GANDHI & ASSOCIATES LLP
CHARTERED ACCOUNTANTS
CONTENTS
I PROPOSED AMENDMENTS TO DIRECT TAXES
Page Nos.
Tax Rates 1
Capital Gains 4
Income from Other Sources 5
Deductions & Other Exemptions 6
Tax Deducted at Source 8
Others Amendments 10
II PROPOSED AMENDMENTS TO INDIRECT TAXES
Goods & Services Tax 14
Custom Duties 14
Sabka Vishwas Legacy Dispute Resolution Scheme 15
III IMPORTANT BUDGET HIGHLIGHTS
Financial Markets 16
New Initiative 16
Budget Estimate 17
CHAPTER I
PROPOSED A MENDMENTS TO DIRECT TA XES
The proposed amendments to the Income -tax Act, 1961 shall be effective
from assessment year 2020-2021 unless stated otherwise.
TAX RATES
Tax rates for Individuals / HUFs
No change in the income slabs and tax rates. The income slabs and tax
rates are as follows:
Very Senior Senior Citizen
Citizen (Above 60 yrs.
Slabs of Income Others
(80 yrs. and and upto 80
above) yrs)
Up to Rs. 250,000 Nil Nil Nil
Rs. 250,000 – Rs. 500,000 Nil Nil 5%
Rs. 300,000 – Rs. 500,000 Nil 5% 5%
Rs. 500,000 – Rs.1,000,000 20% 20% 20%
Above Rs. 1,000,000 30% 30% 30%
Surcharge will be levied on the amount of tax as under:
• 10% where taxable income exceeds Rs. 50 Lacs but is less than Rs. 1
crore.
• 15% where taxable income exceeds Rs. 1 crore but is less than Rs. 2
crores.
• 25% where taxable income exceeds Rs. 2 crores but is less than Rs. 5
crores.
• 37% where taxable income exceeds Rs. 5 crores.
In addition to the above, Health & Education cess is levied @ 4% of tax
and surcharge.
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Tax rates for Firms & LLPs
No change is proposed in the base tax rate of 30% and surcharge of 12%
of tax where the total income exceeds Rs. 1 crore.
Including Health & Education cess of 4% the effective tax rate will be as
under:
Taxable Income Effective Tax Rate
Up to Rs. 1 crore 31.20%
Above Rs. 1 crore 34.94%
Tax rates for Domestic Companies
It is proposed that domestic companies having annual turnover upto Rs.
400 crores in financial year 2017 -2018 shall be taxable at a lower tax
rate of 25%. However, where turnover exceeds Rs. 400 crores, the tax
rate will continue to be at 30%.
Surcharge will continue to be levied on the amount of tax as under:
• 7% where taxable income exceeds Rs. 1 crore but is less than Rs. 10
crores.
• 12% where taxable income exceeds Rs. 10 crores.
Including Health & Education Cess of 4% on the amount of tax and
surcharge, the effective tax rate will be as under:
Taxable Income Turnover < Rs. Turnover > Rs.
400 crores 400 crores
Upto Rs.1 crore 26.00% 31.20%
Above Rs.1 crore and upto Rs.10 27.82% 33.38%
crores
Above Rs.10 crores 29.12% 34.94%
Tax rates for Foreign Companies
No change in the existing tax rates. Foreign companies will continue to
be taxable @ 40%.
Surcharge will continue to be levied on the amount of tax as under:
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• @ 2% for companies whose taxable income exceed Rs. 1 crore but are
less than Rs. 10 crores.
• @ 5% for companies whose taxable income exceeds Rs. 10 crores.
Including Health & Education Cess of 4% on the amount of tax and
surcharge, the effective tax rate will be as under:
Taxable Income Effective Tax Rates for
Foreign Company
Upto Rs.1 crore 41.60%
Above Rs.1 crore and upto Rs.10 crores 42.43%
Above Rs.10 crores 43.68%
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C A P IT A L G A IN S
Prescription of exemption from deeming of fair market value of
shares for certain transactions
Under the existing provisions of the Act, a person acquiring unlisted
shares for inadequate consideration is liable to pay tax based on the fair
market value of the shares in view of section 56 of the Act. On the other
hand, the person transferring such shares is liable to pay tax on capital
gains computed on the basis of fair market value of shares in view of
section 50CA of the Act. T he methodology of computation of fair market
value is provided in the Rules. In respect of certain specified
transactions, the recipient of shares is exempted from payment of tax
under section 56 of the Act. However, similar exemption is not available
for computing capital gains under section 50CA of the Act.
Besides, it is seen that the determination of fair market value based on
the prescribed rules often result ing in genuine hardship in certain cases
where the consideration for transfer of shares is approved by certain
authorities and the person transferring the share ha s no control over
such determination.
In order to provide relief, it is proposed to amend the provisions to
empower the Board to prescribe transactions undertaken by certain class
of persons to which provisions of section 56 and 50CA will not apply.
Tax on income distributed to shareholder in case of listed
companies
Under the existing provisions of the Act, anti-abuse provision pertaining
to buy-back of shares is applicable to unlisted companies whereby the
company is liable to pay tax (buy -back tax) @ 20% on the value of shares
bought-back from its shareholders. And the capital gain earned by the
shareholders is then not liable to tax.
It is proposed to extend this provision to buy -back of shares by listed
companies. Thus, any buy back of shares from a shareholder by a listed
company on or after 5 thJuly 2019, shall be taxable @ 20%. Accordingly,
the capital gains earned by the shareholders will be exempt from tax.
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Concessional rate of Short -term Capital Gains (STCG) tax to certai n
equity-oriented fund of funds
In order to incentivise fund of fun ds for disinvestment of Central Public
Sector Enterprises (CPSEs), it is proposed to extend the concessional rate
of tax @15% for short-term capital gains in respect of transfer of units of
such fund of funds.
I N C O M E F R O M O T H E R SO UR C E S
Deemed accrual of gift made to a person outside India
Under the existing provisions of the Act, gifts given by a resident to
another resident in India is taxable in the hands of the recipient unless
the parties fall within the definition of specified relatives. On the other
hand, gifts given by a resident to a non -resident, who are not related, is
invariably claimed by the non -resident as non-taxable on the ground that
it is received outside India and therefore not subject to tax in India.
It is now proposed to plug this loophole and provide that a gift given by
a resident to a non-resident shall deem to accrue or arise in India and
thus taxable in India in the hands of the non -resident unless the parties
fall within the definition of specified relatives.
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D E D UC T I O N S & O T H E R E X E M PT IO N S
Tax incentive for electric vehicles
It is proposed that an individual tax -payer shall be eligible for deduction
up to Rs. 1.5 lacs in respect of interest paid on loan taken from any
financial institution (including NBFC) f or purchase of an electric vehicle
on satisfaction of the following conditions -
• The loan has been sanctioned during the period 1 stApril, 2019 to
31stMarch, 2023.
• The individual does not own any other electric vehicle.
• The deduction of interest allowed u nder this section shall not be
allowed as a deduction under any other provisions of the Act for the
same or any other assessment year.
Tax incentive for affordable housing
In case of assessee purchasing a residential property
For promotion of government’s “Housing for all” objective, it is proposed
that deduction up to Rs. 1.5 lacs will be allowed from total income in
respect of interest paid on loan for purchase of residential house
property from any financial institution subject to the follow ing
conditions:
• The loan is sanctioned by the financial institution during the period
1stApril, 2019 to 31stMarch, 2020;
• The stamp duty value of the house property does not exceed Rs. 45
lacs;
• The assessee does not own any residential house property on the date
of sanction of the loan;
• The deduction of interest allowed under this section shall not be
allowed as a deduction under any other provisions of the Act.
In case of assessee developing o r constructing residential property
Under the existing provisions, 100% deduction is allowed on profits
derived from business of developing and building housing projects
subject to certain conditions.
It is proposed to modify the conditions regarding hous ing projects to
bring the same in line with the GST Act. The modified conditions are as
under:
• Deduction shall be allowed for housing projects if the residential unit
in the housing project has a carpet area of less than 60 square meter
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in metropolitan cities or 90 square meter in cities or towns other than
metropolitan cities and
• The stamp duty value of such residential unit in the housing pro ject
shall not exceed Rs. 45 lac s.
Incentives to subscribers of National Pension System ( ‘NPS’)
Under the existing provisions of the Act, 40% of the amount received
from the NPS Trust by a subscriber on closure of account or opting out of
the NPS scheme is exempt from tax.
In order to enable the pensioner to have more disposable funds, it is
proposed to increase the said exemption to 60%.
It is also proposed to provide more options of tax saving investments
under NPS to Central Government employees by including employee ’s
contribution to Tier-II account of their pension scheme as allowable
deduction.
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T A X D E D U C T I O N A T SO UR C E ( ‘ T D S ’ )
TDS on payment by individual/HUF to contractors and professionals
Under the existing provisions of the Act, there is no obligation on
individuals and HUFs who are not subject to tax audit to deduct TDS on
payments made by them to contractors and professionals.
It is now proposed that individuals and HUFs shall be required to deduct
TDS on payments made for contractual work and professional fees if the
aggregate of such payments exceeds Rs. 50 lacs in a financial year.
This amendment will take effect from 1 st September, 2019.
TDS at time of purchase of property
Under the existing provisions of the Act , every person is required to
deduct TDS @ 1% on consideration paid for acquisition of an immovable
property where the consideration exceeds Rs. 50 lacs.
It is now proposed that TDS @ 1% will be also required to be deducted on
all charges paid in connection with acquisition of immovable property
like club membership fee, car parking fee, fees for electricity and water
facilities, maintenance fee, advance fee or any other charges of similar
nature.
This amendment will take effect from 1 st September, 2019.
TDS on non-exempt portion of life insurance pay -out on net basis
Under the existing provisions of the Act, gross maturity amount received
under specified insurance policy is subject to TDS @ 1%.
It is now proposed to provide that the levy of TDS shall be on the
maturity proceeds excluding the amount of premium paid on such policy
i.e. on net basis, at an increased rate of 5% from earlier 1%.
This amendment shall be effective from 1 stSeptember, 2019.
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TDS on cash withdrawal to discourage cash transactions
In order to discourage cash transactions, it is proposed to levy TDS @ 2%
on cash withdrawals in excess of Rs. 1 crore made by a tax -payer during a
financial year. Such tax will be deducted by the bank or post office from
where such withdrawals are made.
Further, the Central Government is empowered to exempt category of
tax-payers through a notification in the official Gazette in consultation
with the RBI.
This amendment will take effect from 1 stSeptember, 2019.
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OTHERS
Mandatory furnishing of return of income by certain persons
Presently, every person (other than a company/firm) is required to file
return of income if the total income exceeds the exemption threshold
subject to certain exceptions.
It is now proposed that persons satisfying following conditions shall be
compulsorily required to file return of income even if their income is
below the exemption threshold:
• If the person has deposited, in aggregate, amount exceeding Rs. 1
crore in one or more bank accounts(current account);
• If the person has incurred expenditure in excess of Rs. 2 lacs on
foreign travel for himself or any other person;
• If the person has incurred expenditure in excess of Rs. 1 lac on
consumption of electricity;
• If the person fulfils conditions as may be prescribed be prescribed.
Further, a person claiming benefits of exemption from capital gains tax
on investment in specified assets like house, bonds etc. shall also be
required to file return of income if his total income exceeds th e
exemption threshold before claiming such exemption.
Inter-changeability of PAN and Aadhaar and mandatory quoting in
prescribed transactions
Presently, PAN is required to be quoted to enter into certain specified
high value transactions. However, as pe r the government, in many cases,
persons do not possess PAN.
Therefore, in order to overcome this impasse, it is proposed to provide
inter-changeability of PAN with the Aadhar number as under:
• A person not having a PAN but having Aadhar number can quote
Aadhar number in lieu of PAN.
• A person having PAN which is li nked with Aadhar, then such person
may quote such Aadhar number in lieu of PAN.
This amendment will take effect from 1 st September, 2019.
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Prescription of other electronic mode of payments
Under existing provisions of the Act, there are various prohibitions on
cash transactions and the same are allowed only through account payee
cheque, account payee draft or electronic clearing system through a bank
account.
In order to encourage other electronic modes of payment, it is proposed
that mode of payment shall also include such other electronic mode as
may be prescribed, in addition to the already existing permissible modes
of payments.
This amendment will take effect from 1 stSeptember, 2019.
Mandating acceptance of payments through prescribed ele ctronic
modes
For reduction in cash transactions and to promote cashless economy, it is
proposed that where the annual turnover or gross receipts of any person
carrying on business exceeds Rs. 50 crores, then, such person will be
required to provide a facility to its cu stomers for accepting payment
through prescribed electronic modes in addition to existing modes of
payment acceptance.
For any failure to comply with the said provisions, a penalty of Rs. 5,000
per day of default is proposed.
This amendment will take effect from 1stNovember, 2019.
Facilitating resolution of distressed companies
Under the existing provisions of the Act, in case of an unlisted company,
unabsorbed loss is not permitted to be carried forward where more than
51% of the shares are transferred. However, loss is permitted to be
carried forward where the change in shareho lding takes place pursuant
to a resolution plan approved under the Insolvency and Bankruptcy Code,
2016.
It is now proposed to extend this benefit to certain companies and their
subsidiaries and the subsidiary of such subsidiaries, where -
• The National Company Law Tribunal (NCLT) on a petition moved under
the Companies Act 2013 by the Central Government has suspended the
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Board of Directors of such company and has appointed new directors,
who are nominated by the Central Government, and
• A change in shareholding of such company, and its subsidiaries and
the subsidiary of such subsidiary, has taken place in a previous year
pursuant to a resolution plan approved by NCLT.
It is also proposed that under the provisions of Minimum Alternate Tax
(MAT) for calculating book profit, the aggregate amount of unabsorbed
depreciation and loss (excluding depreciation) brought forward shall also
be allowed to be reduced in cases of the above -mentioned companies.
Cancellation of registration of charitable i nstitutions
In order to ensure that the trust or institution do not deviate from their
objects, it is proposed to amend the provisions relating to registration of
charitable institutions as under:
• At the time of granting the registration to a trust or institution, the
Commissioner shall 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;
• Where a trust or an institution has been granted registration and
subsequently it is noticed that the trust or institution has violated
requirements of any other law which was material for the purpose of
achieving its objects, and the order, direction or decree, by whatever
name called, holding that such violation has occurred, ha s either not
been disputed or has attained finality, the Commissioner is
empowered to cancel the registration of such institution after
affording a reasonable opportunity of being heard.
This amendment will be applicable from 1 stSeptember, 2019.
Pass-through of losses in cases of Category I and II Al ternative
Investment Fund (AIF)
Section 115UB of the Act, inter alia, provides for pass through of income
earned by the Category I and II AIF, except for business income which is
taxed at AIF level. Pass through of profits (other business profits) has
been allowed to individual investors so as to give them benefit of lower
rate of tax. Pass through of losses are not provided under the existing
regime and are retained at AIF level to be carried forward a nd set off in
accordance with Chapter VI.
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In order to remove the genuine difficulty faced by Category I and II AIFs ,
it is proposed to amend section 115UB to provide that:
• The business loss of such AIF shall be allowed to be carried forward
and it shall be set-off by it in accordance with the provisions of the
Act and it shall not be passed onto the unit holder;
• The loss other than business loss shall be allowed as a pass-through in
the hands of the unit holder provided the units are held for a period
of at least twelve months;
• The loss other than business loss, if any, accumulated at the level of
investment fund as on 31stMarch, 2019, shall be deemed to be the loss
of a unit holder who held the unit on 31 stMarch, 2019 in respect of
the investments made by him in the investment fund and allowed to
be carried forward by him for the remaining period calculated from
the year in which the loss had occurred for the first time taking that
year as the first year and it shall be set -off by him in accordance with
the provisions of the Act;
• The loss so deemed in the hands of unit holders shall not be available
to the investment fund for set-off.
Rationalisation of penalty provisions relating to under -reported
income
Under the existing provisions, various situations are specified for levy of
penalty in cases of under-reporting and misreporting of income.
However, these provisions do not contain the mechanism for determining
under-reporting of income and quantum of penalty in ca ses of returns
filed for the first time in pursuance to re -opening of assessment.
It is now proposed to amend relevant provision in order to provide for
the 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 of the Act.
This amendment will take effect retrospectively and will apply with
effect from assessment year 2017 -2018.
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CHAPTER II
PROPOSED A MENDMENTS TO INDIRECT TA XES
GOODS AND SERVICES TAX (`GST`)
Following initiatives are proposed under the GST Act:
• Aadhar authentication will be made mandatory for new tax-payer
applying for registration.
• Transfer of balances in electronic cash ledger from one head to
another head.
• Implement fully-automated GST refund module which will be solely
managed by the Central Government.
• Taxpayer having annual turnover of less than Rs. 5 crores will be
allowed to file quarterly returns.
• An electronic invoice system is proposed that will event ually eliminate
the need of a separate e -way bill.
• Creation of National Appellate Authority for advance rulings.
CUSTOM & EXCISE DUTIES
• Custom duty on precious metal such as silver, gold, platinum is
increased.
• Custom duty on CCTV Cameras and IP Cameras is increased from 15%
to 20%.
• Custom duty on various automobile parts is increased .
• Custom duty on printed books now levied at 5% .
• Custom duty on paper used for printing of newspaper and magazines
now levied at 10%.
• Custom duty on woollen tops and wool fibre reduced from 5% to 2.5% .
• Customs duty being exempted on some parts of e -vehicles.
• Scope of prosecution under Customs enlarged, empowering the officer
to arrest a person committing offence outside India or in Indian
customs water.
• General penalty for any contravention of customs provisions increased
from Rs. 1 lacs to Rs. 4 lacs.
• To levy special additional excise duty and raise road, infra cess on
petrol and diesel by Rs. 2 per litre.
• Excise duty to be levied on var ious tobacco products.
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Sabka Vishwas Legacy Dispute Resolution Scheme
• A dispute resolution cum amnesty scheme has been introduce for
resolution and settlement of legacy cases of central excise, services
tax and certain other central duties and taxes.
• The propose scheme intends to provide the following: -
o Relief from 40% to 70% of tax dues and waiver of interest and
penalty.
o No prosecution for the person discharge under the scheme.
• Central Government will notify rules for the resolution scheme.
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CHAPTER III
IMPORTANT BUDGET HIGHLIGHTS
Financial Markets
• SEBI to consider increasing minimum public shareholding in listed
companies from the current threshold of 25% to 35%.
• Social stock exchange to be set -up for listing social enterprises and
voluntary organizations.
• Investments made by FPIs to be allowed in listed debt securities
issued by ReIT’s and InvIT’s.
• NRI Portfolio Investment Scheme to be merged with the Foreign
Portfolio Investment Route to boost investment in Indian equities.
• Exemption in respect of consideration paid to venture capital
undertaking for issue of shares in excess of face value of shares,
currently available inter-alia to Category I AIF and to be extended to
Category II AIF.
• Statutory limit for foreign portfolio investment in a company to be
increased from 24% to sectoral foreign investment limit (with an
option given to the concerned corporate to limit it to a lower
threshold).
New Initiative
• A scheme of faceless electronic assessment involvin g no human
interface to be launched this year.
• Deposit taking and systemically important non -deposit taking NBFCs
can now pay tax in the year they receive interest for certain bad or
doubtful debts.
• Model Tenancy law to be finalized and circulated to the s tate for the
adoption.
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Budget Estimates
• GDP for FY 2019-20 is estimated at Rs. 211 trillion (US$ 3.1 trillion)
• Total Expenditure is projected at Rs. 27.86 trillion, out of which:
o Revenue expenditure: Rs. 24.47 trillion.
o Capital expenditure: Rs. 3.39 trillion.
• Total Receipts is projected at Rs. 20.8 3 trillion, out of which :
o Tax receipts: Rs. 16.49 trillion.
o Non-tax revenue receipts: Rs. 3.13 trillion.
o Capital receipts: Rs. 1.21 trillion
• Fiscal Deficit is projected at Rs. 7.03 trillion i.e. 3.3% of the GDP.
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GANDHI & ASSOCIATES LLP
Chartered Accountants
208, Hari Chambers, 2nd Floor,
58/64 Shahid Bhagat Singh Road,
Fort, Mumbai – 400001.
Phone No. 022–49764832
