Explanatory notes to the provisions of the finance act 2018
Circular No. 8/2018 was issued by the Central Board of Direct Taxes on 26 December 2018. Its subject is Explanatory notes to the provisions of the finance act 2018.
These are the Board’s explanatory notes to a Finance Act. They are the department’s account of what the amendments were meant to do, and they are cited constantly — but the words of the Act govern where the two part.
The Board's explanatory notes on the amendments made by the Finance Act, 2018, a 42-page commentary opening with the amendments-at-a-glance table keyed to the paragraph explaining each change. The ground covered, on that table, includes the rate structure, the widened meaning of accumulated profits for dividend, the treatment of conversion of stock in trade into a capital asset, the taxability of compensation connected with business or employment, the new long-term capital gains regime on equity shares in section 112A, the alignment of business connection in section 9 with the modified permanent establishment rule and the introduction of significant economic presence, several section 10 items including tax-free withdrawal from the National Pension System for non-employee subscribers and deduction of tax and manner of payment for certain exempt entities, the standard deduction on salary income brought in through sections 16 and 17, the amendments flowing from the notified Income Computation and Disclosure Standards across sections 36, 40A, 43AA and 43CB, agricultural commodity derivatives, the rationalisation of sections 43CA, 50C and 56 read together, presumptive income for goods carriages in section 44AE, measures for the International Financial Services Centre, section 54EC, the carry forward of losses to facilitate insolvency resolution in section 79, the widening of section 80AC so that deductions in respect of certain incomes are refused unless the return is filed by the due date, the senior citizen deductions in sections 80D, 80DDB and the new section 80TTB, start-up and employment incentives in sections 80-IAC and 80JJAA, the deduction for producer companies, long-term capital gains of foreign institutional investors, and the rationalisation of sections 115BA and 115BBE.
The Board's practice of explaining, after each Finance Act, what the amendments do and from when they take effect.
F. No. 370142/07/2018-TPL
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Direct Taxes)
****
CIRCULAR No.-Z/2018
Dated, the 26th of December, 2018
EXPLANATORY NOTES
TO
THE PROVISIONS OF
THE FINANCE ACT, 2018
Page 2 of 42
CIRCULAR
IN CO ME-TAX ACT
Finance Act, 2018 - Explanatory Notes to the Provisions of the Finance Act, 2018
CIRCULAR NO. /2018, DATED THE 26th OF DECEMBER, 2018
AMENDMENTS AT A GLANCE
Section/Schedule Particulars / Paragraph number
Finance Act, 2018
First Schedule Rate Structure, 3.1-3.4
---~-
Chapter III Income-tax Act, 1961
2 Widening of scope of Accumulated profits for the purposes of
Dividend, 4.1-4.5; Rationalisation of provision relating to
conversion of stock-in-trade into Capital Asset, 14.1-14.4;
Taxability of compensation in connection to business or
employment, 13.1-13.3; New regime for taxation of long-term
capital gains on sale of equity shares etc., 29.1-29.13
9 Aligning the scope of "business connection" with modified PE Rule
as per Multilateral Instrument eMU), 5.1-5.5; "Business
connection" to include "Significant Economic presence", 6.1-6.9
10 Royalty and FTS payment by NTRO to a non-resident to be taxexempt, 7.1-7.4; Extending the benefit oftax-free withdrawal from
NPS to non-employee subscribers, 8.1-8.3; Tax deduction at source
and manner of payment in respect of certain exempt entities, 11.1-
11.5; New regime for taxation of long-term capital gains on sale of
equity shares etc., 29.1-29.13; Exemption to specified income of
class of body, authority, Board, Trust or Commission in certain
cases, 9.1-9.4; Exemption of income of Foreign Company from sale
of leftover stock of crude oil on termination of agreement or
arrangement, 10.1-10.4
11 Tax deduction at source and manner of payment in respect of
certain exempt entities, 11.1-11.5
-
16 Standard deduction on salary income, 12.1-12.4
17 Standard deduction on salary income, 12.1-12.4
28 Taxability of compensation in connection to business or
employment, 13.1-13.3; Rationalisation of provision relating to
conversion of stock-in-trade into Capital Asset, 14.1-14.4
Page 3 of42
i
i
36
40A
43
43AA
43CA
43CB
44AE
47
48
49
50C
54EC
55
56
79
80AC
SOD
80DDB
80-IAC
80JjAA
Amendments in relation to notified Income Computation and
Disclosure Standards, 39.1-39.3
Amendments in relation to notified Income Computation and
Disclosure Standards, 39.1-39.3
Rationalisation of provision relating to conversion of stock-in-trade
into Capital Asset, 14.1-14.4; Tax treatment of transactions in
respect of trading in agricultural commodity derivatives, 15.1-15.4
Amendments in relation to notified Income Computation and
Disclosure Standards, 39.1-39.3
Rationalization of section 43CA, section SOC and section 56, 16.1-
16.4
Amendments in relation to notified Income Computation and
Disclosure Standards, 39.1-39.3
Presumptive income under section 44AE in case of goods carriage,
17.1-17.6
Measures to promote International Financial Services Centre (IFSC),
18.1-18.6
New regime for taxation of long-term capital gains on sale of equity
shares etc., 29.1-29.13 --
Rationalisation of prOVision relating to conversion of stock-in-trade
into Capital Asset, 14.1-14.4
Rationalization of section 43CA, section 50C and section 56, 16.1-
16.4
Rationalization ofthe provisions of section 54EC, 19.1-19.5
New regime for taxation of long-term capital gains on sale of equity
shares etc., 29.1-29.13
Rationalization of section 43CA, section SOC and section 56, 16.1-
16.4; Tax neutral transfers, 20.1-20.3; Taxability of compensation
in connection to business or employment, 13.1-13.3
Benefit of carry forward and set off of losses for facilitating
insolvency resolution, 21.1-21.6
Deductions in respect of certain incomes not to be allowed unless
return is filed by the due date, 22.1-22.3
Deductions available to senior citizens in respect of health
insurance premium and medical treatment, 23.1-23.4
Enhanced deduction to senior citizens for medical treatment of
specified diseases, 24.1-24.3
Measures to promote start-ups, 25.1-25.3
Incentive for employment generation, 26.1-26.4
Page 4 of 42
1
I
SOPA Deduction in respect of income of Producer Companies, 27.1-27.3 --
SaTTA Deduction in respect of interest income to senior citizens, 28.1-28.5
SOTTB Deduction in respect of interest income to senior citizens, 28.1-28.5
112A New regime for taxation of long-term capital gains on sale of equity
shares etc., 29.1-29.13
115AD Taxation of long-term capital gains in the case of Foreign
Institutional Investor, 30.1-30.3
115BA Rationalisation of provision of section 115 BA relating to certain
domestic companies 31.1-31.4
115BBE Rationalisation of the provisions of section 115BBE, 32.1-32.4
115)B Relief from liability of Minimum Alternate Tax (MAT] for certain
companies, 33.1-33.6
115)C Measures to promote International Financial Services Centre (IFSC], 18.1-
18.6
115)F Measures to promote International Financial Services Centre (IFSC], 18.1-
18.6
115-0 Application of Dividend Distribution Tax to Deemed Dividend, 34.1-34.4
115Q Application of Dividend Distribution Tax to Deemed Dividend, 34.1-34.4
115R Dividend distribution tax on dividend pay-outs to unit holders in an equity
oriented fund, 35.1-35.4
115T Dividend distribution tax on dividend pay-outs to unit holders in an equity
oriented fund, 35.1-35.4
139A -c--c-:- Entities to apply for Permanent Account Number in certain cases, 36.1-
36.5
140 Benefit of carry forward and set off of losses for facilitating insolvency
resolution, 21.1-21.6
143 Rationalisation of prima-facie adjustments during processing of return of
income, 37.1-37.4; New scheme for scrutiny assessment, 38.1-38.4
14SA Amendments in relation to notified Income Computation and Disclosure
Standards, 39.1-39.3
145B Amendments in relation to notified Income Computation and Disclosure
Standards, 39.1-39.3
193 Tax deduction at source on 7.75% GOI Savings (Taxable] Bonds, 2018,
40.1-40.3
194A Deduction in respect of interest income to senior citizens, 28.1-28.5
245-0 Amendments to the structure of Authority for Advance Rulings, 41.1-41.5
245Q Amendments to the struct,ure of Authority for Advance Rulings, 41.1-41.5
253 Appeal against penalty imposed by Commissioner (Appeals] under section
271), 42.1-42.3
271FA Penalty for failure to furnish statement of financial transaction or
Page 50f42
reportable account, 43.1-43.4
276CC Rationalisation of section 27 6CC relating to prosecution for failure
to furnish return, 44.1-44.4
286 Rationalisation of provisions relating to Country-by-Country Report,
45.1-45.4
CHAPTER VIII Miscellaneous
PART XVI THE FINANCE (NO.2) ACT, 2004
97 New regime for taxation of long-term capital gains on sale of equity
shares etc., 29.1-29.13
PART XVII THE FINANCE ACT, 2013
116 Rationalisation of the provisions relating to Commodity Transaction
Tax, 46.1-46.9
117 Rationalisation of the provisions relating to Commodity Transaction
Tax, 46.1-46.9
118 Rationalisation of the provisions relating to Commodity Transaction
Tax, 46.1-46.9
128 Rationalisation of the provisions relating to Commodity Transaction
Tax, 46.1-46.9
PART XVIII THE BLACK MONEY (UNDISCLOSED FOREIGN INCOME AND
ASSETS) AND IMPOSITION OF TAX ACT, 2015
46 Rationalisation of the Black Money (Undisclosed Foreign Income
and Assets] and Imposition of Tax Act, 2015,47.1-47.10
55 Rationalisation of the Black Money (Undisclosed Foreign Income
and Assets) and Imposition of Tax Act, 2015,47.1-47.10
1. Introduction
1.1 The Finance Act, 2018 (hereafter referred to as 'the Act'] as passed by the Parliament,
received the assent of the President on the 29th day of March, 2018 and has been enacted as Act
No. 13 of 2018. This circular explains the substance of the provisions of the Act relating to
direct taxes.
2. Changes made by the Act
2.1 The Act has-
(i) specified the rates of income-tax for the assessment year 2019-20 and the rates of
income-tax on the basis of which tax has to be deducted at source and advance tax has to be
paid during financial year 2018-19;
(ii) amended sections 2, 9,10,11,16,17,28,36, 40A, 43, 43CA, 44AE, 47, 48, 49, SOC, 54EC,
55,56,79, 80AC, 80D, 80DDB, 801AC, 80JjAA, 80TTA, 115AD, 115BA, 115BBE, l1SjB, l1SjC,
115jF, 115-0, 115Q, 115R, 115T, 139A, 140, 143, 145A, 193, 194A, 245-0, 245Q, 253, 271FA,
276CC, 286 of the Income-tax Act, 1961 ('the Income-tax Acf];
(iii) inserted new sections 43AA, 43CB, 80PA, 80TTB, 112A, 145B in the Income-tax Act;
(iv) amended section 97 of the Finance (No.2) Act, 2004;
(v) amended sections 116, 117, 118, 128 of the Finance Act, 2013;
(vi) amended sections 46, 55 of the Black Money (Undisclosed Foreign Income and Assets)
and Imposition of Tax Act, 2015.
3. Rate structure
3.1 Rates of income-tax in respect of income liable to tax for the assessment year
2018-19.
3.1.1 In respect of income of all categories of assessees liable to tax for the assessment year
2018-19, the rates of income-tax have been specified in Part I of the First Schedule to the Act.
These are the same as those laid down in Part III of the First Schedule to the Finance Act, 2017
for the purposes of computation of "advance tax", deduction of tax at source from "Salaries"
and charging of tax payable in certain cases during the financial year 2017-18.
The main features of the rates specified in the said Part I are as follows:
3.1.2 Individual, Hindu undivided family, association of persons, body of individuals or
artificial juridical person.
Paragraph A of Part I of the First Schedule specifies the rates of income-tax in the case of every
individual, Hindu undivided family, association of persons, body of individuals or artificial
juridical person (other than a co-operalive society, firm, local authority and company) as
under:-
Income chargeable
to tax
Rate of income- tax
Individual (other Individual, Individual, than senior and resident in India
resident in
very senior citizen), who is of the age India who is of
HUF, association of of sixty years or
the age of
persons, body of more but less eighty years or
individuals and than eighty more (very artificial juridical years. (senior senior citizen)
person. citizen) .
Up to Rs. 2,50,000 Nil
Rs. 2,50,001 - Rs. Nil
3,00,000 Nil
Rs. 3,00,001 Rs. 5% -
5,00,000 5%
Rs. 5,00,001 - Rs.
10,00,000 20% 20% 20%
Exceeding Rs.
30% 30% 30% 10,00,000
Page 7 of 42
The amount of income-tax so computed shall be increased by a surcharge at the rate of ten per
cent of such income-tax in case of a person having a total income exceeding fifty lakh rupees
but not exceeding one crore rupees, and fifteen per cent of such income-tax in case of a person
having a total income exceeding qne crore rupees.
However, marginal relief shall be available so the total amount payable as income-tax and
surcharge on total income,-
(i) exceeding fifty lakh rupees but not exceeding one crore rupees shall not exceed the total
amount payable as income-tax on a total income of fifty lakh rupees by more than the amount
of income that exceeds fifty lakh rupees;
(ii) exceeding one crore rupees shall not exceed the total amount payable as income-tax on a
total income of one crore rupees by more than the amount of income that exceeds one crore
rupees.
Education Cess on income-tax shall continue to be levied at the rate of two per cent on the
amount of tax computed inclusive of surcharge. In addition, the amount of tax computed shall
be further increased by an additional surcharge called Secondary and Higher Education Cess
on income-tax at the rate of one per cent of such income-tax inclusive of surcharge.
No marginal relief shall be available in respect of Education Cess and Secondary and Higher
Education Cess.
3.1.3 Co-operative Societies.
In the case of every co-operative society, the rates of income-tax have been specified in
Paragraph B of Part I of the First Schedule to the Act. The rates are as follows:-
Income chargeable to tax Rate
Up to Rs. 10,000 10%
Rs. 10,001 - Rs. 20,000 20%
Exceeding Rs. 20,000 30%
The amount of income-tax so computed shall be increased by a surcharge at the rate of twelve
per cent of such income-tax in case of a co-operative society having a total income exceeding
one crore rupees. However, marginal relief shall be available so that the total amount payable
as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the
total amount payable as income-tax on a total income of one crore rupees by more than the
amount of income that exceeds one crore rupees.
Education Cess on income-tax shall continue to be levied at the rate of two per cent on the
amount of tax computed inclusive of surcharge. In addition, the amount of tax computed shall
be further increased by an additional surcharge called Secondary and Higher Education Cess
on income-tax at the rate of one per cent of such income-tax inclusive of surcharge.
No marginal relief shall be available in respect of Education Cess and Secondary and Higher
Education Cess.
3.1.4 Firms.
In the case of every firm, the rate of income-tax of thirty per cent has been specified in
Paragraph C of Part I of the First Schedule to the Act.
The amount of income-tax so computed shall be increased by a surcharge at the rate of twelve
per cent of such income-tax in case of a firm having a total income exceeding one crore rupees.
However, marginal relief shall be available so that the total amount payable as income-tax and
surcharge on total income exceeding one crore rupees shall not exceed the total amount
payable as income-tax on a total income of one crore rupees by more than the amount of
income that exceeds one crore rupees.
Education Cess on income-tax shall continue to be levied at the rate of two per cent on the
amount of tax computed inclusive of surcharge. In addition, the amount of tax computed shall
be further increased by an additional surcharge called Secondary and Higher Education Cess
on income-tax at the rate of one per cent of such income-tax inclusive of surcharge.
No marginal relief shall be available in respect of Education Cess and Secondary and Higher
Education Cess.
3.1.5 Local Authorities.
In the case of every local authority, the rate of income-tax has been specified at thirty per cent
in Paragraph D of Part I of the First Schedule to the Act.
The amount of income-tax so computed shall be increased by a surcharge at the rate of twelve
per cent of such income-tax in case of a local authority having a total income exceeding one
crore rupees. However, marginal relief shall be available so that the total amount payable as
income-tax and surcharge on total income exceeding one crore rupees shall not exceed the
total amount payable as income-tax on a total income of one crore rupees by more than the
amount of income that exceeds one crore rupees.
Education Cess on income-tax shall continue to be levied at the rate of two per cent on the
amount of tax computed inclusive of surcharge. In addition, the amount of tax computed shall
be further increased by an additional surcharge called Secondary and Higher Education Cess
on income-tax at the rate of one per cent of such income-tax inclusive of surcharge.
No marginal relief shall be available in respect of Education Cess and Secondary and Higher
Education Cess.
3.1.6 Companies.
In the case of a company, the rate of income-tax has been specified in Paragraph E of Part I of
the First Schedule to the Act.
In case of a domestic company, the rate of income-tax isa) twenty five per cent of the total income, if the total turnover or gross receipts of the
company in the previous year 2015-16 does not exceed fifty crore rupees;
Page 9 of42
b 1 twenty-five per cent of the total income at the option of the company, if it satisfies the
conditions contained under section 115BA of the Income-tax Act;
c 1 thirty per cent of the total income, in all other cases.
The tax computed shall be enhanced by a surcharge of seven per cent where such domestic
company has total income exceeding one crore rupees but not exceeding ten crore rupees.
Surcharge at the rate of twelve per cent shall be levied if the total income of the company
exceeds ten crore rupees.
In the case of a company other than a domestic company, royalties received from Government
or an Indian concern under an approved agreement made after 31.03.1961 but before
01.04.1976, shall be taxed at fifty per cent. Similarly, fees for technical services received by
such company from Government or an Indian concern under an approved agreement made
after 29.02.1964, but before 01.04.1976, shall be taxed at fifty per cent. On the balance of the
total income of such company, the tax rate shall be forty per cent. The tax computed shall be
enhanced by a surcharge of two per cent where such company has total income exceeding one
crore rupees but not exceeding ten crore rupees. Surcharge at the rate of five per cent shall be
levied if the total income of the company other than domestic company exceeds ten crore
rupees.
However, marginal relief shall be allowed in the case of every company to ensure that,-
(il the total amount payable as income-tax and surcharge on total income exceeding one
crore rupees shall not exceed the total amount payable as income-tax on a total income of one
crore rupees by more than the amount of income that exceeds one crore rupees;
(iil the total amount payable as income-tax and surcharge on total income exceeding ten
crore rupees shall not exceed the total amount payable as income-tax and surcharge on a total
income often crore rupees, by more than the amount of income that exceeds ten crore rupees.
Education Cess on income-tax shall continue to be levied at the rate of two per cent on the
amount of tax computed, inclusive of surcharge in the case of every company. Also, such
amount of tax and surcharge shall be further increased by an additional surcharge called
Secondary and Higher Education Cess on income-tax at the rate of one per cent of the amount
of tax computed, inclusive of surcharge.
No marginal relief shall be available in respect of Education Cess and Secondary and Higher
Education Cess.
3.2 Rates for deduction of income-tax at source from certain incomes during the
financial year 2018-19.
3.2.1 In every case in which tax is to be deducted at the rates in force under the provisions of
sections 193, 194, 194A, 194B, 194BB, 194D, 194LBA, 194LBB, 194LBC and 195 of the Incometax Act, the rates for deduction of income-tax at source during the financial year 2018-19 have
been specified in Part II of the First Schedule to the Act. The rates for deduction of income-tax
at source during the financial year 2018-19 will continue to be the same as those specified in
Part II of the First Schedule to the Finance Act, 2017. However, in case of a non-resident, not
being a company, or a foreign company, tax shall be deducted at source at the rate of ten per
cent on income by way of long-term capital gain referred to in section 112A of the Income-tax
Act.
3.2.2 Surcharge.
The tax deducted at source in the following cases shall be increased by a surcharge, as specified
below, for purposes of the Union:
(i) In case of an individual, Hindu undivided family, association of person, body of
individual or artificial juridical person, where the income or aggregate of such incomes paid or
likely to be paid and subject to the deduction exceeds-
(a) fifty lakh rupees but does not exceed one crore rupees, the rate of surcharge is ten
per cent of such income-tax;
(b) one crore rupees, the rate of surcharge is fifteen per cent of such income-tax.
(ii) In case of a firm or cooperative society, where the income or the aggregate of such
incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees, the
rate of surcharge is twelve per cent of such income-tax.
(iii) In case of payments made to foreign companies, the rate of surcharge is two per cent of
such income-tax where the income or the aggregate of such incomes paid or likely to be paid
and subject to the deduction exceeds one crore rupees but does not exceed ten crore rupees. In
case where such income or the aggregate of such incomes paid or likely to be paid to a foreign
company and subject to the deduction exceeds ten crore rupees, the rate of surcharge is five
per cent.
(iv) No surcharge on tax deducted at source shall be levied in the case of an individual,
Hindu undivided family, association of persons, body of individuals, artificial juridical person,
co-operative society, local authority, firm, being a resident or a domestic company.
3.2.3 Health and Education Cess.
"Education Cess on income-tax" and "Secondary and Higher Education Cess on income-tax"
shall be discontinued. However, a new cess, by the name of "Health and Education Cess" shall
be levied at the rate of four per cent of income-tax including surcharge wherever applicable, in
the cases of persons not resident in India including company other than a domestic company.
For instance, if the amount of income of a foreign company is Rs. 1,20,00,000/- and tax to be
deducted from payment to such foreign company is Rs. 12,00,000/- at the rate often per cent,
then the surcharge at the rate of two per cent on such tax deducted shall be Rs. 24,,000. Health
and Education cess on such amount of tax deducted and surcharge (Rs. 12,00,000/- + Rs.
24,000/- = Rs.12,24,000/-) shall be Rs. 48,960/- (4% ofRs.12,24,000/-).
Page 11 of43
3.3 Rates for deduction of income-tax at source from "Salaries", computation of
"advance tax" and charging of income-tax in special cases during the financial year
2018-19.
3.3.1 Part III of the First Schedule to the Act specifies the rates for deducting income-tax at
source from 'Salaries' and computing advance tax during the financial year 2018-19. These
rates are also applicable for charging income-tax during the financial year 2018-19 on current
incomes in cases where accelerated assessments have to be made, e.g. provisional assessment
of shipping profits arising in India to non-residents, assessment of persons leaving India for
good during that financial year, assessment of persons who are likely to transfer property to
avoid tax, assessment of bodies formed for short duration, etc. The rates are as follows:-
3.3.2 Individual, Hindu undivided family, ass.ociation of persons, body of individuals or
artificial juridical person.
Paragraph A of Part III of the First Schedule specifies the rates of income-tax in the case of
every individual. Hindu undivided family, association of persons, body of individuals or
artificial juridical person (other than a co-operative society, firm,local authority and company).
The basic exemption limits, rates of tax and slabs of income for various categories remain the
same as in financial year 2017-18.
The rates of tax during the financial year 2018-19 are as follows:-
Income chargeable to tax Rate of income- tax
Individual (other IndiVidual, IndiVidual. than senior and
very senior citizen), resident in India resident in
who is of the age India who is of HUF, association of
persons, body of of sixty years or the age of
individuals and more but less eighty years or
artificial juridical than eighty years more (very
person (senior citizen) senior citizen)
Up to Rs. 2,50,000 Nil Nil Rs. 2,50,001- Rs. 3,00,000 5% Nil
Rs. 3,00,001- Rs. 5,00,000 5%
Rs. 5,00,001 - Rs. 10,00,000 20% 20% 20%
Exceeding Rs. 10,00,000 30% 30% 30%
In an assessment or appeal for assessment year 2019-20 turning on when an amendment took effect, in a section 80AC disallowance for a late return, and in a section 112A computation on listed shares.
Source: the Income Tax Department’s own published text — its page for this instrument.