Unveiling Budget
2019 by Modi 2.0
Budget 2019 Tax
Analysis
There
are 68 amendments made in Income Tax in this budget, I am classifying and
analyzing few important amendments here under:
More Compliance for Common People and No Return Gifts:
A. Filing of Income Tax Return
extended to certain Persons
Currently a person other than a Company and Firm
whose total Income without giving effect to deductions under Chapter-VIA (i.e.
80C, 80D etc)and exempt income on sale of equity shares Section 10(38) is below
Slab Rate (i.e. Rs.2,50,000) then he is not require to furnish the Income Tax
Return. However in case if person is claiming other deductions mentioned in the
act specifically pertaining to Capital Gain exemption then he was not supposed
to file the ITR if he has no other Income. For an example, if a person sold a
residential property for Rs.50 Lakhs and purchased another residential property
to obtain deduction under Section 54 then he is not mandatorily required to
file the ITR if he has no other Income.
FM now amended the provisions of Section
139(1) and prescribed that a person who is claiming such rollover benefits on
investment in a house or a bond or other assets, under sections 54, 54B, 54D,
54EC, 54F, 54G, 54GA and 54GB of the Act, shall necessarily be required to
furnish a return, if before claim of the rollover benefits, his total income is
more than the Basic Exemption Limit (Slab).
FM also provided certain circumstances in
which a person has to mandatorily file the Income Tax Return:
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If more than 1 Crore is deposited in one or
more current Account in Bank.
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If more than 2 Lakh expended on for yourself
or any other person for foreign trip.
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If more than 1 Lakh paid towards Electricity
Bill.
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If person fulfill any other conditions as may
be prescribed.
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B. Deduction of TDS on any personal
payment to Contractors and Professional (Section 194M)
In every Budget government is bringing various transactions
under the ambit of deduction of TDS by Common Man also. In last budget TDS on
rent payment exceeding Rs.50,000/- Per Month by Individual/HUF brings for
deduction at rate of 5%.
My View: It is good that government is bringing more measures to widen the tax
base, however on the same side FM should realize how smoothly provision can be
bring in which common man does not hesitate to follow. I would like to compare
it with the provisions of Section 194C and 194J which cast similar obligation
for deduction of TDS on Individual and HUF whose books are required to get
audited. I am reproducing excerpts of Section 194J (Proviso part which ensure
that when TDS is not required to be deducted)
“Provided that no
deduction shall be made under this section—
.
(B)
where the amount of such sum or, as the case may be, the aggregate of the
amounts of such sums credited or paid or likely
to be credited or paid during the financial year by the aforesaid person
to the account of, or to, the payee, does not exceed—
(i)
thirty thousand rupees, in the case of fees for professional services referred
to in clause (a), or
.
.”
Now I am reproducing excerpts of Proposed Section
194M:
“Provided
that no such deduction under this section shall be made if such sum or, as the
case may be, aggregate of such sums, credited or paid to a resident during a
financial year does not exceed fifty lakh rupees”
On combine reading of both proviso
to sections you would found that word “likely
to be credited” is missing in
later one. Now let us understand how this 3 words going to impact.
Under Section 194J if the Individual pays a sum of Rs.20,000/- to Mr. XYZ on
01.05.2019 and later 15,000/- again to Mr. XYZ for additional work on
01.02.2020 then he was not supposed to deduct TDS from payment made to Mr. XYZ
on 01.05.2019 because he was not sure that amount likely to be credited will
exceed Rs.30,000/- Slab u/s 194J. Later due to some additional work if
threshold limit exceeded , then he is required to deduct TDS on whole
cumulative amount i.e. Rs.3500 (10% of 35,000) that too on 01.02.2020. It is
important to note that in this case he is deducting TDS when actually the
amount paid is crossing the threshold limit.
Now coming to the proposed provision Section 194M
wherein obligation is casted on Individual to deduct TDS on each and
every payment made if payment or aggregate of payment exceeded Rs.50
Lakhs per annum. Now if the assessee was not sure whether his payment would exceed
50 Lakhs or not then What will he do? In any case if suppose due to extension
of any work requirement contract exceeded Rs.50 Lakhs on later date then he
will end up paying Interest on TDS required to be deducted on all those payment
which he made earlier presuming that contract will not exceed Rs.50 Lakhs. FM
could have cast this obligation of deducting TDS on last payment or on finalization
of Bill, but that could have been more simpler for common man which is never
been a intent of government . Such kind of small mistakes while making law
always lead to long litigation wherein always common people gets hurt.
C. Inter-changeability of PAN &
Aadhaar and mandatory quoting in prescribed transactions.
In order to widen the tax base FM amended Section
139A (PAN) to provide for inter changeability of PAN with the Aadhar No. So person
who were denying retailers or specified persons stating that they don’t have
PAN now have to furnish the Aadhar No. Person receiving such document has to
authenticate the Aadhar also in prescribed manner.
D. Increase in Surcharge (Super Rich
Tax)
Surcharge is a tax levy on an above normal tax
calculated as per act. In order to collect more taxes consistently government
is increasing burden of surcharge since the wealth tax got abolished. Surcharge
is levy on people whose income are above 50 Lakhs. Below presented the
comparative chart of Surcharge rate in previous year and in proposed budget.
After Increasing the surcharge now the effective highest Income Tax Rate in
Country is 42.74% (30% Tax+37% Surcharge on Income Tax+ 4% Health and Education
Cess ) which is even higher then US economy (40%).
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Earlier Slab
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Slab
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Earlier Rate
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Income above 50 Lakhs – up to 1 Crore
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10% of Income Tax
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Income above 1 crore
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15% of Income Tax
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Proposed Slab
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Slab
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Earlier Rate
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Income above 50 Lakhs – up to 1 Crore
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10% of Income Tax
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Income above 1 crore – up to 2 Crore
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15% of Income Tax
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Income above 2 crore – up to 5 Crore
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25% of Income Tax
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Income above 5 Crore
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37% of Income Tax
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E. Proposed Benefits for National
Pension Scheme:
1. Presently under NPS scheme, one can withdraw 60% of
corpus sum on closure/retirement and balance 40% compulsorily used to buy
annuity plan. Payment from NPS trust on opting out of scheme or closure of
account presently exempt up to 40% of total amount payable and balance 20% is
remains taxable. This limit is proposed to extend up to 60% and make it
completely exempt. However, annuity part still remains taxable in the year it
will get received.
2. Under the provisions of Section 80CCD, Employer
contribution (by Central Government or by any other employer) to the extent of
10% of Salary allowed as deduction in Income. FM proposed to enhance the limit
to 14% of Salary for Employer contribution made by Central Government. It is
pertinent to note that Employer Contribution by any other employer is still
10%.
3. Central Government employee can now also claim
deduction towards contribution made by them in NPS Tier-II account under
Section 80C.
F. Additional Deduction on Interest
on Housing Loan (Section 80EEA)
In
order to promote government objective of HOUSING FOR ALL, FM introduced this
new section to provide additional deduction of Interest on Home Loans. At
present Interest on Loan taken to purchase residential home up to 2 Lakh is
eligible for deduction under Section 24(1) of the Act. However, if someone is
paying interest beyond 2 Lakhs then remaining amount gets carry forwarded as
loss in next years. FM proposes to provide deduction (Max. up to Rs.1,50,000)
for that balance interest which assessee couldn’t claim on certain conditions
which are mentioned here as under:
- a. Loan is sanctioned between 01.04.2019-31.03.2020.
- b. Stamp Duty Value of house property does not exceed 45
Lakhs.
- c. Assessee does not own any residential property on the
date of sanction of loan.
Remarks:
My
Calculation shows that, this clause will not help any one unless they have
taken loan more than 20 Lakhs for 20 years at prevailing Home Loan rate of SBI.
Anything below this will result in Annual Interest of less than 2 Lakhs only
which is already allowed for deduction in present law. Unlike similar kind of
deductions introduced in past, this time no specific condition for Maximum Loan
Amount sanction is provided in proposed section.
G.
Tax
Incentive for Electric Vehicles
India
is shifting towards taking initiatives in Budget which helps in creating India
beautiful place to live. This time in order to reduce vehicle pollution and
improving environment FM announces deduction on interest paid (Max. up to
Rs.1,50,000) on purchase of Electric Vehicle subject to below conditions:
- a. Loan is sanctioned between 01.04.2019-31.03.2023
- b. Assessee does not own any electric vehicle on the date
of sanction of Loan.
This
is first time any deduction is introduced for interest on purchase of automobile
loan. I really appreciate such kind of welcome steps by FM towards healthy environment.
However little subsidy on electric vehicle could have helped in much better way
for common people.
H. Custom duty on Gold increased
from 10% to 12.5% and Excise duty on Petrol Increased by Rs.1/- per Ltr.
Amendments in TDS Provisions
- 1. Section 194DA prescribes that Insurance Companies has
to deduct TDS @ 1% on any sum paid to a
resident under a life insurance policy if the said amount is not exempt under
section 10(10D). This was creating problem at the end of receiver as high
deduction and at the end of department also for determination of actual income,
because TDS was required to be deducted on Gross amount and not on Net Income
earned by the recipient i.e. (Maturity Amount Less Premium Paid).
FM now amended the Section 194DA to deduct TDS @ 5% on
Net Income of the assessee i.e (Maturity Amount paid less Premium Paid).
- Consideration for the purpose of Section 194-IA (TDS on Consideration of Immovable Property) now includes 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.
- Section 194M (Discussed earlier )
- Section 194N: In order to discourage Cash Transaction FM proposes to levy TDS @ 2% on any cash withdrawal exceeding Rs. 1 Crore in aggregate during the year. It is important to note that unlike other provisions of TDS sections these one applies on AMOUNT EXCEEDING Rs.1 CRORE and NOT ON WHOLE SUM if aggregate withdrawal exceeds Rs.1 Crore.
For Start-ups
1. The existing provisions of the section 54GB of the Income-tax Act, inter
alia, provide for roll over benefit in respect of capital gain arising from the
transfer of residential property owned by the eligible assessee. To be able to
get benefit of this provision, the assessee is required to utilise the net
consideration for subscription in the equity shares of an eligible company
(STARTUP or NEW COMPANY) before the due date of filing of the return of income.
The assessee is required to have more than 50% share capital or more than 51%
voting rights after the subscription in shares in the eligible company. The
said section,inter alia, puts restriction on transfer of assets acquired by the
company for 5 Years from the date of acquisition. Currently the benefit of this
section was only available for investment in the equity shares of eligible
start-ups and that period also got over on 31st March 2019.
2. In order to incentivise investment in eligible start-ups, FM proposed to
amend the said section so as to-
(i) extend the sun
set date of transfer of residential property for investment in eligible
start-ups from 31st March 2019 to 31st March 2021;
(ii) relax the
condition of minimum shareholding of 50% of share capital or voting rights to 25%.
(iii) relax the
condition restricting transfer of new asset being computer or computer software
from the current 5yearsto 3 years.
3. 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 identity of the investor and
source of his funds will be resolved by
putting in place a mechanism of e-verification.
FM announced in budget that, funds raised by start-ups will not require
any kind of scrutiny from the Income Tax Department. However I am unable to
find any such amendment in Finance Bill 2019 Part 2.
For
Business:
1. First proviso to Section 201(1) specifies that
deductor shall not be deemed to be treated as assessee in default on failure to
deduct TDS on payment made to a RESIDENT person if such resident person
furnishes his Income Tax Return and discloses said payment. This proviso helps
Businesses to claim deduction of such expenses also on which they failed to
deduct TDS. FM proposed to extend the benefit of this proviso to NON-RESIDENT
as well. It means if any payment made to NON-RESIDENT and assessee fails to
deduct TDS on such amount then he will no longer be treated as assessee in
default if such Non-Resident furnishes his ITR and disclose said payment in
his ITR. However, Interest till the date of filing ITR by non-resident/resident
still continue to levy.
Remarks:Person
who is disclosing above payments in ITR is already paying Interest on due taxes
on such payment when filing ITR, but charging Interest to Payer on Income
earned by receiver till the date receiver files his ITR resulting in Double
Interest one on Receiver and one on Payer. FM could have resolved this issue by
bringing in suitable amendment. Payer is unnecessary bearing interest on Income
Tax on Income earned by receiver.
2. Section 43B specifies deduction of certain expenses
which is allowed only in case payment is made before due date of filing of
Income Tax Return. Presently if due interest on Loans taken from Bank is not
paid before filing of ITR then one cannot claim deduction of such expenditure.
FM proposes to extend this provision to Loans taken from NBFC also.
3. In order to incentivize NBFC further FM extended the
benefits of Section 43D to NBFC also. Section 43D prescribes that Interest
Income on Bad and doubtful debts should be recognized only when such interest
actually received. Presently this benefit was available to the Banks only.
4. In order to achieve the mission of less cash economy,
FM introduced new Section 269SU which specifies that every person carrying on
business whose turnover during preceding year exceeds 50 Crore should provide
facility for accepting payment through the prescribed electronic modes. Failure
to comply with this provisions will attract penalty under Section 271DB at the
rate of Rs.5000/- per day.
5. In Budget-2016 FM slashed out most debated section
271(1)(c) and introduced fresh Section 270A for levy of penalty for under
reporting and misreporting of Income. Being a fresh provision FM forgot to
bring cases under Section 148 (Reopening of assessment) within the ambit of
Section 270A. Anyways who cares, FM has magical sword of bringing amendments
retrospectively, so in present budget FM amended Section 270A to bring in the
mechanism to levy penalty on those persons also who has furnished return of income
first time u/s 148 of the Act. I would have appreciate FM more if she could’ve
bring more clarity in provisions of Section 270A in order to make these
provisions workable in a clear and litigation free manner.
6. Interest Subvention of 2% for all GST registered MSME’s
on fresh or incremental loan.
Tax Loopholes Curated
A. Earlier Tax Planning:
Under
present provisions of the Act Gift is taxable in hands of donee (Person
receiving the Gift) except for certain exceptions given u/s 56(2)(x). However,
many residents in India made gifts (money or property) to person resident
outside India and claimed it as non-taxable in Indiaarguing that Income does
not accrue and arise in India in view of no specific provision given u/s 9
(Income Deemed to accrue or arise in India).
Proposed Amendment:
A
new clause viii is added under Section -9(1) to ensure taxability of such gifts
made by residents to person outside India. However, proviso to Section 56(2)(x)
which exempts certain gift will continue to apply for such gifts deemed to
accrue or arise in India. For example, Gift by resident father to his NRI Son
is still exempt. Provision is effective from 5th July 2019.
B. Earlier Tax Planning:
In
past, to avoid dividend distribution tax Unlisted Companies was engaged in practice
of Buy Back of Shares because of lower capital Gain Tax. In order to curb that practice
Section 115QA was introduced in previous budget which levy additional Income
Tax at the rate of 20% of distributed income at the level of Company and consequential
income arising in the hand of shareholders has been exempted from tax u/s
10(34A). Since this amendment was limited to Unlisted Companies, many of the
listed company still engaged in practice of buying back of shares instead of
distributing dividend to avoid tax.
Proposed
Amendment:
In order to cure above tax avoidance practise, FM proposed to extend
applicapility of provisions specified u/s 115AQ to Listed Company as well.
What are the
expectations from Budget which FM fails to meet?
a. This was a moment for FM to bring some radical changes
for Common Salary People who was getting ignored since long time despite of
being loyal and consistent tax payer always. In Interim Budget FM extended benefit
of rebate u/s 87A to bring zero tax up to the Income of Rs.5 Lakhs, but tax
slab remained same i.e. Rs.2.5 Lakh for person who earns money more than 5
Lakh. It was expected from FM that suitable amendment could have bring down to rationalize
this anomaly.
b. The income-tax rules seem skewed against salaried
employees. While businessmen and consultants can claim exemptions against all
kinds of expenses every month, for salaried employees there is no such
deduction except Standard Deduction of Rs.50,000/- and HRA.
A good way forward could have been by increasing
standard deduction and not by a token amount of Rs.10,000 which was made in
Interim Budget 2019, but by increasing substantially. FM could have also bring
some %age base deduction in salary income like presumptive scheme to compensate
the present disparity existing between consultants Income and Salary Income.
c. Many Allowances such as Childrens Allowance, Hostel
Allowance are not revised since decades. I fail to understand now that every
time government turn away face from such things.
d. It’s been more than 3 years Corporate Tax rates are
reduced to 25% for certain specified companies having turnover less than 400
Crores, but Partnership Firms/LLP still facing same Tax Rate of 30%.
I can
point No. of things which could have been done in this budget, but that will do
nothing more than increasing pain in your wounds which you got in lieu of your
Vote. So better move towards conclusion.
Conclusion:
FM was handed over daunting task to keep everyone happy. I guess in her maiden budget she played very safe being her first budget. She did collected recommendations from Common People, but ignored it just like we ignore Rahul Gandhi. I understand the budget is not a silver bullet that can rid the country of all its economic ills but it is definitely important one which cannot be looked away.
FM was handed over daunting task to keep everyone happy. I guess in her maiden budget she played very safe being her first budget. She did collected recommendations from Common People, but ignored it just like we ignore Rahul Gandhi. I understand the budget is not a silver bullet that can rid the country of all its economic ills but it is definitely important one which cannot be looked away.
This
was a chance for her to blaze her own signature trail by bringing in radical
changes in tax reforms which her predecessor Arun Jaitley fails to introduce in
previous budget sessions, but she fails to do so. I didn’t find this budget
helping in any way spurning the waning Indian Economy. This Budget is more of
the Table Thumping Gathering than the Content.
Disclaimer: The Contents of the document are solely for information
purpose. It does not constitute professional advice or a formal recommendation.
While due care has been taken in preparing this document, the existence of
mistakes and omissions herein is not ruled out. Comments on misinterpretation
and mistakes are wholeheartedly invited.
Analysis By:
CA. Animesh Singi
+91 9098589691
animeshsingi@gmail.com
