The Lok Sabha on Wednesday passed the Finance Bill 2018 with 21 amendments, some of which had to do with the controversial long-term capital gains tax on equity announced in the Budget speech by Finance Minister Arun Jaitley, while others had to do with the tax exemptions available to start-ups.
The Finance Bill was passed without discussion amid much ruckus, following which both Houses of Parliament were adjourned for the day.
Regarding the long-term capital gains tax (LTCG), one of the major amendments made was that the grandfathering of gains till January 31, 2018 will now be incorporated in the computation of LTCG itself, rather than for the purposes of computing tax at the rate of 10%.
"This resolves the ambiguity contained in the language of the Finance Bill 2018 on the need for a duplicated computation viz. first for computing LTCG without grandfathering and then for applying 10% tax rate with grandfathering," Rajiv Chugh, Tax Partner at EY India said in a note.
"The amended Finance Bill 2018 clears the air on several ambiguities and anomalies on new LTCG regime, cost base for depreciation allowance on stock in trade converted into capital asset, valuation of securities held as inventory by scheduled banks and public financial institutions, due date for CbCR (Country by Country Reporting) compliance by Indian constituent entity of non-resident parent entity and turnover cap for eligible start-ups."
However, tax experts say that ambiguities on other proposals continue to exist, such as the deemed dividend taxation of accumulated profits of an amalgamating company, potential extension of SEP to physical transactions, applicability of prosecution for non-filing of returns of income to foreign companies whose incomes are fully covered by withholding tax, restrictive relief from Minimum Alternate Tax (MAT) for non-resident companies under presumptive basis of taxation.
"Markets were expecting some relief from the government like deferment of new capital gains tax or increase in the threshold limit from ₹1 lakh to ₹2 lakh for levy of capital gains tax at the rate of 10%," Naveen Wadhwa, DGM, at Taxmann.com said. "However, the Finance Bill 2018 as passed by the Lok Sabha didn't make any significant change in the original proposal."
"The only noteworthy change is that of allowing the indexation benefit to shares which were unlisted as on January 31, 2018 but are listed on the date of transfer which happens to be on or after April 1, 2018," Mr. Wadhwa added.
The amended Finance Act also made changes to the rules regarding how start-ups can avail of tax deductions on profits.
Previously, start-ups were allowed 100% deduction of profits for any three out of seven years from the year of incorporation. To avail of this incentive, the start-ups were required to comply with a condition that stipulated that their turnover could not exceed ₹25 crore in those seven years.
"This was considered restrictive, as exceeding the turnover threshold in later years could have jeopardised the claim for earlier years (even though the conditions were met in those years)," Jiger Saiya, Partner - Tax and Regulatory Services at BDO India said in a note.
"In an amendment to the Finance Bill as passed by the Lok Sabha today [Wednesday], the condition is relaxed largely to the effect that turnover should not exceed the prescribed limit for the year for which 100% deduction is claimed by the start-up. The linking of turnover limit directly to year of claim is welcome."
Chandrashekhar V. Chitale