INDIAN UNION BUDGET - S.R Dinodia & Co. LLP · The Indian Union Budget 2019 – Highlights Corporate tax rate @ 25% : Benefit of reduced corporate tax rate @ 25% is proposed to be

INDIAN UNION BUDGET

1

The Indian Union Budget 2019 - Foreword

• The Budget of the Modi Government 2.0 strikes a reasonable balance

between addressing the objective of inclusivity and laying the path for a

$5-trillion economy by focusing on infrastructure spending, incentivising

affordable housing, providing 700 billion rupees as growth capital for PSU

banks and signalling support for sound NBFCs, along with the proposals

to make India an electric mobility hub, a large investment in quality higher

education, which are big positives. Additional areas of spending have

been created not at the cost of a higher fiscal deficit. The fiscal deficit has

been reduced by 10 bps to 3.3% in FY20, which is heartening.

• The budget continued the Government’s focus on ensuring that we reap the demographic dividend. The FM has

rightly focused on the youth of the country and education is the tool for development. The commitment to bringing in

the new education policy and make sweeping changes in how education is imparted with the focus on learning

outcomes will play a big role in bettering the education level. The focus on research and innovation and the setting

up of a National Research Foundation with access to research funds from all Government schemes will help fund

and promote research in the country. Bringing in legislation for setting up the Higher Education Commission of India

is a step in the right direction. With all the sweeping changes in the education system, it will not be surprising to see

the roaring success of the proposed Study in India programme.

• With the developing socio-economic health of the nation, a great scheme for women entrepreneurs, "Naari to

Narayani" has been introduced by the government for the socio-economic growth on all levels. This budget holds a

promising future for the women of India. Moreover, under the Mudra Scheme, women will get a loan benefit of 1 lac

for their entrepreneurial aspirations. This is an excellent initiative which will bring out more women entrepreneurs in

the future.

The Indian Union Budget 2019 – Highlights

2

The Indian Union Budget 2019 - Foreword

• In the housing sector, the additional Rs 1.5 lac deduction on interest on

home loans, will certainly trigger a strong demand from end-users in the

Affordable category. The renewed emphasis on PMAY (Urban) is also

encouraging. A very important step has been in the area of Rental

Housing where there has not been much progress in the country till now

and which has a strong potential especially in Urban areas. The move to

bring regulation of Housing Finance Companies (HFC) under RBI will

ensure consistency in the regulatory environment and a level playing field

for both Banks & HFCs in the area of housing.

• The announcements with regard to the electrification will catalyse India’s journey and will be beneficial for both, the

e-mobility industry as well as consumers who are looking to make the shift to electric vehicles. Lowering GST rates

on electric vehicles to 5% will make EVs more attractive to the buyer in the future. In addition, incentives on income

tax will also increase the momentum for the sector. This will encourage faster adoption of e-mobility in India.

• On the Digital front strong steps are seen to be taken for the upcoming fiscal year. From new channels to be started

under the Doordarshan bouquet to provide a platform for startups to disseminate information in the industry to

Bharat Net which is targeting internet connectivity in local bodies in every panchayat in the country. Also, the training

of 10 million in industry-relevant skills like AI, IoT, and Big Data will help address the severe skill-shortage of

technology and IT. The digital path taken by the government is surely matching its $5 Trillion vision


• This #BudgetForNewIndia looks promising but is it enough to kick start the economy and provide economic

momentum required to achieve its ambitious targets for providing Ease of Living to the majority of its 1.3billion

people, is yet to be seen

Direct and Indirect Tax Highlights

3 The Indian Union Budget 2019 – Highlights

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Changes in the Tax laws – affecting Individuals (Personal Taxation)


Indirect Taxes

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Tax rates applicable to Individuals / HUFs/AOP/BOI

• No change in Rates for taxation on Income or Slabs of exemption limits for individuals.

• Surcharge on total income exceeding Rs. 2 crores increased on various slabs of total income

• The present levy of “Health and Education Cess” @ 4% remains same for AY 2020-21.

Analysis of Proposed and Existing Effective Tax Rate for Individuals/HUFs/AOP/BOI

Total Income Slab Rate of

Surcharge

(Existing)

Rate of

Surcharge

(Proposed)

Max. Effective

Tax rate

(Existing)

Max. Effective

Tax rate

(Proposed)

Exceeding Rs. 50 Lack but less

than Rs.1 Crore

10% 10% 34.32% 34.32%

Exceeding Rs. 1 Crore but less

than Rs.2 Crore

15% 15% 35.88% 35.88%

Exceeding Rs. 2 Crore but less

than Rs.5 Crore

15% 25% 35.88% 39.00%

Exceeding Rs. 5 Crore 15% 37% 35.88% 42.74%

Computation of tax liability* Total Tax Payable (Existing) Total Tax Payable (Proposed)

If total income is Rs. 4 Crore Rs. 1,41,27,750/- Rs. 1,53,56,250/-

If total income is Rs. 7 Crore Rs. 2,48,91,750/- Rs. 2,96,53,650/-

Impact of increase in surcharge rate with examples

*The aforesaid tax liability computed after considering slab rate

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Benefit to NPS Subscribers

Following incentive proposed to provides National Pension System (NPS) subscribers.

• The exemption limit proposed to increase from 40% to 60% of the total amount payable to the person

from NPS Trust.

• Deduction u/s 80CCD of the contribution by the Central Government for its employee is proposed to

enhanced from 10% to 14% of salary paid the employee in the previous year.

• Section 80C proposed to ament to provide that any amount paid or deposited by a Central Government

employee as a contribution to his Tier-II account of the pension scheme shall be eligible for deduction

under the said section.

Inserted new section 80EEA

A new deduction upto Rs. 1,50,000/- proposed by insertion of section 80EEA in the Act in respect of

interest paid on loan taken for residential house property from any financial institution subject to following

conditions:-

a) Loan must be sanctioned between the period start from April 01, 2019 to March 31, 2020;

b) Stamp duty value of the house property does not exceed forty five lakh rupees;

c) Do not own any residential house property on the date of sanction of loan

Deduction once claimed u/s 80EEA cannot be claimed under any other provisions of IT Act.

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TDS on payment to contractors/professionals by Individuals and HUFs

A new section 194M of the Act is proposed to be inserted for necessitating the deduction of tax at source

(TDS) @ 5% on the sum, or aggregate of such sums, exceeding Rs. 50 Lakh paid or credited in a year on

account of contractual work or professional fees by an individual/HUF who are not required to deduct TDS

u/s 194C & 194J even if the Individuals & HUF does not claim the same as a deduction in the

computation of his income.

Rationalisation of applicability of STT

In order to rationalise levy of STT in respect of sale of an option in securities, in view of the

provisions under section 99 of the Finance Act, 2004, it is proposed to levy STT on the difference

between the strike price and the settlement price, in the case of option in securities, where option

is exercised.

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Mandatory furnishing of return of income by certain persons (Section 139) • A person (other than a company or a firm) shall be mandatorily required to file Return of Income, if it

has entered into any of the specified high value transactions i.e.,

Deposited amount exceeding one crore rupees in one or more current account. or

Incurred expenditure exceeding two lakh rupees on himself or any other person for travel to

foreign country. or

Incur expenditure exceeding one lakh rupees towards consumption of electricity. or

Such other prescribed conditions.

• Mandatorily required to file ROI, if total income before claiming rollover benefits is more than maximum

amount chargeable to tax.

In case a Person is claiming rollover benefits on investments in a house or a bond or other

assets u/s 54, 54B, 54D, 54EC, 54F, 54G, 54GA & 54GB

Inter-changeability of PAN & Aadhaar (Section 139A) • Inserted new clause (vii) in section 139A(1) to provide that every person entering into high value of

transaction such as purchase of foreign currency or huge withdrawal from banks, shall apply for PAN if

he has not been allotted PAN.

• Inserted new sub section (6A) to section 139A to provide that every person shall quote PAN or Aadhaar

for entering into prescribed transaction*.

• Inserted new sub section (6B) to section 139A to provide that it is the duty casted upon the person

receiving such documents for prescribed transactions* to ensure that PAN or Aadhhar is duly quoted.

Consequences of not linking PAN with Aadhaar (Section 139AA) • If a person fails to link the Aadhaar Number to the PAN allotted to such person then the PAN shall be

made inoperative

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Personal Taxation Indirect Taxes

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Changes in the Tax laws – affecting Corporate assessees


Corporate tax rate @ 25% : Benefit of reduced corporate tax rate @ 25% is proposed to be

extended to the companies having turnover of upto Rs. 400 Crores in FY 2017-18. Earlier, the

turnover threshold for such reduced corporate tax rate was Rs.250 Crores. In all other cases,

corporate tax rate remains the same.

Section 54GB – Benefit from Taxation of Capital Gains: The benefit of exemption of capital

gain from sale of residential house and property by investing in the equity shares of eligible

startup is provided, subject to some conditions in which following relaxations have been provided:

• Sunset extended from March 31, 2019 to March 31, 2021.

• Requirement of shareholding of 50% now reduced to 25%

• Restriction on transfer of assets upto 5 years now reduced to 3 years for assets being

computer or computer software.

Measures for resolution of distressed companies

• Benefit of exemption from the conditions of section 79 i.e. allowability of carry forward and set

off of losses in case if there is a change in shareholding by 51% or more of the shareholders –

has been provided to the companies undergoing resolution under the Insolvency & Bankruptcy

Code, 2016.

• This benefit has also been extended to the subsidiaries of such companies and to a subsidiary

of such subsidiary where in addition to the change in shareholding condition one more condition

is also fulfilled i.e. where the board of the company gets suspended by NCLT on Central

government (CG) petition and new directors are nominated by CG. Further, the benefit of

deduction of aggregate amount of unabsorbed depreciation and brought forward losses under

MAT Provision also extended to such Companies.

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Changes in the Tax laws – affecting Corporate assessees


Providing Incentives to Start-ups –

Section 79: allows the carry forward and set off of losses in case of companies where 51%

or more of the beneficial shareholding remains with the same shareholders as on date of

incurrence and set off of the said loss.

However for closely held eligible startup companies as defined under sec. 80-IAC, the

condition of 51% or more of the beneficial shareholding remains with the same shareholders

as on date of incurrence and set off of the said loss was relaxed provided it complied with the

following conditions:

• All the shareholders remained the same in the year of set off of loss as incurrence of loss;

and

• The loss was incurred during the period of 7 years beginning with the year of

incorporation.

It is proposed to amend section 79 to provide that in the case of closely held start-up

companies – they shall be eligible to set off losses if either of conditions is satisfied i.e.

either 51% of the shareholders remain the same on date of incurrence and set off of

losses; or

all the shareholders remain same in the year of loss incurred as the year in which the loss

is being set off & such loss is incurred in the first 7 years of incorporation.

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Defining the Term “Consideration for Immovable Property” for deduction of TDS

u/s 194-IA

An Explanation is proposed to be inserted under section 194IA to provide that, the term

‘consideration for immovable property’ shall include all charges of the nature of club

membership fee, car parking fee, electricity and water facility fee, maintenance fee,

advance fee or any other charges of similar nature, which are incidental to transfer of the

immovable property.


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Changes in the Tax laws – affecting all Assessees


Widening the Scope of Statement of Financial Transactions – Section 285BA

In order to widen the scope of SFT, Finance Act 2019 proposes the following

amendments.

i. Mandatory furnishing of SFT by certain prescribed persons other than those who

are currently furnishing the same.

ii. Eliminating the current threshold limit of Rs. 50,000/- on an aggregate value of

transactions during a financial year for furnishing of SFT.

iii. Treating the SFT as inaccurate and not invalid, if a defect in the statement filed is

not rectified.

Consequential amendment made in the penalty provisions contained in section

271FAA of the Act to ensure correct furnish of information in SFT. (Amendment will

take effect from September 01, 2019).

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Incentive to NBFC

Scope of section 43D is widened to include NBFC. Accordingly, interest income on bad

& doubtful debts can be recognized on cash basis. Earlier Sec 43D was applicable only

on scheduled banks & public financials institution etc.

A corresponding amendment is also made in Section 43B, for all assesse’s who can

claim deduction u/s 43B for any interest paid to a NBFC on loans and advances, if it is

actually paid on or before the due date of furnishing the return of income. (Applicable

from AY 2020-21)


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Concessional rate of Short-term Capital Gains (STCG) tax to certain Equity-

Oriented Fund of Funds

To incentivise the funds set up for disinvestment of Central Public Sector Enterprises

(CPSE’s), the Short Term Capital Gain arises on transfer of unit of such fund of funds

shall be taxed at rate of 15% specified in Section 111A. Earlier it was taxable at normal

rate applicable to an assesse. (Applicable from AY 2020-21)

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Promoting cash less economy

For discouraging cash transactions and for promoting a cash less economy, Finance Act

2019 proposes to make an amendment in Sec 13A, 35AD, 40A, 43(1), 43CA, 44AD,

80JJA, 269SS, 269ST and 269T of the Act and the word “bank account” has been

substituted with the word “bank account or through such other electronic mode as

may be prescribed” that means payment made through such other electronic mode

has also been allowed for deduction. Earlier a deduction was only allowed if a payment

was made through an account payee cheque or an account payee bank draft or using

the electronic clearing system through a bank account. (Amendment will effect from

September 01, 2019).

The sections which specifically prohibit Cash Transaction are as under:

• Section 13A: No exemption available of a donation received by political parties if

donation received in Cash exceed Rs. 2,000/-

• Section 35AD: Expenditure of Capital Nature shall not include any expense in

respect of which payment in Cash exceed Rs. 10,000/- to single person in a single

day.

• Section 40A: Disallowance of Expenditure if Payment for expenditure exceeds Rs.

10,000 in cash.

• Section 43(1): This section provide definition of Actual Cost. Where any payment

made for acquisition of an asset or part thereof exceed Rs. 10,000 in a day to a

person, such acquisition will not form part of actual cost.


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• Section 269SS: prohibit a person from taking or accepting from depositor any loan

or deposit or any specified sum equal to Rs 20,000/- or more by way of cash.

• Section 269ST: prohibit a person from receiving an amount of Rs. 2,00,000/- or

more in aggregate from a person in a day in respect of single transaction or in

respect of transaction relating to one event from a person in Cash.

• Section 269T: prohibits a Banking Company or co-operative bank and any other

company or co-operative society and any other firm or other person from repaying

any loan or deposit made with it or any specified advance received by it in excess

of Rs. 20,000/- or more in cash.

Further to discourage the cash transactions, a new section 194N has been introduced

that levies a TDS @ 2% on payments made by a banking company or a cooperative

bank or post office on aggregate cash payments in excess of one crore rupees made

during the year to any person from an account maintained by recipient. (Amendment will

effect from September 01, 2019)

Rationalisation of provision relating to claim of refund

Earlier the refund claimed under the circumstances specified under chapter XIX were to

be claimed by filing a Form 30 as per Rule 41 to an AO. Now in order to simplify the

procedure for claiming refund, section 239 has proposed to be amended. The claim of

refunds under the circumstances refer in Chapter XIX shall now be made only by

furnishing of return under section 139 of the Act. (Amendment will effect from September

01, 2019).


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Relaxation in condition of special tax regime for offshore funds

• In order to relax the conditions of special taxation regime for offshore funds as

specified in Section 9A of the Act, certain conditions are proposed to be removed from

Section 9A(3) in respect of corpus of the fund and remuneration of the fund manager.

Applicable from AY 2019-20

Incentives for Category II AIF

• Section 56(2)(viib) which taxes the excess consideration received than FMV of

shares, provides exemption to Venture Capital Undertakings for receiving

consideration for the issue of shares from Category 1 AIFs and other classes as may

be prescribed. This exemption has been proposed to be extended to Cat II AIFs also.

Applicable from AY 2020-21.

Pass through of losses of AIF to investors

• Under existing provisions of Section 115UB, pass thru of losses are not provided to

investors and retained with AIF only. It is proposed to amend this section and provide

that loss shall be passed on to the investors in genuine cases as under:

Business loss shall not be pass through

Non business loss shall be passed if such loss is in respect of units held for period

of atleast 12 months

Non business loss accumulated as on March 31, 2019 shall be deemed to be the

loss of the unit holders on March 31, 2019 and carry forward in the same manner

as the fund would have done under Chapter VI.

Applicable from AY 2020-21.


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Tax Incentive for Electric Vehicles (New Section 80EEB)

• This newly inserted section provides for a deduction in respect of interest on loan

taken for purchase of an electric vehicle from any financial institution including non-

banking financial company up to one lakh fifty thousand rupees subject to following

conditions

The loan has been sanctioned during the period of April 01, 2019 to March 31,

2023.

The assesse does not have any other electric vehicle on the date of sanction of

loan.

If deduction under this section is claimed, then a deduction shall not be allowed in

respect of such interest under any other provision of the Act.


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Changes in the Tax laws – affecting all Assessees’

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Further tax concessions to units located in IFSC

In order to further promote the development of IFSC, it is proposed to grant several additional tax

benefits:

Tax exemption on transfer of certain securities extended to Category III Alternate Investment Fund

(AIF) subject to fulfilment of specified conditions.

Tax exemption on interest received by non-resident from IFSC unit in respect of ECB taken on or

after September 01, 2019.

No dividend distribution tax on dividend paid out of accumulated income derived from operations

in IFSC. Further in order to incentivise the relocation of mutual funds in IFSC, distribution tax u/s

115R is proposed to be done away with. The amendment is proposed from September 01, 2019.

100% profits linked deductions to IFSC units extended to 10 consecutive years from earlier

deduction for 5 years. The option can be exercised for 10 years out of 15 years. The amendment

will be effective from AY 2020-21.

Relief from deeming FMV provisions (Sec 56(2)(x) & Sec 50CA)

In order to alleviate the genuine hardship in cases where the consideration for transfer of shares is

approved by certain authorities and seller or buyer have no control over such determination, the Bill

proposes to grant relief from determination of fair market value of shares in such cases subject to the

fulfilment of prescribed conditions*.

Exemption from angel tax

Exemption from angel tax u/s 56(2)(viib) extended to investment made by Category II Alternative

Investment Funds. The amendment would be applicable from AY 2020-21.


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Tax on Income distributed to shareholder in case of listed companies

• Scope of section 115QA has been extended to all companies including companies

listed on recognised stock exchange. So any buy back of shares by a listed company

on or after 5 July 2019 shall be covered in this section.

• Accordingly exemption under section 10(34A) is proposed to be extended to

shareholders of Listed Companies on account of Buy back of shares on which

additional income tax has been paid by Company

Facilitating demerger of Ind-AS complaint companies

• Section 2(19AA) of the Act lays down various condition for tax-neutral demergers one

of them being that the resulting company should record the property & the

liabilities of the undertaking at the value appearing in the books of accounts of

the demerged company. This was in contrast with the Ind-AS as per which

companies are required to record such property & the liabilities at different values

(FMV). In order to provide the benefit of Section 47 i.e. transaction not treated as

transfer to the Ind-AS compliant companies, it is proposed to amend section 2(19AA)

of the Act to provide that the requirement of recording property and liabilities at book

value by the resulting company shall not be applicable to Ind-AS compliance

companies.


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Changes in the Tax laws – affecting Cross Border Transactions & Transfer Pricing

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Deemed accrual of gift made to person outside India • To ensure that gifts made by residents to persons outside India are subject to tax, it is proposed

to provide that any sum of money paid or property situate in India transferred to person outside

India after July 05, 2019 shall be deemed to accrue or arise in India as per the provisions of

Section 9. Necessary amendment to be made in Sec 2(24)(viia) of the Act.

Online filing of application u/s 195(2) • Section 195(2) which provides for mechanism of obtaining lower/ Nil deduction certificate from an

AO, is proposed to be amended to provide for the form and manner of online filing of applications

to an AO and the manner of passing the corresponding order by AO.

Relaxing provisions of Section 201 & Section 40 for Non-Residents • The existing section 201 and section 40 provide for conditions of not treating the assessee as an

assessee in default for not deducting or depositing the tax from resident payee. It is proposed to

amend these sections and extend the benefit of this proviso even in case of failure to deduct tax

on payment to non-resident. Applicable from September 01, 2019.

Recovery of tax in pursuance of agreement with foreign countries • In order to rationalize the recovery of tax in pursuance of agreements with foreign countries and in

order to provide/receive assistance in tax recovery, it is proposed to amend section 228A. In

cases where it is known that the person is resident in India, but the detail of property is not known

and vice versa i.e. where it is known that the person is resident of a foreign country, but the detail

of property is not known.

Applicable from September 01, 2019.


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AO to consider modified total income in line with APA • W.e.f. September 01, 2019, in respect of years for which assessment or reassessment has

already been completed and modified income tax return has been filed by the tax payer in line

with APA, the Assessing Officers are to pass an order modifying the total income for such years in

accordance with such APA.

Secondary Adjustment - Option of one-time tax payment @ 18% + Surcharge @ 12% • In case of non-repatriation of monies receivable on account of primary TP adjustment within

prescribed time, an option has been given to the assesse (w.e.f from September 01, 2019):

To pay additional one-time income-tax @ 18% + Surcharge @ 12% on the monies due, in

addition to the interest to be calculated till the date of additional tax payment.

No credit of additional tax shall be allowed

No deduction of primary adj. amount of monies due will be allowed under any other

section of the Act

• Provisio to sec. 92CE lays down the conditions of applicability of a secondary adjustment,

namely, a threshold of one crore rupees of the primary adjustment and that such adj. is made on

or before AY 2016-17. It has been clarified in the Budget 2019 that these are alternate conditions

with retrospective effect from AY 2018-19.

• Monies due from multiple non-resident associated enterprises (AEs) in the case of a primary

adjustment can be repatriated from any or all w.r.e.f. AY 2018-19


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Clarification of definition of ‘accounting year’ for Country-by-Country Report (CbCR) • In case of resident alternate reporting entity of an international group with a non-resident parent

entity, the reporting accounting year is to be the accounting year applicable to such parent entity.

This is w.r.e.f. AY 2017-18

Master file required even in absence of international transactions • Filing of Master File by constituent entity of an international group is mandatory even in case of no

international transaction undertaken by such constituent entity.


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Changes in the Tax laws for Indirect Taxes

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Goods & Service Tax Act • Taxpayers having annual turnover of less than Rs. 5 crore can now file quarterly returns starting from

the quarter October to December 2019.

• Relaxation to the composition taxpayer to allow furnishing annual return along with quarterly payment

of taxes under the proposed new return system

• Fully automated GST refund module shall be implemented.

• An electronic invoice system is proposed that will eventually eliminate the need for a separate e-way

bill.

Customs • Basic Custom Duty increased on cashew kernels, PVC, tiles, auto parts, marble slabs, optical fibre

cable, CCTVs.

• Exemptions from Custom Duty on certain electronic items now manufactured in India withdrawn.

• End use based exemptions on palm stearin, fatty oils withdrawn.

• Exemptions to various kinds of papers withdrawn.

• 5% Basic Custom Duty imposed on imported books.

• Customs duty reduced on certain raw materials such as:

• Inputs for artificial kidney and disposable sterilised dialyser and fuels for nuclear power plants etc.

• Capital goods required for manufacture of specified electronic goods.

• Defence equipment not manufactured in India exempted from basic customs duty.

• Custom duty on gold and other precious metals increased

Other Indirect Tax provisions • Legacy Dispute Resolution Scheme for quick closure of pending litigations in Central Excise and

Service tax from pre-GST regime

• Export duty rationalised on raw and semi-finished leather

• Increase in Special Additional Excise Duty and Road and Infrastructure Cess each by Rs. 1 per litre on

petrol and diesel


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structuring Sales, Divestitures and Demergers Transaction Evaluation (Due Diligence) Negotiation & transaction Management CapitalConnect

TAXATION SERVICES

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For further details, contact:

Pallavi Dinodia Gupta,

Partner (Delhi Office)

E: [email protected]

Tel: 011-43703311

Rekha Dhamankar

Partner (Pune Office)

E: [email protected]

Tel: 020 25469683

Delhi office: K-39, Connaught Circus,

New Delhi – 110001, INDIA

Pune Office

Flat No. 11, Siddhatek Apartments,

4th Floor, 95/8, Prabhat Road,

Pune 411004

E : [email protected]

Website : www.srdinodia.com

S.R. Dinodia & Co. LLP., Chartered Accountants

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INDIAN UNION BUDGET - S.R Dinodia & Co. LLP · The Indian Union Budget 2019 – Highlights Corporate tax rate @ 25% : Benefit of reduced corporate tax rate @ 25% is proposed to be