Finance (No. 2) Bill, 2019 – Important Amendments Proposed in Income Tax Act

In the month of February, 2019 Finance Bill, 2019 was presented in the Parliament by the then Finance Minister as an interim Budget and certain amendments were made in the Income Tax Act. The full budget has been presented by the present Finance Minister in the Parliament on 5-7-2019. In the Finance Bill presented by the Finance Minister only limited amendments have been proposed in the Income Tax Act, may be for the reason that the government has formed a Committee for re-writing the new Income Tax Act and the Committee is expected to submit draft of the new Act by 31st July, 2019. Important amendments proposed in the Bill, however, are as under:-

  1. Rate of Tax

    • Rate of income tax for all categories of assesses will remain same for A.Y. 2020- 21, as have been for A.Y. 2019-20 except that:-

      • In case of companies concessional rate of 25% as against general rate of 30% will be applicable in case turnover in the previous year 2017- 18 is upto ₹ 400 crore instead of ₹ 250 crore earlier.

      • In case of individuals rate of surcharge has been increased from 15% to 25% of income tax in case income is between ₹ 2 crore to ₹ 5 crore and 37% if income is above ₹ 5 crore.

  2. Tax incentives to assesses

    1. In order to give boost to purchase electric vehicles with a view to improve environment and reduce pollution it is proposed to insert section 80EEB to provide deduction on account of interest on loan taken for purchase of such vehicle from any financial institution or NBFC, up to ₹ 1,50,000/- subject to the condition that loan is taken between 1-4-2019 to 31.03.2023 and the assessee is not owning any other electric vehicle on the date of sanction of the loan.

    2. A new section 80EEA is proposed to be inserted to provide for a deduction of interest up to ₹ 1,50,000/- on loan taken for residential house property from any financial institution, including banks during the period 1-4-2019 to 31-3-2020 in case the assessee does not own any other residential house on the date of sanction of the loan and the stamp duty value of the house does not exceed ₹ 45 lacs.

    3. As per provisions of Section 80CCD of the Act, contribution made by the employee to NPS is eligible for deduction. Contribution made by the employer is also not to be considered as income of the employee in the year of the contribution subject to the condition that employer’s contribution does not exceed 10% of salary of the employee. The amount received by the employee either by way of pension or otherwise from NPS, however, is taxable on receipt basis. Section 10(12A), however, has provided w.e.f. 1-4-2017 that in case an employee opt out of the pension scheme and withdraw total amount on closure of the account, such amount will be exempt to the extent of 40% of the amount received by the employee. It is proposed to amend provisions of Section 10(12A) and also 80CCD of the Act in following respect:—

      1. Amount withdrawn on closure of account by an employee shall be exempt to the extent of 60% instead of 40% earlier.

      2. Contribution made in case of employees of the Central Government the limit will be 14% instead of earlier 10%. In case of other employers the limit will continue to be 10% of the salary of the employee.

    4. In addition to mutual funds referred to in Section 10(38) of the Act concession in respect of long term capital gain was provided in Section 112A of the Act vide Finance Act, 2018 on transfer of units of certain other equity oriented funds set up by the government. Similar concession is being provided in respect of transfer of unit of such equity oriented fund in respect of STCG by way of amendment in Section 111A.

    5. In terms of Section 115UB of the Act income arising on investment is taxable in the hands of unit holders and not in the assessment of investment fund. No pass though benefit was available to unit holders in respect of loss. In order to remove genuine difficulty faced by the investment fund it is being provided that set off / carryover of loss on investment will also be available to unit holders.

    6. Under Section 89 of the Act a tax relief is available to salaried employees on receipt of salary in arrear or in advance. There was no specific provision in certain section for allowing adjustment of relief for determining tax payable and interest payable thereon. As a clarification amendment is being made in certain section w.r.e.f 1-4-2007.

  3. Amendments applicable to corporate assesses

    1. Section 79 of the Act provides for set off brought forward business loss only if share holding in the company continues with same share holders to the extent of at least 51%. The aforesaid provisions creates hardship in case of companies under distress. With effect from 1-4- 2018 it was provided that the aforesaid condition will not be applicable in case change in shareholding pursuant to resolution plan approved under the Insolvency and Bankruptcy Code, 2016. It is being further provided that condition of aforesaid section will also not apply in the cases where NCLT has suspended the Board of Directors and have appointed new directors on the petition moved by central government or change in shareholding pursuant to a resolution plan approved by NCLT.

      The aforesaid relaxation will also be applicable to subsidiary of such companies.

      It is also being provided by amendment in Section 115JB of the Act that in case of such companies aggregate amount of brought forward unabsorbed depreciation and loss will be available for set off in determination of book profit. In normal case set off is available only for unabsorbed depreciation or brought forward loss, whichever is lower.

    2. Companies are liable to pay dividend distribution tax u/s 115O of the Act on the amount of dividend declared/ distributed by the company. Earlier w.e.f. 1-6-2013 Section 115QA of the Act was inserted as anti-abuse provision to check the practice of unlisted companies resorting to buy-back of shares instead payment of dividend. Now, by way of amendment in Section 115QA it is being provided that provision of aforesaid section will be applicable in case of buy- back of shares made on or after 5-7-2019 by listed companies also.

    3. Section 2 (19AA) of the Act provides that demerged company will transfer the assets and liabilities at the same value as is appearing in its books of account to the resulting company. In order to remove the genuine difficulty it is being provided by way of amendment in the section that aforesaid condition will not be deemed to be violated if resulting company records the value of assets and l iabilities in its books of account at a value different than the value in the books of demerged company in compliance to the Ind AS.

    4. As per Section 285BA of the Act certain institutions like, Registering Authority, Banks, Post Office, companies and other specified financial institutions are required to report transactions with any assessee of the nature of purchase, sale of property, rendering of services, works contract, investments, deposits, etc. The Department has prescribed the nature of transactions as well as limits in respect of each of the transaction. With a view to widen the scope of reporting requirement amendments are proposed to be made in Section 285BA of the Act so as to enlarge the scope of reporting entities as well as do away with the limit of ₹ 50,000/- provides in the Act. Accordingly, the Department will have wider power to prescribe the reporting entities and the limits of the transactions to be reported.

    5. Section 43B of the Act is proposed to be amended to provide that in respect of interest payable on loans taken from specified NBFCs will be allowable only on actual payment basis. Similarly, section 43D of the Act is being amended to provide that in case of NBFCs interest income will also be taxable only in the year of actual receipts. Presently, above provisions are applicable only in respect of debts of public financial institutions and banks.

  4. Amendments in relation to international transactions

    1. Provisions of Section 92D are being amended to provide that information and documents in respect of international group of which the assessee is a constituent entities are to be maintained and furnished even if there is no international transaction during the year.

    2. It is being clarified by way of amendment in Section 92CD of the Act that pursuant to modified return filed by an assessee for earlier years on signing of APA, assessments for which years had earlier been finalised, the AO will only modify the income as per the APA and will not undertake fresh assessment or re-assessment.

    3. Certain amendments have been proposed in Section 92CE in order to clarify the position regarding secondary adjustment and also to provide relief in certain cases. Further, an amendment is also being proposed that no secondary adjustment will be made if the assessee has made payment of additional income tax @ 18% on the amount of primary adjustment. The aforesaid section was inserted w.e.f. 01.04.2018 providing that where there has been adjustment made in ALP in respect of international transaction and same has been accepted by the Assessee, the amount of such adjustment has to be repatriated to India by the associate enterprise and in case not repatriated, same will be deemed to be advance by the assessee to the associate enterprises and interest thereon is to be adjusted in each of the subsequent assessment year as secondary adjustment.

    4. Section 286 of the Act provides for submission of Country- by- country Report by the Indian entities which are the part of International Group. Since the accounting year of the parent entity would be different then the accounting year of the Indian entity, there was no clarity as regard to “accounting year”. As a clarification it is being provided that accounting year of the parent entity will be accounting year for this purpose

    5. Certain amendments have also been proposed to provide incentive to International Financial Services Center (IFSC).

  5. Incentives for start-ups.

    Following amendments are proposed to be made with a view to given boost to start-ups or to remove difficulties:-

    1. As per Section 79 of the Act loss of an earlier year is allowed to be set off against income of a subsequent year only if 51% of shareholding is held by the same persons who were holding the shares in the year of incurring of the loss. In case of start- ups a further relaxation is being provided in the aforesaid condition and loss will be allowed to be set off if all the shareholders holding the shares in the year of loss continue to hold those shares in the year when loss is to be set off, notwithstanding that their voting rights may have become less than 51% pursuant to allotment of shares to other shareholders.

    2. Section 54GB of the Act provides for exemption from capital gain arising on sale of a residential house in case the net consideration arising from sale of a residential property made upto 31-3-2019 is invested in start-ups and minimum shareholding in the start- up is of 50% of share capital. Further, there is a condition that such shares as well as assets acquired by start-up shall not be sold or transferred for a period of 5 years. With a view to provide relaxation in conditions, it is proposed that capital gain arising from sale of residential property made upto 31- 3- 2021 shall be eligible for exemption and the condition of 50% of shareholding has been reduced to 25%. Further, the condition of sale of assets by the company for a period of 5 years shall be only of a period 3 years in case of computer or computer software acquired by the start-up.

    3. In section 56( 2)( viib) of the Act consideration received on issue of shares in excess of fair market value is to be deemed as income. Exemption is available in respect of investment made by a venture capital company or venture capital fund. It is proposed to widen the scope of exempted investments and it is being provided that investments made by category-II Alternative Investment Funds regulated by SEBI will also be covered by the exempted category.

  6. Amendments regarding tax deduction at source

    1. A new Section 194M is proposed to be inserted to provide for deduction of tax at source by an individual or HUF, who are otherwise not liable to deduct tax under Section 194C or 194J while making payment to a contractor or a professional exceeding an amount of ₹ 50 lacs during a financial year. The proposed amendment is likely to be applicable only in the cases where individuals get their residential or commercial building constructed though a contractor.

    2. Under Section 194IA tax is required to be deducted while making payment for purchase of immovable property either from the developer or from any other person @ 1 % on the amount of consideration. In case of purchases from the builders / developers apart from purchase consideration certain other charges are also payable such as club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature. It is proposed to provide by way of amendment that such charges will also be considered to be part of consideration for the property and tax will be deductible on these payments also.

    3. It is also proposed to provide by way of insertion of new section 194N that a bank, cooperative society or a post office making payment on account of withdrawal in cash in excess of rupees One crore by any person from the account maintained with it, shall deduct tax at 2% on the sum exceeding rupees One crore. The provision, however, will not be applicable on withdrawal by government, cooperative society, post office, any person engaged in banking business, ATM Operators and such other persons or class of persons notified by the Central Government in consultation with RBI.

    4. Section 194DA provides for deduction of tax at source from the sum paid on life insurance policy, which is not exempt u/s 10(10D) of the Act, @ 1%. An amendment is being made to provide relief in such cases to provide that tax will be deducted @ 5% on the amount of income component only i.e. sum received minus premium paid by the assessee.

    5. By way of amendments in Section 201 and also in Section 40 of the Act it is being provided that the assessee will not be deemed to be assessee in default and expenditure will also not be disallowed u/s 40 in case of default in TDS while making payments to non-residents, if the non-residents had filed the return and tax has been duly paid by the payee and a certificate to this effect has been submitted of a Chartered Accountant. This relaxation was earlier available to payments to residents and by way of amendment same is being extended to payments made to non-residents to bring parity.

    6. As per Section 201(3) an order holding an assessee in default can be passed within a period of 7 year from the end of the financial year. It being provided by way of amendment that order can also be passed within the period of 2 years from the end of the financial year in which the correction statement is delivered by the deductor u/s 200(3) to the Department, whichever is later. Accordingly, the order holding the assessee in default can be passed even beyond the period of 7 years.

  7. Amendments regarding filing of returns

    1. Under Section 139 of the Income Tax Act presently individuals and HUFs are required to file their return of income, only if, their taxable income exceed the maximum amount exempt from tax. Accordingly, many assesses who have earned capital gain but have claimed exemption in respect thereof pursuant to investment in residential house or investment in bonds etc. and as a result thereof their taxable income comes below the taxable limit were not filing their return of income. Therefore, department was not able to verify the compliance of exemption provisions. It has been proposed that all such assesses who claimed exemption on account of capital gain pursuant to their investment shall be compulsorily liable to file their return of income. Further, it has also been provided that return is also to be compulsorily filed by the persons, who have deposited more than ₹ 1 crore in a current account maintained with a bank or a co-operative bank, or who have expended more than ₹ 2 lakh on foreign travel or more than ₹ 1 lakh on electricity consumption in a year.

    2. Section 239 of the Act provides for making a claim for refund in the prescribed form. It is being provided that claim for refund w.e.f. 1-9-2019 can be made only by furnishing return of income in accordance with provisions of Section 139 of the Act.

  8. Quoting of Aadhaar and authentication of Aadhaar / PAN

    1. Section 139A of the Income Tax Act requires every assessee to obtain PAN and quote the same while entering into certain transactions and also intimate the same for the purpose of deduction of tax at source to the deductor. It is proposed to provide that a person who does not have PAN but has Aadhaar shall be entitled to quote his Aadhaar number in place of PAN. In such cases the Department shall allot PAN on the basis of Aadhaar. Thereafter, the assessee will have an option either to quote his PAN or Aadhaar Number.

    2. As per Section 139AA of the Act Aadhaar number is to be linked with PAN so as to enable the department to track high valued transaction. It is being provided that effective from 1-9-2019 in case Aadhaar is not linked the PAN will become inoperative. As a consequence the assessee will not be able to file return or take any other action on the System of the Department until he links the Aadhaar and get the PAN operative.

    3. It is also being provided in law that an assessee has to authenticate his PAN/ Aadhaar in the prescribed manner and the person who is acting on the basis of such PAN or Aadhaar furnished by the assessee has also to verify that same are correct. Penalty will also be leviable u/s 272B of ₹ 10,000/- in case such authentication or verification is not made.

  9. Provisions regarding taxability of deemed income

    1. As per Section 50CA of the Act fair market value determined as per prescribed method is to be considered as deemed consideration for transfer of unquoted shares of a company for determination of capital gain. Similarly, Section 56(2)(x) provides for taxability of deemed income where unquoted shares are received at a price less than the fair market value. To provide relief in the case of genuine hardship where transfer of shares is approved by certain authorities and determination of consideration is beyond the control of the transferor, it is being provided in above section that central government may prescribe such class of persons to whom these provisions will not be applicable.

    2. As per Section 56(2)(x) of the Act any sum of money or property received by a resident without consideration or at a lower consideration is deemed to be his income. In case such money or property is received by a non-resident from a resident, who is not assessable in India, same was not taxable. It is proposed to provide that such gift of money or property situated in India, made on or after 5th day of July 2019, shall be deemed to accrue or arise in India and accordingly will be taxable in terms of Section 56(2)(x) of the Act.

  10. Amendments for use of online technology

    1. By way of amendment in Section 195 of the Act it is being provided that an application for determination of tax to be deducted while making payments to non-residents or to a foreign company can be made to the Assessing Officer online.

    2. Statement u/ s 206A of the Act submitting details to the department of the cases where tax has not been deducted while making payments of interest to residents is also to be filed online.

    3. Various provisions of Income Tax Act provides for making of payment through account payee cheque or bank draft or through electronic clearing system. By way of amendment it is proposed to provide that all such payments can be made through prescribed electronic modes.

    4. It is also being provided by way of insertion of Section 269SU that an assessee carrying on the business shall compulsorily provide facility of accepting payment through electronic modes in case his total sales, turnover or gross receipts exceeds ₹ 50 crores during the immediately preceding previous year. Penalty is also being provided for not complying with the provision in section 271DB of ₹ 5,000/- per day during which period such default continues.

  11. Compliance of other laws by a charitable trust

    Provisions of Section 12AA of the Act are being amended to provide that in order to obtain registration by a charitable trust or institution for claiming exemption of its income, Commissioner or Pr. Commissioner has also to be satisfied that the activities of the trust or institution will also be in compliance with any other law which is material for the purpose of achieving its objects. Further, the Pr. Commissioner or the Commissioner can also cancel the registration in case of violation of any other law by the trust if such violation has either not been disputed or has attained finality.

  12. Amendment in regard to penalty and prosecution provisions

    1. As per Section 270A penalty is leviable with reference to under reported income which is to be determined with reference to income declared in the return and income assessed. In case, no return has been filed, income assessed is to be deemed as under reported income. It is being provided that even in the cases where return is furnished for the first time pursuant to notice u/s 148, the assessed income will be deemed to be under reported income. In other words, it will also be considered a case where no return has been furnished.

    2. As per provisions of section 276CC of the Act prosecution can be launched for non filing. It has further been provided that prosecution will not be launched, in the cases other than companies, if tax payable on total income determined on regular assessment as reduced by the advance tax and TDS does not exceed ₹ 3,000/-. It is being clarified that for determining the aforesaid amount tax collected at source and tax paid on self assessment will also be considered. Further, limit of ₹ 3,000/- is being increased to ₹ 10,000/-

  13. Recovery of Tax by the Department

    1. Rule 68B of Second Schedule to the Income Tax Act which provides for sale of immovable property attached for recover of tax penalty etc. within a period of three year from end of the financial year in which liability becomes final. The period is being extended to seven years and further right is also been provided to the Board to further extend the period by three years.

    2. Section 228A of the Act provides for recovery of tax pursuant to agreements with foreign countries through Revenue Department of the respective country against property in that country. In order to enlarge the scope it is being provided that Tax Recovery Officer can forward the recovery certificate to the country of which the person is resident outside India or to the country where any property is located.

  14. Amendments in other Acts

    Certain amendments of clarificatory nature have also been proposed in following Acts:-

    1. Black Money ( Undisclosed Foreign income Assets) and Imposition of Tax Act, 2016;

    2. Income Declaration Scheme, 2016;

    3. Prohibition of Benami Property Transaction Act.

 

Despondency is not religion, whatever else it may be.

By being pleasant always and smiling,

it takes you nearer to God, nearer than any prayer

– Swami Vivekanand

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