Latest I-T amendments – A snapshot

Now that the dust has settled on Budget 2018, the following is a snapshot of the latest income tax amendments carried out. Some topics such as the proposed 10% tax on long term gains etc. have not been included since we have already dealt with the same in considerable detail in past columns.

Income Tax

Cess on Income Tax: Cess’ and ‘Secondary and Higher Education Cess’ totalling @3% has been replaced by ‘Health and Education Cess’ @4% of income tax. It will also be levied on surcharge wherever applicable.

Adjustments during Processing of Returns: At present, u/s 143(1) the total income or loss is computed after making the adjustments specified in sub-clauses (i) to (vi) thereof. Sub-clause (vi) provides for adjustment in respect of addition of income appearing between Form 26AS and Form 16/16A which has not been included in computing the total income in the return. A new third provision to this Section has been inserted to provide no addition of income shall be made where there is a mismatch between Form 16/16A and Form 26AS, whether that income is included in computing the total income or not while processing of return of income made u/s 139, or in response to a notice 142(1a).

NPS of non-employee subscribers: U/s 10 (12A) an employee contributing to the NPS is allowed an exemption in respect of 40% of the total amount payable to him on closure of his account or on his opting out. This exemption is not available to non-employee subscribers. This Section has been amended to extend this tax-free benefit to all subscribers.

Alternate Minimum Tax: U/s 115JC where in the case of a person, other than a company, the regular tax payable is less than the AMT, the adjusted total income shall be deemed to the total income of that person and the assessee shall be liable to tax on such total income @18.5%. This Section has been amended to provide that for an assessee located in an International Financial Service Centre deriving its income solely in convertible forex, the rate of tax shall be 9% at par with Minimum Alternate Tax (MAT) applicable for corporates.

Capital gains (Other than tax on long term gains)

Stamp Duty valuation: At present, while taxing capital gains u/s 50C, business profits u/s 43CA and gifts u/s 56(2x) arising out of transactions in land or building or both, the sale consideration or stamp duty value, whichever is higher is adopted. The difference is taxed as income both in the hands of the purchaser and the seller. Henceforth, no adjustments shall be made in a case where the stamp duty is higher than the sale consideration by not more than 5%.

Sec. 54EC: This Section exempting LTCG invested in the Bonds of NHAI, REC and other notified bonds, within 6 months has undergone 2 major changes --1. The exemption has been restricted only to LTCG arising from land or building or both. In other words, Sec. 54EC cannot be used anymore for LTCG arising from shares and securities, bonds, precious metals and ornaments, archaeological collections, drawings, paintings, sculptures, any work of art, stock-in-trade etc. Moreover, this exemption is no more available for LTCG arising out of Sec. 54F on any asset other than land.

2. The lock-in period of such bonds has been increased from 3 years to 5 years. Transaction not regarded as transfer: New Sec. 47(VIIaab) has been inserted to provide that any transfer of a bond or GDR referred to in Sec. 115C(1) or rupee denominated bond of an Indian company or derivative, made by an NRI on a recognised stock exchange located in any International Financial Service Centre and where the consideration is paid or payable in forex, shall not be regarded as transfer.

TDS, DDT, etc.

Dividend Distribution Tax (DDT) on dividend on equity-oriented fund: Sec. 115R which levied no tax on dividends received from an open-ended equity-based MF scheme has been amended to provide for DDT @10%.

TDS on charitable institutions: In order to reduce the generation and circulation of black money, a new Explanation to Sec. 11 has been inserted to provide that for determining the application of income under it and also Sec. 40(a)(ia) and Sec. 40A(3 & 3A), shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head ‘Profits and gains of business or profession’. Consequential chan ges have been inserted in proviso to Sec. 10(23C).

Senior citizens

Health insurance &medical treatment: The deduction provided by Sec. 80D, towards annual premium on health insurance policy, or preventive health check-up or medical expenditure of a senior citizen has been raised from Rs 30,000 to Rs 50,000. In the case of single premium health insurance policies having cover of more than one year, the deduction shall be allowed on proportionate basis for the number of years for which health insurance cover is provided, subject to the specified monetary limit.

Terminal diseases: The deduction available u/s 80DDB available to an individual and HUF with regard to amount paid for medical treatment of specified diseases in respect of very senior citizen up to Rs 80,000 and in case of senior citizens up to Rs 60,000 subject to specified conditions. This deduction has been thankfully raised to Rs 100,000 for both. Bank interest of senior citizens: A new Sec. 80TTB has been inserted to allow a deduction up to Rs 50,000 on interest from deposits held by senior citizens from a bank or institution, co-operative society engaged in the business of banking, and Post Office. The deduction u/s 80TTA of Rs 10,000 shall be available only to non-senior citizens and HUFs shall be allowed in these cases. Sec. 194A has been amended to raise the threshold for TDS on such income for seniors to Rs 50,000.

Salary

Standard Deduction: Sec. 16(ia) has been inserted to allow a standard deduction up to Rs 40,000 or the amount of salary received, whichever is less. Simultaneously, the current exemption available u/s 17(2viii) in respect of medical reimbursement of up to Rs 15,000 p.a., and Transport Allowance u/s 10(14ii) of Rs 19,200 p.a., stands withdrawn. Thankfully, the transport allowance in the case of handicapped employees for whom the allowance was higher at Rs 38,400 p.a., shall continue. The benefit of standard deduction shall be applicable to pensioners who normally are not eligible to any allowance on account of transport and medical expenses. Termination of employment: Sec. 56(2xi) has been inserted so as to provide that any compensation or other payment due to or received by any person, in connection with the termination or modification of the terms and conditions relating of his employment or business contract shall be chargeable to tax under ‘Income from other sources’.

Miscellaneous

GOI Savings (Taxable) Bonds, 2018: The existing 8% Savings (Taxable) Bonds, 2003 has been replaced with a new 7.75% Savings (Taxable) Bonds, 2018. Sec. 193 is amended to apply TDS on such bonds to residents, if the amount of interest is over Rs 10,000.

PAN : It has now become necessary u/s 139A, for even a non-individual entity to have a PAN if it enters into a financial transaction/s aggregating to Rs 2.5 lakh or more in an FY. Such entities cover managing director, director, partner, trustee, author, founder, Karta of HUF, CEO, principal officer, or office bearer of such persons. The authors may be contacted at wonderlandconsultants@yahoo.co