Jul 102019
 

Income tax Incentives in Budget 2019

As you all are aware that budget for financial year 2019-20 is presented is presented in lok sabha on 5th July 2019 with the words “Mr. Speaker Sir, I rise to present the budget for the year 2019-2020……” The budget is yat to get pass in Rajya Sabha and nod from honorable president from India. Even though here an attempt is being made to analyze the various types of incentives proposed in the budget which shall be effective from next assessment year.

Tax incentive to Purpose Detailed analysis of tax incentives
International Financial Services Centre (IFSC) To promote the development of world class financial infrastructure 1.    It is proposed to provide for 100% deduction of profits for 10 consecutive years out of 15 years from the year of commencement.

2.    Tax exemptions for interest received by a non-resident in respect of monies lent to a unit located in IFSC.

3.    The benefit to non resident is proposed to be extended to a Category-III Alternative Investment Fund (AIF) in IFSC of which all the unit holders are non-residents, subject to certain other conditions.

4.    It is also proposed to notify other securities which shall be eligible for capital gains exemptions if traded on a recognised stock exchange in IFSC by a specified person.

5.    It is proposed to extend benefit of exemption from DDT even on distribution out of accumulated profit which has been accumulated by the unit after 1st April, 2017 from operations in IFSC.

6.    There would be no additional tax on distribution of any amount, on or after 1st September, 2019, by a specified Mutual Fund out of its income derived from transactions made on a recognised stock exchange located in any IFSC.

7.    It is proposed to allow deduction under section 80LA to a non-resident for the purpose of computing tax liability in respect of income of the nature of interest, dividend etc. referred to in section 115A.

Non-banking Financial Companies (NBFCs) Unlike others interest income on bad or doubtful debts of NBFCs are taxed on accrual basis. it is proposed that interest on bad or doubtful debts in the case of deposit-taking NBFC and systemically important non deposit-taking NBFC shall be charged to tax on receipt basis.

 

It is also proposed to provide that deduction of such interest shall be allowed to the payer on actual payment.

Start – ups Condition of carry forward of losses is relaxed  1.   Carry forward eligible start – ups losses even on satisfaction of any one of the two conditions, i.e. continuity of 51% shareholding/voting power or continuity of 100% of original shareholders.

2.   the benefit shall be available for sale of residential property on or before 31st March, 2021 on the pretext on investment of net consideration in equity shares of eligible start – ups.

3.   The condition of minimum holding of 50% of share capital or voting rights in the start-up is proposed to be relaxed to 25%.

4.   The condition restricting transfer of new asset being computer or computer software is also proposed to be relaxed from the current 5 years to 3 years.

Resolution of distressed companies Facilitate resolution Conditions of continuity of shareholding for carry forward and set off of losses shall not apply to such companies.

 

For the purposes of computation of Minimum Alternate Tax (MAT) liability of such companies, the aggregate of brought forward losses and unabsorbed depreciation shall also be allowed as deduction.

Exemption from deeming of fair market value of shares Facilitate resolution through the approved schemes Where the parties to the transactions do not have control over the determination of price, it is proposed to empower the Board to prescribe transactions for which the provisions relating to deeming of fair market value of shares shall not be applied for computation of capital gains and deemed gift under section 50CA and section 56(2)(x).
Rupee-denominated Bond (RDB) To contain the current account deficit and augment the foreign exchange inflow The Government had issued a press release on 17th September, 2018 exempting interest income of non-resident from RDB issued by a company or a business trust, outside India, during the period 17th September, 2018 to 31st March, 2019. It is proposed to incorporate this tax incentive in the Income-tax Act.
offshore funds To facilitate location of fund managers of offshore funds in India Conditions relating to the remuneration of fund manager and the time limit for building up of corpus, are proposed to be rationalised so as to facilitate setting up of fund management activity in India with respect to such offshore funds.
Category-II AIF Presently, the investment made by Category-I AIF is exempted from the applicability of the provisions of section 56(2)(viib) of the Income-tax Act. It is proposed to extend this exemption to Category-II AIF as well.
Electric vehicle Incentivise purchase of electric vehicle Deduction of an amount upto Rs. 1,50,000 for interest paid on loan taken for purchase of electric vehicle. The loan is required to be taken on or before 31st March, 2023.
Real estate Incentivise purchase of affordable house Deduction upto Rs. 1,50,000 for interest paid on loan taken for purchase of residential house having value upto Rs. 45 lakh. This shall be in addition to the existing interest deduction of Rs. 2 lakh.

It is proposed to increase the limit of carpet area from 30 square meters to 60 square meters in Metropolitan regions and from 60 square meters to 90 square meters in non- metropolitan regions.

It is also proposed to provide the limit on  cost of the house at Rs. 45 lakh in line with the definition in the GST Acts.

National Pension System (NPS) subscribers (i)               increase the limit of exemption from current 40% to 60% of payment on final withdrawal from NPS;

(ii)             allow deduction for employer’s contribution upto 14% of salary from current 10%, in case of Central Government employee;

(iii)          allow deduction under section 80C for contribution made to Tier II NPS account by Central Government employees.

Listed companies Discourage the practice of avoiding Dividend  Distribution Tax (DDT) through buy back of shares by listed companies it is proposed to provide that listed companies shall also be liable to pay additional tax at 20% in case of buy back of share, as is the case currently for unlisted companies.
Trust A trust or institution complies with local  laws that are material for the purposes of achieving its objects it is proposed to provide for cancellation of registration of the trust or institution under the Act for violation of such provision of any other law, where an order holding that such violation has occurred is either not contested or has become final.

It is proposed to provide that at the time of registration it shall also be examined whether there has been any such violation by the trust or institution seeking registration.