RECENT AMENDMENTS IN INCOME TAX ACT 1961 CA

RECENT AMENDMENTS IN INCOME TAX ACT, 1961 CA NIKHILESH KATARIA

Important Amendments Coming in Effect from Sept. 1, 2019 TDS on additional payments made when purchasing immovable property • From September 1, while buying a property, payment made for other services or amenities such as club membership fee, car parking fee, electricity, water facility fee, maintenance fee, advance fee or any other charges of similar nature are to be included when computing the amount paid for the property for the purpose of deducting TDS u/s 194 IA. TDS on cash withdrawals from bank account � Cash withdrawals exceeding Rs 1 crore on aggregate basis during the year from an account held with a bank, cooperative bank or post office will invite levy of TDS from September 1. � A new section 194 N has been inserted to provide that TDS will be levied at the rate of two per cent on cash withdrawals made from the account. However for calculating of withdrawals, those already made before sept. 1, are also to be considered

Important Amendments Coming in Effect from Sept. 1, 2019 � TDS on payments made by individuals and HUFs to contractors and professionals � From September 1, individuals and HUFs making a payment to contractors and professionals exceeding Rs. 50 lakh in aggregate per annum will also be required to deduct TDS at the rate of 5 per cent. �A new section 194 M has been inserted in the Income Tax Act for this purpose. However, individuals and HUFs, deducting the tax will not be required to obtain TAN (tax deduction account number). The new law will be applicable to all the payments made by the individual whether for personal use or for business purposes (in case their accounts are not required to be audited. )

Important Amendments Coming in Effect from Sept. 1, 2019 � TDS on non-exempt portion of life insurance (194 DA) � If life insurance maturity proceeds received by you are taxable in your hands, then TDS will be deducted at the rate of 5% per cent on the net income portion. The net income portion is defined as the total sum received less of total amount of insurance premium paid. Presently its 1% of the total amount � Currently, proceeds received at the maturity of a life insurance policy are exempted from tax if the annual premium paid does not exceed 10 per cent (20 per cent in case of insurance policies sold prior to April 2012) of the sum assured.

Important Amendments Coming in Effect from Sept. 1, 2019 �Banks and FIs can be asked to report even small transactions �Till now banks and other financial institutions are required to report specified financial transactions through a Statement of Financial Transactions (SFT) if the amount exceeded the threshold limit. In most of the reportable transactions, the limit has been Rs. 50, 000 or more. �However, the scope of reporting requirement is widened by removing the minimum floor of Rs. 50, 000, above which financial transactions are required to be reported.

Important Amendments Coming in Effect from Sept. 1, 2019 If PAN is not linked with Aadhaar � As per rules existing prior to changes announced in July Budget 2019, PAN would have become invalid if not linked with Aadhaar by a specified deadline. Effectively meaning as if the person never had a PAN. � However, to protect the validity of previous transactions done using the PAN, Budget 2019 changed the rules such that PAN will now become inoperative but not invalid if not linked with Aadhaar by the specified deadline. However, the government is yet to clarify the rules regarding what will happen if the PAN becomes inoperative if not linked with Aadhaar. � Inter-changeability of PAN and Aadhaar and mandatory quoting in prescribed transactions � Another important announcement in Budget 2019 was interchangeability of PAN and Aadhaar but only for certain prescribed transactions. �

TDS on Withdrawals Notification No. 70/2019 -Income Tax Dated 20 th September, 2019 � Exemption from TDS on cash withdrawal under section 194 N (at the rate of 2%) for making payment to farmers – Central Government specifies the commission agent or trader, operating under Agriculture Produce Market Committee (APMC). Shall be deemed to have come into force with effect from the 1 st day of September, 2019. � Clarification on applicability of TDS on cash withdrawals | Section 194 N Dated 30/08/2019 � Cash withdrawals before 1 st September during FY 19 -20, shall be considered counted for the limit of Rs. 1 crore, but would not be subject to TDS @2% � Notification No. 68/2019 dated 18 th September � Non applicability of provisions of Section 194 N in relation to Cash Replenishment Agencies (CRA’s) and franchise agents of White Label Automated Teller Machine Operators (WLATMO’s) maintaining a separate bank account from which withdrawal is made only for the purposes of replenishing cash in ATM’s �

Additional Depreciation, Tolerance Range and Cost Inflation � Notification. Index No. 69/2019 -Income Tax dated 20 September 2019 � CBDT notifies Additional depreciation on motor Car and Motor vehicles i. e. 15% to 30% and 30% to 45% (used for hiring) respectively, subject to other conditions � Notification No. 64/2019, 13 th September 2019 � CBDT notifies tolerance range for wholesale trading & for other cases for AY 19 -20 w. r. t. the calculation of arm length price related to International transaction determined as per section 92 C i. e. 1% in case of wholesale trading and 3% in other cases � Notification No. 63/2019, 12 th September, 2019 � CBDT notifies Cost Inflation Index for Financial Year 2019 -20 at 289 (for the purpose of indexation of cost of acquisition and cost of improvement – Capital Gains). For financial year 2018 -19, it stood at 280.

E-Assessment Scheme � Notification No. 62/2019, 12 th September 2019 � CBDT notifies Income Tax E-assessment Scheme, 2019 with effect from 12 th September, 2019 (Notification No. 61/2019 - 12 th September 2019). Further, CBDT notifies directions such as procedure of assessment and related procedures, for giving effect to Income Tax E-assessment Scheme, 2019 � Notification No. 72/2019 dated 23 rd September 19 � CBDT notified the Income-tax Authorities which shall exercise and perform, concurrently, the powers and functions of Assessing Officer, to facilitate the conduct of E-assessment proceeding in a centralised manner in respect of returns furnished under Section 139 or in response to notice under Section 142 (1) during any financial year commencing on or after 1 st day of April, 2018

Clarification on ITR Form & Extension of Due Date � � � CBDT has issued Circular No. 18/2019 dated 8. 8. 2019 to clarify certain issues relating to ITRs of AY 2019 such as non-allotment of TIN (Taxpayer identification number) in case of NRI, Pan related issues in case of director in foreign company etc (lar No. 18/2019 dated 8. 8. 2019). Consequently, further circular no. 21 of 2019 dated 27 th August 2019 has been released, issuing clarifications in respect of ITR forms for the Assessment Year 2019 -20 Circular No. 26 of 2019, 26 September 2019 CBDT clarifies on certain issues relating to filing of Forms ITR-5, ITR-6 and ITR-7 which includes furnishing of details of shareholding in Schedule SH-1 / SH-2, details of assets and liabilities in Schedule AL-1 / AL-2. It also provide solutions to queries of Partnership firms and Trusts. Order NO. F. No. 225/157/2019/ITA. II dated 27/09/2019 CBDT has extended the due date for filing of ITRs & Tax Audit Reports from 30 th Sep, 2019 to 31 st of Oct, 2019 in respect of persons whose accounts are required to be audited.

Prosecution Cases and DIN Circular No. 25/2019 dated 09. 2019 � CBDT as a one-time measure provides relaxation of time filling of compounding application, with a view to mitigate unintended hardship to taxpayers in deserving cases, and to reduce the pendency of existing prosecution cases before the courts � Circular No. 24/2019, 09. 2019 � CBDT lays down the procedure to identify & process Income Tax cases for prosecution in respect of certain Income Tax related offences such as Failure to pay tax to the credit of Central Government, Failure to pay the tax collected at Source, Wilful attempt to evade tax, etc. � ITBA – Common Functions Module/Instruction No. 3 dated 17/09/2019 � Roll out of facility for System generated Document (i. e. Intimation Letter) containing Document Identification Number (DIN) for documents issued outside the system but uploaded manually in Income Tax Business Application (ITBA) �

Approval for Certificate and National Centres Instructions F. No. 275/16/2019 -IT(B) dated 2 nd September 2019 � Approval of CIT (Intl. Taxation) not required for certificates u/s 197 / 195 if revenue effect is less than Rs. 10 crores in case of non resident assessee (present limit is Rs. 50 lacs and Rs. 10 lacs for metro and non metro cities) � Order no. F. No. 187/7/2019 -ITA-I dated 20 th September 2019 � Central Board of Direct Taxes sets up National e-Assessment Centre (Ne. AC), which shall have its headquarters at Delhi and shall comprise of Income-tax authorities as per below office order � Office Order No. 205 and 206 of 2019 dated 17. 09. 2019 � Transfer/ posting in posts in the various grades of Indian Revenue Service to the newly created National e-Assessment Centre (Ne. AC), Delhi and its Regional Centres (Re. ACs) �

Revised Monetary Limits for Filing Cases � Notification no. F. No. 279/Misc/M-93/2018 -ITJ dated 20. 08. 2019 � CBDT increases income tax appeal limit before Tribunal, High court and Supreme Court to 50 lacs, 1 crore and 2 crores respectively (Circular no. 17/2019 dated 8 th August 2019). Further, revised monetary limits is applicable to all pending SLPs/ Appeals � Circular No. 23 of 2019, 06 th September 2019 � Appeal filing limit not applies to cases of Bogus LTCG / STCG-Exception to monetary limits for filing appeals specified in any Circular issued under Section 268 A. Similar instructions has been issued vide instructions no. F. No. 279/Misc. /M-93/2018 -ITJ(Pt. ) dated 16 th September 2019.

Processing of Pending Returns � Order � CBDT u/s 119 dated 5 th August 2019 has directed that, all validly filed returns up to Assessment Year 2017 -18 with refund claims, which could not be processed under sub-section (1) of section 143 of the Act due to certain technical issues or for other reasons not attributable to the assessees concerned and have become time-barred, can be processed with prior approval of Pr. CCIT/CCIT by 31 -12 -2019. This relaxation is not applicable in case where ITR is selected for scrutiny or there is demand payable or likely to arise after processing it.

FM’s Press Conference Finance Minister press conference dated 23 rd August 2019 � CBDT constitutes a cell for redressal of grievances related to Startups � In order to encourage investment in the capital market, enhanced surcharge levied on long/short term capital gains arising from transfer of equity shares/units u/s 111 A & 112 A has been withdrawn (It is applicable @25% from 2 crore to 5 crore and @37% above 5 crores) � All tax notices will be issued from a centralised system. All old tax notices will be taken up by October 1 or will be uploaded again through a centralised system. � Startups registered with commerce ministry get relief as angel tax provisions i. e. Section 56 (2)(viib) of the Income Tax Act shall not apply to startups registered with the commerce ministry. � Additional 15 per cent depreciation on vehicles acquired from 23 rd August 2019 till March 2020, taking the total to 30 %. � All I-T notices will be cleared within three months of response �

FM’s Press Conference Scope of Corporate Social Responsibility (CSR) has been expanded to include spending on: � a) Incubators funded by Central/State Government/ any agency or Public Sector Undertaking of Central or State Government and making contributions to public funded universities, IITs, National Laboratories and Autonomous Bodies (established under the auspices of ICAR, ICMR, CSIR, DAE, DRDO, DST, Ministry of Electronics and Information Technology) engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs). � Enhanced surcharge introduced in Budget of July 2019 will not apply on capital gains arising on sale of equity shares in a company or a unit of an equity oriented fund liable for securities transaction tax � Enhanced surcharge will not apply on capital gain arising from sale of security / derivative in the hands of Foreign Portfolio investors (FPI) �

Start-up Issues Clarification dated 22. 08. 2019 � CBDT has clarified that small start-ups with turnover up to Rs. 25 crore will continue to get the promised tax holiday as specified in Section 80 -IAC of the Income Tax Act, 1961, which provides deduction for 100 per cent of income of an eligible start-up for 3 years out of 7 years from the year of its incorporation- Seeking to dispel confusion over the eligible turnover limit, the CBDT said there was no contradiction in DPIIT’s February 19 notification (mentioning turnover of Rs. 100 crore) and the income tax provisions, as the notification clearly mentioned that a start-up shall be eligible to apply for the certificate from the Inter-Ministerial Board of Certification for claiming deduction only if they fulfil the conditions specified in Section 80 -IAC. � Instruction no. F. No. 173/149/2019 -ITA-I dated 23. 09. 2019 � CBDT prescribes the time frame for handling of grievances of startups �

Relief on Buy Back Tax for Certain Companies � Buy-back tax: � The Budget 2019 announcement of expanding the scope of buy-back tax (@ 20%) to include buybacks by listed companies has been grandfathered to the extent of shares of such listed companies which have already made a public announcement of buyback before July 5, 2019. Such shares would not be subjected to the buy back tax. � Impact: � This is a welcome clarification and will bring relief for the industry and specifically to companies that had announced buy-back without factoring the buy-back tax

Reduction in Corporate Tax Rate � Reduction in corporate tax rates for domestic companies: � a) Introduction of Section 115 BAA* – Tax rates for all domestic companies have been reduced to 22% (effective rate 25. 17%, including surcharge of 10% and cess of 4%), subject to condition that no tax holidays/ incentives/ exemption** are availed. In addition, such companies would not be required to pay Minimum Alternative Tax (MAT). � b) Introduction of section 115 BAB – Domestic manufacturing companies (including Indian companies with foreign direct investment) shall be required to pay corporate tax @ 15%, (effective rate 17. 16% including surcharge and cess). Further, such companies shall not be required to pay MAT. This is subject to the following conditions: ◦ i. incorporated on or after 1 st October 2019 ◦ ii. no tax exemption/ incentive** is availed and ◦ Iii. company commences production before 31 st March,

Reduction in Corporate Tax Rate � Impact: � The proposed reduction of tax rate to 25. 17% (as against the peak 34. 944%) an effective tax rate reduction of almost 10%. This is a significant benefit for the large industries which are above INR 400 crore threshold for applicability of 25% corporate tax rate. � Further, for companies that were entitled to the earlier reduced basic corporate tax rate of 25% (effective tax rate of 29. 12%), the reduction is 3. 95%.

Conditions for Availing of Benefit of Reduced Corporate Rate Conditions specified under eligibility criteria of section 115 BAA � All domestic companies shall have an option to pay income tax at the rate of 22% (plus applicable surcharge and cess), provided the following conditions are complied with: � Such companies should not avail any exemptions/incentives under different provisions of income tax. Therefore, the total income of such company shall be computed without: � ◦ Claiming any deduction especially available for units established in special economic zones under section 10 AA ◦ Claiming additional depreciation under section 32 and investment allowance under section 32 AD towards new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal ◦ Claiming deduction under section 33 AB for tea, coffee and rubber manufacturing companies ◦ Claiming deduction towards deposits made towards site restoration fund under section 33 ABA by companies engaged in extraction or production of petroleum or natural gas or both in India

Conditions for Availing of Benefit of Reduced Corporate Rate ◦ Claiming a deduction for expenditure made for scientific research under section 35 ◦ Claiming a deduction for the capital expenditure incurred by any specified business under section 35 AD ◦ Claiming a deduction for the expenditure incurred on an agriculture extension project under section 35 CCC or on skill development project under section 35 CCD ◦ Claiming deduction under chapter VI-A in respect to certain incomes, which are allowed under section 80 IA, 80 IAB, 80 IAC, 80 IB and so on, except deduction under section 80 JJAA ◦ Claiming a set-off of any loss carried forward from earlier years, if such losses were incurred in respect of the aforementioned deductions ◦ Claiming a deduction for depreciation under section 32, except the additional depreciation as mentioned above � Such companies will have to exercise this option to be taxed under the section 115 BAA on or before the due date of filing income tax returns i. e usually 30 th September of the assessment year.

Impact on Taxation of Company Such companies will not be required to pay minimum alternate tax � � � (MAT) under section 115 JB of the act. Companies not opting for concessional tax regime and availing tax exemption/incentive** shall continue to pay tax at pre-amended rate. In order to provide relief to such companies, rate of MAT has been reduced from existing 18. 5% to 15% (i. e, effective MAT reduction of 4. 076% after considering surcharge and cess The domestic companies opting for section 115 BAA will not be able to claim MAT credits for taxes paid under MAT during the tax holiday period. The companies would not be able to reduce their tax liabilities under section 115 BAA by claiming MAT credits. Moreover, the domestic company opting for section 115 BAA shall not be allowed to claim set-off of any brought forward depreciation (additional depreciation) for the assessment year in which the option has been exercised and future assessment years. There is no timeline for the domestic companies to choose a lower tax rate under section 115 BAA. So such companies can avail the benefit of section 115 BAA after claiming the brought forward loss on account of additional depreciation and also utilising the MAT credit against the regular tax payable if any.

Impact on Taxation of Company Can a company opt out of this section? � � � The domestic companies who do not wish to avail this concessional rate immediately can opt for the same after the expiry of their tax holiday period or exemptions/incentives However, once such a company opts for the concessional tax rate under section 115 BAA of the Income Tax Act, 1961, it cannot be subsequently withdrawn. While the press release is silent on extension of sunset clause for Special Economic Zones under section 10 AA of the Income Tax Act, 1961, companies claiming tax holidays, whose Effective Tax Rate (“ETR”) (after claiming tax holidays) is higher than the peak 25. 17% can now choose to give up the tax holiday claims and claim the new tax rate of 25. 17%. Companies having ETR of less than 25. 17% (after claiming tax holidays) can continue to pay at the effective lesser ETR. Companies continuing to claim tax holidays and not opting for the switch will have to pay at reduced rate of 17. 47% (as against the earlier 21. 55%). This will also help in reducing the cash tax outflow on account of MAT.

COMPARATIVE TAX IMPACT STUDY Particulars Sec. 115 BAA Sec. 115 BAB Others Company Type Domestic Co. engaged in production All Domestic Companies Domestic Co. engaged in production Domestic Co. Date of Start Registered and set up post 1 -3 -2016 No specific requirement Registered and set up post 1 -10 -2019 and before 31 -3 -23 - Allowance for deduction/ loss No No No Yes Corporate Tax Rate 25% 22% 15% 25%/30% (up to turnover of 400 crore @25%) Surcharge 7%/12% (total income exceeds 1 crore/10 crore) 10% 7%/12% (total income exceeds 1 crore/10 crore) Cess 4% 4% MAT Rate 15% N. A. 15% Restructured Entities Allowed No No Yes - Effective Tax Rate 29. 12% 25. 17% 17. 16% 34. 94% MAT Rate 21. 55% 17. 47% 21. 55%

COMPARATIVE STRUCTURE STUDY Particulars Company (15%) Company (22%) LLP Individual (MMR) Tax Rate 15% 22% 30% Surcharge 10% 12% 37% Cess 4% 4% Effective Rate 17. 16% 25. 17% 34. 94% 42. 74% Dividend Distribution Tax (DDT) 17. 16% n. a. Tax on dividend/ profit (in hands of individual) 14. 25% Exempt N. a. Business Earns INR 100 CR before tax 100 100 Tax 17. 16 25. 17 34. 94 42. 74 Profit after tax 82. 84 74. 83 65. 06 57. 26 DDT 14. 22 12. 84 n. a. Income for shareholder 68. 62 61. 99 65. 06 57. 26 Tax in hands of individual 9. 78 8. 83 Exempt n. a. Cash Balance for individual 58. 85 53. 16 65. 06 57. 26 Effective Tax Rate 41. 15% 46. 84% 34. 94% 42. 74%

PROVISIONS OF SECTION 194 IA � � � � Payment on transfer of certain immovable property other than agricultural land. 194 -IA. (1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194 LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax thereon. (2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees. (3) The provisions of section 203 A shall not apply to a person required to deduct tax in accordance with the provisions of this section. Explanation. —For the purposes of this section, — (a) "agricultural land" means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2; 46[(aa) "consideration for transfer of any immovable property" shall 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; ] (b) "immovable property" means any land (other than agricultural land) or any building or part of a building.

PROVISIONS OF SECTION 194 M � � � � � [Payment of certain sums by certain individuals or Hindu undivided family. 194 M. (1) Any person, being an individual or a Hindu undivided family (other than those who are required to deduct income-tax as per the provisions of section 194 C, section 194 H or section 194 J) responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract, by way of commission (not being insurance commission referred to in section 194 D) or brokerage or by way of fees for professional services during the financial year, shall, at the time of credit of such sum or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as income-tax thereon: 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. (2) The provisions of section 203 A shall not apply to a person required to deduct tax in accordance with the provisions of this section. Explanation. —For the purposes of this section, — (a) "contract" shall have the meaning assigned to it in clause (iii) of the Explanation to section 194 C; (b) "commission or brokerage" shall have the meaning assigned to it in clause ( i) of the Explanation to section 194 H; (c) "professional services" shall have the meaning assigned to it in clause (a) of the Explanation to section 194 J; (d) "work" shall have the meaning assigned to it in clause (iv) of the Explanation to section 194 C.

THANKS CA NIKHILESH KATARIA