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Changes proposed in Income-Tax by the Finance Bill 2019


The changes proposed in the income tax law by the Finance (No. 2) Bill, 2019 relating to direct taxes are listed below. The provisions of Finance (No. 2) Bill, 2019 relating to direct taxes seek to amend the Income-tax Act, 1961. Once the bill is cleared by the Parliament and gets the assent of the President, the amendments will become a part of the existing income tax law and the Finance Bill, 2019 will become the Finance Act, 2019. Unless otherwise stated, the amendments will take effect from 1st April 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.

The provisions of Finance (No. 2) Bill, 2019 relating to direct taxes seek to amend the Income-tax Act, 1961 (hereafter referred to as ‘the Act’), to continue to provide momentum to the buoyancy in direct taxes through deepening and widening of the tax base, promoting less cash economy, reducing the corporate tax rate for small enterprises, strengthening anti-abuse measures providing tax incentives, removing difficulties of taxpayers and enhancing the effectiveness of the tax administration.

1. New TDS provision for an Individual or HUF: A new section 194M is introduced under which an individual or HUF, who is otherwise not liable to deduct TDS under section 194 C or 194J), is required to deduct tax at source at the rate of 5 percent if the annual payment made to a contractor or professional exceeds Rs. 50 lakh in a year. 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 without requiring to obtain TAN. It is also proposed to enable filing of an application for issue of a certificate for nil or a lower rate of TDS under section 197.

2. The term 'Consideration' widened for TDS on immovable property u/s 194-IA: Under section 194 IA a person is required to deduct TDS on purchase of immovable property if the consideration exceeds Rs. 50 Lakh. The meaning of the term 'consideration' has now been expanded to cover or 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 an immovable property.

3. Gifts to non-residents by a non-relative resident: Section 9(1) is amended to include any receipt of money for without consideration in excess of Rs. 50,000 in a year or transfer of any property situated in India for no consideration or inadequate consideration by a non-resident from a resident shall be deemed accrue or arise in India. The exemption provided in section 56(2)(x) of the Income Tax Act, 1961 shall equally apply in this case also. This provision shall apply from 5th July 2019 - the day of presenting the Union Budget 2019 in the Parliament.

Presently, gifts made by a resident to another resident are liable for income tax subject to some exemptions. now, it has been extended for non-residents.

4. Scope of compulsory filing of return widened: The filing return of income is linked to the income of a person. It is proposed to make return filing compulsory for the following persons based on certain high-value transactions even though they are not otherwise required to file a return on the basis of income- 
  • who have deposited more than Rs. 1 crore in a current account in a year, or 
  • who have expended more than Rs. 2 lakh on foreign travel, or
  • more than Rs. 1 lakh on electricity consumption in a year, or
  • who fulfills the prescribed conditions (not yet prescribed), 
Further, a person whose income becomes lower than the maximum amount not chargeable to tax due to the claim of rollover benefit of capital gains shall also be required to furnish the return.

5. Amendment related to PAN-Aadhaar in section 139A and section 139AA:

(a) Interchangeability of PAN and Aadhaar: PAN and Aadhaar have been made interchangeable to enable a person who does not have PAN but has Aadhaar to use Aadhaar in place of PAN under the Act. Further, a person who has already linked his Aadhaar with his PAN may at his option use Aadhaar in place of PAN under the Act. A person can now file his return of income with his Aadhaar Number.

(b) Quoting of Aadhaar in lieu of PAN: There are certain high-value transactions, quoting of PAN is mandatory. Those who do not have PAN can now quote his Aadhaar Number in lieu of PAN. It is mandatory to quote PAN in certain documents. Those who do not have PAN can now quote his Aadhaar Number in lieu of PAN.

(c) Non-linking of Aadhaar with PAN will make PAN inoperative instead of invalid: The present law provides that if PAN is not linked with Aadhaar within the notified date (it is 30th September 2019 now) then the PAN will become invalid. The law is being amended to provide that if the PAN is not linked by the notified date then such PAN shall be made inoperative in the prescribed manner after the date notified for the said linking. This will protect past transactions carried out through such PAN.

6. Pre-filling of Income Tax Returns: The income tax returns will be pre-filled. For pre-filling of returns of income, the scope of furnishing of statement of financial transactions (SFT) is widened by mandating furnishing of a statement by the prescribed persons other than those who are currently furnishing the same. 

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

7. TDS on cash withdrawals: A new section 194N is inserted to provide for tax deduction at source at the rate of 2% on cash withdrawal by a person in excess of Rs. 1 crore in a year from a bank account including a co-operative bank and post-office.

8. TDS from non-exempt life insurance policy rationalized: An amendment is made in section 194DA to provide for deduction of income-tax on the taxable payout of life insurance policies on net income basis instead of on gross amount paid as prevailing at present. However, the rate of TDS is increased to 5% from 1%.

9. Deduction u/s 80EEA on interest on loan for affordable housing: A new section 80EEA is inserted to provide for deduction of interest on loan taken from any financial institution for acquiring a residential house property. The maximum amount of deduction allowed is Rs. 1,50,000 and the value of the residential house, based on stamp duty value, shall not exceed Rs. 45 lakh. Moreover, the loan shall be sanctioned in the FY 2019-20 and the taxpayer shall the first time buyer of any residential house. 

This shall be in addition to the existing interest deduction of Rs. 2 lakh under section 24.

10. Deduction u/s 80EEB on interest on loan for purchase of electric vehicle: A new section 80EEB is inserted to provide for deduction of interest on loan taken from any financial institution for purchasing an electric vehicle. The maximum amount of deduction allowed is Rs. 1,50,000.

11. Amendment in the 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, an amendment is made in section 80-IBA 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 non-metropolitan regions. 

A further amendment is made to limit the cost of a residential unit in the housing project at Rs. 45 lakh, based on stamp duty value, in line with the definition in the GST Acts.

12. Tax benefits to NPS widened: Amendments are made in section 10, section 80C and section 80CCD to give effect to -  
(i) increase the limit of exemption from the current 40% to 60% of payment on final withdrawal from NPS; 
(ii) allow a deduction for employer’s contribution up to 14% of salary from the current 10%, in the case of Central Government employee; and
(iii) allow deduction under section 80C for a contribution made to Tier II NPS account by Central Government employees.

13. Tax on buy-back of shares: Listed companies shall be liable to pay additional tax at 20% in case of buyback of share as per amendment in section 115QA.

14. Payment by other electronic modes allowed: There are various provisions in the Income-Tax Act which allow payment or receipt only through account payee cheque, account payee draft or electronic clearing system through a bank account. Other electronic modes of payment like wallet payment, UPI payments, etc. are excluded. To promote other electronic modes of payment, amendments to these provisions are carried out to allow payment or receipt through other prescribed electronic modes. Noted provisions are section 13A, section 35 AD, section 40 A, section 43, section 43 CA, section 44 AD, section 50 C, section 80 JJA, section 269 SS, section 269 ST, and section 269 T.

15. Amendment to section 54GB: Exemption under section 54GB on the transfer of residential house property and investing the net consideration in equity shares of an eligible start-up is extended by 2 years to 31st March 2021 from 31st March 2019. Thus the benefit shall be available for sale of residential property on or before 31st March 2021. 

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

The condition restricting the transfer of new asset being computer or computer software is relaxed from the existing 5 years to 3 years.

16. Exemption from deemed fair market value of shares in prescribed transactions: Section 50CA and 56(2)(x) is amended to exclude certain transactions from deeming fair market value and deemed gift respectively to be prescribed by the CBDT.

17. Benefit of treating a person as not a defaulter for non-TDS extended for non-residents also: The proviso to section 201(1) amended to provide relief to a deductor if he fails to deduct tax on payments made to a non-resident but on the condition that such non- resident has filed its tax return, paid taxes on such income and has furnished a prescribed certificate from an accountant. Corresponding amendment is also made in section 40(a).

18. Allowability of expenses for which deductor is not deemed as a defaulter u/s 201(1): Section 40(a) disallows any expenditure on which no tax is deducted. However, section 201(1) provides relief to a deductor and does not treat him as defaulter under the Income Tax Act if the payee has filed its tax return, paid taxes on such income and has furnished a prescribed certificate from an accountant. However, the disallowance of such expenses was continued u/s 40(a).

The section is now being amended to allow such expenses as a deduction in the hands of the deductor.

19. Concessional rate of tax for CPSE ETFs: Short Term Capital Gains arising from the transfer of units of CPSE ETFs shall be taxed at the rate of 15 percent under section 111A.

20. Relief under section 89 to be considered before interest calculation: Relief for taxes paid in respect of arrears or advance of salary etc. shall now be taken into consideration while calculating the amount of self-assessment tax u/s 140A and for computing of interest payable u/s 234A, u/s 234B, and u/s 234C. 

21. Online application for a lower or nil TDS certificate under section 195: A non-resident can now apply online in electronic form for a lower or nil TDS certificate under section 195 from the sum payable to a non-resident.

22. Mandatory filing of return to claim a refund: No refund of income tax shall be made unless a return of income is filed by the assessee under section 139 of the Income Tax Act. The necessary amendment is being made in section 239 of the Act.

23. Statement of interest income to be filed by banks etc. even if no tax is deducted: Section 260A is amended to cast an obligation on the banks including a cooperative bank and financial institutions who pay interest to a person without deduction of tax since the interest income is below the prescribed threshold limit of Rs. 40,000 or Rs. 5,000, as the case may be, to file a statement to the effect with the income tax authority.

24. Increase in Surcharge rate: New surcharge rates for AY 2020-21 are introduced for Individuals, HUF, AOP, BoI, and Artificial Judicial Person (AJP) which are as follows-

For Income level
Income up to Rs. 50 lakh
No change
Income above Rs. 50 Lakh but up to Rs. 1 crore
No change
Income above Rs. 1 crore but up to Rs. Rs. 2 crore
No change
Income above Rs. 2 crore but up to Rs. 5 crore
New provision
Income above Rs. 5 crore
New provision

25. Reduced rate of income-tax for companies: The rate of income-tax for all domestic companies having a turnover or gross receipts up to Rs. 400 crore in FY 2017-18 is 25 percent as compared to 30 percent for other domestic companies.

26. Power to CIT/Pr.CIT to cancel the registration of a Trust: If, after the registration of a Trust, it comes to the notice that the trust or institution has violated requirements of any other law which was material for the purpose of achieving its objects, then the Principal Commissioner or Commissioner may, by an order in writing, cancel the registration of such trust or institution.

27. Power to CIT/Pr. CIT to make additional inquiry before  granting registration to a Trust u/s 12AA: At the time of granting the registration to a trust or institution, the Principal Commissioner or the Commissioner shall, inter alia, also satisfy himself about the compliance of the trust or institution to requirements of any other law which is material for the purpose of achieving its objects.

Other articles on Union Budget 2019:
Union Budget 2019 - Income Tax announcements in Budget Speech

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