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Expectations from and Recommendations for Union Budget 2019

June 26, 2019 2352 Views
Editorial Team

The Government has announced that it shall present its full budget on July 5, 2019. Taxpayer's are optimist that the Govt. may announce mega reliefs for them. Tax experts believe that Smt. Nirmala Sitharaman may re-introduce the inheritance tax. Amidst these rising expectations and wishes, some people believe that as Govt. has already announced some tax benefits during the interim budget including increase in the rebate under Section 87A, it may not provide more relief to the taxpayers in the full budget.

Every year, we compile a list of our expectations from the upcoming Union Budgets. We predict and suggest changes consisting of substantive and procedural modifications. It is to our credit that many of our predictions have came true in the Union Budget. This time also we have recommended substantive/procedural changes and various other matters which CBDT should clarify to end the controversy and to bring about certainty in the Income-tax laws.

Our expectations from the Union Budget, 2019 are listed below:

1. More relief to individual taxpayers

The Finance Act, 2019 has increased Section 87A relief from Rs. 2,500 to Rs. 12,500 which isavailable to those resident individuals whose total income does not exceed Rs. 5 lakhs during the Previous Year 2019-20.

However, if taxable income marginally exceeds the limit of Rs. 5 lakhs, the tax liability increases considerably. As the slab rates have not been tinkered with and the relief is provided by making amendment to Section 87A, the taxpayers would be in disadvantageous position when they would even slightly more than the threshold limit. In similar situations, when income exceeds marginally from the level of Rs. 50 lakhs or Rs. 1 crore, the Income-tax Act allows marginal relief to nullify the impact. Thus, it is recommended that Govt. should consider introducing the marginal relief for the individual taxpayers who are earning slightly more than Rs. 5 lakhs.

Further, the basic exemption limit should be increased at least to Rs. 3 lakhs for an individual taxpayer and Rs. 3.5 lakhs for resident senior citizens and Rs. 6 lakhs for super senior citizens.

2. Increase in threshold limit of section 80C to boost investments

Section 80C allows deduction not only in respect of investments but also in respect of expenses which we generally incur in our day to day lives such as tuition fees, housing loan principal repayment, etc.

The existing limit for deduction, i.e., Rs. 150,000 leaves very little scope for the taxpayers to make further investments. Thus, various investment schemes have been losing their sheen. With an increase in inflation rate, there is need of an increase in limit of section 80C too. It is recommended that the deduction under Section 80C should be increased to minimum of Rs. 200,000.

3. Higher deduction for housing loan

Considering the socio-economic needs of middle-class families to maintain houses at two locations on account of their jobs, children's education, care of parents, etc., the interim Budget has granted major relief to individual taxpayers by allowing them to declare two house properties as self-occupied properties for the purpose of calculating income from house property.

However, the deduction with respect to interest on borrowed capital with respect to both the houses remains unchanged, i.e., at Rs. 200,000. It is recommended that the Govt. should promote housing sector by giving higher deduction for interest on housing loan. Govt. should consider increasing the limit to Rs. 2.50,000 for one self-occupied house property and Rs. 300,000 for two self-occupied house properties.

4. Revision of time limit for issue of scrutiny notice

As per current provisions, the limitation period for issue of notice under Section 143(2) for scrutiny assessment is 6 months (from the end of the financial year in which return is furnished) and for issue of intimation it is 1 year (from the end of the financial year in which return is furnished). This asymmetry between the two time limits should be addressed suitably in the forthcoming budget.

If tax details reported by an assessee in Income-tax return do not reconcile with the details of Form 26AS, the case shall be selected for limited scrutiny. If return is processed by CPC, Bengaluru after 6 months from the end of the financial year in which return is furnished and the case is selected for limited scrutiny, the Assessing Officer would not be able to issue the notice for scrutiny assessment as it has become time barred. Thus, it is expected that the time limits for issue of Section 143 notice may be revised to bring it in sync with the limitation period for issue of notice.

Click here to read the detailed article

5. Taxability of capital gains in case of JDA entered into by assesses other than an Individual or an HUF

The Finance Act, 2017 had inserted sub-section (5A) in Section 45 to provide that capital gains arising in case of JDAs shall be chargeable to tax in the year in which certificate of completion of project is issued by the competent authority. This provision is applicable only in cases where owner of immovable property is an Individual or an HUF. The law doesn't provide any clarity on taxability if JDAs have been entered into by any other assessee. Thus, it is recommended that the forthcoming Budget should bring clarity with respect to taxability of capital gains in case JDAs are entered into by any assessees other than an Individual or an HUF.

Click here to read the detailed article

6. Outdated limits for salaried employees need revision

There are several allowances which are exempt from tax up to certain threshold limits. These threshold limits are too meagre in today's scenario as they have not been revised with the passage of time, inter-alia, Children-Education Allowance is exempt up to Rs. 100 per month, hostel expenditure is exempt up to Rs. Rs 300 per month, etc. It is the urgent need of the hour that Govt. should increase the threshold limits of various allowances.

7. HRA –Add more cities under metropolitan's umbrella

An employee can claim exemptions for HRA if he pays rent for his residential accommodation. As of now, higher deductions are allowed if employee is living in any of the four big metropolitan cities, i.e., Mumbai, Delhi, Kolkata and Chennai. Currently, the rental charges for a house in cities like Bengaluru or Hyderabad are equal to or higher than what a tenant in Delhi or Kolkata has to pay for an equivalent house. Many Indian cities have developed employment opportunities in last two decades and, accordingly, rental charges have also increased manifold. Therefore, there is an urgent need of inclusion of many other cities in this category like Bengaluru, Hyderabad, Pune, Ahmedabad, Jaipur, Noida, Gurgaon, etc.

8. Limit of deduction for discounts given by the e-commerce operator

The growth of e-Commerce industry in India could be attributed to increase in usage of internet, smartphone penetration and heavy discounts offered by e-commerce websites. Flipkart's Big billion sales, Amazon's Great Indian Festival, etc., are a few online seasonal sales where these companies offer huge discounts and cashbacks on various products. In a recent case, the Assessing Officer disallowed the discount offered by the to its customers on the grounds that the strategy of selling goods at lower than cost price was to establish customers goodwill and brand value in the long run and reap benefits in the later years.

In an appeal to the ITAT, the Bangalore ITAT had allowed deduction of such discounts offered by Flipkart to buyers. Though Income-tax dept. lost the case yet it set a valid argument. There should be a limit for allowing deduction of discounts offered by e-Commerce industries. Almost every e-commerce establishment is running into huge losses and reason is only one, i.e., immense discounts. The two big tech e-commerce giants in India, i.e., Flipkart and Amazon are facing losses in thousands of crores which ultimately results in loss of revenue for the Income-tax dept.

We expect that the Govt. might bring in some new provisions under the Income-tax Act, which may indirectly put some restrictions on amount of discounts offered by e-commerce platforms.

9. Special TDS/TCS provisions in case of e-Commerce industries

In GST e-commerce companies are required to collect 1 per cent TCS while making payment to suppliers. On the line of GST, the Govt. may introducespecial TDS provisions under Income-tax Act for the e-commerce industries in order to put a check and to keep an eye on all the vendors who are selling goods or services through online platforms.

Click here to read the detailed article

10. Clarification on Availability of Extended period for MAT credit

The Finance Act, 2018 has extended the period for which MAT credit can be carried forward from 10 years to 15 years. However, it has not been clarified whether the extended period would be applicable even in those cases where original period of 10 years has already expired before the date on which such provision came into force. Thus, it is recommended that the forthcoming Budget 2019 should bring clarity on this issue.

Click here to read the detailed article

11. Insert reference for deposit/recovery of TCS on motor Vehicle

Section 206C of the Income-tax Act, 1961 provides for collection of tax at source by seller in case of sale of some specified goods or providing of specific services. The section also provides for the manner of deposit, mode of recovery of tax, etc. The Finance Act, 2016 had amended section 206C to cover more transactions. Sub-section (1F) was inserted w.e.f., June 1, 2016 for collection of tax at source by the sellers of motor vehicles where the value of transaction exceeds Rs. 10 lakh.

Though the new sub-section was inserted yet the CBDT inadvertently missed the consequential amendments to the remaining sub-sections which provide for mode of recovery, deposit of TCS, etc. Thus, it is recommended that government should fill up this gap in the Union Budget 2019.

12. Increase in the threshold limit for payment of advance tax

The liability to pay advance tax arises only when the estimated tax liability of a taxpayer for the financial year is Rs. 10,000 or more. The threshold limit of Rs. 10,000 was revised 10 year ago vide the Finance (No. 2) Act, 2009 wherein it was increased from Rs. 5,000 to Rs. 10,000. The Govt. should consider revising the threshold limit of estimated tax liability from Rs. 10,000 to minimum Rs. 25,000.

13. Uniformity in reduction of tax rates

For the Assessment Year 2020-21, the tax rate is 25% for small and medium sized companies having turnover of less than Rs. 250 crores during previous year 2017-18. The tax rate has not been reduced for another business entities, i.e., partnership firm, LLPs, etc.

It is recommended that Govt. should extend the benefit of reduced tax rate to other business entities. Further, to claim reduced rate of tax, the threshold limit of turnover in the financial year should be changed to immediately preceding previous year for which audited financials are available.

14. LTA for foreign travel

An employee is entitled to claim exemption for the leave travel allowance granted to him by his employer for the purpose of going on a vacation anywhere within India. This exemption is still allowed only for vacations within India. This provision may help to promote Indian Tourism but it is not in pari-materia with current scenario as travelling to some overseas destinations is cheaper than visiting tourist destinations in India. Therefore, it is recommended that the exemption should be allowed for both Indian destinations as well as for foreign destinations.

Click here to read the detailed article

15. Validity of Income Computation and Disclosure Standards (ICDS)

The Finance Act, 2018, had brought various amendments to the Income-tax Act in order to enable the applicability of ICDS. For instance, Section 43AA was inserted in the sub-chapter of Profits and Gains from Business and Profession to enforce ICDS –VI by stating that any gain or loss arising on account of any change in foreign exchange rates shall be treated as income or loss. Similarly, clause (xviii) of Section 36(1) was inserted to provide that any marked-to-market loss or other expected loss as computed in accordance with the ICDS shall be allowed as deduction.

Though the Finance Act, 2018 brought suitable amendments to the Act to give effect to some ICDSs, yet there are a few ICDSs which have not been supported by enabling provisions like, ICDS-V (Tangible fixed assets).

Section 43(1) of the Income-tax Act deals with the determination of actual cost. There are various Explanations to Section 43(1) which specify as to how actual cost has to be worked out in various situations. ICDS-V provides guidance for determination of actual cost of an asset with reference to the way in which it has been acquired. Thus, there must be an enabling provision in the Income-tax Act, 1961, so as to determine the actual cost in manner provided in ICDS-V.

Thus, it is recommended that the forthcoming Union Budget 2019 should bring suitable amendments to the Income-tax Act, 1961 to include remaining ICDS requirements within the Act so as to end the possible litigations.

16. Provisions linked with Ind AS 115

Real Estate sector has been affected adversely after introduction of Ind AS 115 (Revenue from Contracts with Customers). Prior to Ind AS 115, real estate companies were recognizing revenue in accordance with the Guidance Note on 'Accounting for Real Estate Transactions' using the Percentage of Completion Method (PoCM). This method was applicable without any reference to transfer of control of the asset.

Now under Ind AS 115, real estate companies are required to record revenue only after transfer of control of the asset to customers. So, on transition to Ind AS 115 w.e.f. April 1, 2018, revenue earlier recognised as per PoCM in respect of projects which are still under-construction shall be reversed and adjusted with the opening balance of retained earnings. From Financial Year 2018-19 onwards, revenue from such projects shall be recognised as and when the control of the assets is transferred. Such treatment may lead to double taxation, one at the time when revenue shall be recognised on PoCM basis in earlier years and another time when the same revenue shall be recognised under Ind AS 115. If a real estate company is liable to pay tax under MAT and it has already paid tax on revenue recognized as per the guidance note on PoCM method, it would be liable to pay tax again on the revenue recognized in the year in which control of asset is transferred to the customers. Currently, there is no provision under the Income-tax Act, 1961 that deals with such a situation. So, it is advisable that appropriate amendment should be made in this budget to avoid this situation of double taxation.

17. Computation of total Income for filing of ITR

As per section 139, filing of Income-tax return is mandatory for an individual if his income, before allowing deductions under chapter VI-A, Section 10A, 10B and 10BA,exceeds the maximum exemption limit.

If an individual claims exemption or deduction under other sections of the Income-tax Act, then same shall be reduced while computing his total income for the purpose of determining his obligation to file the Income-tax return. For instance, if an individual earns only long-term capital gains of Rs. 50 lakh on sale of residential house and he invests in another residential house and claims exemption under section 54. In this case, he is not required to file ITR as his total income shall be nil.

The Govt. may consider to make it mandatory for any individual person to file the Income-tax return if his income, before claiming any exemption under Sections 54 to 54GB, exceeds maximum exemption limit.

18. Benefit of sections 54, 54F & 54EC to be allowed even if new investments are made in name of close relatives

The exemptions under Sections 54, 54F, 54EC and 54B are allowed only when an assessee makes investment in some specified assets. The assessee and Income-tax department are often at loggerheads in respect of relative for whome the new asset should have been acquired by assessee to claim the exemption.

The Assessing Officer often disallows the exemption if assessee purchases new asset in name of his close relative (i.e., son, daughter or spouse) and claims the exemption by contending that there is no requirement that the investment in new assets should be in the name of the assessee.

There is no clarity in the law whether exemption shall be available in case the new asset has been acquired by assessee in name of his close relatives. Thus it is suggested that Union Budget 2019 should bring about suitable amendments to end the litigations.

19. Allow more time to buy new house for Sec. 54 or 54F exemptions

Section 54 and 54F allows very little time to the taxpayers to invest in a new house. It allows 1 year before or 2 years after the date of transfer of old property in case of purchase of new property and 3 years if new property has to be constructed.

Generally, in township projects, the developers take minimum of 5 years before handing over the possession of the property to the buyers. In that case, if a buyer gets the possession of new house after 3 year, he is not allowed to claim Section 54/54F exemption. Therefore, suitable amendment is needed to allow section 54/54F exemptions to genuine taxpayers who invest in a project developed by a builder registered under RERA. Either the time limit to invest in new house should be increased to at least 5 years or a clarification should be issued that the taxpayer shall be allowed deduction for all investments made within the given time limit even if purchase or construction is not yet completed in that stipulated time limit.

The time limit for construction or purchase of a house property for deduction of interest on housing loan has also been increased from three years to five years by the Finance Act, 2016. Therefore, it has become necessary to increase the time limit under Section 54 and 54F.

20. Deposit in Capital Gain Scheme should not exceed the due date for filing of return

The provisions of section 54(2) stipulate that the amount of the capital gain which is not utilised by the assessee towards the purchase or construction of the new house before the date of furnishing the return of income under section 139, shall be deposited by him in capital gain account scheme. Section 54F(4) also provides exemption on similar lines.

Various Judicial authorities have held that for the purpose of Section 54/54F the due date for furnishing of return of income, as provided under Section 139(1), is subject to extended period as provided under Section 139(4). However, as the issue is not free from doubt and is likely to occur every now and then, it is recommended that a specific date (or a clarification in this regard) may be mentioned in sections 54 and 54F so that this type of uncertainty does not prevail.

Section 139(4) does not deem an extension of due date specified under Section 139(1) in case of carry forward of unclaimed losses. Allowing additional time would be a nagging pain sort of thing for the department. Timely compliance by the taxpayer should be put into practice. It can be achieved if no extended time is allowed for depositing the unutilized capital gains in the capital gain account scheme.

21. Sales consideration as per Sec. 50C is not relevant to compute exemption under Section 54F/54/54EC

Section 50C of the Income-tax Act was introduced with effect from April 1, 2003 by the Finance Act, 2002 to make a special provision for determining the full value of consideration in cases of transfer of immovable property. It has been disputed in the recent past whether such deeming fiction under Section 50C would be considered while computing deduction under Sections 54 and 54F. For instance, if actual sales consideration is Rs. 40 lakhs but deemed sales consideration by virtue of Section 50C is Rs. 50 lakhs, whether for exemption under Section 54 or 54F, the actual sales consideration shall be taken into the account or the deemed sales consideration.

The Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 122 Taxman 562 held that deeming provision should be applied for the purpose for which the said deeming provision is specifically enacted. The Supreme Court in the case of CIT v. Mother India Refrigeration Industries (P.) Ltd. [1985] 23 Taxman 8 held that legal fiction cannot be extended beyond its legitimate field and will have to be confined to that purpose.

Recently, the Bombay High Court in the case of Jagdish C. Dhabalia v. ITO [2019] 104 208 held that Section 50C was introduced in the Income-tax Act with a deeming fiction which cannot be extended to another provision. Therefore, while computing exemption under section 54 of the Act, actual sale consideration has to be taken into consideration and not stamp duty value computed under section 50C of the Act.

Thus, it is suggested that suitable Explanation may be added to section 50C of the Act that exemption under section 54/54F shall be computed in reference to actual sales consideration and no regard shall be given to the deemed consideration computed in accordance with section 50C.

22. Taxability of Goodwill received by retiring partner

As per the provision of section 45(4), profits or gains arising from transfer of capital asset by way of distribution of capital asset on dissolution of firm or otherwise shall be chargeable to tax as income of the firm. For the application of this provision, transfer of capital asset is necessary.

Therefore, in cases where goodwill was evaluated and the retiring partners were paid certain sum for their share of goodwill in proportion to their share in partnership, no capital gain arose in hands of partnership firm.

We have recently witnessed the Bombay High Court's ruling in case of PCIT v. R.F. Nangrani HUF [2018] 93 302 wherein it was held that amount received by retiring partner from firm on account of goodwill will not be subjected to tax as capital gains in his hands.

As can be seen, the amount of goodwill remains untaxed in hands of Firm as well in the hands of retiring partner. It is expected that Union Budget might bring clarity with regards to taxability of goodwill paid to retiring partners.

Click here to read the detailed article

23. Disallowance of expenses for non-deduction of tax in case of non-residents by trusts

The Finance Act, 2018 has provided that trusts or institutions will also be required to follow the provisions of TDS and will make all expenses in excess of Rs. 10,000 through banking channels.

Section 11 of the Income-tax Act was amended to provide that provisions of TDS disallowance under section 40(a)(ia) and expenses disallowance under section 40A(3) and 40A(3A) shall be applicable while computing the application of income in case of trusts or institutions.

It is interesting to note that in respect of TDS, only the provision of sub-clause (ia) of section 40(a) was inserted in Section 11. This sub-clause talks about disallowance only in case where tax isn't deducted from sum payable to a resident person. Legislature inadvertently missed the inclusion of sub-clause (i) which talks about disallowance if payment to non-residents is made without deduction of tax at source

It is expected that Union Budget 2019 shall amend section 11 and include non-deduction of expense if tax is not deducted from payment to non-resident.

24. Notional interest on security deposit received by landlord for letting out the property

Deposit of security amount is a usual practice at the time of letting out a property. There is no provision in the Income-tax Act to calculate and include the notional interest on such security amount while calculating the income from house property.

The Courts have consistently held that notional interest on interest free security deposit shall not be taken into consideration while computing ALV of house property let out by the taxpayers.

It is suggested that the upcoming Budget should bring suitable amendments to end the litigations on this count. If the security deposit is reasonable (equivalent to average rent for 3 months) no notional interest should be added to the income from house property.

25. Meaning of the term 'Month' and computation thereof

As per the provisions of section 201(1A), in case of failure to deduct TDS, interest is to be paid at the rate of 1.5% from the date of deduction to the date of payment. Any part of the month shall be considered as one full month. So, the understanding should be that if TDS is deducted on April 23, 2019 and payment is made on 8th May, 2019, interest should be paid for one month.

However, Income-tax Dept. calculates interest for 2 months because it considers April and May as two separate calendar months. So, the scenario is that even if the TDS is late by 1 day, interest is calculated for 2 months which seems to be an absurd situation.

The ITAT in the case of Bank of Baroda v. DCIT [2017] 88 103 (Ahmedabad - Trib.) also held that interest was to be levied only for actual period of delay, i.e., from date on which tax was deducted and till date on which tax was deposited. If such a period exceeded one month then full month's interest was leviable. It is very common problem that every deductor faces in all those provisions where interest or fees is calculated in reference to 'month' of default. Thus, it would be advisable that Income-tax Act should explicitly define the meaning of the expression 'month'.

Click here to read the detailed article

26. Deductibility of discount given on ESOPs

Some of recent judicial pronouncements suggest that the tax fraternity is grappling with the controversy on the tax treatment of the discounts on the shares issued to the employees under ESOPs.

The revenue has been contending that the said discounts can never be allowed as deductions on the following grounds:

(a)  The discount offered under ESOP is not in the nature of expenditure;

(b)  Such discount is not given in the normal course of business carried on by the Company;

(c)  Such discount merely represents short receipt of premium on issue of shares. If the receipt of premium is not taxable, the short receipt of such premium should also not be allowed as deduction;

(d)  At the most, such discount could be considered as a short capital receipt or a sort of capital expenditure.

Conversely, the Companies issuing ESOP's argue that the primary object of an ESOP is not to raise share capital but to earn profit by securing the consistent and concentrated efforts of its dedicated employees during the vesting period. Therefore, such discount should be construed as nothing but a part of remuneration. Such discounted premium on shares is a substitute for giving direct incentive in cash for availing of the services of the employees.

In order to avoid unnecessary litigations, it would be prudent for the Finance Minister to clarify this stand on the tax treatment of discounts on issue of shares under ESOP. The industry expects a clarification stating that the discounts on ESOP scheme should be amortized over the vesting period.

27. Inclusion of carbon credits under section 2(24)

A new section 115BBG was inserted under Income-tax Act with effect from assessment year 2018-19 to provide that where the total income of the assessee includes any income from transfer of carbon credit, such income shall be taxable at the rate of 10% on gross basis. The amendment was made to avoid controversy whether the income from sale of carbon credit shall be treated as capital receipt or not?

Though the Finance Act has made much needed amendment through introduction of section 115BBG. Yet, no amendment has been made to section 28 to hold that any profit on transfer of carbon credit would be treated as business income. Further, no amendment has been made to the definition of 'income' in section 2(24) to provide that any such sum received upon transfer of carbon credits is income. In the absence of such provisions in the Act and due to various judgments holding that income on transfer of carbon credits is capital receipt, it is a moot point as to whether the amounts received upon such transfer are taxable as income under section 2(24) notwithstanding the insertion of section 115BBG.

So, it is expected that amendment shall be made to section 28 and 2(24) to bring the regularity in the provisions.

28. Deduction for notice pay

There is no provision under the Income-tax Act to allow deduction of notice pay forfeited by the employer when an assessee-employee leaves his job, without serving the notice period. In the case of Nandinho Rebello v. DCIT [2017] 80 297 (Ahmedabad - Trib.), the Tribunal also held that only actual salary received by an employee shall be taxed in his hands. It is a rationale decision by the Tribunal as an individual should only be taxed on the amount he has actually earned and received. Therefore, to avoid any further litigation, Section 16 must be suitably amended to allow deduction of notice pay.

29. Rate of depreciation for intangible assets in case of power generating units

The Income-tax (Amendment) Act, 1998 has provided an option to the undertakings engaged in generation or generation and distribution of power to claim depreciation by using straight line method. However, the Appendix IA to Income-tax Rules, 1962 doesn't provide for any rate of depreciation on the Intangible assets on straight line basis. Thus, power generating units can opt for such depreciation method only in respect of tangible assets. It is recommended that the rate of depreciation for intangible assets in case of power generating units should also be introduced in Appendix IA.

30. Depreciation on Goodwill

The Supreme Court in the case of CIT v. Smifs Securities Ltd. [2012] 24 222 (SC) held that the goodwill arising on amalgamation of companies would be eligible for depreciation as it is covered under Explanation 3(b) to Section 32(1) under the expression 'any other business or commercial rights of a similar nature'. After the judgment of the Apex Court, various High Courts have taken the similar stand.

It is recommended that the definition of intangible asset [as provided in the Explanation 3(b) to Section 32(1)] should include purchased goodwill, i.e., goodwill arising on amalgamation of companies, for the purpose of depreciation on intangible assets.

31. Payment for warding off competition to be capitalized

Under the present Income tax system, there is no provision for treatment of payment made for warding off competition. Many litigations have arisen where assessee's claim that such payment shall be capitalized in the books as intangible asset as it would provide not only an enduring benefit, but would protect the assessee's business against competition. Hence, the assessee can claim depreciation on the amount so capitalized.

Clarification should be brought out under the Act, to specifically provide that payment for warding off competition can be capitalized, and hence, will become an intangible asset for the assessee upon which he can claim depreciation.

32. Taxability of waiver of loan taken for an asset

The definition of 'income' as provided under section 2(24) of the Income-tax Act was amended by the Finance Act, 2015 to include assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) received from the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee.

However, if such assistance is received for purchase of an asset and same is reduced from the actual cost thereof then the amount so received as assistance shall not be considered as income of assessee. As per amended section 2(24), the subsidy or assistance should be received from Government or any authority or body or agency. So, the intension is to cover the amount received only from Government or any other financial institution or agency. It doesn't cover the amount received from every person.

The Supreme Court in the case of CIT v. Mahindra and Mahindra Ltd. [2018] 93 32 (SC) held that waiver of loan for acquiring capital assets cannot be taxed under section 28(iv) as receipt in hands of debtor/assessee and it also cannot be taxed as a remission of liability under section 41(1) as waiver of loan does not amount to cessation of trading liability.

So, it must be clarified in the upcoming Finance Bill that waiver of loan taken for acquisition of a capital asset would be considered as income as per section 2(24).

Click here to read the detailed article

33. Holding period in case of conversion of FCEB into shares

According to the provisions of section 47(xa) conversion of Foreign Currency Exchangeable Bonds into shares is not regarded as transfer. Capital gains will arise at the time of transfer of shares received at the time of conversion. However, there is no corresponding provision for taking holding period of the shares from the day of acquisition of the FCEB.

So, it is suggested that provision should be made in section 2(42A) to provide that holding period of such shares should be taken from the date of acquisition of FCEB and not from the date of allotment of shares.

34. Allow payment of advance tax in single instalment to taxpayers opting for presumptive taxation scheme under section 44AE

Section 211 of the Income-tax Act, 1961 provides due dates and the amount of advance-tax payable in instalments by the taxpayers. This provision provides that a taxpayer is required to pay the advance tax in four instalments during the financial year on the specified due dates. However, this provision allows the taxpayers, who have opted for presumptive taxation scheme under Section 44AD and Section 44ADA, to pay 100% of advance tax by 15th March of the financial year.

As there are more presumptive taxation scheme allowed under Section 44AE, 44B, 44BB, etc. but this option to pay advance tax in single instalment is allowed only for those tax payers who have opted for Section 44AD and 44ADA presumptive scheme. If the analogy behind such provision was to extend this option to only resident taxpayers, then this option should be allowed to those resident taxpayers as well who have opted for Section 44AE presumptive scheme. Thus, it is recommended that the forthcoming budget should extend the choice of payment of entire advance tax in single instalment to those assessees as well who have opted for section 44AE presumptive scheme.

35. Bring symmetry in the turnover limit specified in the DPIIT Notification and Section 80-IAC

The Department of Promotion of Industry and Internal Trade (DPIIT) issued Notification No. GSR 127 (E) [F.NO.5 (4)/2018-SI], dated 19-02-2019, which superseded all previous notifications issued by the DPIIT. In the said notification, the DPIIT has prescribed the conditions for a start-up to claim Section 80-IAC deduction and exemption from angel tax levied under Section 56(2)(viib). Among other conditions, one of the conditions provides that the turnover of the eligible start-up should not exceed Rs. 100 crores in any of the ten financial year since its incorporation.

However, Section 80-IAC provides that for claiming tax holiday, the turnover of eligible start-up should not exceed Rs. 25 crores. The provisions of section 80-IAC and notification issued by DPIIT have prescribed different threshold limits, thus, they are in conflict with each other. In case turnover of a company is Rs. 50 crores, inspite of the fact it is an eligible start-up as per the DPIIT's notification, it won't be eligible to claim the deduction under Section 80-IAC.

The reason for such disparity in the threshold limits could be attributed to the fact that the DPIIT issued such notification on 19-02-2019, after the date of interim budget presented on 01-02-2019. Thus, it is expected that the forthcoming budget shall plug in this gap and will increase the turnover limit under Section 80-IAC with retrospective effect.


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