Significant Direct Tax Proposal In The Finance (No. 2) Bill, 2019

Rates of tax

No change in tax rates and basic exemption limit

Tax rates for all persons, other than domestic companies, would continue to be the same for A.Y. 2020-21 as applicable for A.Y. 2019-20. Further, there would be no change in the basic exemption limit applicable for individuals, HUFs, AOPs, BoIs and artificial juridical persons.

Surcharge on super-rich

Surcharge @ 25% of tax payable is proposed to be levied on individuals /HUFs or AOPs or BOIs or artificial juridical person whose total income exceeds Rs. 2 crores but does not exceed Rs. 5 crore and @ 37% where total income exceeds Rs. 5 crores Surcharge @15% would continue to be applicable in cases where total income exceeds Rs. 1 crore but does not exceed Rs. 2 crores.

Personal Taxation

National Pension System (NPS) limit of exemption increased on closure

The limit of exemption in respect any payment from the NPS Trust to an assessee on closure of his account or on his opting out of the pension scheme, proposed to be increased from 40% to 60% of the total amount payable to him at the time of such closure or on his opting out of the scheme.

Deduction on interest on loan for acquisition of house property

New section 80EEA proposed to be inserted to provide for additional deduction of upto Rs. 1,50,000 to an individual on interest on loan taken from any financial institution for purchase of residential house, where such loan is sanctioned in the financial year 2019-20 and the stamp duty of the house does not exceed Rs. 45 lakhs and the assessee does not own any residential house property on the date of sanction of loan.

Deduction in respect of purchase of electric vehicle

New section 80EEB proposed to be inserted to provide deduction of upto Rs.1,50,000 to an individual for interest on loan payable to financial institution for purchase of 2 electric vehicle where such loan is sanctioned during the period 1.4.2019 to 31.3.2023.

Corporate Taxation

Corporate tax rate

The concessional rate of tax@25% for A.Y.2020-21 is proposed to be extended to domestic companies whose gross receipts or total turnover does not exceed Rs.400 crores in the P.Y.2017-18. In respect of other domestic companies, the income-tax rate would continue to be 30%.

Tax on distributed income of listed companies on buy back of listed shares

Additional income-tax (distribution tax) @25% leviable under section 115QA on companies not listed on a recognised stock exchange at the time of buy-back of shares from shareholders is proposed to be extended to all companies including companies listed on recognised stock exchange with effect from 5th July 2019.

Consequently, exemption under section 10(34A) would be extended to shareholders of listed companies on consideration received on account of buy-back of shares.

Tax Deduction at source

Tax Deduction at Source (TDS) on payments by Individual/HUF to contractors and professionals

New section 194M proposed to be inserted w.e.f. 1.9.2019 to provide for tax
deduction at source @5% by individual or HUF (other than those required to deduct tax under section 194C and 194J) at the time of payment or credit, whichever is earlier, of any sum to any resident for carrying out any work in pursuance of a contract or by way of fees for professional services during the financial year if such sum, or aggregate of such sums, exceed(s) Rs. 50 lakh in a year.

TDS on transfer of immovable property

Section 194-IA provides for levy of TDS @1% on the amount of consideration paid or credited to a resident for transfer of an immovable property other than agricultural land. However, no deduction shall be made under section 194-IA where the consideration for the transfer is less than 50 lakh. For this purpose, it is proposed to include all charges of the nature of 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 transfer of the immovable property; in the term consideration for immovable property.

Increase in TDS rate on non-exempt portion of life insurance pay-out on net basis

Under section 194DA, tax is required to be deducted @1%, at the time of payment of any sum paid to a resident under a life insurance policy, which is not exempt under section 10(10D).

At present, tax is deducted at source on gross amount and not on net income (i.e after deducting the amount of insurance premium paid by him from the total sum received) on which assessee has to pay tax.

Section 194DA is now proposed to be amended to provide for tax deduction at source @ 5% on income component of the sum paid by the person.

TDS on cash withdrawal

New section 194N proposed to be inserted to provide for levy of TDS @2% on cash payments in excess of Rs. 1 crore in aggregate made during the year, by a banking company or cooperative bank or post office, to any person from an account maintained by the recipient.

Assessment Procedure

Mandatory furnishing of return of income by certain persons

Section 139 is proposed to be amended to require mandatory filing income-tax return on or before the due date by any person who, during the previous year,

– has deposited an amount or aggregate of the amounts exceeding Rs.1 crore in one or more current accounts maintained with a banking company or a cooperative bank;
– has incurred expenditure of an amount or aggregate of the amounts exceeding Rs. 2 lakh for himself or any other person for travel to a foreign country; or
– has incurred expenditure of an amount or aggregate of the amounts exceeding Rs. 1 lakh towards consumption of electricity;
– fulfils such other conditions as may be prescribed.

Further, an Individual, HUF, AOPs, BOIs or artificial juridical person whose total income before giving effect to the provisions of Chapter VI-A as well as section 54 or section 54B or section 54D or section 54EC or section 54F or section 54G or section 54GA or section 54GB exceeds the basic exemption limit, is also required to file income tax return mandatorily.

Inter-changeability of PAN and Aadhaar for ITR and transactions requiring mandatory quoting of PAN

To ensure ease of compliance, it is also proposed to provide for inter-changeability of PAN with the Aadhaar number for return filing and transactions requiring mandatory quoting of PAN in prescribed documents.

Measures for cash less economy

Other electronic mode of payments permitted

In order to encourage electronic modes of payment, it is proposed to amend
sections 13A, 35AD, 40A, 43(1), 43CA, 44AD and 80JJAA so as to include such other electronic mode as may be prescribed, in addition to the already existing permissible modes of payment in the form of an account payee cheque or an account payee bank draft or the electronic clearing system through a bank account.

Mandating acceptance of payments through prescribed electronic modes

New section 269SU proposed to be inserted to provide that every person, carrying on business, has to provide facility for accepting payment through prescribed electronic modes, in addition to the facility for other electronic modes, of payment, if any, being provided by such person, if his total sales, turnover or gross receipts, as the case may be, in business exceeds Rs. 50 crores during the immediately preceding previous year. New section 271DB is also proposed to be inserted to provide that the failure to provide such facility for electronic modes of payment would attract penalty of Rs. 5,000, for every day during which such failure continues.

Further, consequential amendment is proposed in Payment and Settlement and Systems Act, 2007 so as to provide that no bank or system provider shall impose any charge upon anyone either directly or indirectly for using the modes of electronic payment prescribed under section 269SU.

Penal & Prosecution provisions

Penalty for under-reporting or misreporting of income in case a return of income is furnished for the first time under section 148

The provisions of section 270A do not contain the mechanism for determining under reporting of income and quantum of penalty to be levied in a case where the person has under-reported income and furnished return of income for the first time under section 148.

Section 270A is proposed to be amended to provide for manner of computing the quantum of penalty in a case where the person has under-reported income and furnished his return for the first time under section 148.

Limit of tax payable increased for proceeding prosecution proceeding for failure to furnish return of income

Section 276CC, inter alia, provide that prosecution proceedings for failure to furnish returns of income against a person shall not proceeded against, for failure to furnish the return of income in due time, if the tax payable by such person, not being a company, on the total income determined on regular assessment does not exceed Rs. 3,000. The threshold of tax payable is proposed to be increased from Rs. 3,000 to Rs. 10,000.

International Taxation

Clarification with regard to applicability of secondary adjustment and one-time payment option

Section 92CE, inter alia, provides that the assessee shall be required to carry out secondary adjustment where the primary adjustment to transfer price, has been made suo motu, or made by the Assessing Officer and accepted by him; or is determined by an advance pricing agreement entered into by him; or is made as per safe harbour rules or is arising as a result of resolution of an assessment through mutual agreement procedure under an agreement entered into under section 90 or 90A of the Act.

The proviso to said sub-section provides exemption in cases where the amount of primary adjustment made in any previous year does not exceed one crore rupees and the primary adjustment is made in respect of an assessment year commencing on or before 1st April, 2016.

Section 92CE is proposed to be amended to provide the condition of threshold of one crore rupees and of the primary adjustment made upto assessment year 2016-17 are alternate conditions and not cumulative conditions. Further, the excess money may be repatriated from any of the associated enterprises of the assessee which is not resident in India.

Also, in a case where the excess money or part thereof has not been repatriated in time, the assessee will now have the option to pay additional income-tax @ 18% on such excess money or part thereof in addition to the existing requirement of calculation of interest till the date of payment of this additional tax. The additional tax would be increased by a surcharge
of 12%. If such tax and surcharge are so paid, the assessee will not be required to make secondary adjustment or compute interest from the date of payment of such tax.

Source : ICAI (Institute of Chartered Accountants of India)