Tax Planning 2020: Income Tax Rules Changes 2019 and how taxpayers will be affected

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Updated: December 23, 2019 4:48:59 PM

Income Tax Rules Changes 2019: Rates of Income Tax of AY 2019‐20 was proposed to be continued for AY 2020‐21 but surcharge rate was increased for Individual, HUF, AOP, BOI, Pvt. Trust and AJP.

Income Tax Rules Changes 2019Check Income Tax Rules Changes 2019

Income Tax Rule Changes 2019: The year 2019 brought several good news for income taxpayers as the government introduced multiple changes in the income tax law. As many as 70 amendments in the Income Tax Act were made by the Finance Act 2019. These amendments were either in the form of inserting new sections in the existing law or by amending the existing provisions. From making income up to Rs 5 lakh effectively tax-free to tax exemption to withdrawal form NPS, the major changes brought in by the government in the year 2019 are going to have a long-lasting impact on pockets of taxpayers. CS Sakshi Agarwal, chief mentor and leader at Sameer Mittal & Associates LLP, has explained key income tax rule changes of the year and how they will impact taxpayers in 2020. You can use the following details to make your tax plan accordingly:

 

Income Tax Rates

Rates of Income Tax of AY 2019‐20 was proposed to be continued for AY 2020‐21 but surcharge rate was increased for Individual, HUF, AOP, BOI, Pvt. Trust and AJP. Initially, a surcharge of 15 per cent was levied on the income of individuals earning over Rs 1 crore, and 10 per cent on income of individuals earning between Rs 50 lakh and Rs 1 crore. Now the surcharge limit has been increased for individuals earning income of more than Rs. 2 crore. The new structure of surcharge is as follows :

  • 10% (for income of Rs 50 lakh to Rs 1 crore),
  • 15% (for income of Rs 1 crore to Rs 2 crore),
  • 25% (for income of Rs 2 crores to Rs 5 crore) and
  • 37% (for income exceeding Rs 5 crore)

So, the effective tax rate for Income above Rs 2 Crore but less than Rs 5 Crore and Income above Rs 5 crore will be 39% and 42.74%(Tax rate + Surcharge + Cess).

New TDS Provisions

In the Budget 2019, two new TDS provisions (Section 194N and Section 194M) were introduced. These are applicable from 1st September 2019.

1. TDS on cash withdrawal to discourage cash transactions [Section 194N]

In order to curb the cash transactions, from September onwards the banks, cooperative banks or post offices are liable to deduct 2% TDS, on cash payment exceeding of Rs 1 Crore in aggregate during the financial year, to any person from an account maintained by the recipient.

2. TDS on Payment by Individual/HUF to Contactors or Professionals [Section 194M]

As per section 194M, any individual or a HUF, which is not subject to tax audit and is not required to deduct TDS under section 194C, section 194H or section 194J and is making payment to any resident for carrying out any work, commission, brokerage or fees for professional service shall deduct a sum equal to 5% as TDS and deposit the amount with Government. The liability to deduct TDS will arise when the amount paid in one go or in multiple instalments exceeds Rs 50 lakh.

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Other relevant Changes in TDS amendment provisions effective from 1st September 2019 are:

Section 194DA (TDS on income from life insurance): a person is obliged to deduct tax at source if it pays any sum to a resident under a life insurance policy @5% on the amount of income comprised therein in place of earlier 1% TDS on gross amount paid.

Section 194IA (TDS on purchase of immovable property): Under this amendment, explanation has been added defining “Consideration for Immovable property”. Earlier, the individual was required to deduct TDS on the amount paid for buying the house, but from September onwards, TDS has to be deducted on the consideration amount which will also includes all the incidental charges in nature of- club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee or any other charges of similar nature.

Section 194LC (No Deduction of TDS on Interest To A Non-Resident Earned on Rupee Denominated Bond): Section 10 of the Act has been amended w.e.f 1st April, 2019 (AY 2019-20), to exempt the Interest payable by an Indian company or a business trust to a non-resident, including a foreign company, in respect of rupee-denominated bond issued outside India during the period from September 17, 2018 to March 31, 2019 from tax. Consequently, no tax is required to be deducted on the payment of interest in respect of the said bond u/s 194LC. (Effective from 1st April, 2019)

Mandatory furnishing of return of income by certain persons [Section 139]

This Budget has also widened the scope for filing the income tax return. Now, taxable income is not the only key to remember to file the return but some more categories have been introduced to keep aside the taxable income limit. So, person entering into certain high-value transaction or such other person as prescribed will be required to file Income Tax Return mandatorily:

A person who has made deposits exceeding Rs 1 crore in one or more current bank account
A person who has incurred an amount exceeding Rs. 2 lakh on foreign travel for himself or any other person
A person who has incurred more than Rs. 1 lakh on electricity consumption
A person whose total income before claim of the rollover benefits (u/s 54, 54B, 54D, 54EC, 54F, 54G, 54GA, 54GB), is more than the maximum amount not chargeable to tax.

PAN and Aadhaar inter‐changeability

In order to ensure ease of compliance, the Finance Ministry has introduced the PAN /Adhaar interchangeability, whereby if a person has not been allotted PAN then he may furnish his/her Aadhaar number in lieu of PAN. Furthermore, a person who has been allotted PAN and PAN is linked with Aadhar number then he/she may quote his/her Aadhaar in lieu of PAN.

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Taxability of Gifts to Person outside India

Under the existing provisions of the Act, a gift of money or property is taxed in the hands of donee, except for certain exemptions provided in clause (x) of sub-section (2) of section 56. Now amendment has been introduced in budget 2019 to ensure that such gifts made by residents to persons outside India are subjected to tax in India. For the purpose of same, a new clause is inserted in Section 9 to provide that any income arising from payment of any sum of money, or transfer of any property situated in India, by a person resident in India to a person outside India shall be deemed to accrue or arise in India. However, the exemption provided under section 56 shall continue to apply even in such cases. In simple words, no tax shall be levied if property or sum of money is received by a person outside India from a relative resident in India or on the occasion of his marriage. So now in these situations, the relevant article of applicable DTAA shall continue to apply for such gifts as well. This amendment will take effect from 1st April 2020 and will, accordingly, apply in relation to the assessment year 2020‐21 and subsequent assessment years.

Exemption of lumpsum withdrawal from National Pension Scheme (NPS)

Budget 2019 has proposed to increase the exemption from tax on the lumpsum withdrawal of corpus the corpus, to sixty per cent. Previously, a person withdrawing a lumpsum corpus from NPS trust on closure or opting out of pension scheme was exempt from tax, if the person withdrew up to 40% of the amount. Now, it’s proposed to exempt up to 60%. (These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to assessment year 2020‐21 and subsequent assessment years).

Additional deduction of interest on home loan

To boost the housing sector, an additional deduction benefit up to Rs 1,50,000/- per year on loan taken for residential house property from any financial institution has been provided. The same is subject to 3 following conditions:

  • Loan sanctioned during the period beginning from 01st April 2019 to 31st March 2020.
  • Stamp Duty does not exceed INR 45 Lakh.
  • Assessee does not own any other residential house property on the date of sanction of loan.

This deduction is in addition to deduction of INR 2 Lac under section 24. Hence total benefit is Rs 3,50,000.

Deduction on purchase of electric vehicle

A new section 80EEB has been proposed to provide for deduction up to Rs 150,000 per year to individual taxpayers, in respect of interest on loan taken for purchase of an “electric vehicle” from any financial institution. The terms electric vehicle and financial institution have also been defined.

This deduction is available for loans sanctioned by a financial institution (including a bank or NBFC) during the period beginning on the 1 April 2019 to 31 March 2023. It has also been provided that no deduction for such interest will be allowed again for the same or any other AY.

Reduction in Corporate Tax Rate

Initially, the companies were required to pay corporate tax at the rate of 25% if the turnover was up to Rs 250 crore. The limit was increased to Rs 400 crore in the Union Budget 2019. However, in order to boost the economy further, the Finance Ministry had in September 2019 amended the Income Tax Act to provide an option to the domestic companies to pay corporate tax at the rate of 22 per cent if the companies, do not avail any exemptions/incentives under different provisions of income tax.

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