(i) Under the existing provisions of section 10 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, 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. 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.

(ii) 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 referred to in the section, 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. In order to ensure that the Central Government employees get full deduction of the enhanced contribution, it is proposed to increase the limit from ten to fourteen per cent of contribution made by the Central Government to the account of its employee.

(iii) To enable the Central Government employees to have more options of tax saving investments under National Pension System, it is proposed to amend the 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.

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

[Clauses 6, 23, & 24]

Extract of Clauses 6, 23, & 24 of Finance Bill 2019

6. Amendment of section 10.

In section 10 of the Income-tax Act,––

(I) after clause (4B), the following clause shall be inserted, namely:––

“(4C) any income by way of interest payable to a non-resident, not being a company, or to a foreign company, 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, as referred to in clause (ia) of sub-section (2) of section 194LC, during the period beginning from the 17th day of September, 2018 and ending on the 31st day of March, 2019;”;

(II) with effect from the 1st day of April, 2020,––

(a) in clause (12A), for the words “forty per cent.”, the words “sixty per cent.” shall be substituted;

(b) in clause (15), after sub-clause (viii), the following sub-clause shall be inserted, namely:—

‘(ix) any income by way of interest payable to a non-resident by a unit located in an International Financial Services Centre in respect of monies borrowed by it on or after the 1st day of September, 2019.

Explanation.—For the purposes of this sub-clause,—

(a) “International Financial Services Centre” shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005;

(b) “unit” shall have the meaning assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005;’;

(III) in clause (34A), the brackets and words “(not being listed on a recognised stock exchange)” shall be omitted with effect from the 5th day of July, 2019.

23. Amendment of section 80C. 

In section 80C of the Income-tax Act, in sub-section (2), after clause (xxiv), the following clause  shall be inserted with effect from the 1st day of April, 2020, namely:—

‘(xxv) being an employee of the Central Government, as a contribution to a specified account of the pension scheme referred to in section 80CCD––

(a) for a fixed period of not less than three years; and

(b) which is in accordance with the scheme as may be notified by the Central Government in 20 the Official Gazette for the purposes of this clause.

Explanation.—For the purposes of this clause, “specified account” means an additional account referred to in sub-section (3) of section 20 of the Pension Fund Regulatory and Development Authority Act, 2013. ’.

24. Amendment of section 80CCD.

In section 80CCD of the Income-tax Act, in sub-section (2), for the words “does not exceed ten 25 per cent. of his salary in the previous year”, the words, brackets and letters “does not exceed––

(a) fourteen per cent., where such contribution is made by the Central Government;

(b) ten per cent., where such contribution is made by any other employer, of his salary in the previous year” shall be substituted with effect from the 1st day of April, 2020.

Note on Clauses 6, 23, & 24 of Finance Bill 2019

Clause 6 of the Bill seeks to amend section 10 of the Income-tax Act relating to incomes not included in total income.

It is proposed to insert a new clause (4C) in the said section so as to provide for exemption in respect of any income by way of interest payable to a non-resident, not being a company, or to a foreign company, 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 as referred to in clause (ia) of sub-section (2) of section 194LC issued during the period commencing from the 17th September, 2018 and ending on 31st March, 2019.

This amendment will take effect retrospectively from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-2020 and subsequent assessment years.

Further, clause (12A) of the said section provides that any payment from the National Pension System Trust to an employee 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 his opting out of the scheme, shall be exempt from tax.

It is proposed to amend the said section so as to increase the said tax exempt amount from forty per cent. to sixty per cent.

It is proposed to insert sub-clause (ix) in the clause (15) so as to provide that any income by way of interest payable to a non-resident by a unit located in an International Financial Services Centre in respect of monies borrowed by it on or after 1st September, 2019 shall be exempted from tax.

It is further proposed to insert an Explanation to define the expressions “International Financial Services Centre” and “unit”.

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

Clause (34A) of the said section provides for exemption to any income arising to a shareholder on account of buy-back of shares not being listed on a recognised stock exchange by the company as referred to in section 115QA.

It is proposed to amend the said clause so as to provide the said exemption also to the income arising to a shareholder on account of buy-back of shares listed on a recognised stock exchange by the company as referred to in section 115QA.

This amendment will take effect from 5th July, 2019.

Clause 23 of the Bill seeks to amend section 80C of the Income-tax Act relating to deduction in respect of life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc.

It is proposed to amend the said section so as to provide that any amount paid or deposited by the assessee, being an employee of the Central Government, as a contribution to a specified account of the pension scheme referred to in section 80CCD for a fixed period of not less than three years and which is in accordance with the scheme as may be notified by the Central Government in this behalf, shall be eligible for deduction. It is further proposed to define the expression “specified account” by insertion of an Explanation to the said clause.

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

Clause 24 of the Bill seeks to amend section 80CCD of the Income-tax Act relating to deduction in respect of contribution to pension scheme of the Central Government.

Sub-section (2) of the said section provides that in respect of any contribution made by the Central Government or any other employer to the account of the employee, 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.

It is proposed to amend the said section so as to provide that in respect of any contribution made by the Central Government to the account of the employee referred to in the section, 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 as does not exceed fourteen per cent. of his salary in the previous year.

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

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