BUDGET ANALYSIS 2019bkkhareco.com/pdf/Budget-2019.pdf · 2019-11-06 · [03] Dear Esteemed Readers,...

B.K. Khare & Co.Chartered Accountants

B U D G E T A N A LY S I S 2 019

This publication is a service to our clients based on a quick appreciation of the budget proposals and must not be regarded as professional advice, authoritative opinion or the sole basis for your decisions. This publication does not constitute an offer or solicitation. For Private Circulation only.

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Contents Editorial 03

Economic Survey 2019 – Highlights 07

– Key Indicators – At a Glance 07

– Sectoral Performance – At A Glance 08

– Commendable Performance – Few Snippets 08

– India – On the Move? 09

Direct Taxes 10

Indirect Taxes 37

Glossary 43

B. K. Khare & Co.

BUDGETANALYSIS2019

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Dear Esteemed Readers,

‘Sabka Saath, Sabka Vikas, Sabka Vishwaas’, the expanded mantra guiding the Modi Sarkar 2.0 was on full display across the Union Budget that was presented to the Parliament by the new Finance Minister, Mrs. Nirmala Sitharaman, the first by a lady, after Mrs. Indira Gandhi. Riding on high anticipations, this Budget was expected to provide the impetus to India’s economic growth, a new momentum to an otherwise tepid economic environment. Coming as it does, within 6 months from an interim-budget which was laced primarily with populism, we expected a bold budget, something which would jump-start the economy.

The global headwinds continue to be choppy, which is owing to the churn expected during the emergence of a multi-polar world order. We are in the midst of an imminent global trade-war looming, with India being caught in the cross-fire. While this surely presents an opportunity for India with possibility of increased trade traffic being diverted here, the impending election compulsions in the USA are having ripple effects across the world and India has not been spared either, the recent tit-for-tat tariffs being the latest in the saga. The USA continues to be India’s single-biggest trading partner, with almost 16% exports going there. The tumult in the middle-east is peaking, in what now seems to be a cyclical phenomenon. Oil is fast emerging as the geo-political calling card for India, which is evident from the heightened global interest in India’s refineries, even as India does a tight-rope balancing act between its security & energy needs. Climate change is yet another global flashpoint, which is impacting investment in a big way. According to a recent UN Report, the world economy is expected to register a 3% growth. It is amidst this sober economic landscape, India has continued to shine, with a 6.8% growth rate

for FY 2018-19 (maintaining the fastest growing major economy tag), which was a commendable performance indeed.

The Economic Survey published as a prelude to this Budget, has made out a strong case for radical and structural reforms, that would enable an 8% economic growth to propel India into the $5 trillion-club (currently at $2.7 trillion). Very ambitious indeed, as it may sound, the Survey does present a dozen ideas, some of which are summarized below:

vv If there was a positive standout in the Survey, it had to be allusion to the ‘Nudge Theory’, something which won Prof. Richard Thaler, the noble prize in economics. This theory explores how human psychology shaped economic decisions. For example, Prof. Thaler’s work led to the UK setting up a ‘nudge unit’ under former prime minister, Mr. David Cameron. It was launched in 2010 to find innovative ways of changing public behaviour. Closer home, the ‘Swacch Bharat Abhiyan’ and the ‘Beti Bachao, Beti Padhao’ campaigns (projects which are close to our Hon’ble Prime Minister’s heart) are cases-in-point of how human behavior could bring societal change, leading to economic betterment.

vv The Survey makes a strong case to incentivize start-ups rather than the traditional attention & encouragement to MSMEs (‘dwarfs’ says the Survey), who the Survey argues, have a relatively-low proportion of value-addition and growth creation.

vv The Survey has identified the ability to enforce contracts and resolve disputes as the single biggest constraint to ease of doing business in India (India is ranked 163rd on this parameter). The introduction of the IBC has eased the situation somewhat, for

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B U D G E T A N A L Y S I S 2 0 1 9

sure, but the Survey acknowledges that more needs to be done. Towards this end, the Survey makes a fervent pitch to augment judicial capacity through appointment of additional judges, especially at the District and Subordinate Court levels, where almost 88% cases are pending.

vv While noting that economic policy uncertainty in India has reduced significantly over the last decade, the Survey makes the case for certainty in this regard and the tracking of ‘Economic Policy Uncertainty Index’ at the highest level on a quarterly basis.

vv The benefits of favorable demographic dividends, the thrust on savings, exports, labour reforms, use of technology to track welfare schemes and highlighting the importance of investment-led growth for ‘virtuous’ economic cycle are some of the usual suggestions seen in past-few Surveys, continued in this Survey too.

That apart, the Survey has projected a 7% growth expectation for FY 2019-20, up from 6.8% for FY 2018-19 (which was a five-year low). Amongst the positives, India has emerged as the 6th largest (3rd by purchasing power parity terms) economy in the world & has the lowest sovereign external debt to GDP ratio at less than 5%. The proposal to borrow internationally in convertible foreign currency is a bold one indeed. Concerning is the fact that India recorded marginally negative growth during FY 2018-19, in foodgrain production (285 million tonnes to 283.4), industrial production (4.4% to 3.6%) and electricity generation (4% to 3.5%), three vital parameters, which spoke of the urgency for major reforms. Similar trends experienced in exports and inflation were expected to influence the Budget’s contours.

The Survey has depicted a 3.4% gross fiscal deficit, which is manageable indeed.

It was amidst this milieu that the Union Budget 2019 (2) was presented. Being the first year in office for the Modi Sarkar 2.0, the markets expected bolder and structural reforms to augment production and innovation. Instead, the Finance Minister chose to focus on enabling credit as a means to spur growth. As someone has aptly summed it up, while it was hoped that ‘the Finance Minister would hit some boundaries, she chose instead to take steady singles and keep the run-rate moving’.

‘High on intent, low on content’ as some naysayers would comment. But the Budget does have its share of positives. Extension of pension benefits under the Pradhan Mantri Shram Yogi Maandhan Scheme to traders and small shopkeepers (turnover < `1.5 crores) which provides pension of ` 3,000 per month after completing 60 years, augmenting ` 70,000 crores for bank re-capitalization, enhancing India’s soft power by opening more Indian Embassies and High Commissions abroad, are some noteworthy proposals indeed. Besides, continued patronage to the flagship programmes of the Modi Sarkar 1.0 viz. Ujjwala Yojana, Saubhagya Yojana, Pradhan Mantri Awas Yojana, Pradhan Mantri Gram Sadak Yojana, UDAN Scheme, Sagarmala project and the massive PPP-mode investment planned in creating railway infrastructure exhibit the Government’s infrastructure investment push. Assimilation of research grants given by various Government Ministries under the National Research Foundation is expected to develop a favorable research eco-system in India. The proposal to issue Aadhaar Card to NRIs with Indian passports immediately would enhance the Card’s reach and acceptability. Relaxing local sourcing norms for FDI in single-brand retail would come as a much-needed balm to this promising sector,

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which has the potential to act as force multiplier for job creation and facilitate entrepreneurship.

The Finance Minister’s speech highlighted the financial gains from cleaning up of the banking system. NPAs have come down dramatically over the last year and there has been a record recovery of over ` 4 lakh crores due to the IBC. As many as 6 Public Sector Banks have come out of the RBI’s stringent Prompt Corrective Action Framework. The Budget does contemplate asking the SEBI to consider raising the public shareholding thresholds from the minimum of 25% at present to 35%. This will give a fillip to the equity markets. Inter-operability between the RBI and SEBI depositories is expected to herald the retail investors into treasury bills and G-Secs. Merger of the NRI-portfolio Investment with the FPI-one and liberalization of FPI investment ceiling would help augment cross-border investments. To allow the National Housing Bank to carry out its financing function more effectively, the Budget has proposed to transfer the regulatory powers of the housing finance sector to the RBI.

That there was no major tinkering in the direct tax proposals was good news indeed. The Interim Budget had already laid out the salient tax proposals for FY 2019-20. Quite expectedly, there was no change to the lower tax slabs. Keeping in line with the promise made during Modi Sarkar 1.0, the proposal to cap corporate tax rate to 25% for corporates with annual turnover below ` 400 crores (which covers almost 99.3% of the corporate population) is a welcome one indeed. The proposal to enhance surcharge rates for super-rich taxpayers reflects the expectation from the latter to do more for the Society, at large. The focus on environment protection has not gone unnoticed. So, this Budget does have investment-linked deduction for certain sunrise and advanced technology areas (cells, batteries, servers, laptops and so on)

and the interest deduction benefit for purchase of electric vehicles. A slew of measures seeking to make the IFSC more attractive, have been proposed. The proposed housing loan interest deduction benefit of upto ` 150,000 is expected to boost demand for housing. Extension of the Section 43D benefit (currently afforded to Banks) to NBFCs is a welcome move, as it seeks to bring parity with the Banks. Faceless assessment has already been piloted and is expected to gain traction in the months to come.

On the indirect taxes front, the Finance Minister has proposed certain measures to simplify the law, ease the compliance burden and reduce litigation, on the lines recommended by the GST Council. With the formation of this Council, the propensity to effect major changes in indirect taxes are generally not expected in the Finance Bill. However, deviating from this trend, the Budget does contain proposals to amend key Sections of the GST legislation. For instance, the 10% anti-profiteering penal provision proposed now is expected to act as a credible deterrent and in line with the Government’s stated policy of reducing the cost burden to consumers. Also, the proposed power to attach bank account for customs violations, the enabler to arrest offenders outside India & treating the fraudulent use of instruments for obtaining customs benefits as cognizable and non-bailable offences are reflective of the Government’s intent to target evaders. The proposed amnesty scheme announced in this Budget to reduce litigation in excise and service tax areas would serve as some cheer to the trading and manufacturing populace. Though the GST rate, in absolute terms, is fairly healthy i.e. 10% plus (on average), yet, the actualized rate works out to about abysmal 4%, thus, highlighting the need to reform this area.

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‘Modi hai, toh mumkin hai’, famously hailed the US Secretary of State during his recent India visit. Certainly, a lot needs to be done to fructify the $5 trillion vision. While the blue-print has been laid out keeping a 10-year horizon in mind, will Mr. Modi’s team walk the talk on delivery. Only time will tell! We, of course, continue to pin our high hopes on this Government. And hope has not been taxed, i.e. as yet!

With this, I commend to you, our detailed analysis of the various direct and indirect tax proposals, as contained in the later pages, for your reading. As always, I look forward to hearing your valuable feedback and comments on the contents of this publication, which it must be said is not a substitute for any professional

advice, but an expression of our views informed by our experience.

Sincerely,

Padmini Khare Kaicker Managing Partner

B.K. Khare & Co. Chartered Accountants

Date: July 6, 2019

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ECONOMIC SURVEY 2019 – HIGHLIGHTSThe Economic Survey for FY 2018-19 was tabled on July 4, 2019 in the Parliament, amidst much

fanfare and expectations. Before we proceed to analyze the contents of the Survey, we deem it fit to present a snapshot of the Survey’s statistical highlights, followed by a reality check on the state of the economy.

Key Indicators – At a Glance

Parameter Unit 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 (projected)

GDP Growth % 7.2 8.0 8.2 7.2 6.8 7.0

Per Capita Income ` 86,879 94,797 104,659 114,958 126,406 NA

Wholesale Inflation % 2.0 -3.7 1.7 3.0 4.3 NA

CPI Inflation % 5.9 4.9 4.5 3.6 3.4 NA

Current Account Balance/GDP % -1.3 -1.1 -0.6 -1.9 -2.6 NA

Forex Reserves USD Billion 341.6 360.2 370.0 424.5 412.9 NA

Average Exchange rate `/USD 61.14 65.5 67.1 64.5 69.9 NA

Fiscal Deficit % of GDP 4.0 3.9 3.5 3.5 3.4 3.3

Revenue Deficit % of GDP 2.9 2.5 2.1 2.6 2.3 NA

vv While the world economy was expected to clock a modest 3% growth, India has retained the fastest growing major economy tag

vv India is now the 6th largest economy in terms of GDP in current US$ & 3rd by purchasing power parity terms

vv The trade deficit increased from US$ 162.1 billion in FY 2017-18 to US$ 184 billion in FY 2018-19, in part, owing to the increase in oil prices by about US$ 14/barrel & hardening of US interest rates during that period

vv Rupee depreciated by 7.8% vis-a-vis the US dollar (reaching ` 69.2 per US$ as on March 31, 2019), 7.7% against Yen, and 6.8% against Euro and Pound Sterling in FY 2018-19

vv India’s foreign exchange reserves continue to be comfortably placed at US$ 422.2 billion, as on June 14, 2019

vv Total expenditure of Central Government grew by 7.9% during FY 2018-19, with the growth of 15.1% in capital expenditure leading to increase in share of capital expenditure in total expenditure; the corresponding growth in total expenditure was 8.4% and capital expenditure, (-)7.5% during FY 2017-18

vv NPAs as a percentage of Gross Advances of Scheduled Commercial Banks decreased from 11.5% to 10.1% between March 2018 and December 2018; the decline was sharper for Public Sector Banks from 15.5% to 13.9% during the same period

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Considering the global tumult and harsh headwinds, the projected 7% growth for FY 2019-20 is indeed a welcome one, which is expected to help achieve US$ 3 trillion economy status.

Sectoral Performance – At A GlanceFor a quick appreciation of the sectoral performance, a comparative tabulation of sectoral growth YoY spanning last 4 years is provided below, followed by our comments on the Economic Survey:

Sector 2015-16 2016-17 2017-18 2018-19Agriculture, forestry & fishing

0.7 6.3 5.0 2.9

Industry 8.8 7.7 5.9 6.9

Mining & quarrying

10.5 9.5 5.1 1.3

Manufacturing 10.8 7.9 5.9 6.9

Electricity, gas, water supply & other utility services

5.0 10.0 8.6 7.0

Construction 5.0 6.1 5.6 8.7

Services 9.7 8.4 8.1 7.5

Trade, hotels & restaurants, transport & communication

10.5 7.7 7.8 6.9

Financing, insurance, real estate & business services

10.8 8.7 6.2 7.4

Community, social & personal services

6.9 9.2 11.9 8.6

GVA at basic prices

7.9 7.9 6.9 6.6

Commendable Performance – Few Snippetsvv During FY 2018-19, about 210 kilometers of

metro lines have been operationalized. With this, 657 kilometers of metro rail network has become operational across India.

vv India’s first indigenously developed payment ecosystem for transport, based on National Common Mobility Card standards, has been launched this year. This will enable people to pay multiple kinds of transportation charges, including metro services and toll tax, across the country.

vv For ease of credit access for MSMEs, the Government has introduced providing of loans upto ` 1 crore within 59 minutes through a dedicated, online portal.

vv Household access to clean cooking gas has seen an unprecedented expansion, through provision of more than 7 crore LPG connections.

vv All villages and almost all households across India have been provided with electricity.

vv A total of 1.54 crores rural homes have been completed in the past 5 years.

vv All weather-connectivity has been provided to over 97% of the habitations, by maintaining a frenetic pace of road construction of about 130-135 kilometers each day, during the past 3 years.

vv The Government has identified 1,592 blocks, which are critical and over-exploited, spread across 256 districts for the Jal Shakti Abhiyaan.

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vv More than 5.6 lakh villages have been open defecation free, thanks to the construction of 9.6 crores toilets since 2014, under the Swacch Bharat Abhiyaan.

vv Under the Pradhan Mantri Awas Yojana-Urban, over 81 lakh houses with an investment of about ` 4.83 lakh crores have been sanctioned, of which construction has started in about 47 lakh houses. Over 26 lakh houses have been completed, of which 24 lakh houses have been delivered to the beneficiaries.

vv A programme of mass scaling up of LED bulbs for widespread distribution at household level, was taken up, under the UJALA Yojana, whereby about 35 crore LED bulbs have already been distributed.

vv About 30 lakh workers have joined the Pradhan Mantri Shram Yogi Maandhan, which aims at providing ` 3,000 per month as pension to those in the unorganized and informal sectors, upon attaining 60 years.

India – On the Move?India has a demographic advantage and its populace brimming with ambition. The lofty aim of achieving US$ 5 trillion economic status by FY 2024-25, is therefore, quite achievable, if the Government were to pay heed to the various suggestions made in the Survey especially reforming the judicial system, providing policy certainty, make India an investor-friendly destination to attract FDI, unshackling the labour regime & adequately incentivizing the start-up ecosystem in India and of course, sticking to the fiscal road-map. The crux will therefore, lie in the implementation of the roadmap that has been set-out in this Survey and addressed in the Budget.

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DIRECT TAXESINCOME TAX The clauses in the ‘Bill’ so far as they relate to direct taxes, when enacted, will operate with effect from Assessment Year 2020-21. Where the intention is otherwise, there will be a specific mention of the fact. The readers will notice that when we make our comments on the diverse clauses of the Bill, we have indicated the material clauses in bracket.

Amendments to Tax Rates For Individuals, Hindu Undivided Families Association of Persons and Body of Individuals. No change has been proposed in Income-tax slab and the applicable rates as compared to the Finance (No. 1) Act, 2019.

Existing Proposed

Income (`) Rate (%)(1)(3) Income (`) Rate (%)

(1)(3)(4)

0 – 2,50,000(2) Nil 0 – 2,50,000(2) Nil

2,50,001 – 5,00,000 5 2,50,001 – 5,00,000 5

5,00,001 – 10,00,000 20 5,00,001 – 10,00,000 20

10,00,001 and above 30 10,00,001 and above 30

A resident individual whose taxable income does not exceed ` 5,00,000 can claim tax rebate under Section 87A. Tax rebate is lower of the amount of income-tax amount and ` 12,500.

(1) Health and education cess shall be levied at the rate of 4% on income-tax including surcharge where applicable as stated below.

(2) The basic exemption limit is ` 2,50,000 in the case of every individual below the age of 60 years, ` 3,00,000 in the case of resident individuals of the age of 60 years or more and ` 5,00,000 for ‘Very Senior Citizen’ in the case of resident individuals of the age 80 years and above.

(3) Surcharge at the rate of 10% of such income-tax is applicable in the case of a person having a total income exceeding ` 50 lakhs, but not exceeding ` 1 crore and 15% in the case of a person having a total income exceeding ` 1 crore.

(4) Surcharge at the rate of 25% of such income-tax is applicable in the case of a person having a total income exceeding ` 2 crores, but not exceeding ` 5 crores and 37% in the case of a person having a total income exceeding ` 5 crores.

For OthersTax Rates applicable for Total Income / Book Profit exceeding ` 10 crores (Company including foreign company)

Description Existing Rate (%)(5)

Proposed Rate (%)(5)

A) Domestic company

Regular Tax (i.e. for companies having turnover in excess of ` 400 crore in FY 2017-18)

34.944 34.944

Where the total turnover or gross receipts in the FY 2016-17 does not exceed ` 250 crores

29.120 –


– 29.120

MAT 21.549 (of Book Profit)

21.549 (of Book Profit)

Dividend Received from specified foreign company

17.472 17.472

B) Foreign Company

Regular Tax 43.680 43.680

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Tax Rates Applicable for Total Income / Book Profit less than ` 10 crores (Company including foreign company)

Existing Rate (%) Proposed Rate (%)

DescriptionRange of Income Range of Income

` 1 crore to ` 10 crores(6)

Less than ` 1 crore(7)

` 1 crore to ` 10 crores(6)

Less than ` 1 crore(7)

A) Domestic company (i.e. for companies having turnover in excess of ` 400 crore in FY 2017-18)

Regular Tax 33.384 31.200 33.384 31.200


27.820 26.000 – –


– – 27.820 26.000

MAT 20.587 19.240 20.587 19.240

Dividend Received from specified foreign company

16.692 15.600 16.692 15.600

B) Foreign Company

Regular Tax 42.432 41.600 42.432 41.600

Tax Rates Applicable for Income exceeding ` 1 Crore (Firm /LLP/Local Authority)

Description Existing Rate (%)(5) Proposed Rate (%)(5)

A) Firm /LLP/Local Authority


AMT 21.549 21.549

Tax Rates Applicable for Income Less than ` 1 crore (Firm /LLP/Local Authority)

Description Existing Rate (%)(7) Proposed Rate (%)(7)

B) Firm /LLP/Local Authority


AMT 19.240 19.240

(5) Inclusive of surcharge of 12% (5% for foreign company) and health & education cess of 4%.

(6) Inclusive of surcharge of 7% (2% for foreign company) and health and education cess of 4%.

(7) Inclusive of health and education cess of 4%.

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Relief from of tax on capital gains on transfer of residential property – Section 54GBUnder the existing provisions of Section 54GB, long term capital gains earned by an eligible assessee (an individual or HUF) on transfer of residential property (a house or a plot of land) on or before March 31, 2019, are not chargeable to tax, if-

vv the net consideration received by the eligible assessee is utilised by him, before the due date of furnishing return of income specified under Section 139(1), for subscription in the equity shares of an eligible company (eligible SME or eligible start-up company);

vv the assessee holds more than 50 % of the share capital or voting rights in the eligible company, after such subscription in the shares;

vv the eligible company utilises the amount of subscription received, for purchase of a ‘new asset’, being new plant and machinery not being:

(i) pre-used machinery / machinery in office,

(ii) residential accommodation or guest house,

(iii) office appliances (including computer or computer software), vehicle or plant and machinery,

(iv) the asset, actual cost of which has been fully allowed as a deduction against profits and gains of business under any other provision in any previous year.

However, in the case of a notified technology driven start-up, ‘new asset’ was allowed to include computers or computer software;

vv the equity shares of the company or the new asset are not sold or transferred within a period of five years from the date of their acquisition.

The following amendments propose to relax some of the above conditions:

vv Extend the sun set date of transfer of residential property for investment in eligible company from March 31, 2019 to March 31, 2021.

vv New asset, being computer or computer software, is required to be held by the notified technology driven start-up for a period of three years (instead of a period of five years in other cases) from the date of its acquisition.

vv the extent of shareholding or voting rights in the eligible company is proposed to be brought down from 50 % to 25%.

These amendments are proposed to take effect from April 1, 2020 (AY 2020-21).

[Clause 20]

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Taxability of premium received on issue of shares- Section 56(2)(viib)Under the existing clause (viib) of Section 56(2), premium received from an Indian resident, in excess of the fair market value of shares issued by a closely held company is charged to tax. This provision does not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or from a venture capital fund or by a company from a class or classes of persons notified by the Central Government.

The proposed amendment seeks to extend the relief to the amount of premium received by a venture capital undertaking from a specified fund. The amendment also proposes to define the expression ‘specified fund’ to be a Category II Alternate Investment Fund registered with SEBI.

The proposed amendment also seeks to insert a second proviso to bring to tax, even in case of an approved start-up company, the amount of premium in excess of the face value of the shares issued by a closely-held company, as its deemed income, if the company fails to comply with the conditions specified in the notification issued by the Central Government for the purposes of sub clause (ii) of the first proviso to Section 56(2)(viib). These conditions, notified by the Ministry of Commerce and Industry (Department of Industrial Policy and Promotion) [GSR 364 E dated 11th April, 2018 in supersession of GSR 501 (E) dated May 23, 2017] provides that an entity shall be considered as start-up:

vv up to the period of seven years from the date of incorporation of the company and in case of bio technology sector, period of ten years from the date of incorporation;

vv its turnover should not exceed ` 25 crores in any of the financial year since the date of incorporation of the company;

vv the entity is working towards innovation, development or improvement of products, processes or services or if it is a scalable business model with a high potential of employment generation or wealth creation; and

vv if it is not formed by splitting up or reconstruction of an existing business.

The amendment is proposed to take effect from April 1, 2020 (AY 2020-21).

[Clause 21]

Carry forward of losses of closely held companies – Section 79The existing provisions of Section 79 provide that in the case of a company in which public are not substantially interested (generally referred to as ‘closely held company’), the unabsorbed loss (other than unabsorbed depreciation) shall be allowed to be carried forward for set-off, only if there is continuity in the beneficial ownership of the shares carrying not less than 51% of the voting power on the last day of the previous year in which the loss is set-off and such loss was incurred. Thus, if there is a change in the beneficial ownership of the shares by more than 49%, the unabsorbed loss of earlier years shall not be allowed to be carried forward for set off against profits of future years.

These provisions currently exempted eligible start-ups, if all the shareholders who held shares carrying voting power on the last day of the year/s in which loss was incurred, continue to hold the shares on the last day of such previous year and such loss has been incurred during the period of seven years beginning from the year in which such company was incorporated. Further, these provisions exempt certain companies, where any change in shareholding takes place pursuant to a resolution plan approved under the IBC.

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It is now proposed to substitute a new Section 79, which extends the relaxation provided by existing Section 79 in cases of eligible start-ups. The newly proposed Section 79 permits an eligible start-up to carry-forward its losses even if such losses are incurred after seven years from the year of incorporation, if there is continuity in the beneficial ownership of the shares carrying not less than 51% of the voting power on the last day of the previous year in which losses were incurred.

Further, Section 241 of the CA 2013 provides that where any member of a company who complains that the affairs of the company have been or are being conducted in a manner prejudicial (damaging) to the interests of the company, its members or the public at large may apply to the NCLT for an order for appropriate relief. Additionally, if the Central Government feels the complaint is genuine, it may itself apply to the NCLT for an order. Section 242 of CA 2013 provides that if, on any application made under Section 241, the NCLT feels that the compliant is genuine, the NCLT may, with a view to bring to an end the matters complained of, make such order as it thinks fit, including the suspension of the board of directors, changes in the shareholding of the companies, etc. On account of this, there could be a situation that the shareholding of the company undergoes a change and the company may not get the benefit of carry forward of losses.

In order to address this issue, the newly proposed Section 79 provides that the provisions of Section 79 shall not apply to a company, its subsidiaries and the subsidiaries of such subsidiaries, where–

(i) The NCLT has suspended the board of directors of such company and appointed new directors nominated by the Central Government, under Section 242 of the CA 2013; and

(ii) A change in the shareholding of such companies has taken place in a previous year pursuant to a resolution plan approved by NCLT, after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner.

It would be important to note that such companies have also got relief from payment of MAT, which has been elaborated in the subsequent paragraphs in this booklet.


[Clause 22]

Tax on distributed income on buy back of shares – Section 115QAUnder the existing provisions of Section 115QA, a domestic company is liable to pay an additional income tax at the rate of 20% on the income distributed on buy-back of unlisted shares from its shareholders. Per contra the amount received by the shareholder is exempt from tax under Section 10(34A).

In order to check the practice of distribution of income through buy back of shares instead of paying dividend and thereby avoiding payment of DDT, an amendment is now proposed to extend these provisions to income distributed on buy-back of listed shares also. Simultaneously, the amount received by a shareholder from the company on the buy-back of listed shares shall become exempt from tax under existing Section 10(34A).

These amendments are proposed to take effect from July 5, 2019.

[Clauses 6 & 36]

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Disallowance of interest paid to NBFC – Section 43BThe existing provisions of Section 43B provide for certain deductions to be allowed on actual payment. Section 43B inter alia covers interest on loans taken from public financial institutions and scheduled banks.

In order to include NBFCs, it is proposed to expand the scope of Section 43B by including in its ambit, any sum payable by the assessee as interest on any loan or borrowing from a deposit taking NBFC or systemically important non-deposit taking NBFC, in accordance with the terms and conditions of the agreement governing such loan or borrowing. Thus, the expenditure by way of such interest is proposed to be allowed as a deduction only on actual payment.

This amendment is a fall-out of the amendment to Section 43D whereby interest from NPAs of NBFCs is now proposed to be taxed on receipt of the income.

The proposed amendment defines a “deposit taking non-banking financial company” as a NBFC, which is accepting or holding public deposits and is registered with the RBI under the provisions of the RBI Act, 1934. It defines a “systemically important non-deposit taking non-banking financial company” as a NBFC, which is not accepting or holding public deposits and having total assets of not less than ` 500 crore as per the last audited balance sheet and is registered with the RBI under the provisions of the RBI Act, 1934.

It is proposed to be clarified that where a deduction in respect of such interest has been allowed in earlier assessment years (i.e. AY 2019-20 or before) on accrual basis, the same shall not be allowed as a deduction in the previous year in which it is actually paid.

It is also proposed that where the interest is converted into a loan or borrowing, such

conversion shall not be regarded as actual payment of interest.


[Clause 13]

Incentives to Non-Banking Finance Companies – Section 43DThe existing provisions of Section 43D, inter‑alia provides that interest income from certain categories of bad or doubtful debts received by specified institutions or banks or corporations or companies, shall be chargeable to tax in the previous year in which it is credited to its profit and loss account or actually received, whichever is earlier. The said provision is an exception to the accrual system of accounting which is regularly followed by the assessee. However, Section 43D did not apply to NBFCs.

It is proposed to amend Section 43D to cover deposit-taking NBFCs and systemically important non deposit-taking NBFCs within the scope of the said Section. The amendment will provide a level playing field to these NBFCs at least in the matter of revenue recognition though there are various other provisions in the Act which have not been extended to NBFCs on receipt basis.

This amendment is proposed to take effect from April 1, 2020 (AY 2020-21).

[Clause 15]

Incentives to International Financial Services Centre In the past, the Indian Government has provided various benefits to IFSC units, which would empower such units to raise low cost funds and equally, enhance their ability to function at par with IFSC in other countries. To promote further development of IFSC, following additional benefits are proposed:

[16]


Deduction under Section 80LAThe existing provisions of Section 80LA, inter‑alia, provide for profit linked deduction to IFSC units for an amount equal to 100% for the first five consecutive AYs and 50% for the next five AYs.

It is proposed to amend the said Section to provide that the deduction shall be allowed at 100% for ten consecutive AYs. Further, an option is proposed to be given to the assessee to claim the said deduction for any ten consecutive AYs, out of a block of fifteen AYs, beginning with the year in which the necessary permission was obtained.


[Clause 28]

Exemption from capital gains tax to Category III AIF – Section 47The existing provisions of Section 47, clause (viiab) provide that the transfer of a capital asset, being bonds or Global Depository Receipts or RDB of an Indian Company or certain derivative, made by a non-resident, through a recognized stock exchange in any IFSC and where the consideration for such transfer is paid or payable in foreign currency, shall not be regarded as a transfer and therefore will not attract capital gains tax.

With a view to provide tax-neutral transfer of certain securities by Category III AIF located in IFSC, it is proposed to amend the said clause to provide that any transfer of a specified capital asset by a specified fund, registered as a Category III AIF and fulfilling other conditions, shall not be regarded as a transfer.

It is also proposed to amend the said Clause, by empowering the Central Government to notify any other securities.


[Clause 17]

Exemption of income payable to non-residents by units located in IFSC – Section 10(15)With a view to facilitate external borrowings by the units located in IFSC, it is proposed to introduce sub-clause (ix) to Section 10(15) so as to provide exemption of interest income payable to a non-resident by a unit located in IFSC in respect of borrowings made by it on or after September 1, 2019.


[Clause 6]

Exemption from paying DDT by companies – Section 115-OUnder the existing provisions of Section 115-O, no DDT is payable by a company, being a unit of an IFSC, deriving income solely in convertible foreign exchange, on any amount (out of its current income), declared, distributed or paid, on or after April 1, 2017, by such company, by way of dividend (whether interim or final).

To facilitate distribution of dividend by companies operating in IFSC, it is proposed to amend the provisions of Section 115-O so as to provide that no DDT would be payable even on dividend paid out of accumulated income derived from operations in IFSC, after April 1, 2017.

This amendment is proposed to take effect from September 1, 2019.

[Clause 35]

[17]


Exemption from paying DDT by Mutual Funds – Section 115R Under the existing provisions of Section 115R, DDT is payable by a company or Mutual Funds on income distributed to the unit-holders.

In order to incentivize relocation of Mutual Fund in IFSC, it is proposed to amend the said Section so as to provide that no DDT shall be payable in respect of any amount of income derived from transactions made on a recognised stock exchange located in an IFSC and distributed, on or after September 1, 2019, by a specified Mutual Fund.

The term ‘specified mutual fund’ means a mutual fund specified under Section 10(23D) -

1. located in IFSC;

2. deriving income solely in convertible foreign exchange; and

3. of which all the unit-holders are non-residents.


[Clause 37]

Taxation of non-residents having units in IFSC – Section 115AThe existing provisions of Section 115A provide for a special tax rate on gross basis in the case of non-residents and foreign companies earning income by way of dividend, interest, royalty and fees for technical services, etc. The applicability of the said provision is however subject to a condition that no deduction would be allowed under Chapter VI-A to the extent of such income included in the gross total income.

Presently, where the income of a non-resident includes specified income referred to in Section 115A, the non-resident is not eligible to claim deduction under Section 80LA on the said income, since Section 80LA is covered under Chapter VI-A of the Act.

In order to resolve this anomaly, it is proposed to amend Section 115A by inserting a proviso to the effect that the aforementioned restriction of Section 115A will not apply to deduction under Section 80LA.


[Clause 33]

Once an APA has been signed, the AO shall re-compute the income of the assessee strictly as per the APA – Section 92CDUnder the existing provisions of Section 92CD, where an APA is signed by an assessee with the CBDT, the assessee is required to furnish modified return of income for the past periods covered under the APA. Section 92CD (3) states that where the modified return of income is filed by the assessee, the AO shall proceed to assess or reassess or re-compute the total income of the previous year having regard to and in accordance with the APA.

The terms “assess or reassess or re-compute the total income having regard to…” caused confusion about the powers of the AO. Concerns were raised that where the assessment or reassessment for such years are already completed, the AO may commence the assessment proceedings afresh.

In order to clear the apprehension, it is now proposed to amend Section 92CD(3) to provide that once the APA has been entered into and modified return of income is filed by the assessee, the AO shall pass an order modifying the total income of the assessee for the relevant AY determined in such assessment or reassessment, as the case may be, as per the terms of the APA.

[18]


Thus, the powers of the AO under Section 92CD(3) are sought to be confined to modifying the total income in accordance with the APA.


[Clause 29]

Rationalisation of secondary adjustment provisions – Section 92CEThe provisions of Primary Adjustment and Secondary Adjustment were inserted in the Act by insertion of Section 92CE, applicable from April 1, 2017. Briefly stated, where the Transfer Pricing adjustment was made or accepted by the assessee, the assessee was required to receive the corresponding consideration from its overseas Associated Enterprise (“AE”) within a specified time limit. If the assessee failed to do so, such amount was regarded as “excess money” given by the assessee to its AE and was considered to be an indirect loan. The assessee was required to charge interest on such indirect loan and offer the same to tax as a Secondary Adjustment.

Since its insertion, the language of Section 92CE gave rise to certain questions, which are sought to be clarified through suitable proposals.

vv As per the existing provisions of Section 92CE, where a transfer pricing adjustment arises pursuant to an APA, it qualifies as a primary adjustment. It is now proposed that adjustments pursuant to an APA executed on or after April 1, 2017 shall alone be considered as primary adjustment.

This amendment is proposed to take retrospective effect from April 1, 2018 (AY 2018-19).

vv As per the existing provisions, secondary adjustment under Section 92CE does not apply if the primary adjustment to

transfer price does not exceed ` 1 crore and is made in respect of years up to AY 2016-17. The use of the term “and” gave the impression that these conditions are cumulative and would get attracted in case the transfer pricing adjustments exceed ` 1 crore. Another apprehension was that the transfer pricing adjustment relating to periods after AY 2016-17 would be considered as primary adjustments irrespective of the amount involved.

In order to clear these doubts, it is now proposed to amend Section 92CE to provide that the conditions relating to the amount of ` 1 crore and adjustments relating to AY 2016-17 and prior years are alternative conditions. That is, where the transfer pricing adjustment is below ` 1 crore, the same shall not be considered as a primary adjustment irrespective of the year to which it relates. Similarly, all transfer pricing adjustments relating to years up to AY 2016-17 will not be considered as primary adjustments, irrespective of the amount involved.


vv It is also proposed to be clarified that where the assessee has paid any taxes by virtue of Section 92CE (for instance, pursuant to conclusion of an APA), such an assessee shall not be eligible to claim refund of such taxes already paid.


vv Presently, Section 92CE defined the term “excess money” as the difference between the arm’s length price determined in primary adjustment and the price at which the international transaction has actually

[19]


been undertaken. This created a confusion about calculation of excess money in cases where the AE has partly repaid the amount to the assessee.

In order to set right the confusion, it is proposed to amend Section 92CE to provide that the secondary adjustment shall be computed on the excess money or part thereof.

It is also proposed to be clarified that the excess money may be received from any non-resident AE of the assessee and not necessarily the AE with whom the international transaction was originally carried out by the assessee.


[Clause 30]

Introduction of optional implied dividend approach to secondary adjustment – Section 92CEThe existing provision of Section 92CE are based on the “implied loan” approach where the primary adjustment is regarded as an indirect loan given by the assessee to its AE and therefore the interest on such loan is required to be offered to tax as a secondary adjustment.

It is now proposed to amend Section 92CE by providing an optional “implied dividend” approach. Under this approach, the assessee will have an option of paying additional income-tax @ 18% on the excess money available to the AE, as a one-time and final tax payment. The additional tax of 18% shall be further increased by a surcharge @ 12% and SHEC @ 4%, resulting in an effective tax rate of 20.9664% (approx. 21%).

Where an assessee chooses to deposit this additional income-tax, the secondary adjustment by way of interest on implied loan shall cease to

apply from date of payment of such additional income tax.

It is proposed that the tax so paid shall be treated as a final tax and also that no further credit for such tax shall be claimed by the assessee or any other person. It is also proposed that the amount of excess money on which the additional income-tax is paid, shall not be allowed as a deduction to the assessee.

These amendments are proposed to take effect from September 1, 2019.

[Clause 30]

Indian Constituent entity of an International Group required to maintain prescribed information and documents about the International Group, even if it has not carried out International transactions with the International Group – Section 92DUnder the existing provisions of Section 92D, a constituent entity of an international group is required to maintain prescribed documents and information about the international group. The present language of Section 92D may have been interpreted to mean that the requirement of maintenance of prescribed documentation was applicable to a constituent entity in India only if it had undertaken international transactions with other constituent entities of the International Group.

It is now proposed to amend Section 92D to provide that an Indian Constituent entity of an International Group will be required to maintain prescribed information and documents about the International Group, even if it has not carried out International transactions with the International Group. The information and documents to be maintained shall be notified in due course.


[Clause 31]

[20]


Incentive for affordable housing – Section 80-IBASection 80-IBA provides for deduction in respect of profits and gains derived from the business of developing and building affordable housing projects. Sub-section 2 thereof provides for the conditions to be fulfilled to be an eligible housing project. In respect of projects approved on or after September 1, 2019, it is proposed to amend some of these conditions.

Clause (d) specifies the minimum area of the plot of land for an eligible housing project depending upon whether the project is located in the four metro cities of India or in any other place.

It is proposed to provide that the requirement of minimum plot-size of one thousand square meters would apply to projects located in Bengaluru, Chennai, Delhi National Capital Region (Delhi, Noida, Greater Noida, Ghaziabad, Gurugram and Faridabad), Hyderabad, Kolkata and Mumbai Metropolitan Region. For projects located in any other place, the requirement of minimum plot-size of two thousand meters continues.

Clause (f) provides that the carpet area of the residential unit comprised in the housing project shall not exceed thirty square meters (four metro cities) and sixty square meters (in any other place).

It is proposed to increase the maximum carpet area size to sixty square meters for projects located in the metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (Delhi, Noida, Greater Noida, Ghaziabad, Gurugram and Faridabad), Hyderabad, Kolkata and Mumbai Metropolitan Region and ninety square meters for projects located in any other place.

It is also proposed to introduce a new qualifying condition that the stamp duty value of a residential unit in the housing project shall not exceed `. 45 lakhs.

The proposed amendment will take effect from April 1, 2020 (AY 2020-21).

[Clause 26]

Deduction of interest for affordable housing loans – Section 80EEA In order to promote affordable housing, in addition to the interest that is allowed under Section 24(b), it is proposed to insert a new Section 80EEA to provide an additional deduction to an individual for interest up to ` 1,50,000 on a loan taken for acquiring residential house property, subject to the following conditions:

(i) The loan has been sanctioned by a financial institution (banking company, housing finance company etc.) during the period beginning on April 1, 2019 to March 31, 2020;

(ii) The stamp duty value of the residential house property does not exceed ` 45 lakhs;

(iii) The assessee does not own any residential house property on the date of sanction of loan.

It is also proposed that where a deduction under this Section is allowed for any interest, deduction shall not be allowed in respect of such interest under any other provisions of the Act.

It would appear that Section 24(b) and the new Section operate in different fields. So, deduction under both the Sections is cumulatively available considering different categories of loans / lenders.

The above amendment is proposed to take effect from April 1, 2020 (AY 2020-21).

[Clause 25]

[21]


TDS on non-exempt portion of life insurance pay-out on net basis – Section 194DAThe existing provisions of Section 194DA of the Act provide that, a person paying any sum to a resident under a life insurance policy (other than policies covered under Section 10(10D) of the Act) is obliged to deduct TDS @ 1% of such sum at the time of payment.

This provision created some administrative hurdles as the TDS was deducted on the gross sum paid whereas the assessee was liable to pay tax on the net income received by him. Also, it was difficult to match the data as per Form 26AS with the return of income filed by the assessee.

It is therefore proposed to amend Section 194DA to provide that TDS shall be deducted on the income comprised in the payment (i.e total sum received on redemption minus amount of premium paid) received under a life insurance policy. Further, the rate of TDS is proposed to be increased to 5%.


[Clause 44]

TDS at the time of purchase of immovable property – Section 194IAThe existing provisions of Section 194IA of the Act provide that consideration paid on transfer of certain immovable property other than agricultural land is liable to TDS @ 1%. The term ‘consideration for immovable property’ is presently not defined for the purposes of this Section.

It is proposed 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 fees, maintenance fee, advance fee or any other charges of similar

nature, which are incidental to the transfer of the immovable property.


[Clause 45]

TDS on cash withdrawal to discourage cash transactions – Section 194NTo discourage cash transactions, it is proposed to introduce a new Section 194N in the Act to provide for levy of TDS at the rate of 2% on cash withdrawals in excess of ` 1 crore in aggregate during the financial year, from an account maintained by any person with a banking company or cooperative bank or post office.

It is proposed to exempt payment made to certain recipients, such as the Government, banking company, cooperative society engaged in carrying on the business of banking, post office, banking correspondents and white label ATM operators of banking company or cooperative society engaged in business of banking or such other person or class of persons which the Central Government may specify by notification in the official Gazette in consultation with the Reserve Bank of India.


[Clause 46]

Online filing of application seeking determination of TDS on payment to non-residents – Section 195The existing provisions of Section 195(2) provide that where a person who is responsible for paying any sum (other than salaries) to a non-resident considers that the whole of such sum is not taxable in the hands of the recipient, he may make an application to the AO for

[22]


determination of appropriate portion of the sum which is chargeable to tax under the Act. Similarly, Section 195(7) provides that the CBDT may prescribe certain classes of persons or cases, where the person responsible for paying any sum to a non-resident should make an application to the AO to determine the appropriate taxable portion of such sum chargeable to tax. These proceedings are currently conducted manually.

In order to use technology to streamline the process which will facilitate saving time for such application and help tax administration in monitoring such payments, it is proposed to amend these provisions to allow for prescribing the form and manner of application to the AO and also for the manner of determination of appropriate portion of sum chargeable to tax by the AO.

This amendment is proposed to take effect from November 1, 2019.

[Clause 47]

TDS on payment by Individual/HUF to contractors and professionals – Section 194MIt is proposed to introduce a new Section 194M in the Act to provide for levy of TDS @ 5% on amounts paid or credited by an Individual or HUF, not subject to Tax Audit, to a resident for carrying out any work, including supply of labour for carrying out any work in pursuance of a contract or by way of fees for professional services. The term “contract” shall have the same meaning as provided for in Section 194C. The term “professional services” shall have the same meaning as provided for in Section 194J. The rate of TDS shall be 5%. It is also provided that TDS deduction shall not be required if the amount credited or paid to a resident does not exceed ` 50 lacs for the FY.

Further, in order to reduce the compliance burden, it is also proposed that such individuals or HUFs can deposit the TDS using their PAN and shall not be required to obtain TAN.

As a corresponding change, the facility to obtain a lower TDS deduction certificate under Section 197 has been extended to TDS under Section 194M.


[Clauses 46 & 48]

Electronic filing of statement of transactions on which tax has not been deducted – Section 206AThe existing provisions of Section 206A provide for filing of TDS returns in respect of payment of interest to residents by a Banking Company, Co-operative Society or a public company where TDS is not deducted. These TDS returns presently can be filed on a floppy, diskette, magnetic tape, CD-ROM, or any other computer readable media.

It is proposed to amend the provisions of this Section to enable online filing of such TDS returns, including filing of correction returns, in prescribed form in the prescribed manner.

It is also proposed to make a consequential amendment arising out of amendment carried out by the Finance Act, 2019 whereby threshold for TDS on payment of interest by a banking company or cooperative society or public company was raised to ` 40,000.


[Clause 50]

[23]


Rationalisation of provisions dealing with failure to deduct TDS – Section 201The existing provisions of Section 201 provide that where any person, who is required to deduct tax at source on any sum in accordance with the provisions of the Act, does not deduct or does not pay such tax or fails to pay such tax after making the deduction, then such person shall be deemed to be an assessee-in-default. However, the first proviso to Section 201(1) specifies that such person will not be considered to be an assessee-in-default in case of failure to deduct tax of a resident, if such resident furnishes his return of income, disclosing the said amount which has been considered while computing its income. Also, the deductor is required to provide a certificate from an accountant for the same.

It shall be noted that the relief under Section 201(1) was restricted to resident deductee. There was no such benefit provided in case the payments were made to a non-resident. In order to remove this anomaly, an amendment is proposed in proviso to Section 201(1) for extending the benefit to non-resident deductee. Further, it is also proposed to amend the proviso to Section 201(1A) for levy of interest till the date of filing of return by non-resident deductee.


[Clause 49]

Mandating acceptance of payments through prescribed electronic modes – Section 269SUIn order to assist the Government to achieve its mission of cash less economy, a new Section 269SU is proposed to be inserted to provide that

every person carrying on business (if his total sales, turnover or gross receipts in business exceed ` 50 crores during the immediately preceding previous year) shall provide for facility for accepting payments through prescribed electronic modes, in addition to the facilities already available.

To ensure that the above provisions are complied, a new Section 271DB has been proposed which provides that in case of failure to provide such facility, a penalty of ` 5,000 will be attracted, for every day during which the failure continues. The said penalty shall not be imposed if good and sufficient reasons are provided for the failure. Further, the penalty can be levied only by the Joint Commissioner of Income-tax.

This amendment is proposed to take effect from November 1, 2019.

[Clauses 59 & 62]

Penalty for failure to furnish PAN or Aadhaar number – Section 272BTo ensure ease of compliance, it is proposed to provide for inter-changeability of PAN with the Aadhaar number. As a corollary, provisions of Section 272B are also proposed to be amended to provide that failure to quote Aadhaar Number shall make a person liable to pay a penalty of ` 10,000.

Further, presently, the penalty under Section 272B is a cumulative sum of ` 10,000. It is now proposed that the penalty for quoting or intimating a false PAN or Aadhaar number will attract a penalty of ̀ 10,000 for each such default.

It is also proposed that where any person, who is liable to ensure that the PAN or Aadhaar number has been duly quoted or duly authenticated in prescribed documents specified under Section 139A, such person shall also be liable to a penalty of ` 10,000 for each such default.

[24]


However, no penalty shall be levied if the person proves that there was a reasonable cause for committing the default. Also, any order imposing penalty shall not be passed without giving an opportunity of being heard to the alleged defaulter.


[Clause 64]

Prosecution provisions for failure to furnish return of income rationalized – Section 276CCThe existing provisions of Section 276CC provide for prosecution in case of failure to furnish return of income. It also provides that in case of a person, other than a company, prosecution proceedings shall not be initiated, if the tax payable by such person, as reduced by advance tax and TDS, does not exceed ` 3,000.

It is now proposed to amend Section 276CC to increase the threshold of ` 3,000 to ` 10,000. It is also proposed that while computing the tax payable of ` 10,000, the assessee shall also be given credit for TCS and self-assessment tax paid before the expiry of the AY.

This being a prosecution provision, the Government could have been expected to be more generous with regard to the threshold limits. A threshold of ` 10,000 may be considered paltry considering the vast magnitude of the economy.


[Clause 65]

Incentives to Central Government employees for contribution to National Pension System – Sections 80C & 80CCDUnder the existing provisions, contributions made to the additional account under NPS i.e. Tier-II account do not qualify for any tax deduction. It is proposed to grant deduction under Section 80C to contributions made by the Central Government employees. Further, it is proposed that the contributions should be made for a fixed period of minimum 3 years and should be in accordance with the scheme notified by the Central Government.

Further, in respect of Tier-I accounts of the NPS, deduction under the existing provisions of the Act, is allowed to a salaried employee under Section 80CCD for the amount contributed to pension scheme, if it does not exceed 10% of the salary. It is now proposed to increase the limit of 10% to 14% of salary for Central Government employees. The limit of deduction for other salaried employees and non-salaried persons shall remain unchanged.

These amendments are proposed to be take effect from April 1, 2020, (AY 2020-21).

[Clauses 23 & 24]

Incentive for electric vehicles – Section 80EEBIn order to incentivise purchase of electric vehicles, it is proposed to insert a new Section 80EEB to provide for deduction of interest up to ` 1,50,000 on a loan taken by an individual from any financial institution (banking company

[25]


and NBFC) for purchase of an electric vehicle. For this purpose, the loan should be sanctioned by a financial institution during the period from April 1, 2019 to March 31, 2023;

An electric vehicle means a vehicle which is powered exclusively by an electric motor, whose traction energy is supplied exclusively by traction battery installed in the vehicle and has such electric regenerative braking system, which during braking provides for the conversion of vehicle kinetic energy into electrical energy.

It is also proposed that where a deduction under this Section is allowed for interest, deduction shall not be allowed in respect of such interest under any other provisions of the Act.

Further, it has been provided that the individual should not own any other electric vehicle on the date of sanction of loan.

The amendment is proposed to take effect from April 1, 2020 (AY 2020-21).

[Clause 25]

Mandatory furnishing of return of income by certain persons – Section 139The existing provisions of Section 139 provide that, a person other than company or a firm is required to furnish the return of income if his total income for the previous year, without giving effect to the provisions of Sections 10(38) ,10A, 10B and 10BA or Chapter VI-A, exceeds the basic exemption limit.

As a result of the above provision, certain assessees claiming exemption from capital

gains, were not required to furnish their return of income resulting in such exemption claims remaining undetected by the tax authorities.

It is now proposed to amend Section 139 to provide that in addition to the exemptions under Section 10(38), 10A, 10B and 10BA, where the total income of person, other than a company or firm, exceeds basic exemption limit, without giving effect to Sections 54, 54B, 54D, 54EC, 54F, 54G, 54GA and 54GB, the person shall be required to file his return of income.

Furthermore, it is proposed that a person, other than a company or a firm, who is not otherwise required to file his return of income, shall be mandatorily required to file his return of income if during the previous year the person-

(i) has deposited amounts exceeding ` One crore in one or more current accounts maintained with a banking company or a co-operative bank; or

(ii) has incurred expenditure of amounts exceeding ` Two lacs for himself or any other person for travel to a foreign country; or

(iii) has incurred expenditure of amounts exceeding ` One lac towards consumption of electricity; or

(iv) fulfils such other prescribed conditions, as may be prescribed.


[Clause 39]

[26]


Inter-changeability of PAN and Aadhaar and mandatory quoting in prescribed transactionsThe existing provisions of Section 139A(1) of the Act, inter‑alia, provides that every person specified in Section 139A and who has not been allotted a PAN shall apply to the AO for allotment of PAN.

It is proposed to introduce a new clause (vii) to provide that every person, who intends to enter into certain prescribed transactions such as purchase of foreign currency or huge withdrawal from bank and has not been allotted a PAN, shall also apply for allotment of a PAN.

In order to ensure compliance and for widening and excavating the tax base, it is also proposed to provide for inter-changeability of PAN with the Aadhaar number. Accordingly, It is proposed to amend the provisions of Section 139A so as to provide that-

vv Where a person does not possess PAN but possess as Aadhaar number, he may furnish or intimate or quote his Aadhaar number in lieu of PAN. It is also proposed that such a person shall be allotted a PAN in the prescribed manner;

vv Where a person has been allotted a PAN, and who has linked his Aadhaar number to his PAN under Section 139AA, he may furnish or intimate or quote his Aadhaar number in lieu of a PAN.

It is also proposed that every person entering into certain prescribed transactions shall quote his PAN or Aadhaar number in the documents pertaining to such transactions and also authenticate the PAN or Aadhaar number in such manner as may be prescribed.

Similarly, it is also proposed that every person receiving any document relating to certain

prescribed transactions shall ensure that the PAN or Aadhaar number has been duly quoted in such documents and ensure that the PAN or Aadhaar number is authenticated.

“authentication” means the process by which the PAN or Aadhaar number along with demographic information or biometric information of an individual is submitted to the income-tax authority or such other authority or agency as may be prescribed for its verification and such authority or agency verifies the correctness, or the lack thereof, on the basis of information available with it.

In order to ensure proper compliance with the provisions relating to quoting and authentication of PAN or Aadhaar, the penalty provision contained in Section 272B is proposed to be amended suitably.


[Clause 40 & 64]

Consequence of not linking PAN with Aadhaar – Section 139AAThe existing provisions of Section 139AA(2) of the Act provide that the PAN allotted to a person shall be deemed to be invalid, in case the person fails to intimate the Aadhaar number, on or before the notified date.

It is proposed to amend the said proviso so as to provide that if a person fails to intimate the Aadhaar number, the PAN allotted to such person shall be made inoperative in the prescribed manner. The said amendment is proposed to protect validity of transactions carried out through such PAN before the PAN is declared inoperative.


[Clause 41]

[27]


Facilitating demerger of Ind AS compliant companies – Section 2(19AA)The existing provision of Clause (19AA) of Section 2 of the Act provides for the definition of a tax neutral “demerger” of undertakings of companies. Sub Clause (iii) thereof provides that the property and liabilities of the undertaking are to be transferred by the demerged company at the values appearing in its books of account immediately before the demerger, at book value.

Earlier, companies were accounting for business re-organisation in accordance with the AS 14 (issued by the ICAI). The introduction of Ind AS has drastically changed the way companies account for such transactions. Accounting for business acquisitions is now governed by Ind AS 103 - Business Combinations. The scope of Ind AS 103 includes all transactions that would result in an acquirer obtaining control (by way of share purchase, amalgamation, demerger, slump sale, capital reduction, etc.) as opposed to the conventional AS 14, which dealt only with accounting for amalgamations.

In cases where Ind AS 103 mandates companies to follow the fair value accounting of business combinations, including demerger and therefore properties and liabilities are accounted at a value different from the book value of the demerged company, this created a doubt as to whether the definition of the term ‘demerger’ was violated.

It is proposed to insert a proviso to clause (iii) of the said Section stating that the condition of recording properties and liabilities at book value would not apply where the resulting company follows the fair value accounting in compliance with the Ind AS requirement. The said amendment is proposed in order to harmonise the provisions of the Act with the

Ind AS and to retain the status of a tax neutral demerger even in the fair value accounting scenario.


[Clause 3]

Recovery of tax in pursuance of agreements with foreign countries – Section 228AThe existing provisions of Section 228A of the Act provide that where the Central Government has entered into an agreement with the Government of any foreign country for recovery of tax under the Act and the corresponding law in force in that country, and where such foreign country seeks to recover any taxes under such corresponding law from a person having any property in India, the CBDT, on receipt of such certificate may forward it to the Tax Recovery Officer within whose jurisdiction such property is situated for the recovery of tax. In order to extend the mutual assistance procedures in accordance with the bilateral agreements providing for recovery of taxes, it is proposed to amend the Section 228A to provide for assistance in recovery of tax even in cases where the details of property of the persons are not available, but the said person is a resident in India.

As a corollary, it is also proposed to amend Section 228A so as to provide for recovery of tax, where details of property of an assessee-in-default under the Act are not available, but the said assessee is a resident in a foreign country.


[Clause 51]

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Compliance with other applicable laws by a Charitable Trust or Institution to be examined by the CIT for granting registration under Section 12AA – Section 12AAUnder the existing provisions of Section 12AA, while deciding to grant registration under Section 12AA to a charitable trust or institution, the Principal CIT or CIT can call for information and documents and make necessary enquiries to satisfy himself about the genuineness of the activities of the trust or institution.

It is now proposed that in addition to satisfying himself about the genuineness of the activities, the CIT is also required to satisfy himself about the compliance of any other law applicable to the charitable trust or institution, as may be material for the purpose of achieving the objects of the trust or institution.


[Clause 7]

Non-compliance with other applicable laws by a Charitable Trust or Institution can be a ground for cancellation of registration under Section 12AA – Section 12AAUnder the existing provisions of Section 12AA, registration granted under Section 12AA to a charitable trust or institution can be cancelled if the Principal CIT or CIT is satisfied that any part of the income of the trust or institution is not exempt from tax due to operation of provisions of Section 13(1), which specifies certain circumstances where trust funds are applied or spent for purposes other than its avowed charitable purposes.

It is now proposed that in addition to the above, where the trust or institution has not complied with the requirements of any law applicable to it and the order, direction or decree holding that the non-compliance has occurred has not been disputed by the assessee or the non-compliance has attained finality, the Principal CIT or CIT can cancel the registration granted earlier.


[Clause 7]

Deemed accrual of gift made to a person resident outside India – Section 9The existing provisions of Section 9 provide for income deemed to accrue or arise in India. Section 56(2)(x) provides that any gift of money or specified property is taxable in the hands of the receiver, except for certain exemptions provided therein.

Gifts by resident to non-resident, being considered as accruing and received outside India and is therefore not taxable. To curb this practice, it is proposed to amend Section 9(1) by introducing a new clause (viii) stating that the income of nature referred to in Section 2(24)(xviia), arising from transfer of money or any specified property situated in India, on or after July 5, 2019, by a resident person to a non-resident shall be deemed to accrue or arise in India. However, the transactions that are specifically exempted from tax under Section 56(2)(x) shall continue to remain exempted. Further, the non-resident would be entitled to claim the benefit of the relevant article of the DTAA on such gifts as well.


[Clause 4]

[29]


Relief from disallowance of expenditure on failure to deduct TDS on payments to a non-resident, where tax has been paid by the non-resident – Section 40(a)Presently, disallowance under Section 40(a) is attracted where the assessee fails to deduct and pay TDS on payments to residents and non-residents. In case of resident receivers, Section 40(a)(ia) provided that disallowance shall not be made if the resident-receiver files his return of income and pays tax on the income received from the assessee. This provision was limited to disallowance for payments to residents under Section 40(a)(ia) but was not available in respect of disallowance for payments to non-residents under Section 40(a)(i).

To bring parity, it is now proposed to amend clause (a) of Section 40, to provide that no disallowance would be made for such payment made by the assessee (who is not considered as an assessee-in-default on account of Section 201(1) to a non-resident and it shall be deemed that the assessee has deducted and paid the tax, on the date on which return of income is filled by the non-resident deductee.


[Clause 10]

Exemption from deeming of fair market value of shares - Section 50CA & Section 56(2)(x)The existing provisions of Section 50CA provide that where a capital asset, being unquoted shares of a company is transferred for a consideration, which is less than its fair market value, the fair market value shall be deemed to be the full value of consideration and the taxable capital

gains shall be computed accordingly. Section 50CA presently applies to all transactions of transfer of unquoted shares. For this purpose, the fair market value is to be computed in accordance with Rule 11UA of the Income Tax Rules, 1962.

These provisions could cause hardship in certain cases, especially where the consideration for transfer of shares is approved by certain authorities and the transferor has no control over the price determined by such authorities. Therefore, it is proposed to insert an enabling provision in Section 50CA to provide that the provisions of Section 50CA shall not apply to consideration received or accruing as a result of such transfer by such class of persons and subject to such conditions as may be prescribed. Transactions contemplated may include transfer made by entities under IBC and transactions of other similar nature wherein the transferor has no control over the selling price, as approved by certain authorities. Suitable corresponding amendment has also been proposed in proviso to Section 56(2)(x).


[Clauses 19 & 21]

Relaxation in conditions of special taxation regime for offshore funds – Section 9AThe existing provisions of Section 9A provide that an eligible Fund Manager carrying out activity for Eligible Investment Fund would not constitute business connection in India of the said fund, if the conditions mentioned in Section 9A are complied with.

One of the conditions provided under Section 9A is that the Eligible Investment Fund should have a minimum monthly average corpus of ` 100 crore.

[30]


Section 9A also provides that in cases of funds established or incorporated during the previous year, the corpus of the fund shall not be less than ` 100 crore at the end of the previous year. Compliance with this condition was cumbersome in certain cases, especially where the Investment Fund was set up towards the end of the FY.

To provide relief in such cases, it is now proposed to amend Section 9A to provide that the monthly average of the corpus of the fund shall not be less than ` 100 crore at the end of 6 months from the last day of the month of establishment or incorporation of the Eligible Investment Fund, or at the end of such previous year, whichever is later.

Section 9A also lays down a condition that the remuneration of the Eligible Fund Manager should not be less than the ALP.

It is now proposed that the remuneration of the Eligible Fund Manager shall be calculated in such manner as shall be prescribed in due course.

These amendments are proposed to take effect retrospectively from April 1, 2019 (AY 2019-20).

[Clause 5]

Exemption on withdrawal of NPS Section10(12A)Under the existing provisions of clause (12A) to Section 10, exemption is granted on any payment to an employee from the National Pension System Trust on closure of his account or on his opting out of the pension scheme referred to in Section 80CCD, to the extent it does not exceed 40% of the total amount payable at the time such event gets triggered.

It is proposed to increase the exemption limit from 40% to 60% of the total amount payable.


[Clause 6]

Concessional tax rate on short term capital gains to certain equity-oriented fund - Section 111A The existing provisions of Section 111A provide that short term capital gains arising on sale of units of an equity oriented mutual fund shall be taxed at a concessional rate of 15%. The definition of the term ‘equity oriented mutual fund’ is same as the one provided in Section 10(38), which states that an equity oriented mutual fund is a mutual fund set up under a scheme of Mutual Fund specified under Section 10(23D) and minimum 65% of the total proceeds of the fund are invested in equity shares of domestic companies.

The present provisions of Section 112A dealing with long term capital gains on transfer of units of an equity oriented fund, however, contain an expanded definition of the term ‘equity oriented mutual fund’. Under Section 112A, where a mutual fund invests minimum 90% of its total proceeds in units of another listed mutual fund and such other fund invests minimum 90% of its total proceeds in equity shares of domestic listed companies, such a mutual fund is also considered as an equity oriented mutual fund. Thus, presently, long term capital gains arising on redemption of units of a fund of funds is eligible for a concessional tax rate under Section 112A, but short term capital gains arising on redemption of units of such funds are not eligible for benefit of Section 111A.

In order to remedy this anomaly and to provide for benefit of Section 111A to the fund of funds set up for disinvestment of Central Public Sector Enterprises (CPSE), it is proposed to apply the definition of equity oriented mutual fund contained in Section 112A to Section 111A. Thus, the benefit of concessional tax rate of 15% will also be available for short term capital gains arising on redemption of units of eligible fund of funds.


[Clause 32]

[31]


Pass through of losses for Category I and II AIF – Section 115UBSection 115UB in Chapter XII-FB contains special provisions relating to income of investment funds and of income received from such funds. The scheme of the Section is that income of a person, being a unit holder, out of investments made in the investment fund, shall be chargeable to income tax in the hands of the unit holder as if such investments made by the investment fund had been made by him directly.

Sub-section (2) thereof provides that where the loss of an investment fund, under any head of income, cannot be set-off of against income under any other head of income for that previous year, it shall be carried forward and set off in accordance with the provisions of Chapter VI. However, such loss is to be ignored for the purposes of Sub-section (1) dealing with taxation of the income of a unit holder of the investment fund who will therefore not get the benefit of such loss in the computation of his income for such subsequent year; it is the investment fund that would be permitted to carry forward and set off such loss in the subsequent year.

It is proposed that the above treatment would apply only to loss. It is also proposed that loss under any other head of income shall also be ignored for the purposes of Sub-section (1) 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 twelve months. The effect of this is that loss under the head ‘profits and gains of business or profession’ would be available for carry forward and set off only in the hands of the investment fund and loss under any other head of income shall not be available to the unit holder unless the unit has been held for at least twelve months.

Sub-section (2A) is proposed to be introduced to deal with loss under any head of income other

than ‘profits and gains of business or profession’ accumulated at the level of the investment fund as on March 31, 2019. It is proposed that such accumulated loss shall be deemed to be loss of the unit holder who held the unit as on March 31, 2019 in the investments made by him in the investment fund as if the investments made by the investment fund had been made by him directly. It would appear that for this purpose the period of holding of the units by the unit holder is not relevant, unlike in Sub-Section (2). Accordingly, such accumulated loss will be available for set off in the hands of the unit holder from AY 2020-21. It is also proposed that such loss shall be allowed to be carried forward by the unit holder for the remaining period and shall be set off by the unit holder in accordance with the provisions of Chapter VI. The remaining period is to be calculated considering the year in which the loss had occurred for the first time as the first year.

Correspondingly, it is proposed that such loss under any other head of income shall not be available to the investment fund on or after April 1, 2019.


[Clause 38]

Rationalisation of calculation of Book Profit for distressed companies – Section 115JBThe existing provisions of Section 115JB, inter‑alia, apply to a company against whom an application for corporate insolvency resolution process has been admitted by the Adjudicating Authority under the IBC. Such a company is allowed to reduce, from the book profit, the aggregate amount of unabsorbed depreciation and loss brought forward. However, the aforesaid provisions do not apply to distressed companies.

[32]


It is proposed to amend the Section to provide that the aggregate amount of unabsorbed depreciation and loss (excluding depreciation) brought forward shall also be allowed to be reduced from the book profit in case of a company, and its subsidiary and the subsidiary of such subsidiary, where the NCLT, on an application moved by the Central Government under Section 241 of the CA 2013 has suspended the Board of Directors of such company and has appointed new directors who are nominated by the Central Government, under Section 242 of the CA 2013.


[Clause 34]

Provision for credit of relief where salary, etc. is paid in arrears or in advance – Sections 140A, 143, 234A, 234B and 234CThe existing provisions of Sections 140A, 143, 234A, 234B and 234C provide for computation of tax liability after allowing credit for prepaid taxes and certain admissible reliefs, credits etc. However, relief under Section 89 in respect of salary, etc. paid in arrears or in advance is not specifically mentioned in the aforesaid Sections, which created a hardship for the taxpayers who are eligible for such relief.

It is proposed to amend the aforesaid Sections to compute the tax liability after considering such relief under Section 89.

This amendment is proposed to take retrospective effect from April 1, 2007.

[Clauses 42, 43, 52, 53 & 54]

Rationalisation of provisions relating to claim of refund – Section 239Under the existing provisions of Section 239, every claim for refund shall be made in the prescribed form and verified in the prescribed manner.

It is proposed to amend the Section to provide that a claim for refund would require furnishing return in accordance with the provisions of Section 139.


[Clause 55]

Rationalisation of penalty provisions relating to under-reporting of income – Section 270AThe existing provisions of Section 270A provide for penalty for under-reporting and misreporting of income. However, these provisions do not appear to expressly deal with a situation where the person has under-reported income in the return of income furnished for the first time under Section 148.

It is proposed to amend the Section to include cases of under-reporting of income in the return of income furnished for the first time under Section 148.


[Clause 61]

CBCR - Clarification for definition of “accounting year” – Section 286 Section 286 deals with furnishing of CBCR in respect of an international group for the reporting accounting year. Section 286 presently provides that the accounting year for an alternate reporting entity resident in India shall be the previous year, i.e. the period April 1 to March 31.

[33]


In respect of alternate reporting entities resident in India, where the parent entity of the international group is situated outside India, the accounting year followed by the parent entity may not co-incide with the period of April-March. Hence, in such cases, concerns were raised about the requirement of re-casting the global accounts of the international group for the period from April-March to facilitate CBCR reporting by the alternate reporting entity resident in India.

To address such concerns, it is now proposed to amend Section 286 so as to provide that the accounting year in case of the alternate reporting entity of an international group, where the parent entity is not resident in India, the reporting accounting year shall be the annual accounting period in respect of which such parent entity prepares its financial statements.

The amendment, being clarificatory in nature, is proposed to take effect retrospectively from April 1, 2017 (AY 2017-18).

[Clause 67]

Expansion of scope of furnishing statement of Specified Financial Transactions – Section 285BAThe existing provisions of Section 285BA provide for the list of persons responsible for furnishing statement of SFT. It is proposed to expand the scope of this Section to include any person, as may be prescribed, apart from those already mentioned in the Section, to be responsible for furnishing statement of SFT.

Section 285BA presently provides that the statement of SFT is required to be furnished only if the aggregate value of SFT during the FY exceeds ` 50,000. In order to facilitate the collection of information to provide pre-filled tax return forms to the assessees, it is now proposed to delete this threshold limit, so that the information about smaller transactions can also be collated.

Section 285BA presently also provides that in case the statement of SFT is found to be defective, and the defect furnished is not rectified within a specified period, would be considered as if such person as having failed to furnish the statement. Penalty under Section 271FA may be levied upto ` 1,000 per day of default in such cases.


[Clause 66]

Prescription of electronic mode of payments – Various SectionsNumber of existing provisions of the Act, discourage cash transactions by allowing deductions / receipts only through mode of account payee cheque/draft or electronic clearing system through bank account.

In line with the Government’s stated objective of moving to a cash less economy, it is proposed to amend word “bank account” to “bank account or through such other electronic mode as may be prescribed” in the following provisions of the Act:

1. Section 13A - Donation exceeding ` 2,000 received by a political party [Clause 8]

2. Section 35AD – Accelerated deduction for capital expenditure incurred on specified businesses [Clause 9]

3. Section 40A - Expenses or payments not deductible in certain circumstances [Clause 11]

4. Section 43(1) - Determination of actual cost of assets [Clause 12]

5. Section 43CA – Special provision governing determination of full value of consideration on transfer of assets other than capital assets [Clause 14]

6. Section 44AD – Presumptive taxation scheme for small businesses [Clause 16]

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7. Section 50C – Special provision governing determination of full value of consideration on transfer of capital assets, being land and building [Clause 18]

8. Section 56 (2)(x) - Taxability of receipt of money for no or inadequate consideration [Clause 21]

9. Section 80JJAA – Deduction for additional wages paid to new regular workmen [Clause 27]

10. Section 269SS – Acceptance of loan or deposit of ` 20,000 or more [Clause 57]

11. Section 269ST – Receipt of an amount of ` 2,00,000 or more in aggregate from a person in a day or in respect of a single transaction [Clause 58]

12. Section 269T – Repayment of loan or deposit of ` 20,000 or more [Clause 60]

The other electronic modes of payment which may be prescribed later can include BHIM UPI, UPI – QR, Aadhaar Pay, certain debit cards, etc.

These amendments to Sections 269SS, 269ST and 269T are proposed to take effect from September 1, 2019 and April 1, 2020 (AY 2020-21) in all other cases.

[Clauses 8,9,11,12,14,16,18,21,27,57,58,60]

Increase in time limit for sale of attached immovable property - Rule 68B of the Second Schedule of the Act – Sections 222 & 276Under the existing provisions of Rule 68B, the immovable property of a tax defaulter, which is attached by the Government cannot be sold for 3 years from the end of the financial year in which the order giving rise to demand due to which such property is attached, becomes final.

In order to protect the interest of the tax authorities, it is now proposed to amend Rule

68B of the Second Schedule to the Act to extend the time period of 3 years to 7 years. It is also proposed to insert an enabling provision, where the CBDT can extend the period of 7 years by a further period of 3 years, for reasons to be recorded in writing.

The above amendment is proposed to take effect from September 1, 2019.

[Clause 68]

Rationalisation of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015The existing provisions of Section 2 of the BM Act, inter‑alia, provide for the definition of ‘assessee’, which means a resident person (other than not ordinarily resident in India) within the meaning of Section 6 of the Act. Further, Section 72(c) of the BM Act provided that in respect of an asset acquired prior to the commencement of the BM Act, which has not been disclosed under the one-time Voluntary Disclosure Scheme under the BM Act, such asset shall be deemed to be acquired in the year in which the notice under Section 10 of the BM Act was issued by the AO.

These provisions gave rise to apprehensions about applicability of the BM Act in a situation where the undisclosed foreign asset was acquired in earlier years but in the year of detection, the assessee became a non-resident. In such a situation, the issue was whether an assessee can plead that he was a non-resident in the year of receipt of notice under Section 10 and therefore the provisions of BM Act do not apply to him.

It is now proposed to clarify that the BM Act would apply to such undisclosed foreign income and assets. It is, therefore proposed to expand the provisions of the BM Act to apply them to a non-resident and resident and non-ordinarily resident, who was resident, either in the previous year to which the undisclosed income relates or

[35]


the undisclosed asset located outside India was acquired.

It is also proposed to clarify that the provisions relating to the year of taxability will remain the same under the BM Act. The taxability will arise in the year in which the undisclosed asset was acquired.

Further, a clarificatory amendment is proposed in Section 10 of the BM Act to include the expressions “re-assesss” and “reassessment” for the purpose of making an assessment.

These amendments are proposed to take retrospective effect from July 1, 2015.

[Clauses 195 & 196]

The existing provisions of Section 17 of the BM Act provide for the Commissioner(Appeals) to confirm or cancel the penalty order. The power of variation to the amount of penalty is not expressly provided. It is now proposed to clarify that the Commissioner (Appeals) may also vary the penalty order so as to enhance or reduce the penalty.

The amendment is proposed to take effect from September 1, 2019.

[Clause 197]

The existing provisions of Section 84 of the BM Act provide for application of certain provisions of the Act to the BM Act with necessary modifications. However, the BM Act does not provide powers to Joint CIT for assessing the cases under the BM Act. Considering the significance of the cases assessed under the BM Act, it is now proposed to include the reference of Section 144A of the Act to the BM Act, with necessary modifications. Section 144A provides for powers of the Joint CIT to issue directions for the guidance of the AO.

The amendment is proposed to take effect from September 1, 2019.

[Clause 198]

Rationalisation of the Income Declaration Scheme, 2016The existing provisions of Section 187 of the Finance Act, 2016 provides that the tax, surcharge and penalty in respect of the undisclosed income, declared under the IDS shall be paid on or before a notified due date. Failure to make payment of the tax, surcharge and penalty has adverse consequences, including denial of immunities provided by the IDS.

In order to provide relief in genuine and deserving cases, it is proposed to amend the said Section wherein the Central Government may notify the class of persons who may make the payment of such amount (i.e. tax, surcharge and penalty) along with due interest at the rate of 1% of every month or part of the month starting from the due date and ending on the date of payment.

Further, as per the existing Section 191 of the Finance Act, 2016, no refund shall be granted in regard to any amount paid by way of tax, surcharge or penalty pursuant to the IDS. This being a genuine concern of the declarants, it is proposed to amend the said Section authorising the Central Government to notify the class of persons to whom the amount of tax, surcharge and penalty, paid in excess, shall be refundable.

This amendment is proposed to take effect retrospectively from June 1, 2016.

[Clauses 199 & 200]

Rationalisation of STT provisions The existing provisions of Section 99 of the Finance (No.2) Act, 2004 provides that in case of sale of an option in securities, STT is levied on the settlement price, where the option is exercised.

In order to rationalise the levy of STT, it is now proposed that STT shall be levied on the intrinsic

[36]


value of the Option contract, being the difference between the settlement and strike price.


[Clause 193]

Pre-filing of income-tax returnsThe Finance Minister in her speech announced that pre-filled tax returns would be made available to the tax payers, containing the details of salary, interest, capital gains, dividends, etc. as well as tax deductions. This is intended not only to simplify the filing of tax returns, but also to ensure accuracy of income and tax reported. These details mentioned in the pre-filled tax returns will be obtained from various sources, for eg, banks, stock exchange, mutual funds, etc.

It is expected that the Government would amend the Income-Tax Rules, 1962 for this purpose.

Faceless E-assessment The Finance Minister in her speech announced the concept of a ‘faceless e-assessment’ to reduce the personal interaction and resultant undesirable practices. This is not a new concept and was introduced by the Finance Act 2018.

It is now proposed, in a phased manner, to select cases for scrutiny and allocate to assessment units in a random manner. A Central Cell is proposed to be set up, which will issue notices electronically without disclosing the name, designation or location of the AO. The Central Cell will be the single point of contact between the tax payer and the department.

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INDIRECT TAXESHighlights:vv The threshold exemption limit for a supplier

of goods is proposed to be enhanced from ` 20 lakhs to an amount not exceeding ` 40 lakhs.

vv Tax payers having annual turnover of less than ` 5 Crore shall file quarterly returns. Free accounting software for return preparation has been made available to small businesses. A fully automated GST refund module is proposed to be implemented.

vv An electronic invoice system is being proposed, to enable invoice details to be captured in a central system at the time of issuance. This will eventually be used to prefill the taxpayers’ returns. There will be no need to generate a separate e-way bill. The system is to be rolled out from January 2020 and is expected to reduce the tax compliance burden significantly.

vv An amendment is proposed to prospectively levy interest only on the net cash liability and not the gross tax liability, except in cases where returns are filed subsequent to initiation of proceedings.

Clause wise changes proposed in GST:Clause 92vv Existing Section 10(1) of the CGST

Act, 2017, enables a registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakhs, to opt for composition scheme.

vv It is proposed to introduce an explanation to Sub-section (1) of Section 10 of CGST Act, 2017 stating that for computing the

aggregate turnover to determine eligibility for the composition scheme, the value of exempt supplies of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount shall not be taken into account.

vv Further, Clause (f) has been proposed to be inserted in Sub-section (2) of Section 10, to make the composition scheme inapplicable to Casual taxable person and a non-resident taxable person.

vv A new Sub-section (2A) is being inserted in Section 10 of the CGST Act, 2017 to introduce an alternative composition scheme for suppliers of goods and services not eligible for the earlier composition scheme specified under Sub-section (1) of Section 10, having an aggregate turnover in the preceding financial year upto ` 50 lakhs.

vv The Proposed amendment is to take prospective effect from a date to be notified in the Official Gazette by the Central Government.

Clause 93vv Under the existing provisions of Section

22(1) of the CGST Act, 2017, every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees.

vv It is proposed to introduce a new proviso to Section 22(1) of CGST Act, 2017, to empower the Government to enhance the aggregate turnover from twenty lakhs rupees, at the request of the State and on the recommendations of the Council, to an amount not exceeding forty lakh rupees

[38]


in case of a supplier who is engaged exclusively in the supply of goods.

vv The proposed amendment is to take prospective effect from a date to be notified in the Official Gazette by the Central Government.


25(6) of CGST Act, 2017, every person shall have a Permanent Account Number issued under the Income Tax Act, 1961 in order to be eligible for grant of registration. Provided that a person required to deduct tax under Section 51 may have, in lieu of a Permanent Account Number, a Tax Deduction and Collection Account Number issued under the said Act in order to be eligible for grant of registration.

vv It is proposed to introduce Section 25(6A), (6B), (6C) and (6D) of CGST Act, 2017.The new Sub-sections are being inserted in Section 25 of the CGST Act, 2017 to make Aadhaar authentication mandatory for specified class of new taxpayers and to prescribe the manner in which certain class of registered taxpayers are required to undergo Aadhaar authentication.


Clause 95vv It is proposed to introduce Section 31A of

CGST Act, 2017, enabling the Government to prescribe a class of registered persons who shall mandatorily provide prescribed modes of electronic payment options to the recipient of supply of goods or services or both in such manner and subject to such conditions and restrictions, as may be prescribed.

The Honourable Finance Minister had stated in her Budget Speech that the objective was to discourager cash transactions in businesses.


39(1) of CGST, 2017-

(1) Every registered person, other than an ISD or a non-resident taxable person or a person paying tax under the provisions of Section 10 or Section 51 or Section 52 is required to file a monthly electronic return in the prescribed form and within the prescribed time limit containing details of inward and outward supplies of goods and/or services, input tax credit availed, tax payable, tax paid and such other particulars as may be prescribed. The Section also contained a proviso empowering the Central Government to notify classes of registered persons who may permitted to file a quarterly return instead of a monthly return.

(2) The Section also enabled registered persons who had opted for the composition scheme under Section 10 to file a quarterly return and pay tax within eighteen days from the end of the quarter.

vv It is proposed to amend Section 39 of CGST Act, 2017 to enable the composition tax payers to file an annual return, instead of filing quarterly returns, subject to payment of tax within such time as may be prescribed.

vv The proposed amendment is to take prospective effect from a date to be notified in Official Gazette by the Central Government.

Clause 97vv Under the existing provisions of Section 44

of CGST Act, 2017, every registered person, other than an ISD, a person paying tax under Section 51 or Section 52, a casual taxable person and a non-resident taxable

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person, shall furnish an annual return for every financial year electronically in such form and manner as may be prescribed on or before the thirty-first day of December following the end of such financial year.

vv Two new provisos are being inserted in Sub-section (1) of Section 44 of the CGST Act, 2017 so as to empower the Commissioner to extend the due date for furnishing annual return (prescribed FORM GSTR-9/9A) and reconciliation statement (prescribed FORM GSTR-9C), on the recommendation of the Council.


Clause 99vv It is proposed to introduce a proviso to Sub-

section (1) of Section 50 of CGST Act, 2017, to provide for charging interest only on the net cash tax liability, except in those cases where returns are filed subsequent to issuance of show cause notice under Section 73 or 74 of the CGST Act, 2017.



171(3) of CGST Act, 2017, there is no provision to levy penalty. It is proposed to introduce Sub-section (3A) of Section 171 to enable levy of penalty equivalent to ten per cent of the profiteered amount.

vv Also a proviso to the above Section is being introduced to state that no penalty shall be levied if the profiteered amount is

deposited within 30 days of passing of the order by the Authority.


Legacy Dispute Resolution Scheme:vv The budget proposes a dispute

resolution-cum-amnesty scheme, called “the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019”. Clauses 119 to 134 of the Finance Bill set out the provisions of the scheme. The scheme will allow quick resolution of pending litigation pertaining to excise duty and service tax & other specified taxes. The relief under the scheme varies from 40 percent to 70 percent of the tax dues for cases other than voluntary disclosure cases, depending on the amount of tax dues involved. The scheme also provides relief from payment of interest and penalty. The person discharged under the scheme shall also not be liable for prosecution.

vv The scheme does not apply if a pending appeal or proceeding has been finally heard on or before June 30, 2019.

vv The scheme would be effective from a date to be notified later. Rules and instructions regarding the manner in which the scheme will be operated are yet to be issued.

Customs Duty Changes:vv Proposals for changes in customs duty rates

are driven with the objectives of securing the country’s borders, achieving higher domestic value addition through Make in India, reducing import dependence,

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protection to MSME sector, promoting clean energy, curbing non-essential imports, and correcting inversions. Describing Defence Modernization and Upgradation as a national priority and of immediate requirement, the budget proposes exemption from basic Customs duty on import of such defence equipment that are not being manufactured in India. Also, imported goods for generation of nuclear power are proposed to be exempted.

vv To encourage the Make in India Scheme, basic customs duty is increased on PVC, cashew kernels, Vinyl flooring, tiles, metal fittings, mountings for furniture, auto parts, certain kinds of synthetic rubbers, marble slabs, optical fibre cable, CCTV camera, IP camera, digital and network video recorders.

vv Also, exemption from customs duty on certain electronic items which are now being manufactured in India is withdrawn.

vv 5% basic customs duty is imposed on imported books, to encourage domestic publishing & printing industry.

vv To further promote domestic manufacturing, the budget proposes customs duty reductions on certain raw materials and capital goods. These include certain inputs of CRGO sheets, amorphous alloy ribbon, ethylene di-chloride, propylene oxide, cobalt matte, naphtha, wool fibres, inputs for manufacture of artificial kidney and disposable sterilised dialyser, and fuels for nuclear power plants.

vv Certain parts of electric vehicles have been exempted, to encourage domestic manufacture of electric vehicles.

vv Road and Infrastructure Cess [Additional Duty of Customs] levied on imported Petrol

and HSD has been increased from ` 8/- to ` 10/- per litre. Also, the Additional Duty of Excise on imported petrol has been increased from ` 8/- to ` 9/- per litre.

vv Tariff rate of basic customs duty on imported gold & silver has been enhanced from 10% to 12.5%.

vv Increase in BCD rates:

o From 10% to 15%:

Heading Description

3918 Floor covering of plastics, Wall or ceiling covering of plastics

3926 90 91/

3926 90 99

Other articles of plastics

8706 Chassis fitted with engines, for the motor vehicles of Headings 8701 to 8705

8707 Bodies (Including Cabs), for specific motor vehicles

o From 15% to 20%:

Heading Description 8521 9090 Only for DVR & NVR of the

mentioned heading

8525 80 Only for CCTV camera and IP camera of the mentioned heading

o From 7.5% to 10%:

Heading Description 3904 Poly Vinyl Chloride

8421 23 00 Oil or petrol filters

8421 31 00 Intake air filters

8421 39 20 Catalytic convertors

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o From 10% to 12.5%:

Heading Description

7106 Silver (including silver plated with gold or platinum) unwrought or in semi- manufactured forms, or in powdered form

7107 00 00 Base metals clad with silver, not further worked than semi-manufactured

7108 Gold (including gold plated with platinum) unwrought or in semi-manufactured forms, or in powder form

7109 00 00 Base metals or silver, clad with gold, not further worked than semi- manufactured

7110 Platinum, unwrought or in semi-manufactured form, or in powder form

7111 00 00 Base metals, silver or gold, clad with platinum, not further worked than semi- manufactured

7112 Waste and scrap of precious metals or of metal clad with precious metals; other waste and scrap containing precious metal compounds, of a kind used principally for the recovery of precious metal

o Others:

Heading Description BCD Rate change

8702/8704 CBU From 25% to 30%

8415 90 00 Split- System air conditioner

From 10% to 20%

o Customs end use-based exemption removed:

Heading Description 3823 11 00 Stearic acid

3823 12 00 Oleic acid

3823 13 00 Tall oil fatty acids

3823 19 00 Other Industrial acids

vv BCD is being fully exempted on specified imported military equipment and their parts by notification No. 19/2019- Customs, dated July 06, 2019 upto June 30, 2024. This exemption applies to imports made by the Ministry of Defence or the Armed forces, subject to specified conditions.

vv All the rate changes come into effect from July 06, 2019.

Changes proposed in Customs Act,1962vv Clauses 69 to 84 of the Finance (No.2) Bill,

2019 seek to amend the Customs Act, 1962 for facilitating trade, improving compliance and reducing litigation.

vv Amendments are proposed to enable a person other than a person in charge of conveyance to furnish the departure manifest, Aadhaar verification of any person, empowerment of the proper officer to scan a person who has concealed goods liable for confiscation.

vv Provisions are introduced to enable arrest of an offender outside India, power to provisionally attach bank account, levy penalty for paying duty by using any instrument (licences , scrips, etc) obtained by fraud.

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vv Certain offences such as fraudulently availing or attempting to avail duty drawback or duty exemption where the amount involved exceeds ` 50 Lakhs or fraudulently obtaining an instrument for the purposes of the Customs Act, 1962 or the Foreign trade (Development and regulation ) Act, 1992 and utilizing the same are made cognizable and non-bailable.

vv General penalty under Section 117 of the Customs Act, in respect of offences for which no penalty has been provided for in the Customs Act, is proposed to be

2. Tariff rate of excise duty on crude petroleum falling under tariff item 2709 20 00 is being increased from NIL to Re.1 per litre. This amendment may ensure that prospectively one cannot contend that National Calamity Contingent Duty is not leviable because the BCD on crude itself is exempted. This may reduce litigation in future. However, Notification no. 06/2019-CE dated July 06, 2019 grants exemption to crude petroleum

oil produced in the specified oil fields under production sharing contracts or in the exploration blocks offered under the New Exploration Licensing Policy through international competitive bidding.

3. Excise Duty on Cigarettes of different lengths and types has been enhanced from NIL to ` 5 per thousand.

4. All the rate changes come into effect from July 06, 2019.

increased from rupees one lakh to rupees four lakhs.

vv Penalty under Section 158 of the Customs Act, for contravention of any provision of a rule or regulation is proposed to be increased from rupees fifty thousand to rupees two lakhs.

vv A provision has also been made to waive fine in lieu of confiscation for cases covered under the deemed closure proceedings, to reduce litigation, by amending Section 125 of the Customs Act,1962.

Excise Duty Changes1. The table below summarizes the change in the various duties applicable to petrol and

diesel:

Duty rates applicable upto 05.07.2019 (` Per litre)

Duty rates applicable from 06.07.2019 (` Per litre)

BED SAED RIC Total BED SAED RIC Total

Petrol (Unbranded) 2.98 7 8 17.98 2.98 8 9 19.98

Petrol (branded) 4.16 7 8 19.16 4.16 8 9 21.16

Diesel (Unbranded) 4.83 1 8 13.83 4.83 2 9 15.83

Diesel (branded) 7.19 1 8 16.19 7.19 2 9 18.19

[43]


GLOSSARY

Abbreviation Description

` Indian Rupees

% Percentage / %

AAR Authority of Advance Rulings

Act Income Tax Act, 1961

AE Associated Enterprise

AIF Alternative Investment Fund

ALP Arm’s length Price

AO Assessing Officer

AOP Association of Persons

APA Advance Pricing Agreement

AS Accounting Standard issued by ICAI

AY Assessment Year

BCD Basic Customs Duty

BM Act Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015

BOI Body of Individuals

CA 2013 Companies Act, 2013

CAD Current Account Deficit

CBCR Country-by-Country reporting

CBDT Central Board of Direct Taxes

CBEC Central Board of Excise and Customs

CBU Completely Built Unit

CCIT Chief Commissioner of Income Tax

[44]



CCTV Closed Circuit Television

Central Excise Act Central Excise Act, 1944

Central Excise Tariff Act Central Excise Tariff Act, 1985

CENVAT Central Value Added Tax

CENVAT Rules CENVAT Credit Rules, 2002

CESTAT Customs, Excise and Service Tax Appellate Tribunal

CETH Central Excise Tariff Heading

CGST Act Central Goods and Services Tax Act, 2017

CIT Commissioner of Income Tax

CRGO Cold Rolled Grain Oriented

CST Central Sales Tax

CTH Customs Tariff Heading

Customs Act Customs Act, 1962

Customs Tariff Act Customs Tariff Act, 1975

CVD Countervailing duty

DDT Dividend Distribution Tax

DGFT Directorate General of Foreign Trade

DTAA Double Tax Avoidance Agreement

DVR Digital Video Recorders

EPCG Export Promotion Capital Goods Scheme

FDI Foreign Direct Investment

FPI Foreign Portfolio Investor / Foreign Institutional Investor

FTS Fees for Technical Services

FY Financial Year

[45]



GDP Gross Domestic Product

GoI Government of India

GST Goods and Service Tax

GVA Gross Value Added

HSD High Speed Diesel

HUF Hindu Undivided Family

IBC Insolvency Bankruptcy Code, 2016

IDS Income Declaration Scheme, 2016

IndAS Indian Accounting Standard

IFSC International Financial Services Centre

IGST Integrated Goods and Service Tax

IRDA Insurance Regulatory and Development Authority

IP Internet Protocol

ISD Input Service Distributor

KYC Know Your Customer

MAT Minimum Alternate Tax

MSME Micro, Small and Medium Enterprises

NA Not Available

NBFC Non-Banking Financial Company

NCLT National Company Law Tribunal

NPA Non Performing Asset

NPS National Pension System

NVR Network Video Recorders

OECD Organization for Economic Cooperation and Development

[46]



PAN Permanent Account Number

POP Rules Place of Provision of Services Rules, 2011

POTR Point of Taxation Rules, 2011

PPP Public Private Partnership

PVC Poly Vinyl Chloride

RBI Reserve Bank of India

RDB Rupee denominated bonds

SEBI Security and Exchange Board of India

Service Tax Legislation Finance Act, 1994

SEZ Special Economic Zone

SFT Statement of Financial Transactions

SHEC Secondary and Higher Education Cess

STT Securities Transaction Tax

TDS Tax Deducted at Source

USD US Dollar

w.e.f with effect from

w.r.e.f with retrospective effect from

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