalent to the amount of R&D Cess payable on the said import of technology. This exemption would not be available as a consequence of the repeal of R&D Cess Act. Specified time limit for allowing transfer of credit In case of the situation of transfer of CENVAT Credit from One factory/ manufacturer or to other factory/ manufacturer under Rule 10 of the CCR, a time limit of three months has now been prescribed for allowing such transfer of credit. This time limit of three months can be extended by the Commissioner of Principal Commissioner for a further period not exceeding six months. http ://gstinindia.in /

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CUSTOMS LAW Powers of Customs Officers extended for documents for ascertaining duty The Customs officer may now ask for “any document and information” to ascertain the value of duty leviable on the import or export of goods. This amendment is providing sweeping powers to the customs officers. In the existing provisions, they can ask for specified documents for specified purposes only. The Time limit for presenting the bill of entry after import of goods has been changed The amendment requires that the BOE to be presented before the end of the next day following the day (excluding holidays) on which the Aircraft or vessel or vehicle carrying the goods arrives at a customs station at which such goods are to be cleared. The BOE may also be presented within 30 days of the expected arrival of the vehicle carrying the goods to be imported in India. Exporter and Importer to include Beneficial Owner Definition(s) of ‘Exporter’ and ‘Importer’ have been expanded to include the ‘Beneficial Owner’. ‘Beneficial Owner’ has been defined as any person on whose behalf, the goods are being imported or exported or who exercises effective control over the goods being imported or exported. http ://gstinindia.in /

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Passengers and Crew information required by outgoing and incoming aircrafts or vessels An obligation to submit a passenger and crew manifest by an aircraft or a vessel coming from outside India or departing for outside India, has been introduced vide new sections 30A and 41A. Amendments regarding storage of imported goods The facility of storage of imported goods in warehouse pending clearance or removal of goods has been provided. In the existing provision this facility was available only in case of ‘pending clearance’ of goods The point of notice that the option of keeping the goods in private warehouse under the existing provision is not available in the amended provision. Unjust enrichment not to apply in specified cases The principle of unjust enrichment would not apply in case of refund of duty where such duty had been paid in excess by the importer and this fact is evident from the bill of entry. Change in the time of Payment of Import Duty The time for payment of import duty has now been specified as the date of presentation of BOE in the case of self-assessment. The time is one day (excluding holidays) from the day on which BOE is returned to the importer by proper officer for payment of duty in the case of assessment, re-assessment or provisional assessment. http ://gstinindia.in /

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Amendments relating to Settlement Commission and Advance Ruling Amendments relating to the Advance Ruling Authority and Settlement Commission in the Customs Law have been made on similar lines as in the Central Excise & Service Tax Law.   Amendments regarding import or export of goods by Post In case of goods imported or exported by post, existing section 82 providing that – any label or declaration accompanying the goods, which contains the description, quantity & value thereof, shall be deemed to be an entry for export and import, has been omitted. Simultaneously powers have been granted to the Board to prescribe that which document would be considered as ‘entry’ in case of import or export by post. Amendments made to the definition of Customs Stations to include ‘Foreign Post Office’ and ‘International Courier Terminal’. Webtel Electrosoft Pvt. Ltd. Contact us: 011-45054000 GST W RLD Contact us: 011-45502880 http ://gstinindia.in /

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