Impact of Finance (No. 2) Act, 2019 on Income Tax Act, 1961

The Union Finance Minister of India, Nirmala Sitharaman presented the Finance (No. 2) Bill, 2019 in the Lok Sabha proposing several amendments and insertions in the Income Tax Act, 1961. The Bill received the President’s assent and has come into force from 1^st September, 2019. This amendment provides for some major changes in the ongoing tax regime. The focus of the amendment has been on promotion of digital transactions and discouraging huge cash transactions. Further, the government has provided certain incentives for the promotion of electric vehicles.

Some of the major changes include:

• With a view to incentivizing the International Financial Services Centre (IFSC), the act provides several direct tax incentives to an IFSC including 100% profit-linked deduction under section 80-LA in any ten-year block within a fifteen-year period, exemption from dividend distribution tax from current and accumulated income to companies and mutual funds, exemptions on capital gain to Category-III AIF and interest payment on loan taken from non-residents.

The profit-linked deductions have been critical when it comes to major agendas on the checklist of both CBDT and the government. Furthermore, the arena of start-up has always been attracted to such deductions, lately. [1]

There are some pre-requisites which need to be discussed with a view of clarifying the present stance for the tax payers:-

I. The concerned company or a limited liability partnership (LLP) should be incorporated on or after 1 April 2016, but before 1 April 2021.

II. Annual turnover in the concerned year should not exceed 250 million.

III. A certificate of eligible business which is defined as the business by start-ups engaged in relevant processes or services with required potential.

• Income earned by NRIs through securities or bonds are exempted under Section 10(4). Income by way of interest payable to a non-resident by any Indian company or business trust in respect of monies borrowed from a source outside India by way of issue of rupee denominated bond has also been exempted by inserting Section 10(4C).
• Income accrued or arisen to, or received by a specified fund asa result of transfer of capital asset, on a recognized stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in convertible foreign exchange, to the extent such income accrued or arisen to, oris received in respect of units held by a non-resident has also been exempted under Section 10(4D).
• To make electric vehicle affordable to consumers, the act provides under Section 80EEB additional income tax deduction of 1.5 lakh on the interest paid on loans taken to purchase electric vehicles.
• The benefit arising is around 2.5 lakh on individuals who avail loans for purchasing electric vehicles.
• To promote digital payments and to discourage the practice of making business payments in cash, the act provides to levy TDS of 2% on cash withdrawal exceeding 1 crore in a year from a bank account. Besides, digital modes of payment such as UPI, BHIM, NEFT, etc. play a vital role in patronizing cash-less income.
• Low-cost digital modes of payment shall be offered by the business establishments (Turnover above 50 Cr.) to their respective customers. Further, the customers or merchants shall not be subjected to any charge and Merchant Discount Rate shall be applicable on both merchants and customers. The absorption of these costs are facilitated by the RBI and banks from the savings that accrues to them. This is primarily done for handling lesser cash. -. Section 194N.
• Electronic mode of payment has been recognized as the amendment provides that “for the words “bank account”, the words “bank account or through such other electronic mode as may be prescribed” shall be substituted with effect from the 1st day of April, 2020” in the Sections 13A, 35AD, 40A, 43CA, 44AD, 50C and 80JJAA.
• The Chapter II of the Amendment Act provides that income-tax shall be charged at the rates specified in Part I of the First Schedule and such tax shall be increased by a surcharge. Individuals earning income from 2 Cr. to 5 Cr. and above shall be subjected to enhanced surcharge and tax rates for the respective categories will increase by around 3% and 7%.
• For ease and convenience of tax payers, PAN and Aadhaar have been made interchangeable which will allow those who do not have PAN to file Income Tax returns by simply quoting their Aadhaar number and also use it wherever they are required to quote PAN under Section 139A.
• With regard to consideration for TDS on immovable property, the definition has been expanded to include certain other fees. In section 194-IA of the Income-tax Act, in the Explanation, after clause (a), the following clause has been inserted with effect from the 1st day of September, 2019,––‘(aa) “consideration for transfer of any immovable property” shall comprise of charges of the multiple categories such as of car parking fee, electricity or water facility fee, maintenance fee etc, which are incidental to transfer of the immovable property;’.

[1] The Finance Act 2019

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