THE FINANCE (No. 2) ACT, 2019

THE FINANCE ACT, 2019

Mr. Piyush Goyal, the eminent chartered accountant, in his capacity as
Finance Minister presented a very bold Interim Budget of the Narendra Modi
government on 1^st February, 2019. He tried to give benefits to
farmers, the poor, the unorganised sector, salaried employees and the
middle-class families. The Interim Budget was unique as it gave relief to
certain deserving persons in respect of the income tax payable by them in the
financial year beginning from 1^st April, 2019. No Finance Minister
in the past has given any concession in the direct tax provisions in an Interim
Budget. With this Interim Budget, the Finance Act, 2019 was passed in February,
2019 and received the assent of the President on 21^st February,
2019.

BENEFITS TO SALARIED EMPLOYEES AND MIDDLE
CLASS FAMILIES

While delivering
the Interim Budget, the Finance Minister stated that as per convention the main
tax proposals would be presented in the regular budget. However, he pointed out
that small taxpayers, especially the middle class, salary earners, pensioners
and senior citizens, need certainty in their minds at the beginning of the year
about their taxes. He said that while the existing rates of income tax would
continue for the financial year 2019-20, the following amendments have been
made by the Finance Act, 2019 for giving benefits to salaried employees and
middle-class families; these benefits will be available in the computation of
income and in the taxes payable on income for the financial year commencing on
1^st April, 2019.

Salary income: In the last Budget the provision for allowing
standard deduction of Rs. 40,000 was made in place of the earlier provision for
allowance for reimbursement of medical expenses and transport allowance. This
standard deduction is now increased to Rs. 50,000 w.e.f. 1^st April,
2019. This will benefit all salaried employees and pensioners.

House
property income: At present an individual is
entitled to claim exemption in respect of one self-occupied house property. But
from 1^st April, 2019 he will be entitled to claim exemption in
respect of two residential houses. Therefore, if an individual owns two or more
houses, which are not let out, he can claim exemption in respect of two
residential houses of his choice. In respect of houses in excess of two which
are not let out, he will have to pay tax on the basis of notional income.

Properties
held as stock-in-trade: In the case of
assessees holding house properties as stock-in-trade, i.e., builders,
developers and persons dealing in real estate, the Finance Act, 2017 had
provided that such assessees would have to pay tax on the basis of notional
income of the house property which is not let out after one year from the date
of completion of construction. By an amendment of section 23(5) of the Income
tax Act, it is now provided that no tax will be payable in respect of the house
properties which are not let out for the first two years after the date
of completion of the construction.

Interest on
housing loans: Section 24 of the Income-tax Act
at present provides for deduction of interest (subject to a maximum of Rs. 2
lakhs) paid in respect of one house which is claimed to be self-occupied. This
provision is now amended to provide that this limit of Rs. 2 lakhs shall apply
in respect of two houses which are claimed to be for self-use and not
let out. Considering the present level of prices of real estate, when the
benefit of exemption to self-occupied houses is extended to two houses, the
above limit of Rs. 2 lakhs for deduction of housing loans for two such houses
should have been enhanced to
Rs. 5 lakhs.

Exemption of
capital gains: Section 54 of the Act provides
for exemption in respect of long-term capital gains on sale of any residential
house by an individual or HUF. This exemption is available if the assessee
sells any residential house and reinvests the capital gain in the purchase of
another residential house within two years of sale, or constructs such residential
house within three years of the sale. This section is now amended, effective
from the financial year 2019-20, to provide that if the long-term capital gain
does not exceed Rs. 2 crores the individual or HUF can purchase or construct two
houses within the prescribed time limit to claim the exemption from tax. It is
also provided that if this benefit is claimed by the individual or HUF in any
assessment year, he cannot claim a similar benefit in any other year later on.
However, if the individual or HUF subsequently sells the residential house, the
benefit u/s 54 will be available if the capital gain is invested in the
purchase or construction of one residential house during the specified period.

Benefit for
affordable housing projects: At present section
80IBA provides for exemption in respect of income of the assessee who is
developing and building affordable houses. This is available if such a housing
project is approved between 1^st June, 2016 and 31^st
March, 2019. To encourage this activity, it is now provided that the benefit of
this exemption u/s 80IBA can be claimed if such a housing project is approved
between 1^st June, 2016 and 31^st March, 2020.

Rebate in
computing income tax: Section 87A of the
Income-tax Act provides that if the total income of a resident individual does
not exceed Rs. 3,50,000 he shall be entitled to a deduction from tax on his
total income of Rs. 2,500, or the actual tax payable on such income, whichever
is less. This section is now amended to provide that if the total income of an
individual does not exceed Rs. 5 lakhs, he shall be entitled to rebate of Rs.
12,500, or the actual tax payable on such income, whichever is less. This
amendment is effective from the financial year 2019-20. It may be noted that
the above benefit of tax rebate is available u/s 87A only to
individuals. An HUF or AOP will not get this benefit.

Tax deduction
at source: Tax is deducted at source (TDS) at
10% if the interest receivable on bank / post office deposits exceeds Rs.
10,000 in a financial year. By an amendment of section 194A of the Act, the
threshold limit for TDS on such interest is increased from Rs. 10,000 to Rs.
40,000, effective from 1^st April, 2019. This will benefit small
depositors and the non-working spouse who will not suffer TDS in respect of
interest from bank / post office deposits if such interest is less than Rs.
40,000.

Similarly, u/s
194-I, tax is required to be deducted from rent paid by the tenant to the
specified assessee at the rate of 10% if the total rent for a financial year is
more than Rs. 1,80,000. This threshold limit has been increased to Rs. 2,40,000 from 1^st April, 2019. Thus, no tax will deductible if
the yearly rent is less than Rs. 2,40,000 from 1^st April, 2019.

THE FINANCE (No. 2) ACT, 2019

After the recent
General Elections, Ms Nirmala Sitharaman took charge as the first lady Finance
Minister of the country and presented her Budget to Parliament on 5^th
July, 2019. The Finance (No. 2) Bill, 2019 was presented with the Budget and
was passed in July, 2019. The Finance (No. 2) Act, 2019 received the assent of
the President on 1^st August, 2019. Some of the important provisions
of this Act are discussed in this article. After the above Act was passed, the
President promulgated ‘The Taxation Laws (Amendment) Ordinance, 2019’ on 20^th
September, 2019 to further amend the Income-tax Act and the Finance (No. 2)
Act, 2019. Some of the important provisions of this Act and the Ordinance are
discussed in this article.

Rates of
taxes

The slab rates of
taxes for A.Y. 2020-21 (F.Y. 2019-20) for an individual, HUF, AOP, etc., are
the same as in A.Y. 2019-20. Similarly, the rates of taxes for firms,
co-operative societies and local authority for A.Y. 2020-21 are the same as in A.Y.
2019-20. However, in the case of a domestic company the rate of tax will be 25%
if the total turnover or gross receipts of the company in F.Y. 2017-18 was less
than Rs. 400 crores. In A.Y. 2019-20 the limit for total turnover or gross
receipts for this rate was Rs. 250 crores for F.Y. 2016-17. Thus, about 99% of
domestic companies will now pay tax at the rate of 25%. Other larger companies
will pay tax at the rate of 30%.

The existing rates of surcharge on income tax will continue to be levied
on companies, firms, co-operative societies and local authorities. However, the
rates of surcharge (S.C.) in cases of individuals, AOPs, HUFs, BOIs, trusts,
etc. (residents and non-residents) have been revised as under:

Thus, the
super-rich individuals, HUFs, AOPs, BOIs, Trusts, etc., will now pay more tax
if their income exceeds Rs. 2 crores. While proposing to levy this additional
surcharge on super-rich individuals and others, the Finance Minister stated in
para 127 of her Budget speech:

‘In view of
rising income levels, those in the highest income brackets need to contribute
more to the nation’s development. I, therefore, propose to enhance surcharge on
individuals having taxable income of Rs. 2 crores to Rs. 5 crores and Rs. 5
crores and above so that the effective tax rates for these two categories will
increase by around 3% and 7%, respectively.’

The impact of the above enhanced super surcharge was felt by many of the
Foreign Institutional Investors (FPI) who are assessed in the status of AOPs.
There was large-scale protest by them. In order to alleviate the tax burden in
such cases and for others who pay tax at special rates u/s 111A and 112A, the
Central government issued a press note on 24^th August, 2019 announcing
that this additional super surcharge will not be payable in the following
cases… in order to give effect to this announcement, the ordinance dated 20^th
September, 2019 has made the required amendments in the First Schedule to
the Finance (No. 2) Act, 2019:

(i)    Capital gains on transfer of equity shares
in a company, redemption of units of an equity-oriented M.F. and units of a
business trust as referred to in section 111A and 112A.;

(ii)    Capital gains tax payable on derivatives
(futures and options) in the case of Foreign Institutional Investors (FPI)
which are taxable at special rates u/s 115AD;

(iii)   In the case of foreign companies there is no
change in the rates of taxes and surcharge. In the cases to which sections
92CE(2A), 115O, 115QA, 115R, 115TA or 115TD apply, the rate of S.C. will
continue to be 12%.

(iv)   The rate of health and education cess at 4%
of total tax will continue as at present.

Corporate
taxation

The ordinance dated
20^th September, 2019 has amended certain provisions of the Income-tax
Act effective from A.Y. 2020-21 (F.Y. 2019-20). It is clarified in the press
note dated 20^th September, 2019 that these amendments are made in
order to promote growth and investment. These amendments are as under:

Section 115BA This section provides for tax on income of
certain domestic companies. The taxation at the rate of 25% is at the option of
the company – if specified tax incentives are not claimed. Now, section 115BAB
has been inserted from A.Y. 2020-21 giving similar tax concession to certain
manufacturing companies. Therefore, it is now provided that where the company
exercises the option u/s 115BAB, the option exercised u/s 115BA will be
withdrawn.

Section
115BAA This is a new section inserted effective
from A.Y. 2020-21 (F.Y. 2019-20). It provides that the tax payable by a
domestic company, at its option, shall be 22% plus applicable surcharge and
cess if such company satisfies the following conditions:

(a)   The Company does not claim any deduction u/s
10AA, 32(1)(iia), 32AD, 33AB, 33ABA, 35(1)(ii), (iia),(iii), 35(2AA), 35(2AB),
35AD, 35CCC, 35CCD or any of the provisions of chapter VIA under the heading ‘C
– deductions in respect of certain incomes’ excluding section 80JJAA;

(b)   The company does not claim deduction for
set-off of any carried forward loss which is attributable to deductions under
the above sections;

(c)   The company will be able to claim
depreciation u/s 32, excluding 32(1)(iia), which is determined in the
prescribed manner;

(d)   The company has to exercise the option for
the lower rate of 22% in the prescribed manner before the due date for filing
return of income u/s 139(1) relevant to A.Y. 2020-21. The option once exercised
will be valid for subsequent years. Further, the company cannot withdraw the
option once exercised in any subsequent year.

It may be noted
that section 115JB is also amended, effective A.Y. 2020-21, to provide that
section 115JB will not apply to a company which exercised the option under the
new section 115BAA.

The companies which
are engaged in trading activities, letting out of properties, rendering
services and other similar activities may find this concession in rate of tax
attractive if they are not claiming deductions under the sections stated in (a)
above.

Section
115BAB This is also a new section inserted from
A.Y. 2020-21 (F.Y. 2019-20). It provides that the tax payable by a
manufacturing domestic company, at the option of such company, shall be at the
rate of 15% plus applicable surcharge and cess if the company satisfies the
following conditions:

(i) The company
should be set up and registered on or after 1^st October, 2019 and
should commence manufacturing on or before 31^st March, 2023 and

– is not formed by
splitting up, or reconstruction, of a business already in existence. However,
this condition will not apply to reconstruction or revival of a company u/s
33B;

– it does not use
any machinery or plant previously used for any purpose.

However, this
condition will not apply to machinery or plant previously used outside India if
the conditions stated in Explanation – 1 in the section are satisfied. Further,
by Explanation 2, concession is given if the value of the old plant and
machinery used by the company does not exceed 20% of the total value of the
plant and machinery;

– The company
should not use any building previously used as a hotel or convention centre;

(ii)    The company should not be engaged in any
business other than the business of manufacture or production of any article or
thing. Further, the company has to ensure that the transactions of purchase,
sales, etc., are entered into at arm’s length prices;

(iii)   The total income of the company should be
computed without any deduction u/s 10AA, 32(1)(iia), 32AD, 33AB, 33ABA,
35(1)(2AA)(2AB)(iia)/(iii), 35AD, 35CCC, 35CCD, or under any provisions of
chapter VI A other than the provisions of section 80JJA;

(iv)   The option u/s 115BAB for concessional rate
is to be exercised in the first return to be submitted after 1^st
April, 2020 before the due date u/s 139(1). This option once exercised cannot
be withdrawn.

It may be noted
that the provisions of section 115JB will not apply to a company which
exercises the option under this new section 115BAB. This new section will
encourage investment in new companies engaged in manufacture of goods and
articles in India.

TAX DEDUCTION AT SOURCE

The existing
provisions for TDS will continue. However, there are some modifications in
sections 194-A and 194-I made by the Finance Act, 2019 as discussed earlier.
Further, the following modifications and additions are made by the Finance (No.
2) Act, 2019:

Section 194
I-A It provides for TDS at the rate of 1% when
payment of consideration is made at the time of purchase of immovable property.
The term ‘consideration for immovable property’ is not defined at present. This
section is now amended w.e.f. 1^st September, 2019 to provide that
the consideration for immovable property will include charges in the nature of
club membership fees, car parking fees, electricity and water facility fees,
maintenance fees, advance fees or any other charges of similar nature, which
are incidental to the transfer of the immovable property. This deduction of 1%
tax will have to be made for payment made on or after 1^st September, 2019.

Section 194M: A new section 194M has been inserted in the Income-tax Act with
effect from 1^st September, 2019. At present, any individual or HUF,
not liable to tax audit, is not required to deduct tax from payments made to a
contractor, commission agent or a professional u/s 194C, 194H or 194J. It is
now provided in section 194M that if any individual or HUF makes payment for a
contract to a contractor, commission or brokerage or fees to a professional of
a sum exceeding Rs. 50 lakhs, in the aggregate in any financial year, tax at
the rate of 5% shall be deducted at source. This provision will apply even if
the payment is for personal work. The individual / HUF governed by section 194M
will not be required to obtain TAN for this purpose. The individual / HUF can
use his PAN for this purpose. This provision for TDS will come into force from
1^st September, 2019 and will cover all payments made in F.Y.
2019-20.

Section 194N: A new section 194 N has been inserted w.e.f. 1^st
September, 2019 which provides that a banking company, co-operative bank or a
post office shall deduct tax at source at 2% in respect of cash withdrawn by
any account holder from one or more accounts with the bank / post office in
excess of Rs. 1 crore in a financial year. This section does not apply to
withdrawal by any government, bank, co-operative bank, post office, banking correspondent,
white label ATM operators and such other persons as may be notified by the
Central government. This limit of Rs. 1 crore will apply to all accounts of a
person in any bank, co-operative bank or post office. Hence, if a person has
accounts in different branches of the same bank, total cash withdrawals in all
these accounts will be considered for this purpose. This TDS provision will
apply to all persons, i.e., individuals, HUFs, firms, companies, etc., engaged
in business or profession, as also to all persons maintaining bank accounts for
personal purposes. Thus, there will be no deduction of tax up to Rs. 1 crore.
This TDS provision applies on amounts drawn in excess of Rs. 1 crore in a
financial year. The provision is effective from 1^st September, 2019.
Therefore, if a person has withdrawn cash of more Rs. 1 crore in the F.Y.
2019-20, tax of 2% will be deductible on or after 1^st September,
2019. This provision has been made in order to discourage cash withdrawals and
promote digital economy.

It may be noted
that u/s 198 it is now provided that the tax deducted u/s 194N will not be
treated as income of the assessee. If the amount of this TDS is not treated as
income of the assessee, credit for this TDS amount will not be available to the
assessee u/s 199 read with Rule 37BA. If credit is not given, this will be an
additional tax burden on the assessee. It may be noted that by a press release
dated 30^th August, 2019 the CBDT has clarified that if the total
cash withdrawal from one or more accounts with a bank / post office is more
than Rs. 1 crore up to 31^st August, 2019, TDS will be deducted from
cash withdrawn on or after 1^st September, 2019 only.

Section
194DA: Section 194DA, providing for TDS in
respect of payment for life insurance policy has been amended w.e.f. 1^st
September, 2019. At present the insurance company is required to deduct tax at
1% of the payment to a resident on maturity of life insurance policy if such
payment is not exempt u/s 10(10D). The present provision for TDS at 1% applies
to gross payment made by the insurance company although the assessee is
required to pay tax on the net amount after deduction of premium actually paid.
In order to mitigate the hardship, this section now provides that tax at the
rate of 5% shall be deducted at source w.e.f. 1^st September, 2019,
from the net amount, i.e., actual amount paid by the insurance company on
maturity of policy after deduction of actual premium paid on the policy.

EXEMPTIONS AND DEDUCTIONS

Section
10(4C): A new section 10(4C) is inserted in the
Income-tax Act after the press release dated 17^th September, 2018.
Under this announcement the Central government had given exemption from tax in
respect of interest paid to a non-resident or a foreign company by an Indian
company or a business trust on Rupee-denominated bonds. Under the new section
10(4C), such interest received by the non-resident or foreign company during
the period 17^th September, 2018 to 31^st March, 2019 will
be exempt from tax.

Section
10(12A): At present, payment from the National
Pension System Trust to an assessee on closure of his account or on opting out
of the pension scheme u/s 80CCD to the extent of 40% of the total amount
payable to him is exempt u/s 10(12A). This limit for exemption is now increased
to 60% of the amount so payable to the assessee by amendment of section 10(12A)
effective from F.Y. 2019-20.

Section 80C: In order to enable Central government employees to have more
options of tax savings investments u/s 80C, this section has been amended to
provide that such employees can now contribute to a specified account of the
pension scheme referred to in section 80CCD – (a) for a fixed period of not
less than three years, and (b) the contribution is in accordance with the
scheme as may be notified. For this purpose, the specified account means an
additional account referred to in section 20(3) of the Pension Fund Regulatory
and Development Authority Act, 2013.

Section
80CCD: Section 80CCD(2) has been amended. The
Central government has enhanced its contribution to the account of its
employees in the National Pension Scheme (NPS) from 10% to 14% by a
notification dated 31^st January, 2019. To ensure that such employees
get full deduction of this contribution, the limit of 10% in section 80CCD(2)
has been increased from F.Y. 2019-20 to 14%. For other employees the old limits
of 10% will continue.

Section
80EEA: This is a new section that provides that
an individual shall be allowed deduction of interest payable up to Rs. 1,50,000
on loan taken by him from any financial institution for the purpose of
acquiring any residential house property. This deduction is subject to the
following conditions:

(a)   The individual is not eligible for deduction
u/s 80EE;

(b)   The loan has been sanctioned during the F.Y.
1^st April, 2019 to 31^st March, 2020;

(c)   The Stamp Duty Value of the residential house
does not exceed Rs. 45 lakhs;

(d)   The assessee does not own any other
residential house as on the date of sanction of the loan.

Once deduction of
interest is allowed under this section, deduction of the same interest shall
not be allowed under any other provisions of the Act for the same or any other
assessment year. It may be noted that the assessee will have the option to
claim deduction for interest up to Rs. 2 lakhs u/s 24(b) if he does not desire
to avail of the
above deduction.

Section
80EEB: This is also a new section inserted to
encourage purchase of electric vehicles (EV) and preserve the environment. This
section provides that an individual can claim deduction for interest up to Rs.
1,50,000 payable on loan taken by him from a financial institution for purchase
of an EV. For this purpose the loan should have been sanctioned between 1^st
April, 2019 and 31^st March, 2023. Once a deduction of interest is
allowed under this section, no deduction for this interest will be allowable
under any other section for the same or any other assessment year. The terms
‘Electric Vehicle’ and ‘Financial Institution’ are defined in the section. It
may be noted that this deduction is allowable to an individual only and not to
any other assessee. From the wording of this section it is evident that an
individual can claim this deduction for interest even if the electric vehicle
is purchased for his personal use.

Section 80 –
IBA: This section deals with deduction from
profits and gains from housing projects. The Finance Act, 2019 has extended the
date for approval of the project by the competent authority from 31^st
March, 2019 to 31^st March, 2020. However, in respect of the projects
approved on or after 1^st September, 2019, some of the conditions
about the size of the project have been modified by amendment of the section as
under:

(i)    The restriction of plot area for the project
of 1,000 sq. metres which applied to only four metropolitan cities will now
apply to the cities of Bengaluru, Chennai, Delhi National Capital Region
(limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad),
Hyderabad, Kolkata and the whole of the Mumbai Metropolitan Region (specified
cities);

(ii)    The carpet area of a residential unit in the
housing project should not exceed…

– In specified
cities 60 sq. metres (as against 30 sq. metres at present);

– In other cities
90 sq. metres (as against 60 sq. metres at present).

(iii)   The Stamp Duty Valuation of a residential unit
in the housing project should not exceed Rs. 45 lakhs.

The above
amendments will benefit some affordable housing projects.

CHARITABLE TRUSTS

The provisions of
section 12AA deal with the procedure for granting registration and cancellation
of registration in the case of a public trust or institution claiming exemption
u/s 11. This section is now amended, effective from 1^st September,
2019, to give the following additional powers to the Commissioner (CIT):

(i)    At the time of granting registration, the
CIT can call for necessary information or documents in order to satisfy himself
about the compliance of such requirements of any other law for the time being
in force by the trust or institution as are material for the purpose of
achieving its objects;

(ii)    Where a trust or institution has been
granted registration u/s 12A or 12AA, and subsequently it is noticed that the
trust or institution has violated the requirements of any other law which is
material for the purpose of achieving its objects and the order, direction or
decree, holding that such violation under the other law has become final, the
CIT can cancel the registration granted to the trust or institution.

It may be noted
this is a very wide power given to the CIT. To give an example, if a trust
governed by the Bombay Public Trust Act takes a loan from a trustee or a third
party, or sells its immovable property without obtaining the permission of the
Charity Commissioner as provided in the BPT Act, and the non-compliance or
delay in compliance with the provisions of the BPT Act is not condoned by the
Charity Commissioner and his order becomes final, the CIT can cancel the
registration u/s 12A/12AA. The consequence of such cancellation of registration
will be that the trust or the institution will be denied exemption u/s 11. In
addition, tax on accreted income u/s 115TD will be payable at the maximum
marginal rate.

It may be noted
that similar amendment is made in section 10(23C) effective from 1^st
September, 2019. Therefore, all hospitals, universities, educational
institutions claiming exemption u/s 10(23C) will have to ensure that they
comply with any other law which is material for the purpose of achieving their
objects.

INTERNATIONAL FINANCIAL SERVICES CENTRE

Section
47(viia b): This section provides that any
transfer of a capital asset such as bonds, global depository receipts,
Rupee-denominated bonds of an Indian company or derivatives, made by a
non-resident through a recognised stock exchange located in the International
Financial Services Centre (IFSC) will not be treated as a transfer. In other
words no tax will be payable on
such transfer.

By amendment of
this section, the Central government is given power to notify similar other
securities in respect of which this exemption can be claimed. The consequential
amendment is made in section 10(4D).

Section 80LA: At present any unit located in an IFSC is eligible for deduction
u/s 80LA in respect of the specified business. Under the existing provision 100%
of the income of the unit from the specified business is exempt for the first
five consecutive assessment years and 50% of such income is exempt for the
subsequent five years. By amendment of this section, effective from A.Y.
2020-21 (F.Y. 2019-20), it is now provided that 100% of such income will be
exempt for ten consecutive assessment years, at the option of the assessee, out
of fifteen years beginning with the assessment year in which permission or
registration is obtained under the applicable law.

Section 115A: This section provides for special rate of tax for a non-resident or
a foreign company having income from dividend, interest, royalty, fees for
technical services, etc. In computing total income in such cases, deduction
under chapter VIA is not allowed from the gross total income. To give benefit
of section 80LA to the eligible unit set up in the IFSC, this section is
amended to the effect that in the case of such an eligible unit, deduction u/s
80LA will be allowed against the income referred to in section 115A. This
amendment is effective from A.Y. 2020-21 (F.Y. 2019-20).

Section 115-O: Under this section dividend distribution tax
(DDT) is not applicable on dividend distributed out of current income by a unit
in the IFSC deriving income solely in convertible foreign exchange on or after
1^st April, 2017. By amendment of this section, effective from 1^st
September, 2019, it is now provided that DDT will not be payable even if the
dividend is distributed out of the income accumulated after 1^st
April, 2017 by such a unit in the IFSC.

Section 115R: This section provides for levy of additional
income tax (income distribution tax) by a Mutual Fund (MF). This section is now
amended, effective from 1^st September, 2019 to provide that the
above income distribution tax will not be payable if such distribution is out
of income derived from transactions made on a recognised stock exchange located
in any IFSC. For this exemption, the following conditions will have to be
satisfied:

(a)   The M.F. specified u/s 10(23D) should be
located in an IFSC;

(b)   The M.F. should derive its income solely in
convertible foreign exchange;

(c)   All units in the M.F. should be beneficially
held by non-residents.

Section
10(15): This section provides for exemption of
interest income from specified sources. A new clause (ix) has been inserted,
effective from 1^st September, 2019 to provide for exemption in
respect of interest received by a non-resident from a unit located in an IFSC
on monies borrowed by such unit on or after 1^st September, 2019.

From the above
amendments it is evident that the government wants to encourage units to be set
up in IFSCs (e.g., Gifts City).

INCOME
FROM BUSINESS OR PROFESSION

Section 32: At a press conference on 23^rd August, 2019 the Finance
Minister announced that on vehicles purchased during the F.Y. 2019-20
depreciation will be allowed at the rate of 30% instead of 15%. For this
purpose the I.T. Rules will be amended. It is not clear from this announcement
whether this benefit will be given for only motor cars or all other vehicles
and whether it will apply to purchase of new vehicles or to purchase of second
hand vehicles also.

Section 43B: This section provides that deduction for certain expenditure will
be allowed in the year in which actual payment is made. This is irrespective of
the fact that liability for the expenditure is incurred in an earlier year.
This section is amended with effect from A.Y. 2020-21 (F.Y. 2019-20) to provide
that interest on any loan or borrowing taken from a deposit-taking NBFC or
systemically important non-deposit-taking NBFC will be allowable only in the
year in which the interest is actually paid. It is also provided that in
respect of F.Y. 2018-19 or any earlier year, if the deduction for such interest
is actually allowed on accrual basis, no deduction will be allowed for the same
amount in the year in which actual payment is made.

Section 43D: This section provides that in the case of a scheduled bank,
co-operative bank and other specified financial institutions interest on
specified bad and doubtful debts is not taxable on accrued basis but is taxable
in the year in which the same is credited to the profit and loss account. By
amendment of this section this benefit is now extended, effective from A.Y.
2020-21 (F.Y. 2019-20), to deposit-taking NBFCs and systemically important non-
deposit-taking NBFCs.

CAPITAL GAINS

Section 50CA: At present the difference between the fair market value and actual
consideration is taxed in the hands of the assessee who transfers unquoted
shares, held as a capital asset, for inadequate consideration. The section 50CA
is now amended, effective from A.Y. 2020-21 (F.Y. 2019-20) to provide that this
section will not apply to any consideration received or accruing as a result of
transfer of such shares by such class of persons and subject to such conditions
as may be prescribed. The intention behind this amendment is that if the prices
of the shares are fixed by certain authority (e.g., RBI) and the assessee has
no control over fixing the price, the assessee should not suffer.

Section 54GB:
This section grants exemption in respect of
long-term capital gain arising from transfer of residential property if the net
consideration is invested in shares of an eligible startup company. The said
startup company has to utilise the amount so invested for purchase of certain
specified assets, subject to certain conditions. By amendment of section 54GB,
effective from A.Y. 2020-21 (F.Y. 2019-20) some of the above conditions have
been relaxed as under:

(a)   Lock-in period of holding the new asset
(computer or computer software) by the company is now reduced from five to
three years;

(b)   Benefit of section 54GB is now extended to
transfer of residential property from 31^st March, 2019 to 31^st
March, 2021;

(c)   The minimum shareholding and voting power
requirement in the startup company is now reduced from 50% to 25%.

The wording of the
amended section suggests that the above relaxations will also apply to
investments made by an assessee in a startup company prior to 31^st March,
2019.

Section 111A: At present short-term capital gain on transfer of Units of Fund of
Funds is not eligible for concessional rate of 15% under this section. The
section is now amended, from A.Y. 2020-21 (F.Y. 2019-20) to provide that
short-term capital gain on transfer of units of Fund of Funds will be taxable
at the concessional rate of 15% plus applicable surcharge and cess.

INCOME FROM OTHER SOURCES

Section
56(2)(viib): Under this section, share premium
received from a resident by a closely-held company from issue of shares at a
consideration in excess of the fair market value is taxable in the hands of the
company as income from other sources. This is popularly referred to as ‘Angel
Tax’. At present this provision does not apply to investments by a venture
capital fund under the ‘Category I Alternative Investment Funds’. By amendment
of this provision, it is now provided, effective from A.Y. 2020-21 (F.Y.
2019-20) that this section will not apply to investments by Category II
Alternative Investment Funds.

This section
provides that the Central government can declare that the provisions of this
section shall not apply to investment by specified class or classes of persons.
By amendment of this provision it is now provided that if there is failure on
the part of the company to comply with the conditions specified in the above
notification, the company will be liable to pay the ‘Angel Tax’ as provided in
the section in the year in which there is such default. Further, the difference
between the fair market value of shares and the actual consideration received
on issue of shares will be considered as under-reported income and penalty u/s
270A will be levied on such amount.

It may be noted
that by a press release dated 22^nd August, 2019 the CBDT has
clarified that the provisions of this section will not apply to startup
companies recognised by the DPIIT. CBDT has also issued a comprehensive
circular on 30^th August, 2019 to clarify the assessment procedure for
such startup companies and also clarifying the circumstances when the
provisions for levy of ‘Angel Tax’ will not apply to such companies. This
indicates that the government is keen to encourage startups and may amend the
Income-tax Act to give effect to the assurances given by the Finance Minister
at the press conference on 23^rd August, 2019 and at various meetings
with stakeholders.

Section
56(2)(x): This section provides that any sum of
money, immovable property or specified movable assets received by an assessee
for inadequate consideration, the difference between the fair market value and
the actual consideration will be taxable in the hands of the assessee. There
are certain exceptions to this provision as listed in the fourth proviso to the
section. An amendment has been made in this proviso and item XI is added to
provide that receipt from such class of persons, and subject to such conditions
as may be prescribed, will not be taxable under this section.

It may be noted
that the provisions of this section are now made applicable to a non-resident.
This has been provided by amendment of section 9(1)(viii). Therefore, if a
non-resident receives any money, immovable property or specified movable
property outside India on or after 5^th July, 2019 for inadequate
consideration, tax u/s 56(2)(x) will be payable by the non-resident.

INCOME OF A NON-RESIDENT

Section 9: Section 9 of the Act deals with income deemed to accrue or arise in
India. Under the Act, non-residents are taxable in India in respect of income
that accrues or arises (including income deemed to accrue or arise) or received
in India. At present, a gift of money or property (movable or immovable)
received by a resident is taxed in the hands of the donee, subject to certain
exceptions as provided in section 56(2)(x) of the Act. However, in the case of
a non-resident (including a foreign company) who is outside India a view is
taken that such gift is not taxable as it does not accrue or arise or is
received in India and is a capital receipt. To ensure that such gifts by a
resident to a non-resident are subject to tax u/s 56(2)(x) of the Act, section
9 has been amended w.e.f. 5^th July, 2019. The amendment provides in
new clause (viii), added in section 9(1), that such income is taxable u/s
56(2)(x) under the head ‘Income from Other Sources’. Thus, any sum of money
paid or transfer of any movable or immovable property situated in India on or
after 5^th July, 2019 by a resident to a person outside India shall
now be taxable. In other words, section 56(2)(x) which provides for taxation of
a gift or a deemed gift where the value of the gift exceeds Rs. 50,000 will now
apply to such gift given by a resident to a non-resident. If there is a treaty
with any country, the relevant article of the applicable DTAA shall continue to
apply for such gifts as well.

Some of the cases
in which the above amendment will apply are considered below:

(a)   If Mr. ‘A’ (resident) who is not a relative
of Mr. ‘B’ (non-resident), as defined in section 56(2)(vii), remits more than
Rs. 50,000 as a gift to Mr. ‘B’ in a financial year, Mr. ‘B’ will be liable to
tax on this amount.;

(b)   In the above case, if Mr. ‘A’ has sold some
shares of an Indian company to Mr. ‘B’ at a price below its market value as
provided in section 56(2)(x), Mr. ‘B’ will have to pay tax on the difference
between the market value and the sale price, if such difference is more than
Rs. 50,000;

(c)   In the above case, if Mr. ‘A’ sells any
immovable property situated in India to Mr. ‘B’ at a price which is below the
Stamp Duty Valuation and the difference between the Stamp Duty Valuation and
the sale price is more than Rs. 50,000, the said difference will be deemed to
be the income of Mr. ‘B’;

(d)   It may be noted that the above amendment is
applicable to all transfers of property made on or after 5^th July,
2019. Further, the amended provisions apply in all cases of transfers of
property situated in India by a resident (including an individual, HUF, AOP,
firm, company, etc.) to a non-resident person (including individual, firm, AOP,
company, etc.). In all such cases the resident will have to deduct tax at
source u/s 195 at applicable rates.

BUY-BACK OF SHARES

Section
115QA: This section provides for levy of
additional income tax at the rate of 20% plus applicable surcharge and cess of
the distributed income on account of buy-back of shares by an unlisted domestic
company. As a result of this, the consequential income in the hands of the
shareholder is exempt u/s 10(34A). This provision does not apply to buy-back of
shares by a listed company. This section as well as section 10(34A) are now
amended. The amendment provides that even in the case of buy-back of shares by
a listed company on or after 5^th July, 2019, the above additional
income tax will be payable by the company. So far as the shareholder is
concerned, exemption u/s 10(34A) will be allowed. It may be noted that the
ordinance dated 20^th September, 2019 provides that this provision
will not apply to a listed company which has made a public announcement for
buy-back of shares before 5^th July, 2019 in accordance with SEBI
regulations.

CARRY FORWARD OF LOSSES

Section 79: The existing section 79 which restricts carry-forward and set-off
of losses in the case of companies where there is change in shareholding of
more than 51%, has been substituted by a new section 79. This new section is
more or less on the same lines as the existing one. The only change made by the
new section is that this section will not apply from A.Y. 2020-21 (F.Y.
2019-20) to a company and its subsidiary and the subsidiary of such subsidiary
in the case where the National Company Law Tribunal (NELT), on an application
by the Central government, has suspended the Board of Directors of such a
company and has appointed new directors nominated by the Central government u/s
242 of the Companies Act, 2013 and a change in shareholding has taken place in
the previous year pursuant to a resolution plan approved by NCLT u/s 242 of the
Companies Act, 2013 after affording an opportunity of hearing to the Principal
C.I.T. concerned.

Section
115UB: This section provides for pass-through
of income earned by Category I and II Alternate Investment Funds (AIF), except
for business income which is taxed at AIF level. Pass-through of income (other
than profit and gains from business) has been allowed to individual investors
so as to give them the benefit of lower rate of tax, if applicable.
Pass-through of losses is not permitted and these are retained at AIF level to
be carried forward and set off in accordance with chapter VI.

Sections
115UB(2)(i) and (ii) have been substituted and sub-section (2A) has been
inserted from A.Y. 2020-21 (F.Y. 2019-20) to provide that the business loss of
the investment fund, if any, shall be allowed to be carried forward and it
shall be set off by it in accordance with the provisions of chapter VI and it
shall not be passed on to the unit holder. The loss other than business loss,
if any, shall be regarded as loss of the unit holders. It shall, however, be
ignored for the purposes of pass-through to its unit holders, if such loss has
arisen in respect of a unit which has not been held by the unit holder for a
period of at least 12 months.

The loss other than
business loss, if any, accumulated at the level of investment fund as on 31^st
March, 2019 shall be deemed to be the loss of a unit holder who held the unit
on 31^st March, 2019 and be allowed to be carried forward 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 shall be set off in
accordance with the provisions of chapter VI. The loss so deemed in the hands
of unit holders shall not be available to the investment fund.

FILING OF INCOME TAX RETURNS

Section 139: At present, section 139(1) provides that an individual, HUF, AOP,
BOI or Artificial Juridical Person has to file the return of income if their
total income exceeds the threshold limit without giving effect to exemptions /
deductions provided u/s 10(38), 10A, 10B, 10BA and chapter VIA. By amendment of
this section from the current financial year, in case of such assessees the
return of income will have to be filed if the total income exceeds the
threshold limit before claiming the benefit of sections 10(38), 10A, 10B, 10BA,
54, 54B, 54D, 54EC, 54F, 54G, 54GA, 54GB and chapter VIA.

Further, from the
A.Y. 2020-21 (F.Y. 2019-20) it will be necessary for an individual, HUF, AOP,
BOI, etc., to file the return of income although their income is below the
threshold limit in the following cases:

(i)    If the person has deposited an aggregate
amount exceeding Rs. 1 crore in one or more current accounts, with one or more
banks or co-operative banks during the year. It may be noted that this
requirement includes deposits in cash or by way of cheques, drafts, transfers
by electronic means, etc.;

(ii)    If the person has incurred expenditure
exceeding Rs. 2 lakhs on foreign travel for himself or any other person during
the year;

(iii)   If the person has incurred expenditure
exceeding Rs. 1 lakh on electricity consumption during the year; or

(iv)   If the person fulfils any
other conditions that may be prescribed.

Section 139A:
This section provides for allotment of PAN and
has been amended effective from 1^st September, 2019 to provide as
under:

(a)   It is now provided that every person
intending to enter into any transaction, as may be prescribed, shall apply for
PAN;

(b)   Every person possessing Aadhaar number who is
required to furnish or quote his PAN which has not been allotted can furnish or
quote his Aadhaar number in lieu of PAN. He shall then be allotted a PAN in the
prescribed manner;

(c)   Every person who has been allotted PAN and
who has intimated his Aadhaar number u/s 139AA(2) can furnish or quote his
Aadhaar number in lieu of his PAN;

(d)   If a person is required to quote his PAN in
any document or transaction, as may be prescribed, he has to ensure that his
PAN or Aadhaar number is duly quoted in the document pertaining to such
transaction and authenticated in the prescribed manner;

(e)   It may be noted that in section 272, which
deals with levy of penalty for non-compliance of section 139A, consequential
amendment has been made effective from 1^st September, 2019.

The above
amendments are made for ease of compliance and inter-changeability of PAN with
Aadhaar number effective from 1^st September, 2019.

Section
139AA: This section provides for linking of
Aadhaar number with PAN. The amendment in this section, effective from 1^st
September, 2019, provides that if a person fails to intimate the Aadhaar
number, the PAN allotted to such person shall be made inoperative after the
date so notified in such manner as may be prescribed.

Section 140A: This section provides for payment of tax by way of self-assessment.
It has been amended effective from 1^st April, 2007 to provide that
while calculating the amount of tax payable on self-assessment basis, any
relief of tax claimed u/s 89 can be deducted from the tax liability. Section 89
grants relief in tax payable when salary or allowances are paid to an employee
in advance. The consequential amendment is made in sections 143(1)(c), 234A,
234B and 234C. This amendment is only clarificatory.

Section 239: This section provides for a time limit for a person claiming refund
of tax. It has been amended with effect from 1^st September, 2019.
Before the amendment, the provision was that, (a) the assessee claiming refund
of tax was required to file Form 30 prescribed by the I.T. Rules; and (b) such claim
for refund of tax could be made within one year from the last day of the
assessment year. Thus, claim for refund of tax could be made in respect of the
F.Y. ending 31^st March, 2019 on or before 31^st March,
2021. This time limit has now been reduced by one year and the requirement of
filing the prescribed Form No. 30 has been done away with by this amendment
from 1^st September, 2019. Therefore, claim for refund of tax u/s 239
can be made by the assessee only within the time limit provided u/s 139. In other
words, claim for refund in respect of F.Y. 2018-19 will have to be made before
31^st March, 2020.

MINIMUM ALTERNATE TAX (MAT)

At present, clause
(iih) of Explanation 1 below section 115JB(2) provides for book profits to be
reduced by the aggregate amount of unabsorbed depreciation and loss brought
forward in case of a company in respect of which an application for corporate
insolvency resolution process has been admitted by the Adjudicating Authority
u/s 7, 9 or 10 of the Insolvency and Bankruptcy Code, 2016.

By amendment of
this section, this benefit is extended to a company and its subsidiary and the
subsidiary of such subsidiary, where the NCLT, on an application moved by the
Central government u/s 241 of the Companies Act, 2013 has suspended the Board
of Directors of such company and has appointed new directors who are nominated
by the Central government u/s 242 of the said Act. This amendment is effective
from the A.Y. 2020-2021 (F.Y. 2019-20).

The ordinance dated 20^th September, 2019 has amended section
115JB(1) to provide that from A.Y. 2020-21, the rate of tax on book profits
will be reduced from 18.5% to 15%.

Section 115JB(5A)
is also amended to provide that this section will not apply to companies opting
to be taxed u/s 115BAA and 115BAB from A.Y. 2020-21.

TRANSFER PRICING PROVISIONS

Section 92CD: Section 92CD(3) provides that where the assessment or re-assessment
has already been completed and modified return of income has been filed by the
assessee pursuant to an Advance Pricing Agreement (APA), then the AO has to
pass the order of assessment, re-assessment or computation of total income.
This section is now amended, effective from 1^st September, 2019, to
provide that the AO can pass such revised order only to the extent of modifying
the total income of the relevant assessment year in accordance with the APA.
The consequential amendment is also made in section 246A dealing with
appealable orders before CIT (Appeals).

Section
92CE(a): Section 92CE(1) provides that the
assessee shall make secondary adjustment in a case where primary adjustment to
transfer price takes place as specified therein. Further, it is provided that
the said section shall not apply in cases fulfilling cumulative conditions, i.e.,
(a) where the amount of primary adjustment
made in any previous year does not exceed Rs. 1 crore; and (b) the primary
adjustment is made in respect of an assessment year commencing on or before 1^st
April, 2016. Now this proviso is amended to make these two conditions
alternative. This amendment is effective from A.Y. 2018-19.

Section
92CE(1)(iii): This section provides that
secondary adjustment shall be applicable where primary adjustment to transfer
price is determined by an advance pricing agreement. Now, section 92CE(1)(iii)
is amended to provide that the secondary adjustment will be applicable only
where the primary adjustment to transfer price is determined by an advance
pricing agreement entered into by the assessee u/s 92CC on or after 1^st
April, 2017. Further, a new proviso after section 92CE(1) has been inserted
with effect from A.Y. 2018-19 to provide that no refund of the taxes already
paid till date under the pre-amended section shall be claimed and allowed.

Section
92CE(2): This section
provides that the excess money available to the associated enterprise shall be
repatriated to India from such associated enterprise within the prescribed time
and, in case of non-repatriation, interest thereon is to be computed deeming
the excess money as advance to such associated enterprise. Now the said section
is amended to provide that the assessee shall be required to calculate interest
on the money that has not been repatriated. Further, an explanation has been
inserted to clarify that the excess money may be repatriated from any of the
associated enterprises of the assessee which is not resident in India in lieu
of the associated enterprise with which the excess money is available. This
amendment is effective from A.Y. 2018-19.

This section has
also been amended by insertion of new sub-sections (2A), (2B), (2C) and (2D) to
provide that where the excess money or part thereof has not been repatriated in
time, the assessee will have the option to pay additional income tax at the
rate of 18% on such excess money or part thereof. Such tax shall be in addition
to the computation of interest till the date of payment of this additional tax.
Further, if the assessee pays additional income tax, such assessee will not be
required to make secondary adjustment or compute interest from the date of
payment of such tax. Also, the deduction in respect of the amount on which
additional tax has been paid shall not be allowed under any other provision of
the Act and no credit of additional tax paid shall be allowed under any other
provision of the Act. This amendment is effective from 1^st
September, 2019.

Section 286: This section provides for a specific reporting regime containing
revised standards for transfer pricing documentation and a template for
country-by-country reporting. Section 286(9)(a)(i) defines ‘accounting year’ to
mean a previous year in a case where the parent entity or alternate reporting
entity is resident in India. This definition is now amended effective from A.Y.
2017-18 and ‘accounting year’ in such a case will be the annual accounting
period with respect to which the parent entity of the international group
prepares its financial statements under any law of the country or territory of
which such parent entity is resident.

PENALTIES AND PROSECUTION

Section 270A:
This section provides for levy of penalty in a
case where a person has under-reported his income. The several cases of
under-reporting of income have been provided in section (2) of this section
which includes a case where no return of income has been furnished. In a case
where the person files his return of income for the first time in response to a
notice u/s 148, the mechanism for determining under-reporting of income and
quantum of penalty to be levied are not provided in this section. By amendment
of the section, effective from A.Y. 2017-18, it is now provided that where a
return of income has been filed for the first time in response to a notice u/s
148, if the income assessed is greater than the maximum amount which is not
chargeable to tax, then it will be considered that the assessee has
under-reported his income.

In such a case, the
amount of under-reported income shall be computed in the following manner:
(a)   In case of a company, firm or local
authority, the assessed income itself will be considered as under-reported
income;

(b)   In other cases, the excess of assessed income
over the maximum amount not chargeable to tax will be considered as
under-reported income.

Section
271DB: This is a new section added with effect
from 1^st November, 2019 which provides that if a person who is
required to provide facility for accepting payment through the prescribed
electronic modes of payment as referred to in new section 269SU, fails to
provide such facility, a penalty of Rs. 5,000 for each day of default will be
levied. This penalty can be levied only by the Joint Commissioner. No penalty
under this section will be levied if the person concerned proves that there
were good and sufficient reasons for such failure.

It may be noted
that new section 269SU has been added with effect from 1st November, 2019 to
provide that every person whose turnover or gross receipts in a business
exceeds Rs. 50 crores in the immediately preceding previous year shall provide
facility for accepting payment through prescribed electronic modes.

Section
271FAA: This section provides for levy of a
penalty of Rs. 50,000 for default in compliance with clause (k) of section
285BA(1). Clause (K) referred to only reporting of prescribed particulars. By
amendment of this section, effective from 1^st September, 2019, this
section has been made applicable to defaults in complying with reporting
requirements u/s 285BA(1)(a) to (k).

Section
276CC: This section empowers prosecution in the
case of wilful default to furnish return of income within the prescribed time
limit. At present, in the case of a non-corporate assessee, prosecution cannot
be initiated if the tax payable on total income, as reduced by advance tax and
TDS, does not exceed Rs. 3,000. The amendment in this section from A.Y. 2020-21
(F.Y. 2019-20) provides that such prosecution cannot be initiated if the tax
payable on the total income assessed in a regular assessment, as reduced by
advance tax and self-assessment tax paid before the end of the assessment year
and TDS, does not exceed Rs. 10,000.

It appears that
raising of limit from Rs. 3,000 to Rs. 10,000 is inadequate when the government
is trying to reduce litigation. This limit should have been raised to Rs. 25
lakhs.

It may further be
noted that by CBDT circular No. 24/2019 dated 9^th September, 2019 it
has now been clarified that no prosecution u/s 276B to 276CC should ordinarily
be initiated if the amount of tax is less than Rs. 25 lakhs. In cases where the
amount of tax is less than Rs. 25 lakhs, the prosecution should be initiated
only with the prior approval of the Collegium of two CCIT / DGIT. This is a
welcome move and will result in reduction of litigation.

It may further be
noted that by another circular No. 25/2019 dated 9^th September,
2019, the CBDT has granted further time up to 31^st December, 2019
for making an application for compounding of offences under Direct Tax Laws as
a one-time measure. Normally, an application for compounding of offences can be
filed within 12 months as per the guidelines issued by CBDT. In some cases, the
assessees have not been able to make such an application. In order to reduce
litigation the CBDT, by the above circular, has granted time up to 31^st December,
2019 as a one-time concession. Therefore, assessees who have not been able to
make such compounding applications till now will be able to make such
applications up to 31^st December, 2019.

Section 201: At present section 201 provides for treating certain persons as
assessees in default for failure to deduct tax and also provides for charging
interest in such cases. From this, relaxation is provided in cases of failure
of such deduction in respect of payments, etc. made to a resident subject to
the condition that such resident payee (a) has furnished his return of income
u/s 139; (b) has taken into account such sum for computing income in such
return of income; and (c) has paid the tax due on the income declared by him in
such return of income. In such cases, it is provided that the person shall not
be deemed to be an assessee in default in respect of such non-deduction of tax.

The above benefit
is now extended, by amendment of sections 201 and 40(a)(i), for payments made
to non-residents effective from 1^st September, 2019.

Section
201(3): This section provides that an order deeming
a person to be an assessee in default for failure to deduct whole or part of
the tax from a payment made to a resident shall not be made after expiry of
seven years from the end of the financial year in which payment is made or
credit is given.

Section 201(3) is
now amended, effective from 1^st September, 2019, to provide that
such an order can be made up to:

(i)    expiry of seven years from the end of the
financial year in which payment is made or credit is given; or

(ii)    two years from the end of the financial year
in which the correction statement is delivered under proviso to section 200(3),
whichever is later.

OTHER AMENDMENTS

Section
2(19AA): This section gives the definition of
‘demerger’. Section 2(19AA)(iii) provides that for such demerger, the property
and liabilities of the undertaking transferred by the demerged company to the
resulting company should be at book value. The applicable Indian Accounting
Standards (Ind AS) provides that in the case of demerger, the property and
liabilities of the demerged company should be transferred at a value different
from its book value.

This section has
been amended from A.Y. 2020-21 (F.Y. 2019-20) to provide that in a case where
Ind AS is applicable, the property and liabilities of the demerged company can
be recorded by the resulting company at values different from the book value.

Rule 68B of
Second Schedule: At present the Rule provides
that sale of immovable property attached towards recovery shall not be made
after expiry of three  years from the end
of the financial year in which the order in consequence of which any tax,
interest, fine, penalty or any other sum becomes final.

The following
amendments have been made affective from 1^st September, 2019 to
protect the interest of Revenue, especially to include those cases where demand
has been crystallised on conclusion of the proceedings:

(a)   Sub-rule 1 is amended to increase the time
limit for sale of attached property from a period of three years to seven
years; and

(b)   A new proviso has been inserted in the said
sub-rule so as to give powers to CBDT to extend the above period of limitation
by a further period of three years after recording the reasons in writing.

Section 206A: The existing section 206A dealing with submission of statement, in
the prescribed form to the prescribed authority, about Tax Deducted at Source
from payment of any income to a resident has been replaced by a new section
effective from 1^st September, 2019. The new section is more or less
on the same lines as the old one with a few major modifications as under:

(i)  In the case of a bank or a co-operative bank
the threshold limit for submission of this statement for interest payment to
the resident will now be Rs. 40,000 instead of Rs. 10,000;

(ii) Earlier, the Central
government was authorised to issue a notification to require any other person
to submit a statement for TDS from other payments. This power is now given to
CBDT which will frame Rules for this purpose;

(iii) The persons required to submit these statements
can make corrections in the statement in the prescribed form.

Section
285BA: This section provides for furnishing of statement
of financial transactions or reportable accounts by the specified persons. This
section is amended effective from 1^st September, 2019, as under:

(a) At present, CBDT has power to prescribe different values for
different specified transactions. This is subject to the minimum limit of Rs.
50,000. This limit is now removed;

(b) If there is any
defect in the statement, at present it can be rectified within the specified
time provided in section 285BA(4). If this defect is not rectified by the
person concerned, it is now provided that such person has furnished inaccurate
information in the statement. This will invite penalty of Rs. 50,000 u/s
271FAA.

Promotion of
digital economy: At present various sections of
the Income-tax Act encourage payment / receipts through account payee cheques,
drafts, electronic clearing systems, etc. From the current year sections 13A,
35AD, 40A, 43(1), 43CA, 44AD, 50C, 56(2) (X), 80JJA, 269SS, 269ST, 269T, etc.,
are amended to provide that in addition to the existing modes of payment /
receipt, any other electronic mode, as may be prescribed, will also be
considered permissible.

AMENDMENTS IN OTHER LAWS

Along with the
Finance (No. 2) Act, 2019, some of the sections of the following Acts are also
amended:

(a) The Reserve Bank
of India Act, 1934; (b) The Insurance Act, 1938; (c) The Securities Contracts
(Regulation) Act, 1956; (d) The Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970 and 1980; (e) The General Insurance Business
(Nationalisation) Act, 1972; (f) The National Housing Bank Act, 1987; (g) The
Prohibition of Benami Property Transactions Act, 1988; (h) The Securities and
Exchange Board of India Act, 1992; (i) The Central Road and Infrastructure Fund
Act, 2000; (j) The Finance Act, 2002, 2016, 2018 and The Finance (No. 2) Act,
2004; (k) The Unit Trust of India (Transfer of Undertaking and Repeal) Act,
2002; (m) The Prevention of Money-Laundering Act, 2002; (n) The Payment and
Settlement System Act, 2007; and (o) The Black Money (Undisclosed Foreign Income
and Assets) and Imposition of Tax Act, 2015.

Finance Act,
2016: The Income Declaration Scheme, 2016 –
Sections 187 and 191 of the Finance Act, 2016, have been amended effective from
1^st June, 2016 as under:

(i) At present,
under the Income Declaration Scheme, 2016 there is no provision for delayed
payment of the tax, surcharge and penalty payable in respect of undisclosed
income. Further, section 191 of the Finance Act, 2016 states that any tax,
surcharge and penalty paid shall not be refunded. A proviso is now inserted in
section 187 of the Finance Act, 2016 to provide that where the tax, surcharge
and penalty has not been paid within the due date for the same, the government
may notify a class of persons who may make payment of the same within the notified
date along with interest at the rate of 1% for every month or part thereof from
the due date of payment till the date of actual payment.

(ii) Further, a proviso has been inserted to section 191 to enable the
government to notify a class of persons to whom excess tax, surcharge and
penalty paid shall be refunded.

TO SUM UP

From the above
analysis it is evident that Mr. Piyush Goyal, the then Finance Minister,
provided some relief to all deserving sections of the society in the Finance
Act, 2019 which was passed with the Interim Budget in February, 2019. In that
Interim Budget he had placed the vision document of the government covering ten
areas, such as building physical as well as social infrastructure, creating
digital India, making India a pollution-free nation, expanding rural
industrialisation, making our rivers and water bodies our life-supporting
assets, developing our coastlines, developing our space programmes, making
India self-sufficient in food, making India a healthy society and transforming
India into a ‘Minimum Government-Maximum Governance’ nation. He had also stated
that this would be the India of 2030. Further, there would be a proactive and
responsible bureaucracy which will be viewed as friendly to the people. If this
can be achieved, we can create an India where poverty, malnutrition and
illiteracy would be things of the past. He further stated that it is the vision
of the present government that by the year 2030 India will be a modern,
technology-driven, high growth, equitable, transparent society and a ‘Ten
Trillion Dollar Economy’. Let us hope that our present government is able to
achieve its vision.

The present Finance
Minister, Ms Nirmala Sitharaman, in her Budget speech has repeated the above
ten points of the vision of the government for the next decade. She has further
stated in para 10 of her Budget speech that ‘Today, we are nearing the three
trillion dollar level. So when we aspire to reach the five trillion dollar
level, many wonder if it is possible. If we can appreciate our citizens’
“purusharth” or their “goals of human pursuit” filled with their inherent
desire to progress, led by the dedicated leadership present in this House, the
target is eminently achievable’.

In the Finance Act,
2019 which was passed in February, 2019, some benefit was given to small
taxpayers, especially the middle class, salary earners, pensioners and senior
citizens. In the Finance (No. 2) Act, 2019, several amendments have been made
in the Income-tax Act. The major amendment is in the field of surcharge on
income above Rs. 2 crores earned by all Individuals, HUFs, AOPs, Trusts, etc.
There was a lot of resistance from Foreign Institutional Investors. Considering
the issues raised by them, the Finance Minister has now announced that this super
surcharge will not be payable on capital
gains on sale of quoted shares by residents and non-residents. Further, as
promised by the government, the rate of tax for domestic companies is now
reduced to 25% where the turnover or gross receipts is less than Rs. 400
crores. This year’s Finance (No. 2) Act, 2019 passed in July, 2019 is unique as
it has been amended by an Ordinance within two months – on 20^th
September, 2019. It is explained that this has been done to resolve several
issues raised and opposing some of the tax proposals. Further, some of the
amendments have been made by the ordinance to encourage the corporate sector to
invest in new manufacturing activities and thus boost the economy.

Another important
amendment relates to TDS provisions. Now tax is required to be deducted at 5%
by an individual or HUF, who has paid more than Rs. 50 lakhs in a financial
year to a contractor, commission agent or a professional even for personal
work. Further, TDS at 2% will now be deducted by a bank if an assessee
withdraws more than Rs. 1 crore in cash in a financial year. Since this tax is
not to be deducted from any income chargeable to tax, the assessee will not get
credit for the TDS amount. This will amount to an additional tax burden on the
assessee.

There are several
provisions in the Act to give incentives to units situated in International
Financial Services Centres (IFSC). Incentives are also provided to attract new
units to be established in IFSCs. Similarly, incentives are also given to
startups. It is proposed that the ‘Angel Tax’ shall not be charged on startups
registered with the DPIIT. Incentives are also provided for those engaged in
construction of affordable houses.

Last year, section
143 of the Income-tax Act was amended authorising the government to notify a
new scheme for ‘e-assessment’ to impart greater efficiency, transparency and
accountability. Under this scheme it is proposed to eliminate the interface
between the assessing officer and the assessee, optimise utilisation of resources
and introduce a team-based assessment procedure. The Finance Minister has
stated in her Budget speech that it is proposed to launch this scheme of
‘e-assessment’ in a phased manner this year. To start with, such ‘e-assessment’
will be carried out in cases requiring verification of certain specified
transactions or discrepancies. Cases selected for scrutiny shall be allocated
to assessment units in a random manner and notices will be issued
electronically by a central cell, without disclosing the name, designation or
location of the AO. The central cell will be the single point of contact
between the taxpayer and the Department. It is stated that this new scheme of
assessment will represent a paradigm shift in the functioning of the Income tax
Department. It may be noted that the CBDT has issued a notification dated 12^th
September, 2019 notifying a detailed scheme called the ‘E-Assessment Scheme,
2019’ which provides for the procedure for e-assessment u/s 143(3A). The Scheme
will come into force on a date to be notified hereafter. There is going to be
some confusion in the initial years when the new scheme is introduced. Let us
hope that this new scheme is successful.

With the amendments
made in several sections of the Income-tax Act by this year’s Budget, the
Income-tax Act has become more complex. The committee appointed by the
government has submitted its report to simplify the Income-tax Act. The
proposal is to replace the present six-decade-old Act by a new Direct Tax Code.
This report is not yet in the public domain. Let us hope that we get a new
simplified law during the tenure of the present government.