10 Changes in Income Tax Relevant from AY 2018-19 Onwards

The Chartered Accountants and The Advocates are under a lot of pressure to meet the deadline of Mar 31, 2018. It is quite obvious as the closing of March 2018 is surely going to be the scariest deadlines for all those

1. Who have yet not filed ITR for AY 2016-17 and AY 2017-18.
2. Who have duly filed the ITR but wants to revise their Return for any reason
3. Who have filed the ITR but their Returns turned Invalid due to the reasons like; ITR not Received at CPC Bengaluru within 120 days of Filing the ITR and the like

Amongst all the sweeping changes introduced in recent times, it is very important to keep track of all the amendments that are being bought into Direct and Indirect taxes. The authorities are turning more strict towards compliance of laws ,disclosure of information, payment of Taxes, adjustments of refunds etc. .

We all know Goods and Service Tax have been meted out with the maximum changes since its inception, as every GST Council Meeting leaves us with many changes and amendments to discuss.

But at the same time, we should take a note that Income Tax is no exception to the wave of changes. A lot of tremendous changes have been introduced in this source of Revenue as well.

As soon as the red letter day of March 31 will pass, The Income Tax Department will soon introduce ITR forms for AY 2018-19. Everyone will again be pushed to meet new deadlines, to get their Returns filed. Unlike previous years, this time the situation is expected to remain more tense and stressed.

I have tried to list a few changes that will take effect from the AY 2018-19 onwards. You need to know them before getting your Returns filed.

1. Income Tax Slab Rates

• No tax with income less than Rs 2,50,000 for individuals, Rs. 3,00,000 for Senior Citizens and Rs. 5,00,000 for Super Senior Citizens
• 0%-5% tax with income Rs 2.5/3.00 lacs to 5 lacs for different age groups
• 20% tax with income Rs 5 lacs to 10 lacs
• 30% Tax with income above Rs. 10 Lacs

2. Surcharge for Individuals and HUF.

Till now , surcharge was not levied on Individuals and HUF but it will now be levied from AY 2018-19 onwards.

Surcharge: 10% of income tax, where total income exceeds Rs.50 lakh up to Rs.1 crore.
Surcharge: 15% of income tax, where the total income exceeds Rs.1 crore.

Higher education and secondary cess:

3% of Income Tax (for AY 2018-19)
4% of Income Tax (for AY 2019-20)

The Rate of Surcharge for other assessee (Company, Firm and Local Authority remains unchanged for AY 2018-19)

3. Rebate of Income Tax in case of Certain Individuals (Section 87A)

You can claim the rebate if you satisfy both the following conditions:

• You are a Resident Individual; and
• Your Total Income Less Deductions (under Section 80) is equal to or less than Rs 3,50,000. (Rs. 5,00,000 upto AY 2017-18)

The rebate is limited to Rs 2,500. (Rs. 5,000 till AY 2017-18) Which means if the total tax payable is lower than Rs 2,500, such lower amount of tax will be the rebate under section 87A. This rebate is applied on total tax before adding Education Cess.

4. Change in Holding Period to qualify as Long Term Capital Asset

It is commonly understood that a capital asset if held for more than 36 months is a long term capital asset, else it is a short term capital asset.

At the same time, we also remember that the period of 36 months is cut down to 12 months in case of security (other than a unit) listed on a recognized stock exchange in India or a unit of Unit Trust of India or a Unit of an Equity oriented fund or a Zero Coupon Bond.

But The Finance Act 2017 provides that in case of an immovable property being land or building or both, the period of holding should be more than 24 months or more to qualify as long term capital asset.

In addition, The Finance Act 2016 provides that on case of shares of a company which are not listed on a recognized stock exchange in India, the period of holding should be 24 months or less to qualify as short term capital asset.

So, this way we have three check post, 12 months for listed shares, units of Equity oriented fund and zero coupon Bonds, 24 months for unlisted shares and Immovable property and 36 months in case of all other remaining Capital Assets.

5. Base Year Changed from 1981 to 2001

Old Rule: If the asset was acquired after 01-04-1981, the purchase price has to be indexed with cost inflation index computed with abase as 100 on above date.

If the asset was acquired before 01-04-1981, we could use the fair market value as on that date or the actual cost and claim a deduction for the cost of improvement incurred from above date.

New Rule: If the asset was acquired after 01-04-2001, the purchase price has to be indexed with cost inflation index computed with abase as 100 on above date.

If the asset was acquired before 01-04-2001, we could use the fair market value as on 01-04-2001 or the actual cost and claim a deduction for the cost of improvement incurred from above date.

How to calculate Indexed cost of Acquisition:

Cost Inflation Index for the year in which the asset is transferred

Cost of Acquisition X -------------------------------------------------------------------------------------------

Cost Inflation Index for the first year in which asset was held by the assessee or for the year beginning on 1.4.2001, whichever is later

6. Penalty for Late Filing of Return [Section 234 F]

This change is one of the most notable changes done in Income Tax. There had been no late fee or penalty for delayed filing of Returns. Income Tax Department was quiet lenient in this regard.

If a person who is compulsorily required to file Income Tax Return (ITR) doesn't file return on time then he is liable to a penalty as follows

Amount Of Penalty

For person with Total Income of more than Rs. 5,00,000

If ITR is filed after due date but on or before 31st December Rs. 5,000
If ITR is filed after 31st December but upto 31st March Rs. 10,000
No Return Filing is possible after 31st March of AY

For person with Total Income of less than Rs. 5,00,000 - Rs. 1,000 (upto Mar 31st of AY)

Penalty is not applicable if ITR is filed before due date but verification is done after the due date.

In addition to the penalty interest under Section 234A is also levied on late filing of Income Tax Return.

7. Insertion of Section 269ST

Section 269ST is introduced by Finance Act, 2017 with effect from 01.04.2017 and put a limit on Cash Transaction to put a check on Black Money and Tax Theft. Section is much talked about section as it provides penalty for any cash transaction above the value of Rs. 2 Lakh, equal to the Transaction amount.

Most of us would have heard this section as this was one of the highly discussed topic after the Budget Speech of 2017.

This section applies on the person receiving payment in excess of Rs. 2,00,000.

Kisi Ek bande se ek sath ya
kisi ek transaction ke silsile me total milakar ya (chahe alag alag din)
kisi event ya occasion ke silsile me total milakar (chahe alag alag din)
aap 2,00,000 se zyada ki payment accept nhi kar sakte.
Agar karoge to utni hi penalty hai.

I have translated it in Hindi because I personally feel when you learn the essence of any section in your mother tongue then it is easy to comprehend.

8. Deemed Gift - Section 56(2)(x)

Finance Act 2017 has inserted a new clause (x) in section 56(2) w.e.f 1st April 2017 (i.e. applicable from AY 2018-19 related to FY 2017-18) which has considerably widened the scope of provisions taxing deemed gift as income. The applicability of corresponding old deemed gift clauses being section 56(2)(vii) and 56(2)(viia) has been restricted upto AY 2017-18 only.

The new clause (x) envisages to tax the deemed gift of certain defined properties/assets in the hands of every person receiving such property/asset subject to certain exceptions as provided therein. The old provisions were only applicable to some persons & not all persons.

Also, earlier in the hands of Firm and a private company, the receipt of only unquoted shares of a private company was covered by deemed gift taxing provisions whereas now it covers all the defined properties/assets.

9. Deemed Capital Gains - Section 50CA

The Finance Act 2017 has also inserted a new section 50CA which provides that in case of sale of capital asset being unquoted shares, its Fair Market Value (FMV) shall be deemed to be the sale consideration if sale is made at a price less than FMV. As such, if shares are sold at consideration which is less than prescribed FMV, then capital gains shall be computed taking consideration to be the prescribed FMV.

FMV for the purposes of section 56(2)(x) is to be determined as per Rule 11U and Rule 11UA.

Transactions covered u/s 56(2)(x) and 50CA must be either done at FMV or it should fall in any of the exclusions provided.

10. GAAR Provisions

GAAR which stands for General Anti Avoidance Rules has been made effective from AY 2018-19 onwards.

One should know the difference between Tax Planning, Tax Avoidance and Tax Evasion.

Tax Planning is a situation where the taxpayer takes advantage of a fiscal incentive afforded to him by the tax legislation by actually complying to the conditions attached to that fiscal incentive.

Tax Evasion is the result of illegality, suppression and misrepresentation and fraud.

Tax Avoidance is the result of actions taken by the assessee, none of which or no combination of which is illegal or forbidden by the law itself. But there could be the elements of malafide motive. It is usually done by adjusting the affairs in such a manner that there is no infringement of taxation laws and to take full advantage of the loopholes therein so as to attract the least incidence of tax.

So having understood the difference between the three, we should now understand the concept of GAAR which applies only on impressible tax avoidance arrangement.

GAAR do not apply to the instances of tax evasion as tax evasion is already prohibited under the current provisions of the act.

However, GAAR Provisions apply where the aggregate tax benefit in the relevant AY arising to all the parties to the arrangement exceed Rs. 3 crore.

A Foreign Institutional Investor (FII) who:

- Is an assessee under the Act
- Has not taken benefit of the DTAA and
- Has not invested in listed or unlisted securities with prior permission is not subject to the GAAR Provisions.

With this, I conclude this write-up. I have tried to cover few changes, which many of us have already heard before but sometimes require a revision. Hope the article helps. I advise all the readers to be very alert to the changes coming in the field of Taxation, it is the only way out to gain confidence in your knowledge, your work, your performance in office and studies.

Your feedbacks will be highly appreciated.

Thank You.