INSIGHTS ON

DIRECT TAX

PROPOSALS 2019

S.K.AGRAWAL & CO.

Chartered Accountants
DIRECT TAX PROPOSALS 2019
11.. TTD
DSS CCO
OMMP
PLLIIA
ANNCCEE

1.1 TDS on payment by individual/ HUF to contractors and

professionals

 At present there is no liability on an individual / HUF to deduct TDS on any

payment made to a resident contractor or professional in the following cases:
i) when it is for personal use
ii) when payment is made for the purpose pf business or profession which
is not subjected to audit

 It is proposed to insert a new section 194M in the Act to provide for levy of
TDS @ 5% on the sum, or the aggregate of sums, paid or credited in a year
on account of contractual work or professional fees by an individual or HUF,
not required to deduct tax at source under section 194C and 194J of the Act if
such sum, or aggregate of such sums, exceeds Rs. 50 lakhs in a year.

Thus if payment for contractual work or professional service is made by

individual/ HUF for personal use or for business or profession which is not
subject to audit and it exceeds Rs. 50 lakhs in a year; then TDS @ 5% shall
be deducted on the same u/s 194M

 It is also proposed that such individuals or HUFs shall be able to deposit the
tax deducted using their PAN and shall not be required to obtain Tax
deduction Account Number (TAN)

Applicable from 1st September 2019

1.2 TDS on purchase of immovable property –

Consideration defined – Sec 194-IA

 Sec 194-IA provides for levy of TDS @ 1% on amount of consideration paid or

credited for purchase of immovable property subject to certain conditions
specified therein.

Page 1 of 15
DIRECT TAX PROPOSALS 2019
 However, the term “consideration for immovable property” is presently not
defined for this section. Accordingly, it is proposed to amend the Explanation
to said section and provide that the term “consideration for immovable
property” shall include all charges of the nature of club membership fee, car
parking fee, electricity and water facility fees, maintenance fee, advance fee or
any other charges of similar nature, which are incidental to transfer of the
immovable property.

 Aforesaid charges shall be included in consideration even if the buyer is

contractually bound to pay the same under a different agreement.

Applicable from 1st September 2019

1.3 TDS @ 2% on cash withdrawal –– Sec 194-N

 It is proposed to insert a new section 194N in the Act to provide for levy of
TDS @ 2% on cash withdrawal in excess of Rs. 1 crore in aggregate made
during the year, from a bank or cooperative bank or post office, by any person
from an account maintained by such person.

 It is proposed to exempt cash withdrawal by certain persons, such as the

Government, banking company, cooperative society engaged in carrying on
the business of banking, post office, banking correspondents and white label
ATM operators, who are involved in the handling of substantial amounts of
cash as a part of their business operation, from the application of this
provision.

Applicable from 1st September 2019

Page 2 of 15
DIRECT TAX PROPOSALS 2019

1.4 TDS on non exempt portion of life insurance pay out

 As per existing provisions of sec 194DA; TDS @ 1% is deducted on non-

exempt portion of life insurance policy pay out. Thus at present tax is being
deducted on gross amount

 Since the person who is paying a sum to a resident under a life insurance
policy is aware of the amount of insurance premium paid by the assessee it is
proposed to provide for TDS deduction @ 5% on income component of the
sum paid by the person (i.e after deducting the amount of insurance premium
from the total sum)

Applicable from 1st September 2019

1.5 Sec 201 - TDS default on payment to non-residents

 The first proviso to sec 201(1) specifies that the tax deductor shall not be
deemed to be an assessee in default if he fails to deduct tax on a payment
made to a resident, if such resident has:

i) furnished his return of income under section 139

ii) disclosed such payment for computing his income in his return of
income
iii) paid the tax due on the income declared by him in his return of income
and
iv) furnished an accountant’s certificate to this effect.

 This relief in section 201 is available to the deductor, only in respect of

payments made to a resident

 It is proposed to amend the proviso to sec 201(1) to extend the benefit of this
proviso to a deductor, even in respect of failure to deduct tax on payment to
non-resident.

Page 3 of 15
DIRECT TAX PROPOSALS 2019
 Consequent to this amendment, it is also proposed to amend the proviso to
sub-section (1A) of section 201 to provide for levy of interest till the date of
filing of return by the non-resident payee (as is the case at present with
resident payee)

Applicable from 1st September 2019

 It is also proposed to amend clause (a) of section 40 to provide that where an

assessee fails to deduct tax on any sum paid to a non-resident, but is not
deemed to be an assessee in default under the first proviso to sec 201(1),
then it shall be deemed that the assessee has deducted and paid the tax on
such sum on the date of furnishing of the return of income by the payee
referred to in that proviso. Thus, there will be no disallowance under section
40 in respect of such payments.

Applicable from AY 2020-21 and subsequent assessment years

1.6 Online determination of TDS on payment to non-

residents –– Sec 195

 It is proposed to amend the provisions of sec 195 to allow for prescribing the
form and online manner of application to the Assessing Officer for
determination of TDS to be deducted on payment to non-residents

Applicable from 1st November 2019

Page 4 of 15
DIRECT TAX PROPOSALS 2019

2
2.. BBU
USSIIN
NEESSSS IIN
NCCO
OMMEE

2.1 Incentive to NBFCs – sec 43D

 The existing provisions of section 43D of the Act, provides that interest income
in relation to certain categories of bad or doubtful debts received by certain
institutions or banks or corporations or companies, shall be chargeable to tax
in the previous year in which it is credited to its profit and loss account or
actually received, whichever is earlier.

 The benefit of this provision is presently available to public financial

institutions, scheduled banks, cooperative banks, State financial corporations,
State industrial investment corporations and public companies like housing
finance companies.

 It is proposed to amend section 43D of the Act so as to include deposit-

taking NBFCs and systemically important non deposit-taking NBFCs
within the scope of this section.

 Consequentially, as per matching principle in taxation, it is proposed to amend

section 43B of the Act to provide that any sum payable by the assessee as
interest on any loan or advances from a deposit-taking NBFCs and
systemically important non deposit-taking NBFCs shall be allowed as
deduction if it is actually paid on or before the due date of furnishing the return
of income of the relevant previous year.

Applicable from AY 2020-21 and subsequent assessment years

Page 5 of 15
DIRECT TAX PROPOSALS 2019

3
3.. BBU
UYY BBA
ACCK
KOOFF SSH
HAAR
REESS

3.1 Tax on buy back of shares by listed companies

 Section 115QA of the Act provides for levy of additional Income-tax @ 20% of
the distributed income on account of buy-back of unlisted shares by the
company. Consequently income arising in the hands of shareholders has been
exempted from tax under clause (34A) of section 10 of the Act.

 The existing anti abuse provision under Sec 115QA of the Act is proposed to
be extended to all companies including companies listed on recognised stock
exchange. Thus, any buy back of shares from a shareholder by a company
listed on recognised stock exchange, on or after 5th July 2019, shall also be
covered by the provision of section 115QA of the Act.

 It is also proposed to extend exemption under clause (34A) of section 10 of

the Act to shareholders of the listed company on account of buy-back of
shares on which additional income -tax has been paid by the company.

Applicable from 5th July 2019

Page 6 of 15
DIRECT TAX PROPOSALS 2019

4
4.. SST
TAAR
RTT--U
UPPSS

4.1 Incentive for start ups

 Under the existing provisions; clause (b) of sec 79 which applies only to
eligible start-ups; the loss incurred in any year prior to the previous year shall
be carried forward and set off against the income of the previous year, if, all
the shareholders of such company who held shares carrying voting power on
the last day of the year or years in which the loss was incurred, continue to
hold those shares on the last day of such previous year and such loss has
been incurred during the period of seven years beginning from the year in
which such company is incorporated.

 It is proposed to amend section 79 so as to provide that loss incurred in any

year prior to the previous year, in the case of closely held eligible start-up,
shall be allowed to be carried forward and set off against the income of the
previous year on satisfaction of either of the following two conditions:

i) As per clause (a) of sec 79 i.e. no loss incurred in any year prior to the
previous year shall be carried forward and set off against the income of
the previous year, unless on the last day of the previous year, the
shares of the company carrying not less than fifty-one per cent of the
voting power were beneficially held by persons who beneficially held
shares of the company carrying not less than fifty-one per cent of the
voting power on the last day of the year or years in which the loss was
incurred

ii) Existing condition as per clause (b) of sec 79 (presently applicable to

eligible start-ups)

Page 7 of 15
DIRECT TAX PROPOSALS 2019

 The existing provisions of sec 54GB of the Income-tax Act, provides for
exemption of capital gain arising from the transfer of a long-term capital asset,
being a residential property owned by the eligible assessee; on investment of
net consideration in more than 50% of the equity shares or voting rights of an
eligible start-up, before the due date of filing of the return of income.

 In order to incentivise investment in eligible start-ups, it is proposed to amend

the said section so as to

(i) extend the sun set date of transfer of residential property for investment
in eligible start-ups from 31st March 2019 to 31st March 2021;

(ii) relax the condition of minimum shareholding of 50% of share capital or

voting rights to 25%.

 The existing restriction on transfer of assets acquired by the eligible start up is

also proposed to be reduced from 5 years to 3 years

Applicable from AY 2020-21 and subsequent assessment years

Page 8 of 15
DIRECT TAX PROPOSALS 2019

5
5.. M
MIISSCCEELLLLA
ANNEEO
OUUSS A
AMMEEN
NDDM
MEEN
NTTSS

5.1 Demerger of Ind-AS compliant companies

 One of the existing conditions for tax-neutral demergers is that the resulting
company should record the property and the liabilities of the undertaking at the
value appearing in the books of accounts of the demerged company

 However Indian Accounting Standards (Ind-AS) compliant companies are

required to record the property and the liabilities of the undertaking at a fair
value

 It is proposed to amend section 2 of the Act to provide that the requirement of

recording property and liabilities at book value by the resulting company shall
not be applicable in a case where the property and liabilities of the
undertakings received by it are recorded at a value different from the value
appearing in the books of account of the demerged company immediately
before the demerger in compliance to the Indian Accounting Standards
specified in Annexure to the Companies (Indian Accounting Standards) Rules,
2015

Applicable from AY 2020-21 and subsequent assessment years

5.2 Effective Income tax rate for domestic companies

 Tax rate for domestic companies whose total turnover or gross receipts during
FY 2017-18 is less than Rs. 400 crores has been reduced to 25%. In view of
the same; effective tax rate for companies now stands as follows:

Page 9 of 15
DIRECT TAX PROPOSALS 2019

The effective tax rate for domestic companies whose total turnover or gross

receipts in FY 2017-18 is less than Rs. 400 crores :

Total Income (for Does not More than Rs. 1

Exceed Rs.
determining surcharge exceed Rs. 1 crore but does not
10 crore
rate) crore exceed Rs. 10 crore
Income Tax Rate 25% 25% 25%
Surcharge 0% 7% 12%
Cess 4% 4% 4%
Effective Tax Rate 26.00% 27.82% 29.12%

The effective tax rate for domestic companies whose total turnover or gross

receipts in FY 2017-18 is more than or equal to Rs. 400 crores:

Total Income Does not More than Rs. 1 crore

Exceed Rs.
(for determining exceed but does not exceed Rs.
10 crore
surcharge rate) Rs. 1 crore 10 crore

Income Tax Rate 30% 30% 30%

Surcharge 0% 7% 12%
Cess 4% 4% 4%
Effective Tax
31.20% 33.38% 34.94%
Rate

Applicable from AY 2020-21 and subsequent assessment years

5.3 Increase in surcharge for individual/ HUF/ AOP/BOI

etc.
 The rate of surcharge for above taxpayers is proposed to be as follows:
Income Range Surcharge
i) Rs. 50 lacs to Rs. 1 crore 10%
ii) Rs. 1 crore to Rs. 2 crore 15%

Page 10 of 15
DIRECT TAX PROPOSALS 2019

iii) Rs. 2 crore to Rs. 5 crore 25%

iv) Exceeding Rs. 5 crore 37%

Applicable from AY 2020-21 and subsequent assessment years

5.4 Tax incentive for purchase of affordable housing –

Sec 80EEA

 It is proposed to insert a new section 80EEA in the Act so as to provide a

deduction in respect of interest up to Rs. 1,50,000 on loan taken for residential
house property from any financial institution subject to the following conditions:

(i) loan has been sanctioned by a financial institution during the period
beginning on the 1st April, 2019 to 31st March 2020

(ii) the stamp duty value of house property does not exceed forty-five lakh
rupees;

(iii) assessee does not own any residential house property on the date of
sanction of loan

 It is also proposed that where a deduction under this section is allowed for any
interest, deduction shall not be allowed in respect of such interest under any
other provisions of the Act for the same or any other assessment year.

Applicable from AY 2020-21 and subsequent assessment years

5.5 Tax incentive for purchase of electric vehicles – Sec

80EEB
 It is proposed to provide for a deduction in respect of interest on loan taken for
purchase of an electric vehicle from any financial institution up to Rs. 1,50,000
subject to the following conditions:
Page 11 of 15
DIRECT TAX PROPOSALS 2019

(i) the loan has been sanctioned by a financial institution including a NBFC
during the period beginning on the 1st April, 2019 to 31st March, 2023;

(ii) the assessee does not own any other electric vehicle on the date of
sanction of loan.

 It is also proposed that where a deduction under this section is allowed for any
interest, deduction shall not be allowed in respect of such interest under any
other provisions of the Act for the same or any other assessment year.

Applicable from AY 2020-21 and subsequent assessment years

5.6 Cancellation of registration of Trust or Institution

 In order to ensure that trust or institution do not deviate from their objects; it is
proposed to amend sec 12AA of the Act so as to provide further conditions for
granting or cancelling registration of trust or institution as follows:

i) at the time of granting registration, the Principal Commissioner or the

Commissioner shall also satisfy himself about the compliance of the
trust or institution to requirements of any other law which is material for
the purpose of achieving its objects;

ii) where a trust or an institution has been granted registration and

subsequently it is noticed that the trust or institution has violated
requirements of any other law which was material for the purpose of
achieving its objects, and the order, direction or decree, by whatever
name called, holding that such violation has occurred, has either not
been disputed or has attained finality, the Principal Commissioner or

Page 12 of 15
DIRECT TAX PROPOSALS 2019

Commissioner may, by an order in writing, cancel the registration of such trust

or institution after affording a reasonable opportunity of being heard.

Applicable from 1st September 2019

5.7 Incentive to National Pension System (NPS)

subscribers

 Under the existing provisions of sec 10 of the Act, 40% of the total amount
payable by NPS Trust to an assessee at the time of closure of his account or
on his opting out of the scheme, is exempt from tax.

 It is proposed to increase the said exemption from 40% to 60% of the total
amount payable to the person at the time of closure or his opting out of the
scheme

Applicable from AY 2020-21 and subsequent assessment years

5.8 Mandatory furnishing of return of income by certain

persons
 Currently, a person other than a company or a firm is required to furnish the
return of income only if his total income exceeds the maximum amount not
chargeable to tax, subject to certain exceptions.

 It is proposed to amend section 139 of the Act so as to provide that a person

shall be mandatorily required to file his return of income, if during the previous
year, he

Page 13 of 15
DIRECT TAX PROPOSALS 2019
(i) has deposited an amount or aggregate of the amounts exceeding Rs. 1
crore in one or more current account maintained with a banking
company or a co-operative bank; or

(ii) has incurred expenditure of an amount or aggregate of the amounts

exceeding Rs. 2 lakhs for himself or any other person for travel to a
foreign country; or

(iii) has incurred expenditure of an amount or aggregate of the amounts

exceeding Rs.1 lakh towards consumption of electricity; or

(iv) fulfils such other prescribed conditions, as may be prescribed.

(v) A person who is claiming exemption from capital gains tax on

investment in a house or a bond or other assets, under sections 54,
54B, 54D, 54EC, 54F, 54G, 54GA and 54GB of the Act, shall
necessarily be required to furnish a return, if before claim of exemption,
his total income is more than the maximum amount not chargeable to
tax.

Applicable from AY 2020-21 and subsequent assessment years

5.9 Prescription of electronic modes of payment

 The current laws prohibit cash transactions and allow/encourage payment or

receipt only through account payee cheque, account payee draft or electronic
clearing system through a bank account. However other electronic mode of
payments are not yet clearly stated.

 Hence it is proposed to amend relevant sections (sec 13A, 35AD, 40A, 43(1),
43CA etc) so as to include such other electronic mode as may be prescribed,
in addition to the already existing permissible modes of payment

Applicable from AY 2020-21 and subsequent assessment years

 It is also proposed to insert a new section 269SU so as to provide that every

person, carrying on business, shall, provide facility for accepting payment
through the prescribed electronic modes, in addition to the facility for other

Page 14 of 15
DIRECT TAX PROPOSALS 2019

electronic modes of payment, if any, being provided by such person, if his total
sales, turnover or gross receipts in business exceeds Rs. 50 crore during the
immediately preceding previous year.

 It is further proposed to provide that the failure to provide facility for electronic
modes of payment prescribed under section 269SU shall attract penalty of a
sum of Rs. 5000, for every day during which such failure continues.

 It is also proposed to provide that no bank or system provider shall impose

any charge upon anyone, either directly or indirectly, for using the modes of
electronic payment prescribed under section 269SU of the Income-tax Act

Applicable from 1st November 2019

5.10 Interchangeability of PAN & Aadhar Number

 The provisions of section 139A are proposed to be amended so as to provide

that,
(i) every person who is required to furnish or intimate or quote his PAN
aunder the Act, and who, has not been allotted a PAN but possesses
the Aadhaar number, may furnish or intimate or quote his Aadhaar
number in lieu of PAN, and such person shall be allotted a PAN in the
prescribed manner;

(ii) every person who has been allotted a PAN, and who has linked his
Aadhaar number under section 139AA, may furnish or intimate or quote
his Aadhaar number in lieu of a PAN.

Applicable from 1st September 2019

Page 15 of 15