16 Jul 2019

Direct Taxes and related reforms

Source: Press Information Bureau (Budget 2019)

Following are the areas under which changes related direct taxes mentioned in the budget;

  • Tax rate reduced to 25% for companies with annual turnover up to Rs. 400 crore
  • Surcharge increased on individuals having taxable income from Rs. 2 crore to Rs. 5 crore and Rs. 5 crore and above.  
  • India’s Ease of Doing Business ranking under the category of ‘paying taxes’ jumped from 172 in 2017 to 121 in the 2019.
  • Direct tax revenue increased by over 78% in past 5 years to Rs. 11.37 lakh crore

Tax Simplification and Ease of living – making compliance easier by leveraging technology:

  • Interchangeability of PAN and Aadhaar
    • Those who don’t have PAN can file tax returns using Aadhaar.
    • Aadhaar can be used wherever PAN is required.
  • Pre-filing of Income-tax Returns for faster, more accurate tax returns
    • Pre-filled tax returns with details of several incomes and deductions to be made available.
    • Information to be collected from Banks, Stock exchanges, mutual funds etc.
  • Faceless e-assessment
    • Faceless e-assessment with no human interface to be launched.
    • To be carried out initially in cases requiring verification of certain specified transactions or discrepancies.

Affordable housing

  • Additional deduction up to Rs. 1.5 lakhs for interest paid on loans borrowed up to 31st March, 2020 for purchase of house valued up to Rs. 45 lakh.
    • Overall benefit of around Rs. 7 lakh over loan period of 15 years.

Boost to Electric Vehicles

  • Additional income tax deduction of Rs. 1.5 lakh on interest paid on electric vehicle loans.
  • Customs duty exempted on certain parts of electric vehicles.

Other Direct Tax measures

  • Simplification of tax laws to reduce genuine hardships of taxpayers:
    • The higher tax threshold for launching prosecution for non-filing of returns
    • Appropriate class of persons exempted from the anti-abuse provisions of Section 50CA and Section 56 of the Income Tax Act.

Relief for Start-ups

    • Capital gains exemptions from sale of residential house for investment in start-ups extended till FY21.
    • ‘Angel tax’ issue resolved- start-ups and investors filing requisite declarations and providing information in their returns not to be subjected to any kind of scrutiny in respect of valuations of share premiums.
  • Funds raised by start-ups to not require scrutiny from Income Tax Department
    • E-verification mechanism for establishing the identity of the investor and source of funds.
  • Special administrative arrangements for pending assessments and grievance redressal
    • No inquiry in such cases by the Assessing Officer without obtaining approval of the supervisory officer.
  • No scrutiny of valuation of shares issued to Category-II Alternative Investment Funds.
  • Relaxation of conditions for carry forward and set off of losses.

NBFCs

  • Interest on certain bad or doubtful debts by deposit-taking as well as systemically important non-deposit taking NBFCs to be taxed in the year in which interest is actually received.

International Financial Services Centre (IFSC)

  • Direct tax incentives proposed for an IFSC:
    • 100 % profit-linked deduction in any ten-year block within a fifteen-year period.
    • Exemption from dividend distribution tax from current and accumulated income to companies and mutual funds.
    • Exemptions on capital gain to Category-III Alternative Investment Funds (AIFs).
    • Exemption to interest payment on loan is taken from non-residents.

Securities Transaction Tax (STT)

STT restricted only to the difference between settlement and strike price in case of exercise of options