Union Budget 2019-20

Direct Tax Proposals

Section 01

Budget backdrop
Budget Backdrop

• Direct tax revenues increased significantly over the past few years:

− 78% growth in direct tax collections in five years (from FY 13-14 to FY 18-19)

− 48% increase in number of tax payers in four years (from FY 13-14 to FY 17-18)

• Focus of the Government in this Budget is on:

− Widening of the tax base and promoting cash less payment methods;

− Strengthening anti-abuse measures;

− Tax incentives;

− Removing tax difficulties faced by taxpayers; and

− Improving effectiveness in tax administrations and rationalising the tax laws

Union Budget 2019-20 3

Section 02

Personal tax
proposals
Personal tax proposals
Tax Rates
• No change in slabs and tax rates
• Additional surcharge on higher income group
– Total Income exceeding INR 20 Mn upto INR 50 Mn –
Surcharge @ 25% (effective tax rate* 39%)
– Total Income exceeding INR 50 Mn – Surcharge @ 37%
(effective tax rate* 42.74%)
Deductions
• Section 80EEA – Deduction upto INR 0.15 Mn for interest on
loan availed from any financial institution for purchase of
residential house property
– Stamp duty value should not exceeding INR 4.5 Mn
– No other house property owned on the date of sanction of loan
– Loan sanction in FY 2019-20
*inclusive of surcharge and cess
Union Budget 2019-20
• Section 80EEB – Deduction upto INR 0.15 Mn for interest on
loan from financial institution for purchase of electric vehicles
– Loan sanction from April 1, 2019 to March 31, 2023
– No other electric vehicle owned on the date of sanction
NPS
• Exemption on withdrawal on closure/ opting out of NPS
enhanced from 40% to 60% of amount payable
• Additional deduction to Central Government employees for
contribution made towards NPS
Black Money
• NR/ NOR are now covered under Black Money law if they were
resident in the year to which undisclosed foreign asset was
acquired or undisclosed foreign income relates
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Section 03

Corporate tax
proposals
Corporate tax proposals

Base Tax Rates – Deduction on payment basis – No deduction if already claimed

on accrual basis in previous years
• Benefit of reduced tax rate of 25% extended to companies with
turnover less than INR 4,000 Mn in FY 2017-18 – Conversion of interest into loan not deemed as payment

Gifts made to persons outside India deemed to accrue or arise

Affordable Housing
in India
• Definition of “Affordable Housing” for profit linked deductions
• Deemed income imputation for money paid / property situated in
aligned to GST definition with key changes in conditions
India which is transferred by residents to a person outside India
– Increase in carpet area size for residential units on or after July 5, 2019 below prescribed value – Treaty
provisions continue to apply
– Maximum stamp duty value for residential unit – INR 4.5 Mn
Relaxation in conditions for offshore funds
– Expansion in definition of Metropolitan cities
• Conditions for the eligible investment fund has been relaxed
Incentives to NBFCs
– Minimum corpus requirement to be met by the end of year or
• Interest income on sticky loans taxable on receipt basis in case six months from the month of incorporation, whichever is later
of specified NBFCs
– Remuneration paid to fund manager as per the prescribed
• Tax deduction on interest payment to specified NBFCs allowed manner
on payment basis
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Section 04

Start-ups & IFSC

Relief to start-ups
Change in condition for carry forward and set off of losses for
Eligible Start Ups
• Allows option to govern by the general provision (i.e. of 51 percent
of voting power) or be governed by specific provision applicable for
Start-ups
• Even if there is a change in shareholding pattern, benefit of carry
forward of business losses upto 7 years if all the existing
shareholders continue to hold those shares in the year of set off
Exemption from LTCGs from sale of residential property on
investment in eligible start-ups – Section 54GB
• Sun set date for transfer of residential property extended to 31
March 2021 (from existing 31 March 2019)
• Minimum shareholding / voting power in such start-ups reduced to
25% (from existing 50%)
• Lock-in period for holding computer/computer software purchased
by such start-ups reduced to 3 years (other assets continue to be 5
years)
Union Budget 2019-20
Mandatory compliance with the notification of exemption issued
under section 56(2)(viib)
• Benefit of exemption extended for shares issued by venture capital
undertaking to Category I & II Alternate Investment Funds
• Exemption provided under section to be withdrawn if the company
fails to comply with any of the specified conditions and the income
will be liable to tax in the year of such failure
Proposals missing in the fine print
• Exemption from scrutiny on valuation of share premiums subject to
start-ups and investors filing requisite declarations and providing
relevant information in tax returns
• Introduction of e-verification for identification of investors /source of
funds
• No inquiry / verification of pending cases by assessing officers
without prior approval of supervisory officer
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Incentives to International Financial Services Centre (IFSC)
Tax Holiday for units in IFSC
• Currently, tax deduction to IFSC unit is provided as under-
– 100% for first 5 years; and
– 50% for the next 5 years
• It is now proposed that the deduction will be allowed at 100% for any
10 consecutive years out of a block of 15 years at the option of the
assessee.
Exempt interest income
• Interest payable to a non-resident by an IFSC unit - not taxable on
monies borrowed on or after September 1, 2019
Extension of tax-free dividend distribution
• Currently, DDT exemption was restricted to distribution of only
current income by a company, being unit in IFSC
• This exemption has now been extended to any dividend distribution
out of current income or income accumulated as a unit of IFSC after
April 1, 2017
Union Budget 2019-20
Exemption from income distributed by mutual funds located in
IFSC
• Mutual Funds set up in IFSC, with all non-resident unitholders, have
been exempted from dividend distribution tax subject to the certain
conditions.
Extension of capital gains tax exemption
• Earlier, transfer of bond, derivative or GDR traded on a
stock exchange located in an IFSC by a non-resident where
consideration is in foreign currency was tax neutral
• This exemption has now been extended to:
– Category III Alternate Investment Funds in IFSC, with all non-
resident unitholders, subject to certain conditions
– Additional securities to be notified;
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Section 05

TDS
TDS

Nil / lower TDS certificates / orders
• Online application for nil / lower TDS certificate for payments
(other than salary) to non-residents in a prescribed form and
manner with effect from November 1, 2019
• Manner of determination of appropriate portion of sum chargeable
to be notified
Non-compliance with Withholding tax
• Provisions relating to assessee in default relaxed to include non-
resident payees also
• Deduction to payer allowed if compliances by non-resident payee
Introduction of Section 194M
• TDS provisions extended to all Individuals and HUF (other than
those already required to comply) for section 194C & 194J
payments with effect from September 1, 2019
• TDS @ 5% on gross payment; however threshold of INR 5 Mn
prescribed
• Obtaining TAN not mandatory
Union Budget 2019-20
Introduction of Section 194N – TDS on cash withdrawals
• TDS @ 2% on cash withdrawals exceeding INR 10 Mn in a year
from an account maintained by any person with a banking
company, co-operative society or post-office with effect from
September 1, 2019
• No TDS on payments made to Government, banking company,
co-operative society, white label ATM operators and such other
persons or class or persons as may be notified
Section 194-IA - TDS on purchase of immovable property
• Consideration will now include all charges of the nature of club
membership fee, car parking fee, electricity and water facility fees,
maintenance fee, advance fee or any other charge of similar
nature, that are incidental to transfer of the immovable property
• TDS continues to be deducted at 1%
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Section 06

Return of Income &

PAN
Return of Income & PAN

Mandatory filing of Return of Income PAN

• Mandatory furnishing of Income Tax Return by persons (other
than companies and firms) even if income below threshold limit,
provided following conditions are satisfied -
– Claiming exemption under sections 54, 54B, 54D, 54EC, 54F,
54G, 54GA and 54GB from capital gain
– Depositing amount exceeding INR 10 Mn in one or more
current accounts
• Inter-changeability of PAN with Aadhaar proposed to ensure ease
of compliance
• PAN or Aadhaar to be quoted in all documents relating to such
transactions as may be prescribed
• Person required to quote his PAN and recipient of document for
prescribed transaction to ensure authenticity (as per prescribed
methodology), else penalty of INR 10,000 per default

– Incurring expenditure of amount exceeding INR 0.2 Mn for • PAN inoperative if non-linked with Aadhaar - from a date to be
himself or any other person for travel to a foreign country notified

– Incurring expenditure of amounts exceeding INR 0.1 Mn

towards consumption of electricity

– Fulfilling such other conditions as may be prescribed

• Every claim for refund under the Act, shall be made by furnishing
return of income under section 139

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Section 07

Mergers &
Acquisitions related
Mergers and Acquisitions related
Buy Back tax
• Buy-back tax @ 20%* now applicable to listed companies on or
after July 5, 2019
Exemption from deeming provisions of FMV for certain
transactions
• In case of transfer approved by certain authorities:
– Deemed FMV provisions shall not be applicable on transfer of
unquoted shares by certain class of persons (as may be
prescribed)
– Deemed FMV provisions shall not be applicable in case of
receipt of “Property” by certain class of persons (as may be
prescribed)
Relief provided to distressed companies
• Provision relating to lapse of brought forward business loss not
applicable in case of change in shareholding of a company
pursuant to NCLT order under section 242 of the Companies Act,
2013
Union Budget 2019-20 * Plus surcharge and cess
• Benefit is also available to subsidiary of such company and the
subsidiary of such subsidiary
• Aggregate of unabsorbed depreciation and loss allowed as set off
while computing MAT liability for aforesaid situation
Demerger in case of Ind-AS compliant companies
• Recording of property and liabilities pursuant to demerger at fair
value in compliance with IND AS accounting by the resulting
company now qualifies as tax neutral demerger with effect from 1
Apr 2020
Definition of equity-oriented funds widened
• Expanded definition of “equity-oriented fund” for the purpose of
LTCGs (section 112A) will also be applicable for the purpose of
STCGs (section 111A)
• Concession tax rate of 15%* on STCGs to be available to such
funds
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Section 08

Other general
proposals
Other general provisions

• Under-reporting of income to include first time return filing under
section 148; effective retrospectively from AY 2017-18
• Widening scope of Statement of Financial Transactions („SFT‟)
– To enable pre-filled return of income; threshold of INR 50,000 for
furnishing the information is now removed
– Penalty of INR 50,000 to be levied on all reporting entities for
furnishing inaccurate statement
• Promoting payments through electronic modes
– Every person, carrying on business, with turnover > INR 500 Mn,
to provide facility for accepting payment through prescribed
electronic mode with effect from November 1, 2019
• Exemption for interest earned by a non-resident on rupee
denominated bonds issued during September 17, 2018 to March
31, 2019 legislated
• Rationalisation of provisions of prosecution proceedings for a
person not being a company
– All pre-paid taxes (i.e. advance tax, self assessment tax, TDS,
TCS) to be considered to determine „tax payable‟
– Existing threshold limit for tax payable increased to INR 10,000
(from INR 3,000)
• Public Charitable Trusts - Violation of objects under other laws
construed as violation for tax laws as well

– Penalty of INR 5,000 per day for period during which such failure
continues

– Reference to payment through banks to include other electronic

payment modes as may be prescribed

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Section 09

Transfer Pricing
Transfer Pricing

Secondary Adjustment rules rationalized APA

• Relief from secondary adjustment for APAs signed before April 01, • Order to give effect to the APA to be restricted only to issues
2017 covered in the APA and not assess or reassess other issues.

• Changes also proposed to clarify the applicability is from FY 2016- Clarification w.r.t. CbCR
17 and only if primary adjustment exceeds INR 10 Mn
• It is clarified that in case of an Alternate Reporting Entity resident in
• Excess money may be remitted from any overseas associated India whose ultimate parent entity is not resident in India, the
enterprise reporting accounting year to be the year applicable for the ultimate
parent entity
• Instead of remitting the primary adjustment or treating it as a
perpetual interest bearing loan, taxpayers now have an option to
pay tax at 18 percent plus 12 percent surcharge on the same and
attain finality (September 1, 2019 onwards)

Master File

• The memorandum to the Finance Bill suggests that companies (part

of an international group with annual turnover exceeding INR 5000
Mn) even without any international transactions (presently INR 100
Mn for intangibles and INR 500 Mn for others) may be required to
maintain information / documentation

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Section 10

Road map ahead

Road map ahead

• Focus of the Government on curtailing general incentives / deductions and reducing tax rates

• Promoting “Make in India” initiative by proving tax incentives to emerging sectors

• Encouraging “less cash” economy by thrust on digital payments

• Endorsing the use of technology in tax compliances and administration

• New Direct Tax Code on the anvil

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Thank you