As said earlier, the scrutiny selection date is fast approaching for cases to be selected for the A.Y.2018-19 by 30th September, 2019. The Finance Act, 2017 has made a slew of changes in various heads of income. Business incomes and Other incomes are the most toughest of all other sources that leads to additions, disallowances and penalties. In this part, we shall deal with changes applicable under the head Income from Business and Income from Other Sources.
Also Read- A relook at Income Tax changes applicable for A.Y. 2018-19- Part 1
Page Contents
- A. Income From Business
- 1. Increase in deduction limit in respect of provision for bad and doubtful debts
- 2. Measures to discourage cash transactions
- 3. Disallowance of depreciation under section 32 and capital expenditure under section 35AD on cash payment.
- 4. Extension of scope of section 43D to Co-operative Banks.
- 5. Extension of scope of section 43B
- 6. Increasing the threshold limit for maintenance of books of accounts in case of Individuals and Hindu undivided family.
- 7. Exclusion of certain specified person from requirement of audit of accounts under section 44AB.
- 8. Measures for promoting digital payments in case of small unorganized businesses.
- 9. Scope of section 92 BA of the Income-tax Act relating to Specified Domestic Transactions (SDTs).
- 10. Income from transfer of carbon credits.
- 11. Restriction on cash transactions.
- B. Income from Other Sources
A. Income From Business
1. Increase in deduction limit in respect of provision for bad and doubtful debts
In order to strengthen the financial position of the entities specified in the sub clause (a) of section 36(1)(viia) of the Income-tax Act, the said section has been amended so as to enhance the present limit from 7-1/2% per cent to 8-1/2% per cent of the amount of the total income (computed before making any deduction under that clause and Chapter VIA of the Income-tax Act). This amendment takes effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent assessment years.
2. Measures to discourage cash transactions
Section 40A of the Income-tax Act has been amended to reduce the threshold of cash payment to a person from Rs. 20,000/- to Rs.10,000/- in a single day i.e any payment in cash above ten thousand rupees to a person in a day, shall not be allowed as deduction in computation of Income from “Profits and gains of business or profession“; Further, if the expenditure is incurred in a particular year but the cash payment is made in any subsequent year of a sum exceeding Rs.10,000/- to a person in a single day it shall be regarded as income; and use of electronic clearing system through a bank account is also regarded as mode of payment other cash. This amendment takes effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent assessment years.
3. Disallowance of depreciation under section 32 and capital expenditure under section 35AD on cash payment.
In order to discourage cash transactions even for capital expenditure, section 43 of the Income-tax Act has been amended to provide that where an assessee incurs any expenditure for acquisition of any asset in respect which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account, exceeds Rs.10,000/-, such expenditure shall be ignored for the purposes of determination of actual cost of such asset.
Similarly, section 35AD of the Income-tax Act has also been amended to provide that any expenditure in respect of which payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account, exceeds Rs.10,000/-, no deduction shall be allowed in respect of such expenditure. These amendments take effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent assessment years.
4. Extension of scope of section 43D to Co-operative Banks.
Scope of section 43D of the Income-tax Act now extended to cover interest income received by Co-operative Banks other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, in relation to certain categories of bad or doubtful debts shall be chargeable to tax in the previous year in which it is credited to its profit and loss account for that year or actually received, whichever is earlier. This provision is an exception to the accrual system of accounting which is regularly followed by such assessee for computation of total income. This amendment takes effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent assessment years.
5. Extension of scope of section 43B
Sec. 43B of the Income-tax Act has also been amended to provide that any sum payable by the assessee as interest on any loan or advances from a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank 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. This amendment takes effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent assessment years.
6. Increasing the threshold limit for maintenance of books of accounts in case of Individuals and Hindu undivided family.
In order to reduce the compliance burden, section 44AA of the Income-tax Act has been amended so as to increase monetary limits of income and total sales or turnover or gross receipts, etc. specified in said clauses for maintenance of books of accounts from Rs.1,20,000/- to Rs.2,50,000/- and from Rs.10,00,000/- to Rs.25,00,000/- respectively in the case of individuals and Hindu undivided family carrying on business or profession. This amendment takes effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent assessment years.
7. Exclusion of certain specified person from requirement of audit of accounts under section 44AB.
Section 44AB of Income-tax Act has been amended so as to exclude the eligible person, who declares profits for the previous year in accordance with the provisions of sub-section (1) of section 44AD of the Income-tax Act and his total sales, total turnover or gross receipts, as the case may be, in business does not exceed Rs.2 Crores in such previous year, from requirement of audit of books of accounts under section 44AB of the Income-tax Act. This amendment takes effect from 1st April, 2017 and will, accordingly, apply from assessment year 2017-18 and subsequent assessment years.
8. Measures for promoting digital payments in case of small unorganized businesses.
In order to promote digital transactions and to encourage small unorganized business to accept digital payments, section 44AD of the Income-tax Act has been amended to reduce the rate of deemed total income of 8% to 6% in respect of the amount of such total turnover or gross receipts received by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in sub-section (1) of section 139 of the Income-tax Act in respect of that previous year. However, the rate of deemed profit of 8% referred to in section 44AD of the Income-tax Act shall continue to apply in respect of total turnover or gross receipts received in any other mode. This amendment takes effect from 1st April, 2017 and will, accordingly, apply from assessment year 2017-18 and subsequent assessment years.
9. Scope of section 92 BA of the Income-tax Act relating to Specified Domestic Transactions (SDTs).
In order to reduce the compliance burden of taxpayers, section 92BA of the Income-tax Act has been amended so as to provide that expenditure in respect of which payment has been made by the assessee to a person referred to in under section 40A(2)(b) are to be excluded from the scope of section 92BA of the Income tax Act. Consequential amendment has also been made to section 40(A)(2)(a) of the Income-tax Act. These amendments take effect from 1st April, 2017 and will, accordingly, apply from assessment year 2017-18 and subsequent assessment years
10. Income from transfer of carbon credits.
Due to divergent decisions given by the courts on the issue as to whether the income received or receivable on transfer of carbon credits is a revenue receipt or capital receipt. a new section 115BBG has been inserted in the Income-tax Act so as to provide that where the total income of the assessee includes any income from transfer of carbon credit, such income shall be taxable at the concessional rate of 10% (plus applicable surcharge and cess) on the gross amount of such income. No expenditure or allowance in respect of such income shall be allowed under the Income-tax Act. This amendment takes effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent years.
11. Restriction on cash transactions.
A new section 269ST has been inserted in the Income-tax Act to provide that no person shall receive an amount of Rs.2 Lakhs or more-
(a) in aggregate from a person in a day; (b) in respect of a single transaction; or (c) in respect of transactions relating to one event or occasion from a person, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account.
It is further provided that the said restriction shall not apply to Government, any banking company, post office savings bank or co-operative bank. Further, it is provided that such other persons or class of persons or receipts may be notified by the Central Government, for reasons to be recorded in writing, on whom the restriction on cash transactions shall not apply. Transactions of the nature referred to in section 269SS of the Income-tax Act are excluded from the scope of the said section.
A new section 271DA has also been inserted in the Income-tax Act to provide for levy of penalty on a person who receives a sum in contravention of the provisions of section 269ST of the Income-tax Act. The penalty leviable is a sum equal to the amount of such receipt. The said penalty shall however not be levied if the person proves that there were good and sufficient reasons for such contravention. It is also provided that any such penalty shall be levied by the Joint Commissioner. Consequential amendment has also been amended to section 206C of the Income-tax Act to bring it in sync with the provisions of section 269ST of the Income tax Act. These amendments take effect from 1st April, 2017 and will, accordingly, apply from assessment year 2017-18 and subsequent years.
B. Income from Other Sources
1. Widening scope of Income from other sources.
In order to prevent the practice of receiving the sum of money or the property without consideration or for inadequate consideration, a new clause (x) has been inserted in sub-section (2) of section 56 of the Income-tax Act so as to provide that receipt of the sum of money or the property by any person without consideration or for inadequate consideration in excess of Rs. 50,000 shall be chargeable to tax in the hands of the recipient under the head “Income from other sources“. The scope of exceptions has also been widened by including the receipt by certain trusts or institutions and receipt by way of certain transfers not regarded as transfer under section 47 of the Income-tax Act.
Consequential amendments have also been made section 49 of the Income-tax Act for determination of cost of acquisition and section 2(24) of the Income-tax Act to include sum of money or value of property referred to in section 56(2)(x) of the Income-tax Act in the definition of income. These amendments take effect from 1st April, 2017 and the said receipt of sum of money or property on or after 1st April, 2017 shall be chargeable to tax in accordance with the provisions of clause (x) of sub-section (2) of section 56 of the Income-tax Act.
2. Disallowance for non-deduction of tax from payment to resident.
With a view to improve compliance of provisions relating to tax deduction at source (TDS), Section 58 of the Income-tax Act has been amended so as to provide that the provisions of section 40(a)(ia) of the Income-tax Act shall, so far as they may be, apply in computing income chargeable under the head “Income from other sources” as they apply in computing income chargeable under the head “Profit and gains of business or Profession”. This amendment takes effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent years.
3. Rationalization of taxation of income by way of dividend.
Before amendment by the Act, the provisions contained in section 115BBDA of the Income-tax Act specified that income by way of dividend in excess of Rs. 10 lakh shall be chargeable to tax at the rate of 10% on gross basis in case of a resident individual, Hindu undivided family or firm. With a view to ensure horizontal equity among all categories of tax payers deriving income from dividend, section 115BBDA has been amended so as to specify that the provisions of said section shall be applicable to all resident assessees except domestic company and certain funds, trusts, institutions, etc. This amendment takes effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent years.
Author Bio
Dear Sir,
I am an NRI and a postdoctorate in technology Ph.D., working and living in Saudi Arabia for the oil company for 17+ years.
I have been out of India since 1995, pursued post-graduate studies from the USA. I was in there until 2001 and relocated to Saudi Arabia. About my current job profile, Apart from my regular job, i conduct various consultancy training, audits across the world during my vacation period ( no issue with my present employer). I have earned substantial income over the years and parked my funds in Indian banks under NRE accounts. I have no rental income from India as I do not have any properties there, hence no taxable income arising from India.
As I understand, revenue generated interest in these banks are 100% tax-free and FEMA compliant. The earnings from personal audits are also parked along with my earnings from current job in these banks.
I have few questions:
Since I have a very good client network across the world, I have been earning forex (US$ & GBP& Euros) thru my personal visits to client locations by issuing personal invoices. I have been issuing invoices in my name only. My question is am I liable to pay taxes in India on the income earned by foreign clients? All monies (salaries and consultancy fees) are being transferred directly by my clients into my existing NRE accounts in India.
Please advise if I can continue to receive monies (forex only) from my international client network. I cannot transfer the forex earnings into Saudi bank and then remit to India as per the prevailing restrictions of local banks in SAUDI.
I am taking up consultancy engagement with companies based in U.K, Japan, China and the USA, they will be depositing the consulting fee in Euros / USD into my NRE bank account directly. Since I am an NRI, will I have to pay taxes on this income?
Please advice……
Best regards,
Pramod Kumar, Aithal