3/16/2018 5 Key Amendments to Finance Bill, 2018 passed by Lok Sabha

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5 Key Amendments to Finance Bill, 2018 passed by Lok Sabha (https://taxguru.in/income-tax/key-amendments-finance-bill-2018-passed-lok-

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 vispitpatel (https://taxguru.in/author/vispitpatel/) | Income Tax (https://taxguru.in/category/income-tax/)  16 Mar 2018 (https://taxguru.in/2018/03/16/)

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Vispi T. Patel

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The Lok Sabha has introduced the Notice of Amendments to the Finance Bill, 2018 on 12 March 2018. Please find below an analysis of the amendments
which are effective from Financial Year 2018-19 (i.e. Assessment Year 2019-20), except as provided otherwise:

Amendments as introduced by Finance Bill, 2018 Amendments as passed by Lok Sabha

1. Significant economic presence shall constitute – Section 9(1)(i) is amended to provide that ‘significant – The scope of ‘significant economic presence’ in India is
Business connection economic presence’ in India shall also constitute expanded
[Section 9(1)(i)] ‘business connection’. – The transactions or activities shall constitute significant
– Further, ‘significant economic presence’, shall mean – economic presence in India, whether or not:
any transaction in respect of any goods, the agreement for such transactions or
services or property carried out by a non- activities is entered into in India, or
resident in India including provision of the non-resident has a residence or place of
download of data or business in India, or
software in India if the aggregate of payments arising the non-resident renders services in India
from such transaction or transactions during the previous
year exceeds the amount as may be prescribed; or
systematic and continuous soliciting of its
business activities or engaging in interaction
with such number of users as may
be prescribed, in India through digital
means.

– Income attributable to such transactions or activities

shall be deemed to accrue or arise in India.
– The transactions or activities shall constitute significant
economic presence in India, whether or not the non-
resident has a residence or place of business in India or
renders services in India.

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3/16/2018 5 Key Amendments to Finance Bill, 2018 passed by Lok Sabha

2. Conversion of stock-in-trade into capital Asset
[Section 2(24)(xiia), 2(42A) and 28(via)]
– In cases where the inventory is converted into, or – A new ‘Explanation 1A’is inserted to Section 43, to
treated as, capital asset: provide that the fair market value of the inventory as on
any profit or gains arising from conversion the date of conversion shall be deemed to be the actual
cost of capital asset
of inventory into capital asset or its
treatment as capital asset shall be charged
to tax as business income.
fair market value of the inventory on the
date of conversion or treatment, shall be
deemed to be the full value of the
consideration;
fair market value on the date of conversion
shall be the cost of acquisition;
period of holding of such capital asset shall
be reckoned from the date of conversion or
treatment.

3. Capital Gain not to be charged on investment in – Capital gain arising from the transfer of a long-term – A new proviso is inserted in section 54EC(2) which
certain bonds capital asset, only being land or building or both, provides that the exemption shall be withdrawn if bonds
[Section 54EC] invested in the long-term specified asset at any time issued on or after 1 April 2018 are transferred or
within a period of six months after the date of such redeemed within 5 years
transfer, shall not be charged to tax subject to certain
conditions specified in the said section
– Long-term specified asset, for making any investment:
on or after 1 April 2007 and before 1 April
2018: shall mean any bond, issued and
redeemable after three years;
on or after 1 April 2018: shall mean any
bond, issued and redeemable after five
years

by National Highways Authority of India or by Rural

Electrification Corporation Limited or any other bond
notified by the Central Government

4. Long-term capital gains on sale of equity shares, – Insertion of new section 112A, to tax long-term capital – The method of computation of cost of acquisition of
etc. gains in case of transfer of equity shares, etc. listed equity shares or units as explained in Section 112A
[New Section 112A] – Cost of acquisition, in respect of assets acquired and meaning of ‘fair market value’ is now inserted in
before 1 February 2018, shall be higher of: Section 55 and omitted from section 112A.
Actual cost of acquisition of such assets or – The meaning of ‘fair market value’ is expanded to
include a situation
Lower of
where shares were unlisted as on January
fair market value of such assets or
31, 2018 but are listed on the date of
full value of consideration received or
transfer or
accruing as result of transfer of the capital
the shares were listed on the date of
asset
transfer but unlisted on January 31, 2018,
Fair market value means:
and such shares became the property of the
in a case where the capital asset is listed on
assessee in consideration of a share, in lieu
any recognized stock exchange, the highest
of any transaction specified in section 47
price of the capital asset quoted on such
In the above scenario, the taxpayer is also allowed to
exchange on 31 January 2018 or
take the benefit of indexation of cost of acquisition for FY
in a case where the capital asset is a unit
2017-18 of such unlisted equity shares
and is not listed on a recognized stock – Section 112A(5) provides that the long term capital
exchange, the net asset value of such asset gains shall be computed without giving effect to the first
as on 31 January 2018 proviso (asset acquired in foreign currency) and second
proviso (indexation benefit) of Section 48
– Other Conditions:
– The provision of this sub-section is inserted in Section
Long-term capital gains will be computed
48 and omitted from section 112A
without giving effect to the first and second
proviso to section 48
The benefit of deduction under Chapter VI-A
shall not be allowed from such capital gains.
Rebate under section 87A shall not be
allowed from income-tax payable on such
capital gains.

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3/16/2018 5 Key Amendments to Finance Bill, 2018 passed by Lok Sabha

5. Rationalization of provisions relating to Country- Following amendments are proposed to be made in – The due date for furnishing of CbC report by a
by country (CbC) report section 286: constituent entity referred to in section 286(4) shall be
[Section 286] – A constituent entity resident in India, having a non- within the period as may be prescribed
resident parent, shall also be required to furnish CbC – The definition of the term ‘agreement’ is substituted to
report, in case its parent entity outside India has no include an agreement as may be notified by the Central
obligation to file the report in the parents’ country or Government for exchange of the CbC report referred to
territory. in section 286 (2)
– The due date for furnishing of CbC report by a
constituent entity referred under section 286(4) is
proposed to be twelve months from end of the reporting
accounting year
– The definition of the term ‘agreement’ is proposed to
also include an agreement as may be notified by the
Central Government for exchange of the CbC report
referred to in section 286 (2) and 286 (4)
– This amendment will take effect retrospectively from
AY 2017-18

Disclaimer
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide
accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No
one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
15 March 2018

(The author can be reached at vispitpatel@vispitpatel.com)

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Company: Vispi T. Patel & Associates, Chartered Accountants
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One response to “5 Key Amendments to Finance Bill, 2018 passed by Lok Sabha”
1. Ashok Shrikhande says:
March 16, 2018 at 11:22 am (https://taxguru.in/income-tax/key-amendments-finance-bill-2018-passed-lok-sabha.html/#comment-1998286)
What about shares listed on stock exchange acquired by way of inheritance where cost of acquisition will be nil and sold after 1 year after acquisition?

Reply (https://taxguru.in/income-tax/key-amendments-finance-bill-2018-passed-lok-sabha.html?replytocom=1998286#respond)

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