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Union Budget 2019 - Income Tax announcements in Budget Speech


Finance minister Nirmala Sitharaman presented the Union Budget 2019 in the Parliament today on 5th July 2019. The Finance Minister announced various direct tax matters covering the income tax in her budget speech. Extracts from her budget speech covering the income tax matters are reproduced in this article. This is the first budget of the new government which formed after the General Election 2019.

The highlights of Budget Speech for Union Budget 2019 on Direct Taxes which the Finance Minister presented before the Parliament are given hereunder-

1. Increase in tax collection - The Finance Minister commenced her budget speech on direct taxes from the tax collection of her government in the last 5 years. She informed the Parliament that due to a slew of efforts taken by her Government, the direct tax revenue has significantly increased over the past couple of years. It has increased by over 78% from Rs. 6.38 lakh crore in Financial Year 2013-14 to around Rs. 11.37 lakh crore in Financial Year 2018-19. It is now growing at a double-digit rate every year. 

2. No tax up to an annual income of Rs. 5 Lakh - The Finance Minister reminded the benefit of rebate given to taxpayers whose annual income does not exceed Rs. 5 Lakh by her predecessor in the Interim Budget 2019. 

She recalled and reiterated this Government’s effort over the past five years to alleviate the tax burden on small and medium income-earners. This includes self-employed as well as small traders, salary earners, and senior citizens. The Finance Minister repeated that only when their annual taxable income exceeds Rs. 5 lakh, they are required to pay any income tax.

3. Reduction in the corporate tax rate - The Finance Minister continued the reduction in corporate tax rate and announced that the benefit of reduction in the corporate tax rate of 25 percent shall now be available to all companies having an annual turnover up to Rs. 400 crore from the present turnover limit of Rs. 250 crore. This will cover 99.3% of the companies. Now only 0.7% of companies will remain outside this rate.

4. Mega Investment in Sunrise and Advanced Technology Areas - In order to boost economic growth and Make in India, the government will launch a scheme to invite global companies through a transparent competitive bidding to set up mega-manufacturing plants in sunrise and advanced technology areas such as Semi-conductor Fabrication (FAB), Solar Photo Voltaic cells, Lithium storage batteries, Solar electric charging infrastructure, Computer Servers, Laptops, etc. and provide them investment linked income tax exemptions under section 35 AD of the Income Tax Act, and other indirect tax benefits.

5. Boost to Electric Vehicles sector - The Finance Minister told in the Parliament that the government wants to make India as a global hub of manufacturing of Electric Vehicles. Inclusion of Solar storage batteries and charging infrastructure in the above scheme will boost our efforts. Government has already moved GST council to lower the GST rate on electric vehicles from 12% to 5%. Also to make electric vehicle affordable to consumers, our government will provide an additional income tax deduction of Rs. 1.5 lakh on the interest paid on loans taken to purchase electric vehicles. It was calculated that this amounts to a benefit of around Rs. 2.5 lakh over the loan period to the taxpayers who took loans to purchase an electric vehicle.

6. Start-ups friendly measures - Start-ups in India are taking firm roots and their continued growth needs to be encouraged. To resolve the so-called ‘angel tax’ issue, the start-ups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums. The issue of establishing the identity of the investor and source of his funds would be resolved by putting in place a mechanism of e-verification. With this, funds raised by start-ups will not require any kind of scrutiny from the Income Tax Department. 

She further informed that in addition, special administrative arrangements should be made by the Central Board of Direct Taxes (CBDT) for pending assessments of start-ups and redressal of their grievances. It would be ensured that no inquiry or verification in such cases could be carried out by the Assessing Officer without obtaining approval of his supervisory officer. 

At present, start-ups are not required to justify the fair market value of their shares issued to certain investors including Category-I Alternative Investment Funds (AIF). This benefit is extended to Category-II Alternative Investment Funds also. Therefore, the valuation of shares issued to these funds shall be beyond the scope of income tax scrutiny.

The Finance Minister also proposed to relax some of the conditions for carry forward and set off of losses in the case of start-ups and extended the period of exemption of capital gains arising from the sale of residential house for investment in start-ups up to 31.3.2021 and relaxed certain conditions of this exemption. 

7. Boost to Affordable Housing Sector - The Finance Minister reminded the benefit given to affordable house builders in the Interim Budget 2019. She said that for the realization of the goal of ‘Housing for All’ and affordable housing, a tax holiday had already been provided on the profits earned by developers of affordable housing. 

Also, interest paid on housing loans is allowed as a deduction to the extent of Rs. 2 lakh in respect of the self-occupied property. In order to provide a further impetus, she proposed to allow an additional deduction of up to Rs. 1,50,000/- for interest paid on loans borrowed up to 31st March, 2020 for purchase of an affordable house valued up to Rs. 45 lakh. 

Therefore, a person purchasing an affordable house will now get an enhanced interest deduction up to Rs. 3.5 lakh. This will translate into a benefit of around Rs. 7 lakh to the middle-class home-buyers over their loan period of 15 years.

8. Benefit to NBFCs - Non-banking financial companies play an increasingly important role in India’s financial system. With the enhanced levels of regulation, they are subjected to by the Reserve Bank of India, there is a need to provide greater parity in their tax treatment vis-à-vis scheduled banks. Currently, interest on certain bad or doubtful debts made by scheduled banks and other financial institutions is allowed to be offered to tax in the year in which this interest is actually received. She proposes to extend this facility to deposit-taking as well as systemically important non-deposit taking NBFCs also.

9. Tax incentives to IFSC - To promote the International Financial Services Centre(IFSC) in GIFT City, a series of measures have already been taken in the past by this Government. With a view to further incentivizing the IFSC, the Finance Minister proposed to further provide several direct tax incentives to an IFSC including 100 % profit-linked deduction under section 80-LA in any ten-year block within a fifteen-year period, exemption from dividend distribution tax from current and accumulated income to companies and mutual funds, exemptions on capital gain to Category-III AIF and interest payment on loan taken from non-residents. 

10. Relief in levy of Securities Transaction Tax (STT) - In her maiden Budget Speech, the Finance Minister proposed to give relief in levy of Securities Transaction Tax (STT) by restricting it only to the difference between settlement and strike price in case of exercise of options.

11. Interchangeability of PAN and Aadhaar - The Finance Minister informed that more than 120 Crore Indians now have Aadhaar. Therefore, for ease and convenience of taxpayers, she proposed to make PAN and Aadhaar interchangeable and allowed those who did not have PAN to file Income Tax returns by simply quoting their Aadhaar number and also use it wherever they are required to quote PAN. 

12. Use of technology for Pre-filling of Income-tax Returns - The Finance Mister told that Pre-filled tax returns will be made available to taxpayers which will contain details of salary income, capital gains from securities, bank interests, and dividends, etc. and tax deductions. Information regarding these incomes will be collected from the concerned sources such as Banks, Stock exchanges, mutual funds, EPFO, State Registration Departments, etc. 

This will not only significantly reduce the time taken to file a tax return but will also ensure the accuracy of reporting of income and taxes.

13. Faceless e-assessment - Like previous budgets, the government emphasis on faceless e-assessments also finds a place in this Budget 2019. The existing system of scrutiny assessments in the Income-tax Department involves a high level of personal interaction between the taxpayer and the Department, which leads to certain undesirable practices on the part of tax officials. She informed that to eliminate such instances, and to give shape to the vision of the Hon’ble Prime Minister, a scheme of faceless assessment in electronic mode involving no human interface was being launched this year in a phased manner. To start with, such e-assessments should be carried out in cases requiring verification of certain specified transactions or discrepancies. She revealed the roadmap of carrying out the faceless assessments and said that cases selected for scrutiny shall be allocated to assessment units in a random manner and notices should be issued electronically by a Central Cell, without disclosing the name, designation or location of the Assessing Officer. 

The Central Cell shall be the single point of contact between the taxpayer and the Department. This new scheme of assessment will represent a paradigm shift in the functioning of the Income Tax Department.

14. Boost to digital payments and making of the cashless economy - Since demonetization, the government is pushing the country towards a digital economy and series of measures including tax incentives were given for digital transactions. Budget 2019 also disincentives cash payment. The Finance Minister told the Parliament that their Government had taken a number of initiatives in the recent past for the promotion of digital payments and less cash economy. To promote digital payments further, she proposes to take a slew of measures. To discourage the practice of making business payments in cash, the Finance Minister levied TDS of 2% on cash withdrawal exceeding Rs. 1 crore in a year from a bank account. Further, there were low-cost digital modes of payment such as BHIM UPI, UPI-QR Code, Aadhaar Pay, certain Debit cards, NEFT, RTGS, etc. which could be used to promote less cash economy. She, therefore, proposed that the business establishments with annual turnover more than Rs. 50 crore should offer such low-cost digital modes of payment to their customers and no charges or Merchant Discount Rate should be imposed on customers as well as merchants. RBI and Banks will absorb these costs from the savings that will accrue to them on account of handling less cash as people move to these digital modes of payment. Necessary amendments were being made in the Income Tax Act and the Payments and Settlement Systems Act, 2007 to give effect to those provisions.

15. Increase in Surcharge - In the Budget Speech 2019, the Finance Minister informed that they had taken several measures in the past to alleviate the tax burden on small and medium income-earners as those having an annual income up to Rs. 5 lakh is not required to pay any income-tax. She thanked the taxpayers who played a major role in nation building by paying their taxes. However, in view of rising income levels, those in the highest income brackets, need to contribute more to the Nation’s development. She, therefore, proposed to enhance surcharge on individuals having taxable income from Rs. 2 crore to Rs. 5 crore and Rs. 5 crore and above so that effective tax rates for these two categories would increase by around 3 % and 7 % respectively.

16. Prosecution for non-filing of returns - The Finance Minister proposed to simplify the tax law to reduce genuine hardships being caused to taxpayers which include enhancing threshold of tax for launching prosecution for non-filing of returns and exempting an appropriate class of persons from the anti-abuse provisions of section 50CA and section 56 of the Income Tax Act. 

While presenting the Union Budget for 2019-20 after the formation of the new government in May 2019, the Finance Minister thanked the taxpayers who performed their duty by paying their taxes. She acknowledged that it is because of taxpayers valuable contribution that the Government is able to work for the collective dream of inclusive and all-round development of the nation. Her tax proposals aimed to stimulate growth, incentivize affordable housing, and encourage start-ups by releasing entrepreneurial spirits. It will also be geared towards promoting the digital economy. The aim to simplify tax administration and bring greater transparency of her government is continued in Budget 2019 too.

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