Summary of Key Amendments on Income Tax And Corporate Law

Article explains TDS on cash withdrawals of over Rs 1 crore under section 194N of the Income Tax Act, 1961, TDS at the time of purchasing immovable property under Section 194-IA of the Income Tax Act, TDS on payments made to professionals and contractors under Section 194M,  TDS on life insurance proceeds Under section 194DA, Enhanced Surcharge on Income Tax, Additional depreciation on vehicles purchased till March 2020, No angel tax on recognized start-up and whether CSR violations will be be treated as civil matter.

1. TDS on cash withdrawals of over Rs 1 crore:

Under the newly introduced Section 194N, a 2 per cent TDS on cash withdrawals of Rs 1 crore or more from banks or post offices kicked in on September 1.

CBDT clarified that if a person has already withdrawn Rs 1 crore or more in cash up to August 31 in the current fiscal, this TDS amount will not apply. Only subsequent withdrawals will be considered. “However, since the threshold of Rs 1 crore is with respect to the previous year, calculation of amount of cash withdrawal for triggering deduction under section 194N of the Finance Act shall be counted from April 1, 2019.

2. TDS at the time of purchasing immovable property: 

Under Section 194-IA of the Income Tax Act, when a buyer buys immovable property, that is a building or part of a building or any land other than agricultural land, costing more than Rs 50 lakhs, he has to deduct TDS at 1% of the total sale consideration. But in Budget 2019, amended the Act to include all charges such as club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to the transfer of immovable property, while calculating TDS. This new rule is applicable for immovable property purchased on or after September 1.So a house costing Rs 60 lakh, which till last week would incur TDS payment of Rs 60,000 (@1 per cent), will now be a costlier proposition. Assume you have paid Rs 2 lakh towards parking fee, Rs 1 lakh for water facility fee and Rs 1 lakh for electricity fee on September 1, your total sale consideration for the same house will now be Rs 64 lakh and the TDS payable will be Rs 64,000.

3. TDS on payments made to professionals and contractors:

Another new addition to the Income Tax Act – introduced in the Finance Bill, 2019 – is Section 194M which applies to money paid by an individual or HUF for carrying out any contractual work or providing any professional service. If the payment made to a contractor or a professional or brokerage exceeds Rs 50 lakh in a financial year, the taxpayer is required to deduct 5per cent TDS at the time of crediting such amount. Further  if the PAN of the deductee is not available, then TDS will be deducted at 20 per cent.

4. TDS on life insurance proceeds Under section 194DA

If life insurance maturity proceeds received are taxable, then the TDS will now be deducted at the rate of 5 per cent on the net income  The net income portion is defined as the total sum received less of the total amount of insurance premium paid. Earlier, the TDS was 1 per cent of the gross maturity payout under the policy. Any money received from a life insurance policy, where the premium paid on the policy is more than 10 per cent of the sum assured for policies issued after April 1, 2012 – or 20 per cent for policies issued before this date – is fully taxable. Keep in mind that the exceptions to this rule under Section 10(10D) include policies taken after April 1, 2013, on the life of a person with a disability or a disease specified under Sections 80U and 80DDB, where the amount received on maturity is tax-free. The precondition is that the premium paid cannot exceed 15 per cent of the sum assured.

5. Enhanced Surcharge:

There are different rates of surcharge applicable to different taxpayers under the Income Tax Act, 1961 to Individual/HUF/AOP/BOI/ Artificial Judicial Person 

After a clamor by the FPI on the increased surcharge, the Finance Minister has announced the withdrawal of provision to levy surcharge on the tax payable by the FPI and Domestic investors on short-term capital gains and long-term capital gains from sale of equity shares, equity oriented funds and units of business trust. However, it appears that the foreign and domestic investors shall continue to be liable to pay the increased surcharge in respect of other income, i.e., interest, dividend, etc. In other words, the enhance surcharge on domestic investors and FPIs have been rolled back and pre-budget position has been restored. The decision to revoke surcharge on domestic and foreign investors will be applicable from the current financial year.

6) Additional depreciation on vehicles purchased till March 2020.

It has been decided to allow additional depreciation of 15%, taking it to 30%, on all vehicles purchased till 31-03-2020. The minister said an additional 15 per cent depreciation will be allowed on motor vehicles purchased between August 23, 2019, and March 31, 2020. The move is expected to give a boost to the automobile sector by driving sales. The depreciation on cars purchased during the period will be 30 per cent as against the normal rate of 15 per cent.

While in the case of buses, lorries and taxis, the depreciation rate has been enhanced to 45 per cent from 30 per cent. Depreciation helps companies reduce tax liabilities.

7. No angel tax on recognized start-up

Finance Minister has announced that the provisions of Section 56(2)(viib) shall not be applicable to the recognized start-ups and the investors. Inspite of various directions issued by the CBDT, start-ups were facing difficulties from getting relief from the revenue officers and they have been continuously pleading to the Dept. to provide relief from angel tax in respect of all pending proceedings as well. It is not clear whether exemption from angel tax has been provided prospectively or retrospectively, which shall be clear when the Govt. issues the ordinance. Section 56(2) says that when a closely held company issues shares at a price more than its fair market value, the difference is taxed as income from other sources. This section, touted as an anti-abuse measure, was introduced by former finance minister Pranab Mukherjee in 2012. It came to be dubbed the angel tax owing to its impact on such investments in startups. The commerce and industry ministry had told the finance ministry that the tax was a major impediment to the flow of investments into Startups. To mitigate genuine difficulties of startups and investors, it has been decided that section 56(2)(viib) of the Income-tax Act shall not be applicable to a startup registered with DPIIT

8. CSR violations to be treated as civil matter

The provisions of the CSR as provided under section 135 (7) of the companies Act, 2013 provides for penal provisions whereby a fine ranging from Rs. 50,000 to Rs. 25,00,000 can be imposed on company on failure to comply with CSR requirement. Further, every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 3 years or fine ranging from Rs. 50,000 to Rs. 5,00,000. The new CSR provisions are already in force w.e.f., 2-11-2018.

The Finance Minister in its press conference has clearly said that there is no intention of the Govt. to go on prosecution route for CSR violations and thus, the CSR violations shall be treated as civil matter. This assurance from the FM would give much relief to the business in complying with the CSR requirement without fear of criminal prosecution and harassment.