The Finance (No. 2) Bill, 2019 has introduced and amended important incentive provisions under the Income tax Act which will give impetus to the growth story of India. It is often seen that after tax incentives are provided governments try to make conditions for such incentives stringent . However, the tax incentives provided in the Bill have in most cases expanded the scope of already available tax incentives. Further, the new tax incentives introduced are industry specific with a great potential of garnering investments and generating employment.

INCENTIVES TO INTERNATIONAL FINANCIAL SERVICES CENTRE (IFSC)

In order to promote the development of world class financial infrastructure in India, some tax concessions have already been provided in respect of business carried on from an IFSC by Finance Act, 2018.

Amendment to Section 47

Existing Provision:

Under the existing provisions of the section 47(viiab) of the Act, any transfer of a capital asset, being bonds or Global Depository Receipts or rupee denominated bond of an Indian company or derivative, made by a non- resident through a recognised stock exchange located in any IFSC and where the consideration for such transaction is paid or payable in foreign currency shall not be regarded as transfer.

Proposed Amendment

The Finance Bill proposes to expand the scope of Section 47( viiab). With a view to provide tax-neutral transfer of certain securities by Category III Alternative Investment Fund (AIF) in IFSC, it is proposed to amend the said section so as to provide that any transfer of a capital asset, specified in the said clause by such AIF, of which all the unit holders are non-resident, are not regarded as transfer subject to fulfilment of specified conditions.

It is further proposed to widen the types of securities listed in said clause by empowering the Central Government to notify other securities for the purposes of this clause.

Effective From

These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.

Amendment to Section 10

Proposed Amendment

With a view to facilitate external borrowing by the units located in IFSC, it is proposed to amend section 10 of the Act so as to provide that any income by way of interest payable to a non-resident by a unit located in IFSC in respect of monies borrowed by it on or after 1st day of September, 2019, shall be exempt.

Effective From

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.

Amendment to Section 115O

Existing Provision

The existing provisions of the section 115-O of the Act, provide that no tax on distributed profits shall be chargeable in respect of the total income of a company, being a unit of an IFSC, deriving income solely in convertible foreign exchange, for any assessment year on any amount declared, distributed or paid by such company, by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2017, out of its current income, either in the hands of the company or the person receiving such dividend.

Proposed Amendment

To facilitate distribution of dividend by companies operating in IFSC, it is proposed to amend the provision of the said section to provide that any dividend paid out of accumulated income derived from operations in IFSC, after 1st April 2017 shall also not be liable for tax on distributed profits.

Effective From

This amendment will take effect from 1st September, 2019.

Amendment to Section 115R

Existing Provision

The existing provisions of the section 115R of the Act, provide that any amount of income distributed by the specified company or a Mutual Fund to its unit holders shall be chargeable to tax and such specified company or Mutual Fund shall be liable to pay additional income-tax on such distributed income.

Proposed Amendment

In order to incentivize relocation of Mutual Fund in IFSC, it is proposed to amend the said section so as to provide that no additional income-tax shall be chargeable in respect of any amount of income distributed, on or after the 1st day of September, 2019, by a specified Mutual Fund i.e a mutual fund located in IFSC of which all the unit holders are non-residents and which fulfills certain other specified conditions.

Effective From

This amendment will take effect, from 1st September, 2019.

Amendment to Section 80LA

Existing Provision

The existing provisions of the section 80LA of the Act, inter alia, provide profit linked deduction of an amount equal to one hundred per cent of income for the first five consecutive assessment years and fifty per cent of income for the next five consecutive assessment years, to units of an IFSC.

Proposed Amendment

With a view to further incentivize operation of units in IFSC, it is proposed to amend the said section so as to provide that the deduction shall be increased to one hundred per cent for any ten consecutive years. The assessee, at his option, may claim the said deduction for any ten consecutive assessment years out of fifteen years beginning with the year in which the necessary permission was obtained.

Effective From

This amendment will take effect, from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.

Amendment to Section 115A

Existing Provision

Section 115A of the Act provides the method of calculation of income-tax payable by a non- resident (not being a company) or by a foreign company where the total income includes any income by way of dividend (other than referred in section 115-O), interest, royalty and fees for technical services; etc. Section 80LA, provides for deduction in respect of certain incomes of a unit located in an IFSC. However, sub-section (4) of section 115A prohibits any deduction under chapter VIA which includes section 80LA.

Proposed Amendment

In order to ensure that units located in IFSC claim full deduction, it is proposed to amend section 115A of the Act so as to provide that the conditions contained in sub-section (4) of section 115A shall not apply to a unit of an IFSC and accordingly deduction under Section 80LA will be allowed.

Effective From

This amendment will take effect from the 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent years.

INCENTIVES TO NON-BANKING FINANCE COMPANIES (NBFCS)

Amendment of Section 43D

Existing Provision

The existing provisions of section 43D of the Act, inter-alia provides that interest income in relation to certain categories of bad or doubtful debts as may be prescribed [Rule 6EA & 6EB of I.T. Rules 1962] having regard to the guidelines issued by RBI in relation to such debts, received by public financial institutions, scheduled banks, cooperative banks, State financial corporations, State industrial investment corporations and public companies like housing finance companies, shall be chargeable to tax in the previous year in which it is credited to its profit and loss account actually received, whichever is earlier. This provision is an exception to the accrual system of accounting. Said provision does not include NBFCs. However, recently Supreme Court in CIT v. Vasisth Chay Vyapar Ltd (2019) 410 ITR 244(SC) held that interest on Inter-Corporate Deposits (ICDs) which had become Non-Performing Asset (NPA) in terms of Prudential Norms issued by RBI, having not accrued, would not be taxable in hands of a non- banking financial company.

Proposed Amendment

With a view to provide a level playing field to certain categories of NBFCs who are adequately regulated, the finance bill proposes to amend section 43D of the Act so as to include deposit- taking NBFCs and systemically important non deposit-taking NBFCs within the scope of this section.

Consequentially, as per matching principle in taxation, it is proposed to amend section 43B of the Act to provide that any sum payable by the assessee as interest on any loan or advances from a deposit-taking NBFCs and systemically important non deposit-taking NBFCs shall be allowed as deduction if it is actually paid on or before the due date of furnishing the return of income of the relevant previous year.

As regards other NBFCs they will be governed by the ratio of decision of Supreme Court in CIT v. Vasisth Chay Vyapar Ltd (Supra).

Effective From

These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent years.

RELAXATION IN CONDITIONS OF SPECIAL TAXATION REGIME FOR OFFSHORE FUNDS

Amendment of Section 9A

Existing Provision

Section 9A of the Act provides for a safe harbour in respect of offshore funds. It provides that in the case of an eligible investment fund, the fund management activity carried out through an eligible fund manager located in India and acting on behalf of such fund shall by itself not constitute business connection in India of the said fund. Further, an eligible investment fund shall not be said to be resident in India merely because the eligible fund manager undertaking fund management activities on its behalf is located in India. The benefit under section 9A is available subject to the conditions provided in sub-sections (3), (4) and (5) of the said section. Sub-section (3) of section 9A provides for the conditions for the eligibility of the fund. These conditions, inter-alia, are related to residence of fund, corpus, size, investor broad basing, investment diversification and payment of remuneration to fund manager at arm’s length.

Proposed Amendment

Some of the conditions prescribed under sub- section (3) were found to be onerous by off shore funds.

On account of various Representations for relaxing certain conditions in the implementation of regime of fund managers and to give an impetus to fund management activities in India, certain constraints are proposed to be removed.

Firstly, under the existing provisions of section 9A(3)(j), the monthly average corpus of the eligible investment fund is required to be more than INR 100 crore by end of the financial year in which such fund is established/ incorporated. This provision was onerous as it became impracticable where a eligible investment fund is established/ incorporated close to the end of the tax year (say, in March). The Bill proposes to retrospectively amend the above requirement by providing that the cut-off date shall be (a) six months from the end of the month of fund’s establishment or (b) end of previous year, whichever is later.

Secondly, under the existing provisions of section 9A(3)(m) the remuneration paid by the fund to an eligible fund manager in respect of fund management activity undertaken by him on its behalf is not less than the arms length price of said activity. The Bill proposes to amend section 9A(3)(m) to provide that the remuneration paid by the fund to an eligible fund manager in respect of fund management activity undertaken by him on its behalf is not less than the amount calculated in such manner as may be prescribed.

Effective From

These amendments will take effect retrospectively from 1st April, 2019 and shall apply to the assessment year 2019-20 and subsequent assessment years.

TAX INCENTIVE FOR ELECTRIC VEHICLES

Insertion of new Section 80EEB – Deduction in respect of purchase of electric vehicle.

Proposed Amendment

Clause 25 of the Finance Bill has inserted new Section 80EEB to incentivise individuals who purchase electric cars. This new section is done with a view to improve environment and to reduce vehicular pollution. New section 80EEB provides for a deduction to an individual in respect of interest on loan taken for purchase of an electric vehicle from any financial institution up to one lakh fifty thousand rupees if the loan has been sanctioned by a financial institution including a non-banking financial company during the period beginning on the 1st April, 2019 to 31st March, 2023.

It is also proposed that where a deduction under this section is allowed for any interest, deduction shall not be allowed in respect of such interest under any other provisions of the Act for the same or any other assessment year.

Electric vehicle is defined as under

“electric vehicle” means a vehicle which is powered exclusively by an electric motor whose traction energy is supplied exclusively by traction battery installed in the vehicle and has such electric regenerative braking system, which during braking provides for the conversion of vehicle kinetic energy into electrical energy”

The memorandum to the Finance Bill contains an additional condition that the assessee does not own any other electric vehicle on the date of sanction of loan. However, this condition is not part of Section 80EEB in the Finance Bill. We will thus have to wait for the Finance Act for full clarity.

Effective From

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to assessment year 2020-2021 and subsequent assessment years.

EXEMPTION OF INTEREST INCOME OF A NON-RESIDENT ARISING FROM BORROWINGS BY WAY OF ISSUE OF RUPEE DENOMINATED BONDS REFERRED TO UNDER SECTION 194LC.

Insertion of section 10(4C)

Existing Provision

The existing provisions of section 194LC of the Act provide that the interest income payable to a non-resident by a specified company on borrowings made by it in foreign currency from sources outside India under a loan agreement or by way of issue of any long-term bond including long-term infrastructure bond, or rupee denominated bond shall be eligible for TDS at a concessional rate of five per cent.

Proposed Amendment

In order to incentivise low cost foreign borrowings through Off-shore Rupee Denominated Bond, the press release dated 17th September, 2018, inter alia, announced that interest payable by an Indian company or a business trust to a non-resident, including a foreign company, in respect of rupee denominated bond issued outside India during the period from September 17, 2018 to March 31, 2019 shall be exempt from tax. Consequently, no tax was required to be deducted on the payment of interest in respect of the said bond.

Subsequent to the press release there was confusion as Press release had itself stated that the contents of the press release would be incorporated in the Act but no such amendments had taken place.

Thus, the exemption announced through the said press release is now proposed to be incorporated in the law by amending section 10 of the Act so as to provide exemption to income payable by way of interest to a non-resident by the specified company in respect of monies borrowed from a source outside India by way of issue of rupee denominated bond, as referred to in section 194LC, during the period begining from the 17th day of September, 2018 and ending on the 31st day of March, 2019.

Effective From

This amendment will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.

TAX INCENTIVE FOR AFFORDABLE HOUSING

Insertion of new Section 80EEA

Proposed Amendment

At present, Section 80EE provides for deduction of interest upto ₹ 50,000/- for acquisition of a residential property whose value does not exceed ₹ 50,000/-

In order to provide further impetus to the ‘Housing for all’ objective of the Government and to enable the home buyer to have low-cost funds at his disposal, the Finance Bill proposes to insert a new section 80EEA in the Act so as to provide a deduction to an individual assesse in respect of interest up to ₹ 1,50,000/- on loan taken for residential house property from any financial institution subject to the following conditions:

1. loan has been sanctioned by a financial institution during the period beginning on the 1st April, 2019 to 31st March 2020.

2. the stamp duty value of house property does not exceed forty-five lakh rupees;

3. assessee does not own any residential house property on the date of sanction of loan. It is also proposed that where a deduction under this section is allowed for any interest, deduction shall not be allowed in respect of such interest under any other provisions of the Act for the same or any other assessment year.

Though the finance Minister in her speech mentioned that the deduction u/s 80EEA will be over and above the deduction under section 24(b), there is no clarity about the same under Section 80EEA.

Effective From

This amendment will take effect from 1st April, 2020 and will accordingly apply in relation to assessment year 2020-21 and subsequent assessment years.

Amendment to Section 80IBA

Existing Provision

The existing provisions of the section 80-IBA of the Act, inter alia, provide that where the gross total income of an assessee includes any profits and gains derived from the business of developing and building housing projects, there shall, subject to certain conditions, be allowed, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business.

Proposed Amendment

With a view to align the definition of “affordable housing” under section 80-IBA with the definition under GST Act, it is proposed to amend the said section so as to modify certain conditions i.e conditions under clause (d) to (i) are substituted with new clause (d) to (i). The new conditions will be applicable to the housing project approved on or after 1st day of September, 2019.

The modified conditions are as under:

1. the assessee shall be eligible for deduction under the section, in respect of a housing project if a residential unit in the housing project have carpet area not exceeding 60 square meter in metropolitan cities or 90 square meter in cities or towns other than metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, 12 Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region); and

2. the stamp duty value of such residential unit in the housing project shall not exceed forty five lakh rupees;

Effective from

These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to assessment year 2020-21 and subsequent assessment years.

INCENTIVES TO NATIONAL PENSION SYSTEM (NPS) SUBSCRIBERS

With a view to benefit employees particularly of the Central Govt, the Finance Bill has Amended Section 10(12A), Section 80CCD and Section 80C to increase the ambit and scale of incentive.

Amendment to Section 10(12A)

Existing Provision

(i) Under the existing provisions of section 10(12A) of the Act, any payment from the NPS Trust to an assessee on closure of his account or on his opting out of the pension scheme referred to in Section 80CCD, to the extent it does not exceed forty per cent of the total amount payable to him at the time of such closure or on his opting out of the scheme, is exempt from tax.

Proposed Amendment

With a view to enable the pensioner to have more disposable funds, it is proposed to amend the said section so as to increase the said exemption from forty per cent to sixty per cent of the total amount payable to the person at the time of closure or his opting out of the scheme.

Effective From

This amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to assessment year 2020-21 and subsequent assessment years.

Amendment to Section 80CCD

Existing Provision

Under the existing provisions of section 80CCD of the Income-tax Act, in respect of any contribution by the Central Government or any other employer to the account of the employee in a notified pension scheme, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government or any other employer, as does not exceed ten per cent of his salary in the previous year.

Proposed Amendment

The Central government has enhanced its contribution to employees account in the National pension Scheme from 10% to 14% as per Notification F No. 1/3/2016 dtd 31/1/2019.

Thus, in order to ensure that the Central Government employees get full deduction of the enhanced contribution, the finance bill proposes to increase the limit from ten to fourteen per cent. of contribution made by the Central Government to the account of its employee.

This amendment applies only to Central Government employees.

Effective From

This amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to assessment year 2020-21 and subsequent assessment years.

Amendment to Section 80C

Proposed Amendment:

To enable the Central Government employees to have more options of tax saving investments under National Pension System, the Finance bill proposes to amend section 80C so as to provide that any amount paid or deposited by a Central Government employee as a contribution to his Tier-II account of the pension scheme shall be eligible for deduction under the said section.

Effective From

This amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to assessment year 2020-21 and subsequent assessment years.

INCENTIVES FOR START-UPS

Section 79 – Carry forward and Set off of Losses in case of certain companies. Existing Provision

Section 79 of the Income Tax Act provides conditions for carry forward and set off of losses in case of a company not being a company in which the public are substantially interested. Clause (a) of this section applies to all such companies, except an eligible start-up as referred to in section 80-IAC, while clause
(b) applies only to such eligible start-up.

Thus for Companies other than eligible start- ups, under clause (a) of Section 79, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year, unless on the last day of the previous year, the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the last day of the year or years in which the loss was incurred.

As far as eligible start-ups are concerned, under clause (b) of Section 79, the loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year, if :

1. all the shareholders of such company who held shares carrying voting power on the last day of the year or years in which the loss was incurred, continue to hold those shares on the last day of such previous year and

2. such loss has been incurred during the period of seven years beginning from the year in which such company is incorporated.

The clause (b) was inserted vide Finance Act, 2017 in order to facilitate ease of doing business and to promote start-up India.

Proposed Amendment

In-order to further facilitate ease of doing business in the case of an eligible start-up, the Finance Bill provides that loss incurred in any year prior to the previous year, in the case of closely held eligible start-up, shall be allowed to be carried forward and set off against the income of the previous year on satisfaction of either of the two conditions stipulated currently at clause (a) or clause (b). Thus, an eligible start up for carry forward and set-off of losses may satisfy in a particular year either of the following :

1. on the last day of the previous year, the shares of the company carrying not

   less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the last day of the year or years in which the loss was incurred.

   Or

    

2. (i) all the shareholders of such company who held shares carrying voting power on the last day of the year or years in which the loss was incurred, continue to hold those shares on the last day of such previous year and

(ii) such loss has been incurred during the period of seven years beginning from the year in which such company is incorporated.

This amendment will boost fresh investment in Start-ups.

For other closely held companies, there would be no change, and loss incurred in any year prior to the previous year shall be carried forward and set off only on satisfaction of condition currently provided at clause (a).

Effective From

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.

Amendment of Section 54GB

Existing Provision

The existing provisions of the section 54GB of the Income-tax Act, inter alia, provide for roll over benefit in respect of capital gain arising from the transfer of a long-term capital asset, being a residential property owned by an eligible assesse i.e individual or HUF.

To be able to get benefit of this provision, the assessee is required to utilise the net consideration for subscription in the equity shares of an eligible company before the due date of filing of the return of income. Post subscription, the assessee is required to have more than fifty per cent share capital or more than fifty per cent voting rights in the eligible company. Further, the said section, puts restriction on transfer of assets acquired by the company for five years from the date of acquisition.

Currently the benefit of this section was only available for investment in the equity shares of eligible start-ups and that period also got over on 31st March 2019. Thus, at present no benefit is available for residential property transferred after 31st March 2019.

Proposed Amendment:

In order to incentivise investment in eligible start-ups, following amendments are proposed :

1. extend the sun set date of transfer of residential property for investment in eligible start-ups from 31st March 2019 to 31st March 2021;

2. relax the condition of minimum shareholding of fifty per cent of share capital or voting rights to twenty five per cent.

3. relax the condition restricting transfer of new asset being computer or computer software from the current five years to three years.

Effective From

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.

INCENTIVES FOR CATEGORY II ALTERNATIVE INVESTMENT FUND (AIF)

Amendment to Section 56(2)(viib)

Existing Provision

The existing provisions of the said section 56 of the Income-tax Act, inter alia, provide that where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be charged to tax. However, exemption from this provision has been provided for the consideration for issue of shares received by a venture capital undertaking from a venture capital company or a venture capital fund or by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Currently the benefit of exemption is available to Category I AIF.

Proposed Amendment:

With a view to facilitate venture capital undertakings to receive funds from Category II AIF, it is proposed to amend the said section to extend this exemption to fund received by venture capital undertakings from Category II AIF as well.

Effective from

This amendment will take effect, from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.

 

1. After the Elections season in our great country the next most anticipated act of the Government was the appointment of the new cabinet of Ministers especially the new Finance Minister and the consequent budget proposal by the new Finance Minister. The new Government has taken certain bold steps in the present budget in order to move towards a more digitized financial economy. Some sections of the public are even hailing the budget as growth and infrastructure focused. One of the most peculiar features of the new budget is the introduction of a slew of amendments for promoting a digital less cash economy. In this section, we will highlight the direct tax proposals made in the new budget in respect of achieving the cherished goal of becoming an economy largely dependent on cashless transactions.

2. It is a well known fact that over the past few years there have been a number of amendments to the Income Tax Act, 1961 (the Act for short) discouraging cash as a medium of transacting and promoting the use of banking facilities so as to make banking as an indispensable and integral part of business in the country. The said amendments have by and large been successful in deterring the indulgence in cash transactions though, they have their own limitations. The present budget seeks to overcome certain voids and vacuums created by those earlier amendments and thereby paving the way to a largely digitized financial economy.

3. The most important amendment made in the present budget is by way of introducing amendments in various sections whereby the Central Board of Direct Taxes (CBDT or the Board) has been authorised to prescribe various other electronic modes of payment or receipt which shall be the permissible modes of effecting the transactions so as not to attract the rigours of certain specific anti abuse provisions. These amendments, it appears, are particularly directed at providing a fillip to startups by widening the available platform to various new players in digital payments sector for example various types of mobile wallets, mobile payment systems, unified payment interface (UPI), etc. These amendments apart from increasing the convenience of the assessees would also provide a larger business opportunity to various start- up companies in the digital payments sector said. In fact, the primary amendment to most of the sections which initially provided that only payments through account payee cheque or account payee bank draft or electronic clearing system would only save the assessee from the rigours of those specific anti abuse provisions has now being diluted by permitting receipts and payments through other prescribed electronic modes of payment. To start with clause (d) of the proviso to section 13A which earlier provided that any donation exceeding ₹ 2000/- was to be made only by way of an account pay cheque or an account payee bank draft or use of electronic clearance system or through electoral bond is now amended to include any other prescribed electronic modes of payment of donation to a political party so that a large section of public who have access to digital payments could be included as potential donors to a party fund. Likewise Section 35 AD, 40 A and 43 which initially provided only 3 modes viz. an account payee cheque, an account payee bank draft and use of ECS are now amended to include the other prescribed electronic modes of payment so as to prevent the rigours of disallowances in these sections for making payments in cash exceeding ₹ 10,000/-. Likewise, subsection (4) of section 43CA has also been amended to include receipt of consideration or a part thereof by way of other prescribed electronic modes
   of payment in order to avail benefit of sub-section (3) of section 43CA. Sub section 3 of section 43CA is aimed at toning down the rigours of that section by providing that where the date of agreement for transfer of asset and the date of registration are different then the stamp duty value as on the date of the agreement would be taken for the purpose of computing the full value of consideration as per section 43CA. This sub-section was [by virtue of sub- section (4) to section 43CA] subject to the initial consideration or part thereof being received by an account payee cheque, account payee bank draft or any other electronic clearing system of a bank account. Post amendment, any other prescribed electronic mode of receipt of the consideration has been included so as to enable an assessee to take the benefit os sub-section (3). Likewise, the proviso to section 44AD
   (1) has now been sought to be amended to include any other prescribed electronic modes of receipt which will be taxed at 6% instead of the usual 8% which treatment is similar to that initially given only to turnover or gross receipts received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account. Likewise even for the purpose of making payment to the employees in claiming accelerated deduction under section 80 JJ AA in respect of payment to new employees, the payment through other prescribed electronic modes has been included as a valid mode of payment of emoluments to new employees.

4. Similar amendments have been made to sections 269 SS and 269 T whereby the board is empowered to make rules to prescribe any other electronic mode for accepting or repaying certain loans, deposits and any specified sum as per those sections. The amendments are welcome since with the advent of new modes of electronic payments, it was indeed a need of the hour since the said sections were interpreted far too literally by the judiciary, instead of looking at the basic purpose of the introduction of these section. A similar amendment has been made to section 269 ST whereby again the board is empowered to make rules to prescribe any other electronic mode of undertaking transactions. However, it needs specific mention that the expectation of certain sections of the assessees has not been met by this budget by toning down the rigours of this section in certain situations. For example in the case of hospitals the provisions of section 269 ST should have been or could have been completely done away with since many a times it is almost impossible to avoid paying the hospitals in cash and also complying with section 269ST. However, no specific amendment facilitating the above has been made in this budget.

5. Another interesting amendment proposed in this budget is by way of insertion of a new section 269 SU whereby it has been proposed that every person carrying on business and having total sales, turnover or gross receipts exceeding ₹ 50 crores shall be required to provide a facility for accepting payments through prescribed electronic mode in addition to the facility for other existing electronic modes for accepting payments. A non compliance of this section is sought to be penalized by proposed new section 271 DB whereby failing to provide such a facility may attract a penalty of 5000 rupees for everyday during which such failure continues unless the failure is occasioned because of good and sufficient reasons.

6. The budget has also proposed insertion of a new section 194N whereby withdrawal of an amount exceeding ₹ 1 Crore during the year from an account maintained with a banking company or a co-operative society or a post office shall attract Tax Deductions at Source (TDS) equal to 2% of the sum exceeding ₹ 1 Crore. The said TDS shall be treated as Income Tax. This proposed amendment is similar to the earlier Banking Cash Transaction Tax (BCTT) introduced in the Finance Act, 2005 with effect from June 1, 2005 which was ultimately withdrawn with effect from April 1, 2009 in the Finance Act, 2008. Though the BCTT was not liked by various sections of the public it appears to have been re-introduced by introduction of section 194N.

7. This proposed insertion of section 194N appears to be aimed at controlling and reducing the amount of cash circulating in the economy and also keeping a track of very high value cash withdrawal transactions. However, as noble as the object of this provision may seem, it is a shift from the conventional levy of tax under the Income Tax Act on the income earned to taxing of the withdrawal of probably already taxed income. The provision appears to be adversarial in nature since it leads to further collection and recovery of tax in advance of certain incomes which may have already suffered tax. For example incomes credited in bank accounts net off TDS may again be taxed on withdrawal thereof. However, the area that raises greatest concern is once such a section is introduced it could be amended any number of times to a number less than ₹ 1 crore or increasing the rate of TDS thereon which may lead to a big squeeze in cash circulation in the economy. This, in my humble opinion may act as a deterrent to keeping the money in banks especially for the rural sector which largely depends on cash for i ts day to day business activities. Another aspect that needs to be seen is that the amount withdrawn may not necessarily be the income of the person withdrawing the amount but which may still be taxed on account of withdrawal which leaves ambiguity as to the person who could take credit of such TDS. Hence, suitable amendments in section 198, 199 and the Income Tax Rules are also expected in order to streamline the working of the said provision.

8. The above mentioned measures are introduced to achieve the target of a highly digitized and less cash economy. To conclude the present budget is a mix of the growth and control oriented approach of the Government. While some provisions would really benefit a large section of public as well as start-ups, some failed to address the grievances of certain section of the public and some others may lead to the greater inconvenience to another section of the public.

Clause 7 – Amendment of section 12AA –Trusts –

Granting of Registration – sub-section (1) Section 12AA prescribes the procedure to be followed for granting registration of trust or institution, u/s 12A of the Act and withdrawal thereof.

The sub-section (1) deals with granting registration and authorises the Principal Commissioner or the Commissioner before whom the application is made, in Form 10A – Rule 17A, to:

1. call for such documents or information as he thinks necessary, to satisfy himself about the genuineness of the objects of the trust, and make such inquiries, as he may deem necessary, in this behalf.

2. after satisfying himself about the genuineness of objects, he is required to pass an order in writing, either granting the registration or refusing registration.

It is the general practice that the inquiries were made even on aspects other than the mandated ones. The courts have time and again held that at the stage of granting registration, the inquiry has to be restricted to genuineness of the objects of the trust only and that the trust or institution exits for charitable purpose only.

The application for registration is to be disposed off within a period of six months from the end of the month in which the application is made.

Sub-section (1) is sought to be substituted by a new sub-section(1) authorising the Principal Commissionr or Commissioner, to also satisfy himself the compliance of such requirements of any other law, as are required for the purpose of achieving the objects, besides calling for the documents or information about geninueness of the objects.

Compliance of conditions of any other law may generally take place after the period of six months of making the application. How would this requirement be complied with would be a subject of debate and litigation in future.

Cancellation of Registration – sub- section (4)

If the Principal Commissioner or the Commissioner, notices that a trust or institution, which has been granted registration, carries out its activities in a manner that section 13(1) gets attracted and exemption u/s 11 and 12 are denied, the registration granted u/s 12A can be cancelled.

Sub-section (4) is sought to be substituted by a new sub-section (4) authorising the Principal Commissionr or Commissioner, to cancel registration, besides on the grounds of being covered u/s 13(1), also on the ground of non compliance of any other law, and any other order, direction or decree which is not disputed.

This is bound to create disputes as finality of non compliance of any other law may take substantially long time.

Clause 39 – Amendment of section 139 – Filing of Return of Income

Section 139 mandates that every company or a firm or any person other than a company or firm, whose total income exceeds the maximum amount which is not liable to tax, shall furnish the return of income by due date in the prescribed form and verified in the prescribed manner.

Through Provisos 1 to 6, persons other than a company or firm even though their income may not exceed the maximum amount not liable to tax, are also required to file the return of income, if they satisfy certain conditions.

Sixth proviso requires filing of return of income by persons whose income does not exceed the maximum amount not liable to tax after allowing deduction under section 10(38), 10A, 10B, 10BA or chapter VIA to file the return of income by the due date.

The scope of sixth proviso is sought to be extended to the persons who claim deduction under section 54, 54B, 54D, 54EC, 54F, 54G, 54GA or 54GB. The

persons in whose case, if the total income, before allowing deduction under the sections mentioned, exceeds the maximum amount not liable to tax, would also be required to file their return of income by the due date.

A new proviso is sought to be inserted, requiring certain persons other than a company or a firm, who is not required to file return of income on account of his total income does not exceed the maximum amount not chargeable to income-tax, also to file the return of income, by the due date, if the following conditions are satisfied:

1. who deposits an amount or aggregate of amounts exceeding one crore rupees in one or more current accounts maintained with a banking company or a co-operative bank;

2. has incurred expenditure on foreign travel exceeding two lakh rupees for himself or any other person;

3. has incurred expenditure on consumption of electricity exceeding one lakh rupees;

4. fulfils such other conditions as may be prescribed.

The amended section casts a responsibilty on assessees, who claim exemption from capital gains by reinvestment of capital gain or consideration received to file the return of income by due date. The category of persons, who satisfy the prescribed conditions, are also required to file the return of income by due date.

Clause 40 – Amendment of section 139A – PAN

Section 139A prescribes the category of persons who are required to apply for permanent account number and quote such number in the specified transactions.

Persons entering into specified transactions to apply for PAN

It has been observed by the government that in many cases persons enter into high value transactions like purchase of foreign currency or huge withdrawal from banks and such persons do not have PAN.

In order to keep an audit trail of such transactions and widening and deepening the tax base, the scope of sub-section (1) is being extended by providing a new clause (vi) which empowers the Board to prescribe the category of persons who enter into specified transaction, shall apply for PAN.

Wide power is being given to the Board to specify the nature of transactions, which would require PAN.

Inter-changeability of PAN & Aadhar

Sub-sections (5E), (6A) and (6B) are proposed to be inserted.

There may be instances where a person required to furnish or intimate or quote PAN has not been allotted PAN but holds Aadhar number.

It is proposed that Aadhar number can be quoted instead of PAN by a person who has not been allotted PAN. Such peson shall thereafter shall be allotted a PAN.

It is also proposed that a person who holds Aadhar number and the PAN is linked with Aadhar number, shall be at liberty to quote Aadhar number instead of PAN.

Duty has been cast upon the person receiving a document which requires PAN or Aadhar to be mentioned (in specified transactions), to ensurethat PAN or Aadhar is duly quoted. The PAN or Aadhar number shall be required to be authenticated in the prescribed manner.

The inter-changeability of PAN and Aadhar is a welcome step and would ease the carrying of transactions in many cases, especially for persons in rural area, who may not be holding PAN at the required point of time of executing the transaction.

Clause 41 – Amendment of section 139AA – Linking of PAN with Aadhar

Sub-section (2) of section 139AA mandates linking of PAN with Aadhar on or before specified date. Proviso to the sub-section states that failure to intimate the Aadhar number, would invalidate the PAN. The person might have used the PAN in respect of certain transactions during a period before the mandatory linking of Aadhar with PAN.

It is proposed that failure by the person to intimate Aadhar number shall result in making the PAN inoperative.

A show cause notice should be given to the person before it is made in-operative and proceedure for revival is desirable.

Clause 41 – Amendment of section 139AA – Linking of PAN with Aadhar

Section 195 of the Act mandates deduction of income tax at prescribed rates from payments made or credit given to non-residents. It keeps in check the possible loss of revenue as a result of tax liability in the hands of a foreign resident. This also obviates the difficulty in chasing such non-residents for recovery of their tax dues. The deduction is to be made on the gross amount.

The tax to be deducted u/s 195 may many a time exceed the tax liability in India. In order to provide for deducting only the appropriate amount of tax at source, sub-section (2) provides for making an application by the payer to the Assessing Officer to quantify the amount on which tax is decuctible or rate at which the same is deductible. Similarlry an application can be made by the payee, as per sub-section (3), for determinaion of appropriate amount of tax at source. Sub-section (7) authorises the Board to issue notification specifying the class of persons or cases who can apply to the Assessing Officer for determination of sum chargeable to tax and deduction of tax thereon. The applications are presently to be made in manual form.

Sub-section (2) & (7) are sought to be amended to provide for the application to be made to the Assessing Officer in prescribed form and manner, to determine the appropriate amount chargeable to tax and tax to be deducted. It is proposed that the applications shall be made in elctronic form
i.e online.

Making online application shall reduce the time for disposing the application as well as help the Department to collate the information in respect of assessees. Similar application to be made by the payee, as pse sub-section (3) should also be included, which seems to have been inadvertantly missed.

 

The Finance Minister Mrs. Nirmala Sitharaman presented the first Budget of NDA 2.0 on 5th July, 2019. Every year, the scope of TDS is being enlarged with the objective of collecting more tax through TDS and also to check tax evasion. It may be pointed out that in our country collection of Income Tax through TDS is about 55%, whereas in U.S.A., collection through withholding tax (as it is called there) is as much as 90%. The scope of TDS has also been proposed to be widened. TDS provisions are analysed here in the light of proposed amendments.

Widening the scope of Tax Deduction at Source (TDS) :

1. TDS on Receipt of money from Insurance company on net income basis under section 194DA: As per existing section 194DA, a person is obliged to deduct tax at source, if it pay any sum to a resident under a Life Insurance Policy, which is not exempt under section 10(10D). The present provisions requires to deduct tax at the rate of 1 per cent of such sum at the time of payment, There was a demand that the TDS should be on income component only (that is after deducting the amount of insurance premiums paid by the insured person from the total sum received from Insurance company). The TDS on the entire amount being paid by Insurance company is unfair. It has been proposed to provide tax deduction at source at the rate of 5 per cent on income component of the sum paid by the Insurance Company. It is a welcome measure. It has been accepted by the Finance Minister that from the point of view of tax administration as well it is preferable to deduct tax on net income so that the income as per TDS Statement of the deductor can be matched automatically with the Return of Income filed by the assessee. It may however be noted that as per proposal the rate of TDS has been increased from 1 per cent to 5 per cent as it will be on net income and not on gross amount paid by the Insurance Company. However, there will be no TDS in case the amount received from Insurance Company is exempt under section 10(10D).

   The amendment is a welcome move. The TDS on entire receipt, [which is not otherwise exempt under section 10(10D)] from Life Insurance policy was unreasonable and the proposed amendment is quite rational step. In such cases, only income component will be taxed therefore it will be convenient to tally such amount with the amount TDS under section 194DA.

2. Scope of TDS at the time of purchase of immovable property under Section 194-IA : It relates to payment on transfer of certain immovable property other than agricultural land and provides for levy of TDS at the rate of one per cent. on the amount of consideration paid or credited for transfer of such property. The term ‘consideration for immovable property’ is presently not defined for the purposes of this section. It is noted that in the transaction involving purchase of immovable property, there are other types of payments made besides the sales consideration and the buyer is contractually bound to make such payments to the builder/seller, either under the same agreement or under a different agreement. Some of such payments are those for rights to amenities like club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee etc. Accordingly, it has been proposed to amend the Explanation to said section and provide that the term “consideration for immovable property” shall include all charges of the nature of club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property. This amendment will take effect from 1st September, 2019.

   The Government has made effort in encompassing all related payments made for purchase of an immovable property by amending the term ‘consideration for immovable property’. The tax consultants and taxpayers need to pay adequate attention for the purpose of TDS under section 194-IA.

3. Tax Deduction at Source (TDS) on payment by Individual/HUF to contractors and professionals under new sec 194M : At present there is no liability on an individual or Hindu undivided family (HUF) to deduct tax at source on any payment made to a resident contractor or professional when it is for personal use. Further, if the individual or HUF is carrying on business or profession which is not subjected to audit, there is no obligation to deduct tax at source on such payment to a resident, even if the payment is for the purpose of business or profession. Due to this exemption, substantial amount by way of payments made by individuals or HUFs in respect of contractual work or for professional service is escaping the levy of TDS, leaving a loophole for possible tax evasion. To plug this loophole, it has been proposed to insert a new section 194M in the Act to provide for levy of TDS at the rate of 5 per cent. on the sum, or the aggregate of sums, paid or credited in a year on account of contractual work or professional fees by an individual or a Hindu undivided family, not required to deduct tax at source under section 194C and 194J of the Act, if such sum, or aggregate of such sums, exceeds ₹ 50 lakh in a year. However, in order to reduce the compliance burden, it has been proposed that such individuals or HUFs shall be able to deposit the tax deducted using their Permanent Account Number (PAN) and shall not be required to obtain Tax deduction Account Number (TAN). This amendment will take effect from 1st September, 2019.

   The threshold fixed for deduction of tax at source at ₹ 50 Lakhs in a year is quite high and it should not cause any inconvenience to medium class taxpayers.

4. TDS on cash withdrawal to discourage cash transactions under new section 194N : In order to discourage cash transactions and move towards less cash economy, it has been proposed to insert a new section 194N to provide for levy of TDS at the rate of 2 per cent on cash payments in excess of ₹ one crore in aggregate made during the year, by a banking company or cooperative bank or post office, to any person from an account maintained by the recipient. It has been proposed to exempt payment made to certain recipients, such as the Government, banking company, cooperative society engaged in carrying on the business of banking, post office, banking correspondents and white label ATM operators, who are involved in the handling of substantial amounts of cash as a part of their business operation, from the application of this provision. It has also been proposed to empower the Central Government to exempt other recipients, through a Notification in the official Gazette in consultation with the Reserve Bank of India. This amendment will take effect from 1st September, 2019.

   The new provision of section 194N is for levy of TDS at the rate of 2 per cent on cash payments in excess of ₹ one crore in aggregate made during the year, by a banking company or cooperative bank or post office, to any person from an account maintained by the recipient. The threshold is quite high and should not cause adverse effect or unreasonable inconvenience to such persons. The provision is to discourage taxpayers from entering into cash transactions. However some industries like tea gardens may suffer as their labour are generally not having an account in Bank and therefore they insist on cash payment. The Government need to provide banking facility in such villages and hills for proper implementation of the objective of less cash economy.

5. Amendment of section 195 :

   It provides for Online filing of application seeking determination of tax to be deducted at source on payment to non-residents under section 195(2) of the Act, if a person who is responsible for paying any sum to a non-resident which is chargeable to tax under the Act (other than salary) considers that the whole of such sum would not be income chargeable in the case of the recipient, he can make an application to the Assessing Officer to determine the appropriate proportion of such sum chargeable. This provision is used by a person making payment to a non-resident to obtain certificate/order from the Assessing Officer for lower or nil withholding-tax. However, the process is currently manual. In order to use technology to streamline the process, which will not only reduce the time for processing of such applications, but shall also help tax administration in monitoring such payments, it has been proposed to amend the provisions of section 195 to allow for prescribing the form and manner of application to the Assessing Officer and also for the manner of determination of appropriate portion of sum chargeable to tax by the Assessing Officer.

   Similar amendment has also been proposed to be made in sub-section (7) of section 195 which are applicable to specified class of persons or cases.

   These amendments will take effect from 1st November, 2019.

6. Amendment of section 201 :

   Relaxation of the provisions of sections 201 and 40 of the Act in case of payments to non-residents: Section 201 of the Act provides that where any person, including the principal officer of a company or an employer (hereinafter called ‘the deductor’), who is required to deduct tax at source on any sum in accordance with the provisions of the Act, does not deduct or does not pay such tax or fails to pay such tax after making the deduction, then such person shall be deemed to be an assessee in default in respect of such tax. The first proviso to sub-section (1) of section 201 specifies that the deductor shall not be deemed to be an assessee in default if he fails to deduct tax on a payment made to a resident, if such resident has furnished his return of income under section 139, disclosed such payment for computing his income in his return of income, paid the tax due on the income declared by him in his return of income and furnished an accountant’s certificate to this effect. This relief in section 201 is available to the deductor, only in respect of payments made to a resident. In case of similar failure on payments made to a non-resident, such relief is not available to the deductor. To remove this anomaly, it has been proposed to amend the proviso to sub- section (1) of section 201 to extend the benefit of this proviso to a deductor, even in respect of failure to deduct tax on payment to non-resident.

   Consequent to this amendment, it has also been proposed to amend the proviso to sub-section (1A) of section 201 to provide for levy of interest till the date of filing of return by the non-resident payee (as is the case at present with resident payee).

   These amendments will take effect from 1st September, 2019.

7. Amendment of section 206A : Electronic filing of statement of transactions on which tax has not been deducted: Section 206A of the Act relates to furnishing of statement in respect of payment of certain income by way of interest to residents where no tax has been deducted at source. At present, the section provides for filing of such statements on a floppy, diskette, magnetic tape, CD-ROM, or any other computer readable media. To enable online filing of such statements, it has been proposed to substitute this section so as to provide for filing of statement (where tax has not been deducted on payment of interest to residents) in prescribed form in the prescribed manner.

   It has also been proposed in section 206A(3) to provide for correction of such statements for rectification of any mistake or to add, delete or update the information furnished.

   It has also been proposed to make a consequential amendment arising out of amendment carried out by Finance Act, 2019 whereby threshold for TDS on payment of interest by a banking company or cooperative society or public company was raised to ₹ 40,000. It may be mentioned that threshold for furnishing of Statement of TDS on interest in any other case is ₹ 5000 as prescribed under sec 206A(1).

   These amendments will take effect from 1st September, 2019.

8. Rates for Tax Deduction at Source post amendments in new Budget

   Section	Section and Nature of Payment	TDS Rate for Individual/ HUF (Indian Resident)
   192	Salaries	Average rates as applicable
   192A	Payment of accumulated balance due to an employee	10%
   193	Interest on Securities	10%
   194	Dividends	Nil
   194A	Interest other than “Interest on securities”	10%
   194B	Interest by way of winning from lotteries, crossword puzzles, games etc.	30%
   194BB	Income by way of winning from horse race	30%
   194C	Payment to contractor/ subcontractor payment to Individual or HUF payment to any other person (other than Individual or HUF)	1% 2%
   194D	Insurance Commission
   	– If recipient is a resident other than a company	5%
   	– If recipient is a domestic company	10%
   194DA	Payment in respect of life insurance policy which is not exempt under section 10(10D)	1%
   	Payment in respect of life insurance policy which is not exempt under section 10(10D). Only on the amount of Income comprised therein w.e.f. 1st September 2019	5%
   194E	Payment to non-resident sports association	NA
   194EE	Payment in respect of deposits under National Savings Scheme	10%
   194F	Payment on account of repurchase of unit by Mutual Fund or Unit Trust of India	20%
   194G	Commission etc. on sale of lottery	5%
   194H	Commission or Brokerage	5%
   194I	Rent on plant and machinery	2%
   194I	Rent on land, building, houses, offices, flats, residential apartments, furniture and fittings – Plant and machinery	10% in case of payment by companies in excess of ₹ 240,000 per annum
   	– Land or building or furniture or fittings	5% – From 1st June 2017, in case of payment by individuals, HUF and in excess of ₹ 50,000 per per month
   194IA	Payment or Credit of consideration to a resident transferor for transfer of any immovable property other than Rural Agricultural Land if the consideration is ₹ 50 Lakhs or more “consideration for immovable property” shall include all charges of the nature of club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property. This amendment will take effect from 1st September, 2019.	1%
   194IB	Payment or Credit of Rent by Individual or HUF if not subject to tax audit under sec. 44AB in the immediately preceding financial year	5%
   194IC	Payment under Joint Development Agreement to a Resident Individual or HUF, who transfers land or building	10%
   194J	Sum paid by way of fees for Professional Services or Royalty or Remuneration to a Director if payee is engaged only in the business of operation of Call Centre any other payment or credit	2% 10%
   194LA	Payment of compensation on acquisition of certain immovable property	10%
   194LB	Payment of interest on infrastructure debt fund	NA
   Section- 194LBA (1)	Payment of the nature referred to in sec. 10(23FC), 10(23FC)(a), 10(23FCA) by Business trust to resident unit holder	10%
   Section- 194LBA (2)	Business trust shall deduct tax while distributing any interest received by it from SPV to its unit holders	NA
   Section- 194LBA (3)	Business trust shall deduct tax while distributing any income received by it from renting or leasing out any real estate asset owned directly by it to its unit holders	NA
   Section- 194LBB	Payment in respect of Units of Investment fund paying an income to a unit holder specified under sec. 115UB	10%
   Section- 194LBC (1)	Payment in respect of investment made in securitization trust Specified in clause (d) of the explanation occurring after sec. 115TCA
   	– If recipient is individual or HUF	25%
   	– If recipient is any other person	30%
   Section- 194 LC	Payment of interest by an Indian Company in respect of money borrowed in foreign currency under a loan agreement or by way of issue of long-term bonds	NA
   Section- 194LD	Payment of interest on rupee denominated bond of an Indian Company or Government securities to a Foreign Institutional Investor or Qualified Foreign Investor including long term infrastructure bonds	NA
   Section- 194M	On the sum, or the aggregate of sums, paid or credited in a year on account of contractual work or professional fees by an individual or a Hindu undivided family, not required to deduct tax at source under section 194C and 194J, if such sum, or aggregate of such sums, exceeds ₹ 50 lakh in a year w.e.f. 1st September, 2019	5%
   Section- 194N	On cash payments in excess of ₹ one crore in aggregate made during the year, by a banking company or cooperative bank or post office, to any person from an account maintained by the recipient w.e.f. 1st September, 2019	2%

   Above TDS rates are applicable when the deductee has provided its PAN number to the deductor.

   In case PAN of deductee is not updated, the deductor must deduct TDS at the normal rate or 20 per cent whichever is higher. Further under section 94A(5) if payment or credit is made or given to a deductee who is located in a notified jurisdictional area, tax is deductible at the rate given in the table or at the rate of 30 per cent, whichever is higher.

   Narayan Jain is a tax advocate and Co- Chairman of Direct Taxes Representation Committee of AIFTP. He is Hony Co- ordinating Editor of Taxman.

 

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

The Judiciary is as important as National security – In the visionary budget presented by the Honourable Finance Minster, there was not a single word or proposal spelt out on how the Government in its second term won with an overwhelming mandate plans to meet the challenges of skyrocketing pendency of litigation in our country – A robust, efficient and efficacious dispute resolution method for speedy disposal of tax and commercial disputes would go hand in hand with the objective of the Government in boosting foreign investor confidence and providing a fillip to growth.

 

1. Judiciary

   The Government seems to be determined to lead Indian economy towards an increasingly transparent and formal methods of doing business in India. Great strides have already been made by the Government into throttling the shadow underbelly of the informal grey economy that for years haunted the Indian economy as a sentient plague. However, though policy changes and streamlining of administration have captured the imagination of this government, the dispute resolution arena remains woefully under equipped to meet the challenges thrown to it from time to time. The Government has laudably focused its energy on the arenas of economic growth as well a national security as the arenas for sweeping and large scale upgradation. However, the current state of the Judiciary and the quasi-judicial bodies act as a bottleneck for the change that the Government is seeking to introduce. Any policy whether economic, social or even defense related that is to be implemented cannot provide the desired result unless a robust and effective dispute resolution process is set up in order to decisively and fairly resolve the questions that invariably arise. It is therefore important that the Government treats the problems of the Judiciary at the same priority as the National Security of the Country and accordingly takes bold steps to provide proper infrastructure to the Judiciary and priorities the filing up of vacancies.

   The All India Federation of tax Practitioners have, from time to time suggested that there should be separate allocation of funds for the Judiciary in the budget proposal similar to the budget allocation made for the defense of the Country. The High Courts and subordinate courts are maintained by the States. It is noteworthy that the Central and State Governments are the largest litigants in most forums. More than 60 percent litigation in Courts has its genesis in the Central Acts. As per the paper reports, it has been stated that the Center has submitted a proposal to the 15th Finance Commission for allocating ₹ 436 crore for installation of Justice clocks in 3,350 court premises during 2020-25. However, the immediate need of the hour being speedy disposal of the matters, unless the Central Government takes up the issue of difficulties faced by the lower judiciary on war footing, the entire system may look towards an imminent collapse. The total pendency of appeals before the ITAT as on 1-7-2019 is 97,372 (AIFTPJ – July P. 55). Simply by filling up of vacancies, the pendency can be reduced to 75,000 within a period of two years and this could very well usher in a new era where Appeals can be heard and finally disposed of by the Appellate Tribunal which is the final fact finding authority, within one year of filing. It is striking that due to shortage of judges in the Bombay High Court, the tax appeals which have been admitted in the year 2000 are still pending for final adjudication. Recent paper reports stated that nearly 10,000 prosecution matters are pending before the designated special magistrate court in Mumbai. Only one Court has been notified to decide prosecution matters arising from tax cases which also handles other economic and indirect tax related offenses. Some of the prosecution matters are more than 15 years old and are still frozen at the state of framing of charges. With the above background, one can have a fair estimate of the time that is wasted in litigation proceedings. The Economic Survey 2019 highlighted the reasons for the huge pendency and also measures to be taken to resolve the same (chapter 5. www.itatonline.org). In the introduction, it is stated as under, “Arguably the single biggest constraint to ease of doing business in India is now the ability to enforce contracts and resolve disputes. This is not surprising given the 3.5 crore cases pending in the judicial system. Much of the problem is concentrated in the district and subordinate courts. Contrary to conventional belief, however, the problem is not insurmountable. A case clearance rate of 100 per cent (i.e. zero accumulation) can be achieved with the addition of merely 2,279 judges in the lower courts and 93 in High Courts even without efficiency gains. This is already within sanctioned strength and only needs filling vacancies. Scenario analysis of efficiency gains needed to clear the backlog in five years suggest that the required productivity gains are ambitions, but achievable. Given the potential economic and social multipliers of a well-functioning legal system, this may well be the best investment India can make.”

   We hope that the Government will take positive measures to resolve this issue while taking into consideration the suggestions from various Bar Associations across the country and the State Governments.

2. Black Money Act – Removal of lacunae in Black Money Act

   It has taken four years for the Government to awaken to a big void, a lacuna in the Black Money Act 2015 and to plug the same. The questions surrounding Income and assets outside India belonging to Indians was a big issue much publicized in the 2014 elections and in the year 2015 the Black Money Act was enacted. Surprisingly, the issue could have been tackled under the existing provisions of Income Tax Act, 1961 but Indian politicians and bureaucrats believe in enacting new laws to tackle every menace. Be that as it may be, we have The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, ( referred to as BMA hereafter) to tax, penalize and prosecute undisclosed income and assets outside India. What is chargeable to tax under the BMA is undisclosed foreign income and the value of undisclosed foreign assets. Undisclosed foreign income means income from a source located outside India which was chargeable under Income Tax Act 1961 but which had not been disclosed in the return filed u/s. 139 or where the return u/s. 139 has not been filed within the prescribed time. Undisclosed foreign asset means an asset located outside India purchased out of funds or for the existence of which the assessee had no explanation or explanation is not satisfactory. The definition of the undisclosed foreign income and asset is on the lines of Income Tax Act 1961 and the integration of both would have theoretically presented no challenges.

   The BMA being a taxation statute, could not be retrospective and therefore the Act applied for and from Assessment Year 2016-17 onwards. This presented the first challenge in implementation of the Act as to what was to be done with income earned prior to the said date or assets acquired prior to the said date as covered by BMA? The Proviso to section 3 of the BMA charges undisclosed asset to tax under the Act in the year in which it comes to the notice of the Assessing Officer. So unlike Income -tax Act 1961, where an undisclosed asset is chargeable to tax in the year in which it has been acquired or investment made, under the BMA, it is chargeable to tax in the year in which it comes to notice of the Assessing Officer. In determining the value of the undisclosed asset, a reduction is allowed for income forming part of the value of asset only if, and to the extent it has been subjected to tax under the Income-tax Act, 1961.

   To overcome the challenge against the retrospective operation of Law, Chapter VI of BMA provided for one-time settlement window. An assessee could disclose their undisclosed foreign income and asset and pay tax @ 30% and penalty @ 100 of the calculated tax. By paying 60% of undisclosed foreign income or asset as the case may be, the assessee could make good the default of not paying tax under the Income Tax Act on the foreign income and asset.

   In the case of a person resident in India, income from whatever source and wherever earned, is liable to tax in India under the Income-tax Act. In case of persons who are residents but not ordinarily resident or non- residents, scope of income chargeable to tax under the Income-tax Act is restricted and income earned outside India is not liable to tax. Therefore, BMA, as originally enacted, defined assessee to mean a resident and non ordinary resident and non residents were excluded. And therefore, a big loophole was created in the BMA.

   The Government has woken up to the same after four years, but evaders knew about it the moment the law was enacted. The combination of the definition of the year in which undisclosed asset is assessable and the residential status of the assessee meant that an assessee who had all along hidden his income in foreign shores, had to just fly out and be a non-resident in India as per section 6 of the Income-tax Act, 1961 for the year in which the said Income/Asset came to the notice of the Assessing Officer. The moment he became a Non-resident, despite his foreign undisclosed income or undisclosed asset in the past, which was liable to Income Tax Act, 1961, no action could be taken against him under BMA. The value of undisclosed asset is chargeable to tax under BMA in the year in which it comes to notice of the Assessing Officer and if on the said date, person is treated as a non-resident, he cannot be proceeded against under BMA.

   The Finance (No 2) Bill, 2019 (2019) 415 ITR 1 (St)(86) proposes to amend definition of the assessee under S. 2. of the BMA. Now assessee would also include a non-resident or not ordinary resident when notice is issued, if he was resident in the year in which either the foreign income was earned or the foreign asset was acquired.

   If one looks for resident Indians who have become Non-resident Indians from the year 2012-13 onwards, 2012-13 being the year in which foreign assets became a subject of discussion in public domain, though elections were held in the year 2014; it would be possible for the Revenue to deduce the assesses that have sought to exploit this loophole. It is not difficult to obtain the data, as it is available with them in the return of income filed. It will become apparent if this data is mined and utilized sensibly.

   However, even post the amendment, two issues will remain. Firstly the eternal question of whether a tax be levied retrospectively? The BMA already applies to past transactions by taxing the value of asset in a subsequent year but now the definition of persons covered by the Act has been amended with retrospective effect. The challenge may also emerge on the ground that when BMA was enacted, it provided a window to provide a last opportunity to the assessees falling foul of its provisions to escape the rigours imposed by it by paying only 60% of value of the undisclosed asset or undisclosed income as the case may be, which is not available to assessee’s now covered by BMA by the retrospective amendment. The Questions still remains as to the fate of the proceedings initiated under the Income- tax Act, 1961 against such persons in the interim period. It is hoped that the government addresses these issues before the Bill is adopted by the Legislature.

3. Charitable Trusts

   Clause 7 of the Finance Bill 2019 (2019) 415 ITR 53 (St) proposed amendments giving power to the Commissioner to cancel the registration of charitable trusts under certain circumstances. Clause 7(b) states that the Commissioner is given the power to cancel the registration if the Trust or institution has not complied with the requirement of “any other law –“. The issue for consideration is whether the commissioner can look into the provisions of State laws, Central laws, Municipal laws etc. and decide whether a trust or institution has complied with the requirement of each and every existing law on the statute books and even if the trust falls afoul of some obscure or minor law, cancel its registration? One may have to test the validity and limits of such wide powers given to the Commissioner. In the recent years, one may very well find a large amount of litigation only on issues relating to charitable Trust. The proposed provision will lead to a multifold increase in the litigation involving charitable trusts.

   One of the reasons that Income-tax Act 1961 has became increasingly complicated is that the Government seems to desire to use the Income Tax Act, 1961 as the colloquial stick in the ‘carrot and stick’ scenario to ensure compliance with other under various other legislations. The Income Tax Act, 1961 is by its very name a taxing code and the sanctity of taxation itself needs to be preserved within its hallowed pages. If the Income Tax Act, 1961 is to be used to punish non compliance with other legislation, it shall lose its nature as a taxing statute and shall gain characteristics of a penal statute cause wide spread disruption. Should a purely economic law be used as a blunt instrument in the hope that it ushers in social change?

   As is the case every year, we hope the proposed new Act will be very simple and assessee friendly and assists our great nation to achieve its economic objectives.

Dear Friends,

This special issue is dedicated on the Union Budget 2019. After the clear majority and success given by the people of India to Hon’ble Prime Minister Mr. Narendra Modi it was expected that this Government will come with a Union Budget giving benefits and a long term vision for the citizens of India about the development and way forward for a new India. Major changes have been made in the Direct Tax as well as in the Indirect Tax in the current budget. The Tax part of the budget speech given by Smt. Nirmala Sitaraman, Union Finance Minister, Govt. of India mentions the major points. However, as always the finer points and major and controversial amendments are mentioned in the Finance Bill. This issue is covering all aspects relating to Union Budget.

This issue is especially dedicated to our past president late Shri S. K. Poddar who left for heavenly abode recently on 18th June, 2019. Shri Poddar was the President of AIFTP for the term 2012 & 2013. His period is marked as the golden period in the AIFTP. The membership increased manifold and particularly in the Eastern Zone the membership growth was tremendous. He was a very simple but highly knowledgeable person always available to all. He was affable, polite, and courteous and had a great sense of humor. He was a prolific speaker and was an encyclopedia on Direct Tax. He attended almost all the conferences and conventions and was normally a speaker or chairman. His method of answering queries was amazing and he by his behavior and knowledge had a special way in satisfying the queriest. Till the last, he was very active in AIFTP and was Patron for Ranchi National Tax Conference held in April, 2019. AIFTP conferred him Lifetime Achievement award at 21st National Convention held in December, 2018 at Guwahati. He in spite of his ill health was fully available in the conference at Ranchi. AIFTP has lost a towering personality. We all will miss his presence, advise, humor, intelligence, magnanimity and what not. We dedicate this issue to this towering person i.e. Shri S. K. Poddar who was a friend, philosopher and guide to all.

AIFTP’s other programmes’ details have already been circulated. The details of National Tax Conference at Kota and Varanasi respectively have been circulated and I expect that all should register for the said conferences and make the same a grand success.

 

Yours faithfully,

 

Dr. Ashok Saraf
National President

The Finance Bill, 2019

This is the budget no. 1 of the Modi Govt. 2.0 by Smt. Nirmala Sitharaman creating history by presenting it as the first woman, after Smt. Indira Gandhi, Finance Minister of India. She has tried to lay down a road map to boost the Indian economy from the current 2.7 Trillion (US) Dollars to 3 Trillion Dollars by 2019 end and to 5 Trillion Dollars by 2025. It appears to be a pro-development budget with the modest to reform, perform and transform the key sectors, with special emphasis on housing sector, electric vehicles, infrastructure strengthening and relaxation of FDI in a few sectors. The budget has reflected its commitment to “Make in India” intention while following the “Carrot and stick” policy in the enforcement of tax laws. The fiscal deficit has been contained at 3.3% of the GDP.

On the direct tax front, the relief of charging the lower tax @ 25% only for domestic companies having annual turnover of earlier ₹ 250 crore, have been now extended to such companies with annual turnover up to ₹ 400 crore during F.Y. 2017-18.

Section 80EEB has been introduced to allow deduction up to ₹ 1.5 lakh for interest payment on loan taken for purchase of an electrical vehicle subject to certain conditions. The GST on purchase of such vehicles has been reduced from 12% to 5%. Under affordable housing scheme, section 80EEA has been introduced to allow deduction up to ₹ 1.5 lakh for interest payment on loan taken from financial institutions, for the purchase of a residential house provided the stamp duty value of the same is less than ₹ 45/- lakh. For filing the return of income, the mandatory provision to possess a PAN has been done away with and the same can be now filed by using Aadhaar number only.

Super rich have been compelled to fork out higher amounts of taxes since the surcharge rates have been revised upward for individuals, HUF, AOP and BOI to 25% on the tax for those having taxable income of above ₹ 2 crore to ₹ 5 crore, and 37% on the tax to those having income of more than ₹ 5 crore making the effective tax rates at 39% and 42.744% respectively. This move came as a surprise, since a lower tax rate encourages better tax compliance.

Filing of return has been made compulsory if a person (other than company/firm) has made a deposit of more than ₹ 1 crore in current account or has incurred expenditure of more than ₹ 2 lakh on foreign travels or more than ₹ 1/- lakh on electricity bills in aggregate in a year.

Start ups have been given favourable changes in the so called “Angel Tax” provisions as well as relaxation in carry forward and set off of losses since they will not be subjected to deep scrutiny relating to receipt of share premium, etc.

The government, in order to promote a cash less economy, has proposed to levy 2% TDS on cash withdrawals exceeding ₹ 1 crore in aggregate in a year. Further changes include to extend the scope of buy – back tax on shares of listed companies also.

Amendments in TDS provisions currently, tax at 1 per cent are deducted at source by the purchaser of an immovable property on the amount of consideration paid or credited on transfer of such property. However, the term ‘consideration for immovable property’ is currently not defined under the Act. It is proposed that consideration would include other types of payments besides the sales consideration such as club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property. At present, there is no liability on an individual to deduct TDS on any payment made to a resident contractor or professional when it is for personal use. It is now proposed to provide for levy of TDS at the rate of 5% on the sum paid on account of contractual work or professional fee by an individual, if such sum paid exceeds ₹ 50 lakh.

The FM mentioned in her speech that pre-filled tax returns will be made available to tax payers in the near future which will contain details of salary income, capital gains from securities, bank interests, dividends, etc. and tax deductions thereon. Information regarding this income will be collected from the concerned sources such as Banks, Stock exchanges, mutual funds, EPFO, State Registration Departments, etc. This will help ease the process and time taken for filing the tax return and also enhance the accuracy. The FM also mentioned about introduction of faceless assessments involving no human interface in the near future. Cases selected for assessment will be allocated to assessment units on an ad hoc basis and notices shall be issued electronically by a centralized unit without disclosing the name, designation of location of the assessing officer.

The budget focuses on increased digitization of transactions. We find liberalization of FDI in areas as aviation, insurance and media sectors by increasing the FDI caps from 49% to 100%.

There is enhanced customs duty and excise on items on import of plastic materials, electronic items, paper products, etc. to discourage the import and encourage the domestic manufacturing and “Make in India” programs. There is a provision for creation of a social stock exchange in social enterprises. The infusion of further capital of ₹ 70,000 crores in to public sector banks has come as a welcome move. For settling the long pending disputes of pre GST regime, a dispute resolution scheme has been announced by the FM under Sabka Vikas (legacy dispute resolution) Scheme, 2019 for quick closure of service tax and excise related litigations.

A major positive reform in tax administration has been proposed to reduce corruption and a hassle free face less assessment where the scrutiny assessments shall be taken up without any direct face to face interactions with the Assessing Officer and without identity of each other.

While imposing cess on tobacco products, electronics items, gold, etc. may be move considered wise by the Hon’ble FM, the move to impose cess on petroleum, diesel, imported books, etc. appears to be a retrograde step affecting the common man, which might have been avoided.

In brief, although many term it as a lackluster budget, we are of the opinion that it is a mixed budget with many positives but some concerns as well. However, the expectations would now be on the execution of all the announcements, along with some corrections required if any, in order to achieve the goal of a sustained growth of the Indian Economy.

 

H. N. Motiwalla
Editor