1 . Finance Bill 2018 proposed to define the term significant economic presence [Explanation 2A shall be inserted after Explanation 2 of clause (i) of sub-section (1) of Section 9 of Income Tax Act 1951]
“(a) 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 such amount as may be prescribed; or
(b) systematic and continuous soliciting of business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means”
This clarification will enable government to levy tax on dot.com companies who are doing business, but did not have physical presence in our country.
The Finance Bill 2018 which was passed by the lower house of the parliament has further increased the scope of tax levy by clarifying that:
Transactions or activities shall constitute significant economic presence in India, whether agreement for such transactions or activities has been entered in India or not.
2. Cost of Acquisition of asset acquired by was of conversion of stock into capital asset [ Section 9 of Income Tax Act 1951]
Finance Bill proposed that conversion of stock into capital asset would be considered as Business income & will be taxed under the head Profits & Gains of Business.
Finance bill passed by Lok Sabha has added to this that the Cost of Acquisition of asset acquired by was of conversion of stock into capital asset will be the fair market value, of inventory on the date of its conversion.
3. Aligning provisions of Section 48 & Section 55 on Income Tax Act 1951 [These sections deal with taxation of long-term capital gains]
Section 112A is proposed to be inserted by Finance bill 2018 to levy 10 per cent tax on long-term capital gains exceeding Rs 1 lakh from sale of listed equity shares, units of equity oriented mutual funds & units of business trust.
In the original bill, the mechanism of calculation of capital gain was provided in section 112A, instead of specific provisions of Section 48 [ Mode of computation of capital gain] and section 55 [ Meaning of “adjusted”, “cost of improvement” and “cost of acquisition” for computing capital gains ]
In order to rationalize these sections, certain provisions of newly proposed section 112A were shifted to section 48 & 55.
The method of computation of cost of acquisition of listed equity shares or units as explained in Section 112A is now inserted in Section 55 and omitted from section 112A.
Meaning of ‘fair market value’ was further elaborated to include a situation
- where shares were unlisted as on January 31, 2018 but are listed on the date of transfer i.e. 1st April & onwards or
- the shares were listed on the date of transfer but unlisted on January 31, 2018, and such shares became the property of the assessee in consideration of a share, in lieu of any transaction specified in section 47(Amalgamation, merger etc.)
In short it meant that indexation benefit to sale of share of unlisted companies which were unlisted as on January 31, 2018 but were listed on the date of transfer i.e. 1st April 2018 or afterwards will be allowed.
The shares that were listed on the date of transfer but unlisted on January 31, 2018, and such shares became the property of the assessee in consideration of a share, in lieu of any transaction specified in section 47(Amalgamation, merger etc.) will also be eligible for the benefit of indexation.
4. The lock-in period of bonds of NHAI or RECL ( these bonds are used by taxpayer to avail exemption from capital gains) under section 54 was proposed to be increased to 5 years from present 3 years by Finance Bill 2018.
The Lok Sabha has inserted a new clause in it proposing that the long term capital gain exempted earlier will be reversed if these bonds are redeemed or transferred before period of 5 years.
5. Changes in threshold limit of turnover of startups
- Deduction under section 80-IAC are available to start-up companies incorporated between 1st April 2016 and 31st March 2021.
- The total turnover of these companies should not exceed Rs. 25 Crore in any previous year 2016-17 to 2020-21;
- The startup 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.
As per Finance bill 2018, the deduction of 80-IAC will commence from date of incorporation.
But as per the bill passed by lok sabha,the deduction of 80-IAC will commence from previous year relevant to the assessment year for which deduction is first claimed.
6. Finance bill 2018 proposed that every non-individual entity is required to obtain PAN as Unique Entity Number.But as per the bill passed by lok sabha the scope of this amendment has been restricted to non-individual resident persons only.
7. As per Finace act 2018 inventory being securities not listed, or listed but not quoted, on a recognised stock exchange, shall be valued at actual cost initially recognised in the manner provided in income computation and disclosure standards notified under (2) of section 145.
To this bill passed by lok sabha has added that securities held with public sector banks shall be valued as per ICDS after taking into account the extant guidelines issued by the Reserve Bank of India in this regard.
8. A new section 14 A has been inserted that says “The amount standing to the credit of any depositor in the Public Provident Fund Scheme shall not be liable to attachment under any decree or order of any court in respect of any debt or liability incurred by the depositor.”
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