Budget 2019 Highlights: What is The Impact on Income Tax Provisions

Narendra Kumar

05 Sep, 2019

To encourage the growth of the nation, the Union Budget 2019 Highlights was designed to boost the infrastructure and to promote the foreign investment of the impending economic slowdown. The first woman finance Minister Mrs Sitharam laid down the plan to uplift the standard of the economy, build transparency, simple tax administration and also to boost the women empowerment, education, banking and finance, farmer and agriculture and startups.

Key Highlights of the Income Tax Proposal Overview-Budget 2019 Highlights

Here are the following main points of Income Tax proposal under Union Budget 2019:

1.    Change in Turnover for Corporate Tax Rate

Earlier the companies with turnover of less than INR 2,500 million, were entitled to a lower corporate tax rate of 25%. Now the benefit has been extended to companies with a turnover of less than INR 4,000 million. It will result in enhancing India’s tax competitiveness in the global market.

Further, with a view to encouraging the IFSCs, a series of tax proposals has been introduced i.e. transfer of specified securities in IFSCs by Category III AIFs will be tax exempt.

Condition – All unit holders must be non-residents and certain other conditions met.

2.    Tax Exemption by Units in IFSC

• The Exemption will be granted on the interest paid to non-residents.
• Earlier, in respect of dividends declared from their current income, units of IFSC’s enjoyed exemption from dividend distribution tax. Now, In Union Budget 2019, it has been extended to both dividends declared from their current and accumulated income.
• Extension of 100% tax holiday for IFSC units from 5 years to 10 Years.
• Exemption in mutual funds located in IFSC from payment of any distribution tax.

3.    Safe Harbor Rule Implementation and Respective Changes in it-

The monthly average corpus of the fund had to be INR 100 crores or more for safe harbour rules.

Exception: In case of the new fund, Rule has been relaxed to provide that such minimum corpus test which has to be met by a new fund either by the end of the financial year or within six months of establishment, whichever is later.

4.    For Startups

Those investors and start-ups who file requisite declarations and provide information in their tax returns shall not be subject to any kind of scrutiny regarding valuations of share premiums/tax.

5.    TDS deduction in case of cash withdrawal above the threshold limit

To preserves Indian Tax base from evasion the withdrawal of cash in excess of INR 10 million (1 Crore) in any financial year has been weighed down with a tax deduction at source of 2 %.

6.    E-Verification

To ascertain the identity of the investor and its source of funds, the government has also proposed a system of e-verification with no human interface between the investors and the government officials.

7.    Transfer Pricing

In order to provide transparency and clarity and to reduce certain practical difficulties faced by the taxpayers, the proposals in the budget seek to rationalize some of the provisions concerning adjustments and Advance Pricing while complying with the provisions.

8.    An exception of applicability of section 55(2)(x) and section 50CA of the Income Tax Act 1961

The cases where share transfer consideration is approved by certain authorities or is beyond the control of the transferor in those cases fair valuation norms will not be made applicable under Section 56(2)(x) and Section 50CA of the Income-tax Act, 1961.

9.    Gifts of Cash and Property under the Tax Regime

Gifts of cash and property located in India by a resident to a non-resident have been brought under the Indian tax regime.

10. Tax return filing in case of High-value Transactions in certain cases

Any person/persons who do not meet taxable thresholds are required to file tax returns (mandatory) if they enter into high-value transactions such as cash deposits, foreign travel or electricity expense exceeding a specified amount.

11. Interchangeability of PAN and Aadhar Card

For the convenience of the taxpayers, PAN and Aadhar card are made interchangeable. Additionally, to simplify the process, the returns can also be filed using the Aadhar card number, if the person does not have a PAN card.

12. The effective rate of surcharge will increase

The surcharge is to be enhanced on the individuals having taxable income from 2 crores to 5 crores and 5 crores and above. The effective tax rate will enhance by around 3% and 7%.

13. A relief in Payment of Security Transaction Tax on Capital Gains

14. Reduction of the Tax rate in Electronic vehicle

The tax rate has been reduced from 12% to 5% on the electronic vehicle. Additionally, a tax deduction is also to be provided of Rs 1.5 lakh on interest paid on loans taken to purchase electronic vehicles.

15. Exemption on defence equipment and custom duty on Imported Books

Defence equipment not manufactured in India are not taxable and are being exempted from the customs duty. However, on imported books, a customs duty of 5% is being imposed.

Further on Gold and other precious metals, the customs duty is to be increased to 12.5% from 10%.

16. Payment Platform for MSMEs

1. A payment platform to be created for MSMEs and also Rs 350 crore will be allocated for 2% interest subvention for all the MSMEs registered under the respective act on fresh and incremental loans.
2. To promote rental housing certain steps would be undertaken.
3. Retail traders and shopkeepers with an annual turnover of fewer than 1.5 crores under Pradhan Mantri Karam Yogi Man Dhan Scheme will be provided pension benefits.

17. Changes in FDI

In consultation with the stakeholders, 100% FDI to be permitted to insurance intermediaries and also opening up of FDI in aviation, media and animation to be done.

18. Changes in the Educational sector

Changes in Educational sector to transform the educational system, i.e. a remarkable change in higher as well as the school system.

Conclusion

The Finance Minister has laid down the roadmap and taken certain measures to tackle several aspects of the economy. Further, the government has also announced its several economic and social reforms. Further, they have also announced their intention to get more NRI investment into India. Highlights of The Budget 2019 was passed to strengthen the financial market and for the farmers to have an ease of doing business. Announcements were made to increase the FDI percentage from 49% to 100% in the Insurance sector and intermediaries.

Also, Read

Highlights of Union Budget 2019
Budget 2019: Key Highlights of Interim Budget at a Glance