Volume 10 Issue No. 182/2018

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Hi Folks

It is exactly a fortnight since Budget 2018 was presented. Thought it would deliver some big bang reforms. Did it ? Each one has his own take on this. Much water has flown since then. As always a closer look and more intense reading reveals the hidden punches. Not much to cheer both for individual as well as corporates. Quietly Education Cess of 3% has been replaced by Health Cess at a higher rate of 4%. We thought with the advent of GST we would bid goodbye to surcharge and cess but no both are back with the introduction of Social Welfare Surcharge as well. On many day to day use items, customs duty has gone up too. Is this to encourage Make in India ?
Thanks to GST and the constant changes announced by the GST council, I would say the anticipation around Budget changes in indirect taxes has lost its sheen. In the coming years, Budget would no more be an ‘event of the year’ but just another exercise of the Government. Every year analysing the indirect tax changes itself would be a giant exercise for all of us but not anymore. Good move. Instead of one big shock annually we are subjected to small and medium current shocks during the entire year. So much so that we are living the change each day and have forgotten what it means to be in a stable regime. Oh yeah, this is dynamic and not staid ☺.
Having said this, the big bang is the eye-popping diamond trade fraud disclosed by one of the PSU banks today. For the common man and the entrepreneur it is getting increasingly tougher to open a simple bank account with the maze of documents and signatures. It takes not less than 2-3 weeks but the same so-called vigilant system allows a fraud. The same banking system has put so many checks and balances on getting foreign investment that almost every FDI transaction is a non-compliant one thanks to the delay in getting critical documents like FIRC and KYC. Those who have attracted foreign funds and are struggling to arrange for these documents from their bank and the investor will understand what I am referring to. The bank-to-bank communication system both within India and with the overseas bank is so ‘anti-ease of doing business’ that only those at the ground level can empathise.
So much for letting out ! 182nd issue of Samhita contains the key highlights of the tax changes in the Union Budget, 2018 and a few other updates under Companies Act, 2017 and IBC, the other stars in the regulatory galaxy.
For our earlier issues do visit the Resource Centre at sharadasc.com. Happy Reading

Select Notifications, Circulars and enclosed D.O. letter which explains the Budget changes can be downloaded.

Direct Taxes

Personal Taxes

No change in tax slabs or rates for individual taxpayers.
Education Cess and Secondary and Higher Education Cess @ 3% to be replaced by Health and Education Cess at the rate of 4% of tax and surcharge.
Standard deduction upto Rs. 40,000 to be provided from salary income in lieu of reimbursement of medical expenses and transport allowance.
Women contribution to EPF reduced to 8% for first 3 years of employment.
Increase in deduction limit for health insurance premium and/or medical expenditure from Rs 30,000 to Rs 50,000 for senior citizens.
Increase in deduction limits for critical illness from Rs. 60,000 to Rs. 80,000 for senior citizens and from Rs. 80,000 to Rs. 1,00,000 for very senior citizens.
Deduction of interest earned by senior citizens from savings account with banks/post offices/co-operative societies to be increased from Rs. 10,000 to Rs. 50,000 p.a.
Tax leviable on the compensation due or received by any person on termination of the employment or on modification of its terms and conditions.

Corporate tax

Corporate Tax for domestic companies with turnover upto Rs. 250 crores cut to 25%. However, effective rate shall be 29.12% (maximum) considering Surcharge @ 12% and Health & Education Cess @ 4%.
For other larger domestic companies, effective rate will be 34.94% (more than Rs. 10 crores income).
Same rates are applicable for partnership firms and LLP, thanks to health and education cess @ 4%.
Transfer of money or property between a WOS and its holding company to be excluded from the scope of taxation of the recipient as income from other sources.
30% DDT on loans and advances to specified persons, amounting to deemed dividend. Taxability shifted from recipients to the distributing domestic company.
Long Term Capital Gains (LTCG) exceeding Rs 1 lakh will be taxed at 10%.
10% tax to be levied on distributed income by equity oriented mutual funds.
No adjustment required if the difference between stamp duty value and the sale consideration is not more than 5%, in respect of sale of immovable property held either as capital asset or stock-in-trade.
Prosecution provisions applicable on companies for default of filing of return of income, irrespective of whether any tax is payable or not.
Return of Income to be filed within specified timelines for claiming deductions under Section 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID, 80-IE.
100% tax deduction for companies registered as farmer producers with revenue cap of Rs. 100 cr.

Certain provisions have been rationalised w.r.t companies seeking resolution under IBC, 2016:
- Where the company’s application for insolvency resolution process has been admitted, the aggregate amount of unabsorbed depreciation and brought forward loss will be reduced for computing book profits. Earlier it was lower of the two, which meant if one of them was NIL, then no relief was available.
- The Insolvency Professional shall verify the Return of Income of the Company wherein corporate insolvency resolution process has been admitted.
- Requirement of a closely held company to continue to have atleast 51% of the voting power with the same set of persons (beneficial holders) as on the date of incurring the loss in order to avail the benefit of carry forward and set off of losses done away with, in case a resolution plan for the Company has been approved by the Adjudicating Authority (IBBI).

Start ups
- Eligible Business definition modified to include innovation, development or improvement of existing products or processes. Earlier it was new products or processes or intellectual property right.
- Profit linked deduction from tax available to Start ups upto a period 7 years from the date of incorporation, provided the total turnover not more than Rs. 25 crore.
- The sunset incorporation date has been extended to 31st March, 2021, in order to be eligible for deduction.
And a few more changes…………………..

Indirect Taxes

Education cess and Secondary & Higher education cess on imported goods abolished.
Social Welfare Surcharge (SWS) introduced on imported goods w.e.f 2nd February, 2018. However certain items which were exempted from education cess will continue to be exempted from SWS also.
SWS and Road and Infrastructure Cess introduced at the rate of Rs. 8 per litre on petrol and high speed diesel oil.
Levy of SWS on IGST Compensation Cess on imported goods fully exempted.
Gold and Silver exempted from SWS exceeding 3% of the total custom duty.
Basic Customs Duty has been revised for many goods which are as follows:

Particulars	Altered Rate of BCD
Preform of Silica for manufacture of telecommunication grade optical fibres	NIL to 5%
Rubber casing of LCD and LED TV panels	NIL to 10%
Raw materials and other accessories used for making Cochlear Implants	2.5% to NIL
Solar tempered glass used for manufacture of solar panels/modulestion	5% to NIL
Cut and polished coloured gemstones, diamonds and non-industrial diamonds	2.5% to 5%
Refractory Bricks, Blocks, Tiles and Similar Refractory Ceramic Constructional Goods	5% to 7.5%
Medical devices	7.5% to 10%
LCD/ LED/ OECD TV Panels; All types of ignition and other Motor Vehicle parts	7.5% to 15%
Articles containing magnesite, dolomite, or chromite; Bricks, Blocks, Tiles and Other Ceramic Goods	10% to 7.5%
Truck and radial tyres	10% to 15%
Essential oils, perfumery, Cosmetic and toilet preparations, Mobile Phones, Footwear and headgear, Wrist wearable devices/smart watches, Sunglasses, Clocks and Wrist Watches, Furniture and parts, Mattress, bedding and furnishing, Toys, games and sports requisites, parts and accessories	10% to 20%
CKU, CBU and various parts and accessories of Motor Vehicles and Motor Parts	10% to 25%
Candles and Tapers	10% to 35%

For ease of doing business, criteria for classifying MSME has been changed from ‘investment in plan & machinery for manufacturing units and investment in equipment for service enterprises to ‘annual turnover’.

MSME shall now mean units producing goods and rendering services on the basis of their annual turnover as follows:

Classification	Annual Turnover
Micro Enterprise	Not exceeding Rs. 5 crore
Small Enterprise	More than Rs. 5 crore but not exceeding Rs 75 crore
Medium Enterprise	More than Rs. 75 crore but not exceeding Rs. 250 crore

W.e.f 23rd January, 2018, Section 4 of the Companies (Amendment) Act, 2017 relating to Name Reservation has come into effect.

W.e.f. 9th February, 2018, the following further provisions have come into force:

S.NO	Amended Section of Companies Act, 2013	Title
1	Section 2 (except clause 6 and clause 87)	All Definitions, except Associate Company & Subsidiary Company have been notified.
2	Insertion of Section 3A	Member severally liable in certain cases
3	Section 21	Authentication of Documents, Proceedings & Contracts
4	Section 35	Civil liability for mis-statements in prospectus
5	Section 47	Voting Rights
6	Section 53	Prohibition on issue of shares at discount
7	Section 62	Further issue of share capital
8	Section 76A	Punishment in contravention of acceptance of deposits
9	Section 100	Calling of Extra-General Meeting
10	Section 101	Notice of Meeting
11	Section 110	Postal Ballot
12	Section 123	Declaration of Dividend
13	Section 130	Re-opening of accounts on court’s or Tribunal’s order
14	Section 132	Constitution of National Financial reporting Authority(NFRA)
15	Section 136	Right of member to copies of audited financial statement
16	Section 140	Removal, resignation of auditor and giving of special notice
17	Section 141	Eligibility, qualifications and disqualifications of auditors
18	Section 143	Powers and duties of auditors and auditing standards
19	Section 147	Punishment on contravention of provisions relating to appointment of auditors( Section 139 to Section 146)
20	Section 148	Central Government to specify audit of items of cost in respect of certain companies
21	Section 152	Appointment of directors
22	Section 153	Application for allotment of DIN
23	Section 160	Right of persons other than retiring directors to stand for directorship
24	Section 161	Appointment of additional director, alternate director and nominee director
25	Section 165	Number of directorships
26	Section 180	Restrictions on powers of Board
27	Section 184	Disclosure of interest by directors
28	Section 188	Related Party Transactions
29	Section 194	Prohibition on forward dealings in securities of company by director or key managerial personnel(Omitted)
30	Section 195	Prohibition on insider trading of securities(Omitted)
31	Section 223	Inspector’s Report
32	Section 236	Purchase of minority shareholding
33	Section 247	Valuation by registered valuers
34	Section 379	Application of Act to Foreign Companies
35	Section 384	Debentures, Annual return, registration of charges, books of Account and their inspection
36	Section 391	Application of section 34 to 36 and Chapter XX (Winding Up)
37	Section 409	Qualification of president and Members of National Company Law Tribunal(NCLT)
38	Section 411	Qualification of Chairperson and Members of National Company Law Appellate Tribunal (NCLAT)
39	Section 412	Selection of Members of NCLT & NCLAT
40	Section 441	Compounding of certain offences
41	Insertion of Section 446A & 446B	Factors for determining level of punishment & Lesser penalties for one Person Companies or Small companies
42	Section 447	Punishment for fraud
43	Section 458	Delegation by Central Government of its powers and functions

MCA has amended the Companies (Registered Valuers and Valuation) Rules, 2017. It was earlier provided that any person rendering valuation services under the Companies Act, 2013 on the date of commencement of such Valuation Rules, may continue to render valuation services without a certificate of registration upto 31st March, 2018.

Now, as per the amended rules, the date has been extended upto 30th September, 2018.

Provisions of Accounting Standard 22 or Indian Accounting Standard 12 relating to deferred tax asset or liability shall not apply to these Government Companies, for a period of 7 years w.e.f 1st April, 2017:

a public financial institution under the Companies Act, 2013;
a NBFC registered with the Reserve Bank of India (RBI);
engaged in the business of infrastructure finance leasing with not less than 75% of its total revenue generated from business with Government companies or other entities owned or controlled by Government.

Special Courts for trying offences punishable with imprisonment of 2 years or more notified for the State of Kerala, Odisha, Assam and Union Territory of Lakshadweep.

Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 have been amended.

The regulations provide for the process of appointment of Registered Valuers, sharing of information by the Resolution Professional with the Committee of Creditors and the prospective resolution applicants, Invitation of resolution plans along with the evaluation matrix, and the timeline for submission of the approved plan with the Adjudicating Authority.

Certain clarifications have been issued:

Hostel accommodation services provided by trusts to students do not fall within charitable activities, however tariff less than Rs. 1000 per day would not attract GST.
Elephant / Camel rides are not classified as ‘transportation services’ and would attract 18% GST rate with threshold exemption being available to small service providers.
Leasing or rental services with or without operator for any purpose in respect of self propelled access equipment are taxed at 28% provided the goods attract GST of 28%.
Services provided by senior doctors/ consultants/ technicians hired by the hospitals, whether employees or not, are healthcare services which are exempt.
Food supplied to the in-patients as advised by the doctor/nutritionists is a part of composite supply of healthcare and not separately taxable. Other supplies of food by a hospital to patients (not admitted) or their attendants or visitors are taxable.

Note: The contents of this Newsletter are only a summary and has not dealt with any issue in detail. Any action taken or proposed to be taken must be in consultation with professionals and not merely based on the articles / news updates. S. C. Sharada & Associates disclaims all liability on action taken without professional advice.

S. C. Sharada & Associates, Company Secretaries. #405, 7th Cross, IV Block, Koramangala, Bangalore – 560 034
sharadasc.com Phone : +91 80 25534374 , +91 80 25536618 Email: [email protected]

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