1. Withdrawal of perquisites/allowances to Union Public Services Commission (UPSC), and members of Chief Election Commissioners and Election Commissioners
Under the existing provisions of section 10(45), the any allowance or perquisite as notified by the Central Government paid to the Chairman or Retired Chairman or any other member or retired members of Union Public Services Commission was to be considered as an exempt income and was accordingly no tax was to be paid on this income received. These provisions were introduced by Finance Act, 2011 with retrospective effect from
1-4-2008. Also, currently specified perquisites of Chief Election Commissioner or Election Commissioner are exempt from taxation under the enabling provisions in the respective acts governing their service conditions i.e. under section 8 of Election Commission (Conditions of Service of Election Commissioners and Transaction of Business) Act, 1991.
The following perquisites/allowances were notified by Central Government under the said section vide Notification No. 49 of 2011,
Allowances exempt in case of serving chairman and members of UPSC:
(i) the value of rent-free official residence;
(ii) the value of conveyance facilities including transport allowance;
(iii) the sumptuary allowance;
(iv) the value of leave travel concession provided to a serving Chairman or member of the UPSC and members of his family.
Allowances exempt in case of retired chairman and retired members of UPSC:
(i) a sum of maximum of ₹ 14,000 per month for defraying the service of an orderly and for meeting expenses incurred towards secretarial assistance on contract basis;
(ii) the value of a residential telephone free of cost and the number of free calls to the extent of 1500 per month (overall and above the number of free calls per month allowed by telephone authorities).
It is now proposed to delete the section 10(45) of the Income Tax Act, 1961. As of consequence, these allowances and perquisites will no more be exempt. Further, even section 8 of Election Commission Act, 1991 is amended to delete the exemption of income tax on value of of rent-free residence, conveyance facilities, sumptuary allowance, medical facilities and other such conditions of service as are applicable to a Judge of the Supreme Court, paid to Chief Election Commissioner and other Election Commissioners.
It is to be noted that similar tax exemptions provided to the Judges of Supreme Court under the Supreme Court Judges (Condition and services) Act, 1958 are still intact and are not proposed to be deleted.
This amendment is effective from AY 2021-22 and subsequent years.
2. Threshold limit set for employer’s contribution to recognized provident funds, superannuation funds and national pension scheme (NPS)
The existing provisions of section 17(2)(vii), provides that any contribution made by employer to the approved superannuation fund for the assessee in excess of ₹ 1,50,000/- shall be chargeable to tax in hands of employee as perquisites.
Also, the contribution made by employer for the employee on account of recognized provident fund exceeding 12% of salary is taxable. The assessee is also allowed deduction under NPS u/s. 80 CCD (1) of the Act for amount contributed up to 14% of salary by Central Government and amount up to 10% contributed by any other employer. Currently, there is no upper limit to the cumulative allowability of these deductions.
Now, the said sub section 17(2) (vii) is substituted by new subsections (vii) and (viia) which provides that a combined upper limit of seven lakh and fifty thousand rupee in respect of employer’s contribution in a year to NPS, superannuation fund and recognised provident fund and any excess contribution. Consequently, it is also provided that any annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the fund or scheme may be treated as perquisite to the extent it relates to the employer’s contribution which is included in total income.
The rationale behind bringing an upper limit threshold for contributions made by employer was mentioned by the Finance Minister in his speech and memorandum to Finance Bill, is no combine upper limit for the purpose of deduction of contribution made by employer has given undue advantage to employees earning high salary income. While an employee with low salary income is not able to let employer contribute a large part of his salary to all these three funds, employees with high salary income are able to design their salary package in a manner where a large part of their salary is paid by the employer in these three funds. Thus, this portion of salary does not suffer taxation at any point of time, since Exempt-Exempt-Exempt (EEE) regime is followed for these three funds. Thus, not having a combined upper cap is iniquitous and hence, not desirable.
As an effect to this amendment, the employers have to be very careful in structuring the salary of their employees and shall also have to take care in calculation of TDS so as to include contributions and interest accrued on those as perquisite income in hands of employees.
This amendment is effective from AY: 2021-22 and subsequent assessment years.
3. Additional Compliance Provisions for scientific research organisations
Section 35 allows the expenditure incurred by an assessee for scientific research for its own business or for contribution towards certain approved scientific research associations, universities, colleges etc. or to any other company which uses it for scientific research. In order to be eligible to claim the expenditure, the expense should be made to the aforesaid associations to make application for grant of approval from the Central Government.
In order to keep a check on such scientific research associations, universities, colleges and companies etc., and to rationalise the provisions afresh, the section has been amended to include a proviso to provide that every notification in respect of such research association, university, college or other institution under clause (ii) and clause (iii) or under clause (iia) in respect of the company issued by Central Government shall stand withdrawn unless such research associations etc. makes an intimation to income tax authority in such form and manner within three months from 1st June, 2020 (the effective date of this amendment). Once such intimation is received, the notification shall be valid for another 5 assessment years beginning from AY: 2021-22. It is also provided that if the Central Government notifies any such institutions to avail deduction after the Finance Bill, 2020 is enacted into Act, such notification shall be effective for another 5 consequent assessment years.
Moreover, a new sub section (1A) has been introduced to provide that such deductions to contributions as referred in sub section (1) shall be allowed only if such research associations etc., prepares and submits such statement to income tax authority as to be prescribed. Also, provisions have been given for filing a correction statement for rectification of any mistakes in the statements furnished at earlier occasion and to furnish the donor a certificate specifying the amount of donation within such time and manner from receipt of donation as may be prescribed.
The rationale behind introducing these provisions could be to streamline the deductions made to scientific research associations etc. and have the data about such organisations updated. Further, there have been cases traced in past to misuse these provisions to avail extra deduction and these steps may be taken to provide for an extra check measure to such misuse. However, these provisions shall definitely be an extra burden on such institutions and they have to act immediately by furnishing such intimation to avoid the withdrawal of such notification received by it.
4. Providing an option to assessee not avail deduction of section 35AD
Under the present provisions of section 35AD (1), 100% deduction is allowed on capital expenditure (other than expenditure on land, goodwill and financial assets) incurred on any specified businesses during the previous year in which such expenditure is incurred. However as per the current provisions, the assessee does not have an option to not avail the incentive under this section. It seems from the language of the present statute that it is mandatory to claim this deduction of the conditions of the section are met with.
Moreover, sub section (4) of section 35AD, provides that no deduction shall be allowed under any other section in respect of expenditure referred to in sub section (1) in any previous year or under this section in any other previous year.
However, because of the wording of these sections, there was a legal anomaly that those domestic companies who opt for concessional tax rates u/s. 115BAA and 115BAB of the Act and therefore does not claim deduction u/s. 35AD, would also be denied normal depreciation u/s. 32 by virtue of operation of sub section (4) of section 35AD of the Act. However, this would tantamount to misinterpretation and was not the intention of law and to correct this position, amendments have been made in section 35AD (1) to make the operation of section optional for assessee. Also, sub section (4) has been suitably amended to specifically provide that no deduction in respect of this section shall be allowed if the deduction has been claimed by assessee and allowed to him under this section.
This amendment is effective from AY: 2020-21 and subsequent assessment years.
5. Recognized association to be replaced by recognized stock exchange for commodity derivative transactions
Proviso to section 43(5) exempted an eligible transaction in respect of trading in commodity derivatives from being treated as speculative transaction provided it is conducted through a recognized association (commodity exchange). Since now all commodity derivative transactions are now carried out only on recognized stock exchanges, section 43(5) has been amended to replace the words recognized association with recognized stock exchange at all places it appears in the section.
Also, definition of recognized stock exchange in sub clause (iii) of Explanation 2 to section 43(5) has been amended to mean it as recognized stock exchange as referred in section 2 (f) of the Security Contracts (Regulation) Act, 1956 and the one which fulfils such conditions as may be prescribed and notified by the Central Government for that purpose.
6. Cost of acquisition of the land or building as on 1-4-2001
Section 55 provides that for calculation of capital gains, an assessee shall be allowed deduction for cost of acquisition and cost if improvement. However in cases when the asset is acquired before 1-4-2001, the assessee is allowed to either consider fair market value of the asset as on 1-4-2001 or the actual cost as the cost of acquisition for the purposes of computation of capital gains. Also, in cases where the asset has been received by any modes mentioned in section 49(1) like inheritance, will, gift etc. and it became property of the previous owner before 1-4-2001 than the assessee has an option to consider the fair market value as on 1-4-2001 as the cost of acquisition.
With a view to rationalise this provision, a proviso is inserted to section 55(2)(ac) to provide that in case the asset is land and building or both, the fair market value of such an asset cannot be more than the stamp duty value of the asset as on that date in cases where it is available. Further, stamp duty value for purpose of this proviso shall mean the value adopted or assessed or assessable by any authority of the Central Government or a State government for the purposes of payment of stamp duty of immovable property.
This amendment shall be effective from AY: 2021-22 and subsequent assessment years.
7. Introduction of Tax Payers Charter in the Act
A new section 119A has been introduced in the Act to empower the CBDT to adopt and declare a tax payer’s charter and issue such orders, instructions, directions or guidelines to other income tax authorities as it may deem fit for the administration of charter. At present there is a Citizen’s Charter in place however it is not forming part of the Act and therefore is quite informal and rarely followed. This is a welcome move as administration between the Board and income tax authorities have also been privy to their internal circulars, instructions etc. and with introduction of such charter in the Act itself, it shall be binding on all income tax authorities and assesses throughout. This may bring better administration, transparency and speedy disposal.
This amendment shall take effect from 1-4-2020
8. Restriction on the power of survey by Income Tax Authorities
Section 133A empowers the Income tax authority as defined therein to conduct survey proceedings at the business premises of the assessee under his jurisdiction. To avoid the abuse of these survey provisions by the Income Tax Authority and to protect interest of assessee, in Finance Act 2003, sub section 6 to section 133 was introduced to provide that any officer below the rank of Joint Commissioner or Joint Director i.e. like Assessing Officer, Assistant Commissioner of Income Tax, Tax recovery officer etc., cannot undertake survey proceedings without prior approval from Joint Director or Joint Commissioner. Now these provisions are widened further to provide substitute sub section (6) as under:
– In case when information has been received from the prescribed authority, no income tax authority below the rank of Joint Director or Joint Commissioner shall conduct any survey under this section without prior approval of Joint Director or Joint Commissioner; and
– In any other cases, no income tax authority below the rank of Commissioner or Director, shall conduct any survey proceedings without prior approval from Commissioner or Director.
Introduction of this provision shall provide a check on the growing survey proceedings and avoid unnecessary harassment to tax payers as promised by the Honourable Finance Minister.
This amendment shall take effect from 1-4-2020