Summary of Union Budget 2019

A. DIRECT TAX PROPOSALS-GENERAL

1. Tax Rate

Corporate Tax rate

Corporate tax rate reduced to 25% (plus applicable surcharge and cess) for a domestic company having total turnover/ gross receipts not exceeding Rs 400 Crores in FY 2017-18 as against the current limit of 250 crores. In other cases, the tax rate remains unchanged at 30% (plus applicable surcharge and cess).

Individual/ HUF

There is no change in the proposed slab rates. However, the finance bill proposes to increase the surcharge as under:-

2. Deduction on account of interest paid on housing loan taken for affordable housing (New Section 80EEA)

Finance bill proposes a deduction of up to Rs. 1.50 lakhs which shall be allowed to an individual for the interest paid on loan taken for acquisition of a residential house property, subject to fulfilment of following conditions:

(i) Stamp duty value of the house property should not exceed Rs. 45 lakhs

(ii) Loan should be sanctioned by the financial institution during the period April 01, 2019 to March 31, 2020

(iii) The assessee should not own any residential house property on the date of sanction of loan.

3. Deduction for interest paid on loan taken to buy electric vehicles (New Section 80EEB)

Finance bill also proposes a deduction of up to Rs. 1.50 lakhs which shall be allowed to an individual for the interest paid on loan taken for purchase of an electric vehicle, subject to the condition that the loan should be sanctioned during the period April 1, 2019 to March 31, 2023.

4. Alignment of definition of affordable housing with GST Acts:

In order to align the definition of affordable housing in the Income-tax Act with the GST Acts, it is proposed to increase the limit of carpet area from 30 square meters to 60 square meters in Metropolitan regions and from 60 square meters to 90 square meters in nonmetropolitan regions. It is also proposed to provide the limit on cost of the house at Rs. 45 lakh in line with the definition in the GST Acts.

5. Incentives to National Pension System (NPS) subscribers

It is proposed to,-

(i) increase the limit of exemption from current 40% to 60% of payment on final withdrawal from NPS; (Amendment in section 10(12A)

(ii) allow deduction for employer’s contribution upto 14% of salary from current 10%, in case of Central Government employee; (Amendment in section 80CCD)

(iii) allow deduction under section 80C for contribution made to Tier II NPS account by Central Government employees (New Clause (xxv) inserted in Section 80C).

6. Listed companies also to pay tax on buy-back of shares (Amendment in Section 115QA)

In order to discourage the practice of avoiding Dividend Distribution Tax (DDT) through buy back of shares by listed companies, it is proposed to provide that listed companies shall also be liable to pay additional tax at 20% in case of buy back of share, as is the case currently for unlisted companies.

7. Incentives for start-ups:

Section 54GB provides exemption to an Individual and HUF from the long-term capital gains arising from transfer of a residential house property. The exemption is allowed if the amount of capital gains is invested in equity shares of an ‘eligible company’. The exemption is allowed subject to fulfilment of certain conditions.

Finance bill now proposed to relax:-

(i) The provision which allows exemption of capital gains from sale of residential property on investment of net consideration in equity shares of eligible start-up shall be extended by 2 years. Thus the benefit shall be available for sale of residential property on or before 31st March, 2021.

(ii) The condition of minimum holding of 50% of share capital or voting rights in the start-up to 25%.

(iii) The condition restricting transfer of new asset being computer or computer software from the current 5 years to 3 years.

(iv) The condition for carry forward and set off of losses in cases of eligible start-ups enabling them to carry forward their losses on satisfaction of any one of the two conditions, i.e. continuity of 51% shareholding/voting power or continuity of 100% of original shareholders. (through amend in section 79)

8. Interest on NPAs can be recognised on receipt basis by NBFCs

Presently, interest income on bad or doubtful debts made by NBFCs is charged to tax on accrual basis.

However, in cases of scheduled banks, public financial institutions, state financial corporations, state industrial investment corporations, cooperative banks and certain public companies like housing finance companies, interest on bad or doubtful debts is charged to tax on receipt basis as per the provision of section 43D.

To provide a level playing field, it is proposed that interest on bad or doubtful debts in the case of deposit-taking NBFC and systemically important non deposit-taking NBFC shall be charged to tax on receipt basis. It is also proposed to provide that deduction of such interest shall be allowed to the payer on actual payment.

‘Deposit Taking NBFC’ means a NBFC which is accepting or holding public deposits and is registered with the RBI.

‘Systemically Important Non-deposit Taking NBFC’ means a NBFC which is not accepting or holding public deposits and having total assets of not less than Rs. 500 crore as per the last audited balance sheet and is registered with the RBI.

Consequential amendment has also been proposed to Section 43B to provide that interest on loans taken from such NBFCs shall be allowed to be deducted only if same is paid on or before the due date of furnishing of return of income of the relevant previous year.

B. TDS

9. TDS from Payment in respect of Life Insurance Policy

As per current provisions, any payment in respect of life insurance policy to a resident person shall be subject to TDS at the rate of 1% under Section 194DA. The tax shall be deducted under this provision at the time of payment, if sum payable exceeds Rs. 1 lakh.

Taxpayers were facing hardships due to deduction of tax on the gross amount whereas they were liable to pay tax only on net income.

Finance bill now proposed to provide that tax shall be withheld on taxable payout of life insurance companies on net basis at 5%, instead of 1% on gross as at present.

10. TDS deduction by Individuals and HUFs (not liable for tax audit) on sum payable to resident contractor or professionals (New section 194M)

[Applicable from September 1, 2019]

Presently, there is no requirement for an individual or HUF to deduct tax at source on payments made to a resident contractor or professional when it is for personal use, or if the individual or HUF is not subjected to audit for his business or profession.

It is proposed to insert a new provision making it obligatory for such individual or HUF to deduct tax at source at the rate of five per cent if the annual payment made to a contractor or professional exceeds Rs. 50 lakh.

It is also proposed that a person deducting tax under this section shall be able to deposit TDS on the basis of the Permanent Account Number (PAN) only.

11. TDS on purchase of immovable property (Amendment in section 194-IA)

[Applicable from September 1, 2019]

It is proposed to provide that for the purpose of tax deduction at source from payment made for acquisition of immovable property, consideration shall include other charges in the nature of club membership fee, car parking fee, electricity and water facility fee, maintenance fee, advance fee or any other charges of similar nature which are incidental to the purchase of immovable property.

12. TDS deduction by Banks and Post Offices on cash withdrawals exceeding Rs. 1 crore (new section 194N)

[Applicable from September 1, 2019]

It has been proposed that a new section 194N will be inserted in the act that provides for levy of TDS at the rate of 2% on aggregate cash payments in excess of Rs 1 cores made during a FY by (i) banking company or (ii) cooperative bank or (iii) post office, to any person (recipient) in respect of account maintained by such person.

13. Online filing of application for nil rate or lower withholding tax certificate in case of Non-Resident.

[Applicable from November 1, 2019]

In case of non-resident, currently, no form has been prescribed by the Dept. for filing of an application by the payer to obtain a certificate for deduction of tax at lower or nil rate. Thus, the payer has to follow the manual process by approaching the Assessing Officer with an application to require him to issue an order under section 195(2).

It is proposed that sections 195(2) and 195(7) of the Act will be amended, to allow online filing of application by a person making a payment to a non-resident seeking determination of tax to be deducted at source.

C. Widening and deepening of tax base

14. Compulsory filing of return in certain circumstances (Amendment in section 139)

[Applicable from Assessment Year 2020-21]

Finance bill proposed to make return filing compulsory for persons,

(i) who have deposited more than Rs. 1 crore in a current account in a year, or

(ii) who have expended more than Rs. 2 lakh on foreign travel or

(iii) more than Rs. 1 lakh on electricity consumption in a year or

(iv) who fulfils the prescribed conditions, in order to ensure that persons who enter into high value transactions also furnish return of income.

Further, filing of Income-tax return is also proposed to be made mandatory, if total income of an assessee before claiming capital gain exemption under Sections 54, 54B, 54EC, 54F, 54G, 54GA and 54GB, exceeds the maximum amount not chargeable to tax.

15. Interchangeability of PAN and Aadhaar:

It is proposed to provide interchangeability of PAN and Aadhaar to enable a person who does not have PAN but has Aadhaar to use Aadhaar in place of PAN under the Act. The Income Tax Department shall allot PAN to such person on the basis of Aadhaar after obtaining demographic data from the Unique Identification Authority of India (UIDAI). It is also proposed to provide that a person who has already linked his Aadhaar with his PAN may at his option use Aadhaar in place of PAN under the Act.

16. Quoting of PAN/Aadhaar:

In order to track high value transactions, it is proposed to provide that the quoting and authentication of PAN/Aadhaar shall be mandatory for certain prescribed transactions. It is also proposed to provide that the person receiving relevant documents shall ensure correct quoting and authentication of PAN/Aadhaar for the prescribed transactions. To ensure compliance of these provisions it is also proposed to amend the relevant penalty provisions.

17. Consequences of not linking Aadhaar with PAN:

Presently, the Act provides for making PAN invalid if it is not linked with Aadhaar within a notified date. In order to protect past transactions carried out through such PAN, it is proposed to provide that if a person fails to intimate the Aadhaar number, the PAN allotted to such person shall be made inoperative in the prescribed manner after the date notified for the said linking.

18. Widening the scope of SFT: (Amendment in section 285BA)

In order to obtain more information to enable pre-filling of returns of income, it is proposed to widen the scope of furnishing of statement of specified financial transactions (SFT) by mandating furnishing of statement by the prescribed persons other than those who are currently furnishing the same.

It is also proposed to remove the current threshold of Rs. 50,000 for application of the provisions requiring furnishing of information, in order to ensure pre-filling of smaller amounts of transactions also.

It is also proposed that the penalty provisions contained in section 271FAA will be amended so as to ensure correct furnishing of information in SFT and widen the scope of penalty to cover all the reporting entities under section 285BA of the act.

D. International Taxation and Transfer Pricing

19. Provisions of sections 201 relaxed in case of payments to non-residents

[Applicable from September 1, 2019]

It is proposed to provide that where there is a failure to deduct tax at source on payments made to a non-resident and such non-resident has filed its tax return, paid taxes on such income and has furnished a prescribed certificate from an accountant, the deductor shall not be held as assessee in default.

It is also proposed to provide that in such cases, there would not be any corresponding disallowance of expenditure in the hand of deductor shall not be held as assessee in default. It is also proposed to provide that in such cases, there would not be any corresponding disallowance of expenditure in the hand of deductor.

20. AO power restricted to only re-compute the total income where modified return is filed in pursuance of Advance Pricing Agreement (APA)

[Applicable from September 1, 2019]

Section 92CC of the Act empowers the CBDT to enter into an Advance Pricing Agreement (APA) with any person for determining the Arm’s Length Price (ALP) of an international transaction to be entered into by that person. An APA can be entered for maximum of 9 years (5 years plus 4 roll-back years). Once the APA is entered, the ALP of the international transaction is determined in accordance with such APA.

Finance bill now proposed to clarify that once an Advance Pricing Agreement (APA) has been signed and modified return is filed by the assessee, the Assessing Officer needs to only modify the total income in accordance with the APA.

21. CbCR filing required by MNCs even in case of no international transaction

It is proposed to clarify that master file needs to be filed even when there is no international transaction and that the Assessing Officer and Commissioner (Appeals) do not have power to call for master file from the assessee.

22. One-time payment of taxes proposed to avoid implications of secondary adjustments in TP

[Applicable from September 1, 2019 and Assessment Year 2018-19]

Section 92CE of the Income-tax Act deals with secondary adjustment and provides as under:

“Where as a result of primary adjustment to the transfer price, there is an increase in the total income or reduction in the loss of the assessee, the excess money which is available with its associated enterprise shall be deemed to be an advance made by the assessee to such associated enterprise and the interest on such advance shall be computed as the income of the assessee.”

‘Primary Adjustment’ is an adjustment that a tax authority or assessee makes suo-moto to its taxable profits as a result of applying the arm’s length principle to transactions done with an associated enterprise. Primary adjustment invariably results in increase in the total income or reduction in loss of the assessee.

Finance bill proposes to simplify the provisions of secondary adjustment (in case of transfer pricing) by providing that instead of interest payment every year, the assessee shall have option of a one-time payment of tax of specified amount.

23. Gifts made to non-residents made taxable:

Section 56(2)(x) applies in case of every person, but it has been reported that gifts by a resident person to a person outside India are claimed to be non-taxable in India as the income does not accrue or arise in India.

So it is proposed to provide that gift of any sum of money, or property situated in India, by a person resident in India to a person outside India (not being a gift otherwise exempt i.e. from relatives or on specified occasions say, on the occasion of marriage), on or after 5th day of July 2019, shall be deemed to accrue or arise in India.

Though the provisions of Section 9 has been amended to tax gifts made to non-residents but the ultimate taxability of such gifts shall be decided in accordance with provisions of relevant DTAA. If provisions of DTAA are more beneficial, then the non-resident person can choose to apply the provisions of DTAA.

E. Measures for promoting less cash economy

24. Businesses shall accept payments through notified electronic modes

[Applicable from November 1, 2019]

A new Section 269SU in Income-tax Act has been inserted to provide that every person engaged in business should mandatorily provide the facility for accepting payment through prescribed electronic mode, if the gross receipts from such business exceed Rs. 50 crore during the immediately preceding previous year.

Consequential penal provisions have been proposed to be inserted in Section 271DB, which pro-vides for penalty of Rs. 5,000 rupees for every day of default in case the person doesn’t accept payment through notified digital modes. The section also provides for immunity from penalty in case person proves that there is a good and sufficient reasons for such default.

25. Payment by other electronic modes:

There are various provisions in the Act which prohibit cash transactions and allow or encourage payment or receipt only through account payee cheque, account payee draft or electronic clearing system through a bank account. To promote other electronic modes of payment, it is proposed to amend these provisions to also allow payment or receipt through other prescribed electronic modes.

F. Miscellaneous

26. CIT to ensure compliance of other laws before granting Section 12AA registration

[Applicable from September 1, 2019]

In order to ensure that a trust or institution complies with local laws that are material for the purposes of achieving its objects, it is proposed to provide for cancellation of registration of the trust or institution under the Act for violation of such provision of any other law, where an order holding that such violation has occurred is either not contested or has become final. It is proposed to provide that at the time of registration it shall also be examined whether there has been any such violation by the trust or institution seeking registration.

G. GST

27. Interest to be computed on net tax liability

A Proviso has been inserted in Section 50 of the CGST Act, 2017 (‘Interest on Delayed Payment of Tax’) to clarify that interest for late payment of tax shall be levied only on that portion of tax which has been paid by debiting the electronic cash ledger. Earlier there was a confusion among taxpayers on this issue whether such interest would be charged on gross tax liability or only on net tax liability.

The exception to this rule is, where returns are filed subsequent to initiation of any proceedings under GST Act, in that case the interest shall be levied on the gross tax liability.

28. Transfer of funds from one head to another of electronic cash ledger

Earlier assessee had an option to apply for refund for any amount wrongly deposited under wrong head either minor head (tax, interest, penalty or fee) or major head (IGST, SGST, CGST, UTGST). The amount kept under a particular head was not allowed to be transferred from one head to another in the electronic ledger.

Now a registered person has been provided with the facility to transfer any amount of tax, interest, penalty, fee or any other amount available in the electronic cash ledger to the electronic cash ledger for Integrated Tax, Central Tax, State Tax, Union Territory Tax or Cess through a new form PMT-09 subject to the conditions and restrictions prescribed under GST Act. Such transfer shall be deemed to be a refund from the electronic cash ledger.

29. National Anti-Profiteering Authority empowered to impose penalty

A proviso to section 171(3A) has been inserted for relief from penalty (which is equivalent to 10% of the amount profiteered), if profiteered amount (as decided by the Order of the authority) has been deposited within 30 days of the passing of the order.

30. Refund of State Taxes by the Centre to the taxpayers

Central Govt. has been authorised to pass the refund of state taxes to the taxpayer

31. Other important amendments

(i) Certain class of suppliers to mandatorily provide facility for electronic payment by recipient

(ii) The value of exempt supply of services provided by way of extending deposits, loans or advances (where consideration is received in form of interest or discount) shall not be considered for determining turnover under Composition Scheme.

(iii) A new proviso has been added to section 22(1) of CGST Act 2017 to empower Government to extend threshold exemption limit of Rs 20 lacs to 40 lacs for the person exclusive engaged for supply of goods. Further, an explanation has been proposed to be inserted to provide that the person shall be considered as engaged in exclusive supply of goods even if he is engaged in exempt supply of extended deposits, loans or advances by way of interest or discount.

(iv) Creation of National Appellate Authority for Advance Ruling under GST

(v) A resolution cum amnesty scheme “SabkaVishwas (Legacy Dispute Resolution) Scheme” to resolve and settle pending litigations under Excise and Service Tax law.

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