Below is the highlight of Tax Proposals and other Legal Pronouncements as announced in Interim Union Budget on 1st February, 2019. Being the interim budget, and with parliamentary elections due in April-May 2019, no legislative measures for change in tax structure is proposed at present. However, on the administrative front, a number of initiatives have been taken to improve compliance, augment revenue collections and streamline tax payer services. The said proposals will be effective after the Finance Bill, 2019 receives the assent of the Hon’ble President of India.
PROPOSALS RELATED TO TAX RATES
- No Change in Corporate Tax, Alternate Minimum Tax (AMT) and Dividend Distribution Tax (DDT) Rates as well as surcharge and Health/Education Cess. Below is the summary of current corporate, MAT and DDT tax rates.
- Effective tax rates applicable to Foreign Companies:
– 41.60% – having taxable income up to up to 1 Cr.
– 42.43% – having taxable income above 1 cr. but up to 10 Cr.
– 43.68% – having taxable income above 10 Cr.
- Effective tax rates applicable to Domestic Companies having total turnover/ gross receipts not exceeding INR 250 Cr.:
– 26% – up to turnover of 1 Cr.
– 27.82% – for turnover above 1 Cr. up to 10 Cr.
– 29.12% – for turnover more than 10 Cr.
- Effective tax rates applicable to other Domestic Companies:
– 31.20% – up to turnover of 1 Cr.
– 33.38% – for turnover above 1cr. up to 10 Cr.
– 34.94% – for turnover more than 10 Cr.
- Effective tax rates applicable to partnership firms and LLP:
– 31.20% – if taxable income is less than 1 Cr.
– 34.94% – if taxable income is more than 10 Cr.
- Effective AMT rates:
– 19.24% applicable to Individuals, HUF, AOP, BOI having total income up to 50 lakh
– 21.16% applicable to Individuals, HUF, AOP, BOI etc. having total income exceeding 50 lakh but not exceeding 1 Cr.
– 22.13% applicable to Individuals, HUF, AOP, BOI having total income exceeding 1 Cr.
– 19.24% applicable to firms, LLP, Companies having total income up to 1 Cr.
– 21.55% applicable to firms, LLP, Companies having total income exceeding 1 Cr.
- Effective DDT rates: 20.56% Tax on dividend distributed by domestic companies.
- No change in tax slab applicable to Individuals/HUF/AOP/BOI etc. and deduction under section 80C. Section 87A proposed to be amended to provide relief to the resident individual taxpayers by increasing the amount of tax rebate to Rs. 12,500 from existing Rs. 2,500. The tax rebate shall now be admissible to taxpayers having total taxable income upto Rs. 5,00,000, instead of existing Rs. 3,50,000. So effectively no tax will be payable for taxable income up to Rs.500,000
However, assesse having taxable income more than Rs. 500,000, no rebate will be available and hence 5% tax will be payable on income slab of Rs. 250,000 to Rs. 500,000 in addition to tax slab currently applicable on taxable income above Rs. 500,000.
- Standard deduction for salaried employees proposed to increase to Rs. 50,000 per anum from Rs. 40,000/-
OTHER TAX PROPOSALS
- It is proposed to exempt levy of income tax on notional rent on a second self-occupied house by way of proposed amendment to Section 23 as currently income tax on notional rent is payable if an assessee has more than one self-occupied house. However, deduction for interest on loan borrowed for the purpose of construction/ purchase of residential property under section 24 shall not exceed the existing limit of Rs. 2,00,000 in aggregate for both houses.
- It is proposed that notional rent in respect of unsold inventory (in the form of building or land appurtenant thereto) shall not be charged to tax up to 2 years, instead of existing 1 year if held as stock-in-trade and not let during the whole or any part of the year. The said period shall be reckoned from the end of the financial year in which the certificate of completion is obtained from the competent authority.
- The benefit of rollover of capital gains under Section 54 of The Income Tax Act, 1961 available to individual and HUF will be increased from investment in one residential house to two residential houses (constructed or purchased) for a tax payer having capital gains up to Rs. 2 Cr. This benefit can be availed once in a lifetime and optional in nature.
- The benefit of deduction of an amount equal to 100% of the profits and gains derived from the business of developing and building housing projects under Section 80-IBA is being extended for one more year i.e. to housing projects approved by the competent authority till 31st March, 2020.
- TDS threshold u/s 194A proposed to increase to Rs. 40,000 from Rs.10,000 for deduction of tax at source on interest income earned on bank/post office deposits.
- TDS threshold u/s. 194I for deduction of tax on rent paid for use of any land or building or furniture or fittings is proposed to be increased from Rs. 1,80,000/- to Rs. 2,40,000/- for providing relief to small taxpayers.
- All Assessment and verification of the Income Tax returns will be done electronically by an anonymised tax system without any intervention by tax official within almost two years to bring transparency in the system and to save lots of hardship to taxpayers.
LEVY OF STAMP DUTY ON SECURITIES & DEBENTURES
- The proposed amendments in stamp duty provisions are largely aimed at rationalising the various stamp duty provisions as well as streamlining the stamp duty collection mechanism. It is intended to designate stock exchanges and depositories to collect stamp duty on sale or transfer of securities. Such collection will be transferred to the respective state government within the prescribed time. The amendments also propose changes to the rates of duties as below.
– In case of issue of debenture – 0.005%
– In case of transfer and re-issue of debenture – 0.0001%
– Issue of security other than debenture – 0.005%
– Transfer of security other than debenture on delivery basis – 0.015%
– Transfer of security other than debenture on non-delivery basis – 0.003%
Futures (equity and commodity) – 0.002%
Options (equity and commodity) – 0.003%
Currency and interest rate derivatives – 0.0001%
Other derivatives – 0.002%
– Government securities – 0%
– Repo on corporate bonds – 0.00001%
AMENDMENT IN PREVENTION OF MONEY LAUNDERING ACT
- Where Adjudicating Authority, after the inquiry, comes to the conclusion that any property is involved in money laundering, it can, by an order in writing, confirm the attachment of the property and such attachment shall continue during investigation for the period of 365 days. Timeline has been proposed to enhance to 365 days from 90 days
It has also been clarified that in calculation of days, the period during which investigation is stayed by any court under any law for the time being in force shall be excluded.