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Significant Income tax amendments coming in effect from 1st April 2019

Changes in taxation of Long term Capital Gains

Section 112A taxing long term capital gains arising from the alienation of equity shares in a company, or a unit if equity oriented fund or a unit of a business trust will be taxes at 10% of capital gains exceeding one lakh rupees.

A similar exemption granted to FIIs is also withdrawn by virtue of removal of exemption granted under section 10(38) and suitable alterations to section 115AD

TDS applicable on payments made by charitable institutions

In order to encourage a less cash economy the provisions of section 40A disallowing expenses in excess of Rs 10,000 are now applicable upon payments made by exempt entities such as charitable or religious trusts or institutions.

Expanded scope of “Business connection” : Modified PE rules

Erstwhile PE rules excluded situations wherein the dependent agent negotiated a contact but did not conclude it. This has been amended in line with BEPS Action plan 7 to modify article 5(5) to provide that such an agent would include not only a person who habitually concludes contracts on behalf on non-residents but also a person who habitually plays a principal role leading to the conclusion of contracts.

Section 9(1)(i) has similarly been modified to provide that a “business connection” shall include any business activity carried through a person who acting on behalf of a non-resident habitually concludes contracts or plays the principal role leading to conclusion of contracts by the non-resident.

This wider scope for Permanent establishments comes into effect from the 1st of April 2019

Significant economic Presence

Amendments to section 9(1)(i) to provide that the term “business connection” will also include “significant economic presence” in India. This has been discussed in detail in our post here. The new provisions come into effect with effect from 1st of April 2019

Non compete revenues to be taxed

Amendments to section 28 bring into tax non compete and non disclosure incomes in relation to business and employment which were hitherto beyond income tax since they were considered capital receipts.

Such payments will now be taxable as other incomes under section 56 of the act starting April 1, 2019

Amendment in section 44AE ( taxation of goods carriages)

With effect from 1st of April 2019 presumptive incomes from heavy goods vehicles ( more than 12MT) shall be deemed to be Rs 1000/tonne of gross vehicle weight per month or actual amount claimed by the assessee, whichever is higher.

Higher deductions under section 80D for senior citizens

Limits for exemption on payments made towards annual premium on health insurance policy or preventive health check-up of senior citizens will be revised from Rs 30,000 to Rs 50,000 for senior citizens

Higher exemption limit for treatment of diseases

The limits for treatment for specified diseases for both senior and super senior citizens shall be Rs 100,000 as compared with the previous limits of Rs 60,000 and 80,000 respectively.

Higher limit on Interest on Savings accounts for senior citizens

Section 80TTB comes into effect providing exemption of an amount up to rs 50,000 on interest incomes from savings accounts earned by Senior citizens. Similarly section 194A has also been suitably modified to ensure that threshold for TDS is appropriately revised to Rs 50,000

Simplification of Salary tax structures

Exemptions in the case of transport allowance and reimbursement of medical expenses has been withdrawn and in place a standard deduction of Rs 40,000 has been provided to salaried individuals.

100% profit deduction provided to farm producer companies

100% profit deduction has been provided to farm producer companies with turnovers up to Rs 100 crores whose gross incomes satisfy the required parameters.

Trades at International financial services Centers not to be considered transfers

Transaction undertaken by non residents at any recognized stock exchange in an IFSC is not going to be considered a transfer if the consideration is paid or payable in foreign currency. Eligible assets for the above purpose include bonds or GDRs, Rupee Denominated bonds in an Indian company, or derivatives.

Further, the MAT applicable on the incomes of a non corporate unit in an IFSC shall be charged at the rate of 9%  by amendment of 115JC and 115JF

Employment generation incentives extended to footwear and leather industry

Benefits under section 80-JJA pertaining to additional deduction of 30% of salaries paid to new employees is now also extended to footwear and leather industries

Trades in agricultural Commodity derivatives to be considered non speculative transactions

Section 43(5) is amended to provide that transactions in respect of trading in agricultural commodity derivatives which is not subject to CTT will be treated as a non speculative transaction.

Rationalization of Section 43CA, 50C and 56

The aforementioned three sections have been modified to provide a 5% margin between stamp duty valuer and sale consideration. Therefore no adjustment will be made in a case where the difference between the stamp duty value and sale consideration is not more than 5% of the total sale consideration

Conversion of stock in trade to capital asset to be subject to tax

The difference between the fair market value of the inventory on the date of the conversion and the cost of the asset is deemed to be the business income of the assessee on the date of such conversion.

Further when the asset is sold, the fair market value on the date of conversion shall be assumed to be the cost of the asset.

Restriction of 54EC benefits to only land and building

Provisions of section 54EC stand modified to include only long term capital gains from the sale of land and building as eligible for exemption upon investment in bonds issued by NHAI or REC

Further the term of eligible bonds is now extended to 5 years from the previous limit of 3 years.

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