Income Tax 25 Jan,2020
Key expectations from Union Budget 2020
Editorial Team

The countdown for the Union Budget 2020 has begun. From a taxpayer to a tax expert, everyone has got some expectations from the Finance Minister, Smt. Nirmala Sitharaman. This year the budget shall surely be full of excitement because of many reasons.

In the year 2019, the Govt. has slashed the corporate tax rates without making any change in the personal tax rate. The aim of Govt. was to arrest growth slowdown and boost investments in India. However, to promote the consumption, it is equally essential that the disposable income of people must be enhanced. We wish that personal tax rates should be reduced further and the threshold for certain tax deductions be increased. However, the chances look bleak as Govt. has just slashed the corporate tax rates and projected tax forego is more than Rs. 1.45 lakh due to such change.

In August 2019, the Task Force, constituted to draft new tax law, had submitted its final report to the Finance Ministry. Though the report has not been made public by the Govt. but some of the recommendations of the Task Force has already been implemented, i.e., reduction in corporate tax rates, etc. We expect that some of the key and necessary recommendations of the Task Force may be implemented through the upcoming budget.

Every year we release a document which includes our recommendation and expectations from the Union Budget. These recommendations or expectations are not our wish list but are the gaps in the current law which we recommend to the Govt. to fill as they are against the assessee and some of them we believe will be filled by the Govt. due to their nature and impact on the tax revenue.

Here is our budget expectation and recommendation for the Union Budget, 2020-21.

1. More relief to individual taxpayers

The Finance Act, 2019 has increased Section 87A relief from Rs. 2,500 to Rs. 12,500 which is available 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 amending Section 87A, the taxpayers would be in a disadvantageous position when their income is 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.

The Task Force, constituted by the Govt. to draft new tax laws, has also recommended rationalisation of the personal tax rate. The Task Force has recommended five tax brackets of 5 per cent, 10 per cent, 20 per cent, 30 per cent and 35 per cent, against the prevailing structure of 5 per cent, 20 per cent and 30 per cent.

2. Uniformity in the reduction of tax rates

For the Assessment Year 2020-21, the Government has introduced two new tax concessional regimes in case of domestic companies whereby tax rates have been reduced to 15% and 22% in case of manufacturing companies and non-manufacturing companies, respectively. However, all other business entities, i.e., partnership firm, LLPs, etc. are still taxable at a flat rate of 30%. It is recommended that Govt. should extend the benefit of the reduced tax rate to other business entities as well.

3. Unclaimed MAT credit should be allowed when a company opts out of section 115BAA

A new section 115BAA has been inserted in the Income-tax Act by the Taxation Laws (Amendment) Act, 2019 to provide for concessional tax regime in case of domestic companies. As per this section, a domestic company has an option to pay tax at the reduced rate of 22% provided it does not claim specified deduction or allowances. If a company opts for this tax regime, then it shall get the immunity from MAT liability. An amendment has been made to Section 115JAA that the provisions relating to MAT credit shall not apply to a company opting for section 115BAA.

Section 115JAA contains provisions in respect of the following:

a) Computation of MAT Credit;

b) Mode of utilization of MAT Credit; and

c) Carry forward of unclaimed MAT Credit.

The Amendment Act has inserted sub-section (8) in Section 115JAA to provide that the provisions of this Section shall not apply to a company which has exercised the option under Section 115BAA. Thus, companies opting for Section 115BAA will not only lose the balance of MAT credit but will also lose the right to carry forward the MAT credit. Therefore, the unclaimed balance of MAT Credit shall lapse in the year in which the company chooses to apply the new tax regime.

Section 115BAA provides that if a company, after opting for this tax regime, fails to comply with conditions of this section in any previous year then from that year onwards, it has to pay tax as per normal provisions of the Act. Thus, in such cases, the amendment in Section 115JAA may also impact the company's right to compute, utilise or carry forward the MAT credit where it eventually pays MAT in subsequent years.

Such legal hurdle may arise due to the language of sub-section (8) of Section 115JAA which bars a company for forever once it opts for Section 115BAA. To avoid any harsh treatment of such companies, the provision of said sub-section should be re-drafted and restricted its applicability only to that year in which a company pays tax under Section 115BAA.

4. Section 54B exemption should be allowed even if agricultural land is purchased before the sale of agricultural land

Section 54B provides an exemption to an Individual or HUF from the capital gains arising from the transfer of agriculture land. The exemption is allowed if the amount of capital gains is invested in a new agriculture land within the prescribed time limit.

The provisions of section 54B envisaged the benefit when the capital gain arising from the transfer of agricultural land is used for the purchase of another agricultural land within a period of two years after the date of transfer. Sections 54 and 54F also allow capital gain exemption if the assessee purchases a residential house either within one year before the date of the transfer or within two years after the date of transfer of original asset.

Unlike section 54/54F, section 54B does not allow capital gain exemption if assessee purchases agricultural land before the date of transfer of old agricultural land. It is recommended that the deduction under Section 54B should be allowed even if the new agricultural land is purchased by the assessee before the sale of original agricultural land.

5. The full exemption should not be denied to the trust on violation of Section 13

Section 13 of the Income-tax Act outlines the circumstances in which exemption of section 11 and 12 shall not be allowed to a charitable or religious trust. It restricts the exemption where trust gives benefit to an interested person. As a practice, the Assessing Officers deny the exemption in respect of entire income under Section 11 if there was a violation of provisions of section 13.

In a recent judgment, the Bombay High Court in the case of CIT(Exemptions), Pune v. Audyogik Shikshan Mandal [2019] 101 247 (Bombay) held that where funds of assessee-trust were utilized for purchase of car in the name of its trustee, there was violation of section 13(2)(b), read with section 13(3); however, denial of exemption under section 11 should be limited only to the amount which was diverted in violation of section 13(2)(b).

Thus, it is recommended that the denial of exemption to trust should be restricted to amount which was diverted in violation of section 13.

6. Non-Govt. employees should not be treated differently from Govt. employees

The Income-tax Act, 1961 differentiate between a Government employee and a non-Government employee. There are numerous of tax benefits which are enjoyed by the Government employees only. Example, gratuity received by a Govt. employee is fully exempt from tax whereas it is exempt up to Rs. 20 lakh if received by a non-Govt. employee. Similarly leaves encashed by the Government Employee at the time of retirement are fully exempt from tax whereas it is partially exempt in the hands of others.

In a recent judgment, the Delhi High Court in the case of Kamal Kumar Kalia v. Union of India [2019] 111 409 (Delhi) had held that retired employees of PSUs and nationalised bank cannot be treated as Government employees. They are not entitled to get full tax exemption on leave encashment after retirement/superannuation under section 10(10AA).

It couldn't be said that number of non-Government employees in India is less that the number of Govt. employees. In fact, it could be greater than that of Govt. employees. Thus, giving both of them equal treatment shall be reasonable. It is recommended that all employees, Govt. or Non-Govt., must be treated equally for the Income-tax exemptions.

7. Higher rate of interest for non-deposit of TCS amount

Section 201 provides the consequences in case of any failure to deduct or to pay the tax deducted at source. The Section provides that deductor shall be liable to pay interest at the rate of 1% per month/part of the month in case there is a failure to deduct tax. However, where deduction has been made but tax has not been deposited, the interest is levied at the rate of 1.5% for every month or part of the month.

In contrast to above, section 206C which specifically deals with, the consequences of failure to collect or to pay tax collected at source (TCS), levies only a single rate of interest. If the collector fails to collect TCS or after collecting fails to deposit it with Govt., interest is levied at the rate of 1% for every month or part month.

It is expected that the Govt. may bring parity in the penal provision for both the default. Section 206C could be amended to provide a higher rate of interest in case tax has been collected but not deposited to the credit of Central Govt.

8. Retrospective applicability of Benami Transactions (Prohibition) Amendment Act, 2016

The Benami Transactions (Prohibition) Act, 1988 was amended by the Benami Transaction (Prohibition) Amendment Act, 2016 (hereinafter referred to as Amendment Act). It came into force with effect from 01-11-2016. By the Amendment Act, the Govt. has redefined and widened the provisions of the Benami Transactions (Prohibition) Act, 1988. The Amendment Act had introduced extensive provisions on definitions, authorities, attachment, adjudication and confiscation, etc. whereas the original Act had just nine sections.

After the enactment of the Amendment Act, 2016, the Initiating Officers started issuing notices for provisional attachment of the alleged Benami properties which were challenged on the ground that the provisions of Amendment Act, 2016 could not be applied with retrospective effect. Thus, properties purchased before 01-01-2016 shall be out of the ambit of Benami law.

So far we have witnessed multiple High Courts' rulings on this issue. The Calcutta High Court in the case of Ganpati Dealcom (P.) Ltd. v. Union of India [2019] 112 367 (Calcutta) had held that the Amendment Act was new legislation and to have effect retrospectively it should have been explicitly provided therein that it was intended to cover contraventions at an earlier point of time. That express provision is not there and thus the Benami Transactions (Prohibition) Amendment Act, 2016 could not be applied retrospectively.

However, the Chhattisgarh court in the case of Tulsiram v. ACIT [2019] 112 129 (Chhattisgarh) had ruled in the favour of revenue and held that the Prohibitions of Benami Property Transactions Act, 1988 as it stands today, after incorporating the effect of Amendment Act that brought into force with effect from 1-11-2016, shall apply irrespective of period of purchase of alleged Benami property.

Considering the ongoing disputes in this matter and to avoid any further litigations, it is expected that Govt. could clarify the applicability of the Benami Transaction (Prohibition) Amendment Act, 2016.

9. Time-limit may be specified for passing an order in case of TDS default from the payment made to non-resident

As per section 201 of the Income-tax Act, if a person responsible for deduction of tax at source, fails to deduct the whole or any part of the tax or after deduction fails to deposit the same to the credit of the Central Government, then he shall be deemed to be an assessee-in-default.

Sub-section (3) of said section provides that no order deeming a deductor to be an assessee-in-default shall be passed after expiry of 7 years from the end of the financial year in which payment is made, or credit is given or after expiry of 2 years from the end of the financial year in which correction statement is furnished, whichever is later. However, these time limits are applicable only when TDS defaults are related to payments made to a person resident in India. In other words, sub-section (3) does not apply if there is a TDS default with respect to payments made to a non-resident.

As no time-limit has been prescribed under the Act for passing an order against a person who defaults in deducting or depositing tax with respect to payments made to a non-resident, various Courts have held that the action can be taken by the department in a reasonable time but what should be the reasonable time, is quite controversial.

Hence, the Government may make a necessary amendment under sub-section (3) of section 201 to specify the time-limit for passing an order of assessee-in-default where a person makes default in deducting or depositing tax in respect of payments made to a non-resident. It is expected that the Govt. may bring both the provisions in parity.

10. Long-term capital gains taxable under Sec. 112A should be excluded from the charging provisions of section 115UA

Section 115UA provides how the income of a Business trust and its unitholders shall be charged to tax. It provides that total income of a business trust shall be taxable at the maximum marginal rate. However, total income excludes income which is taxable as per the provisions of section 111A and Section 112.

The Finance Act, 2018, inserted a new Section 112A in the Income-tax Act which provides for the taxability of income arising from the transfer of a long term capital asset, being a listed equity share or a unit of an equity oriented fund or a unit of a business trust.

Section 112A provides a special rate of 10% at which the long term capital gains arising from the transfer of above capital assets shall be charged to tax. However, section 115UA does not contain any exception in respect of section 112A.

Thus, it is recommended that an amendment should be made to Section 115UA to exclude the long-term capital gains as referred to in section 112A from the charging provisions of section 115UA. This amendment is necessary to give the same treatment to Section 112A capital gains as given to capital gains referred to in Section 111A and Section 112.

11. Rules for expeditious hearing of Special bench cases

The Income-tax Tribunal is the last fact-finding appellate authority under the Income-tax Act. The appeals filed before the Tribunals are heard by the division bench- consisting of one judicial member and one accountant member.

In case of conflict of opinions by the division benches on the issues involved in an appeal, the appeals are sometimes heard by the special benches consisting of three or more members and at least one of them must be a judicial member and at least one of them must be an accountant member.

Recently, we have witnessed a ruling wherein the Tribunal was unhappy with the approach followed by the members of a special bench to dispose of an appeal. The Ahmedabad Tribunal in the case of Doshi Accounting Services (P.) Ltd. v. DCIT [2019] 101 62 (Ahmedabad - Trib.) (SB) had formulated the following guidelines to ensure the expeditious hearing of cases referred to Special Benches and Third Members:

a) The special benches shall commence hearing within 120 days of its constitution. In case of any delay, it shall record the reasons in brief;

b) The adjournment may be granted only in exceptional circumstances which shall not be of more than 30 days at the instance of either party; and

c) The above guidelines shall also be followed with respect to Third Member cases, and the Registry will take up the matter with the respective benches for scheduling the hearing.

It is expected that the Govt. could make necessary amendments to Section 255 for expediting the hearing in Special Benches.

12. Section 80DD lacunas must be filled

Section 80DD allows a deduction to a resident individual or HUF who has incurred any expenditure for treatment of a dependent person with a disability. The deduction is also allowed for the amount paid or deposited in a scheme of LIC or another insurer for maintenance of such a dependent person. However, the following two conditions have to be satisfied to claim the deduction:

a) The scheme must provide for payment of the annuity or lump sum amount for the benefit of a dependant only in the event of the death of such resident individual; and

b) Assessee nominates either the dependant or any other person or a trust to receive the payment on his behalf for the benefit of the dependant.

These conditions are harsh and illogical as a person cannot get the lump sum or annuity amount of insurance policy till he is alive. Even if he has paid all premiums and he needs the money for the benefit of a dependent person, he is not allowed to get the maturity amount.

The Apex Court in the case of Ravi Agrawal v. Union of India [2019] 101 70 (SC) had requested the Govt. to make suitable amendments in section 80DD so that maturity sum in Jeevan Aadhar Policy floated by LIC in terms of section 80DD is disbursed for the benefit of disabled person even before the death of assured parent/guardian.

Section 80DD also lacks on many other aspect, which have been discussed below:

a) It prescribes the meaning of 'disability' as contained in the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995. This Act has been repealed. The new law, i.e., the Rights of Persons with Disabilities Act, 2016 covers more disability types;

b) Non-resident persons are not allowed to claim Section 80DD deduction;

c) If dependent dies before the policy-holder, the whole amount received is fully taxable.

It is highly recommended that Govt. must streamline the provisions of section 80DD.

13. Unrealised rent should be allowed to be reduced from Gross Annual Value

The Explanation to Section 23(1) requires reduction of unrealized rent from the actual rent received or receivable. This treatment provided by the Explanation would result in double taxation of unrealized rent - first, when expected rent is deemed as gross annual value of assessee, the assessee does not get any deduction for the unrealized rent, second, he is liable to pay tax at the time of its recovery.

However, in the Income-tax return forms, an option to reduce the unrealized rent from the gross annual value has been provided. Practically the double taxation of the unrealised rent does not happen. Thus, it is recommended that the Explanation to section 23(1) should be amended to bring it in line with the treatment given by the Income-tax returns which allow the reduction of unrealised rent from Gross Annual Value.

14. Computation and treatment of Vacancy allowance

Where the property is vacant for part of the year and owing to such vacancy, actual rent is lower than the expected rent than in such cases actual rent is treated as the gross annual value of the property. However, this rule is applicable only when actual rent falls short of the expected rent due to vacancy and not due to any other reason (like, dispute, location of the property, faulty construction, self-occupancy, etc.)

If the decline in actual rent is partly because of vacancy and partly because of other reasons, then the mode of computation of gross annual value is not provided under the Income-tax Act. However, considering the object of the legislature to provide relief to the assessee whose property remains vacant, the vacancy allowance should be provided in such cases also. As it is nowhere specified either under the Income-tax Act or in any Department communication that how vacancy allowance shall be computed in such cases, an assessee may compute the vacancy allowance either with reference to expected rent or actual rent, whichever is more beneficial to him.

However, it is to be noted that in the instructions appended to the Income-tax return forms, it has been mentioned that if the house property is let out, then the amount of actual rent received or receivable in respect of the property during the year shall be taken as gross annual value otherwise the amount for which the property might reasonably be expected to let during the year shall be considered as gross annual value. Thus, if assessee following the instruction offers to pay tax on the actual rent but expected rent is more than the actual rent, the assessing officer may ignore the instruction and make the additions. There is a gap in the mechanism specified for calculation of income from house property under the Act and as specified in the ITR Forms, thus, it may give rise to litigation. Thus, it is recommended that the Govt. should prescribe the treatment of vacancy allowance in the Income-tax Act.

15. Section 44AD benefit for speculative business

Section 44AD provides that an assessee being a resident individual, HUF or a partnership firm (Excluding LLP) carrying on any business is eligible to declare its income at the presumptive rate of 6% or 8% as the case may be.

However, the following persons cannot opt for provisions of section 44AD:

a) Person carrying on the business of plying, hiring or leasing goods carriages referred to in section 44AE; or

b) Persons carrying on professions as referred under section 44AA(1); or

c) Persons earning income in the nature of commission or brokerage; or

d) Person carrying on agency business.

Income-tax Act does not restrict the person carrying on speculative business to opt for presumptive taxation scheme prescribed under section 44AD. Instructions appended to the Income-tax return Form-4, however, provides that income from speculative business is not required to be computed under section 44AD. It is expected that instead of clarifying in the instructions to the ITR, it may be provided specifically in the section itself.

16. Section 36(iva) shall be amended to cover amendment under section 80CCD in respect of central government contribution up to 14%

Section 80CCD was amended by the Finance Act (No. 2) 2019 to provide that the Central Government employees shall be allowed a deduction for the amount deposited in the NPS in respect of contribution made by the employer to the extent of 14% of salary in the previous year. Post amendment maximum admissible deduction in case of an employee would be as under:

1. 14% of salary, if the contribution is made by the Central Government.

2. 10% of salary, if the contribution is made by any other employer.

To allow deduction of such contribution, section 36(iva) provides that deduction shall be allowed to the employer with respect to the contribution made by the employer towards NPS to the extent it does not exceed 10% of the salary of the employee.

Since the contribution of Central Govt. towards NPS has increased from 10% to 14%, the consequential changes should be made in section 36 to bring harmony between both the sections.

17. Increase in turnover limit of Start-ups to claim the benefit of tax holidays under section 80-IAC

The Department of Promotion of Industry and Internal Trade (DPIIT) has issued Notification No. GSR 127 (E) [F.NO.5 (4)/2018-SI], dated 19-02-2019, prescribing conditions to be fulfilled by an entity to become an eligible start-up. One of the condition is that the turnover of an eligible start-up should not exceed Rs. 100 crore in any of the financial year since its incorporation or registration.

However, Section 80-IAC provides that for claiming the benefit of the tax holiday, the turnover of an eligible start-up should be up to Rs. 25 crores. The provisions of section 80-IAC and notification issued by DPIIT are not in harmony with each other. In case the turnover of a company is Rs. 50 crore, it will be treated as an eligible start-up as per the issued notification, however, it cannot claim deduction under Sec. 80-IAC.

The Central Board of Direct Taxes (CBDT) in the press release dated 22-08-2019 had clarified that the turnover limit for start-ups claiming the deduction is to be determined by the provisions of Section 80-IAC of the Act and not from the DPIIT notification. Thus, small start-ups with turnover up to Rs. 25 Crores will only get tax holiday available under section 80-IAC. It is recommended that the Govt. should increase the turnover limit for claiming section 80-IAC benefit in line with the notification issued by DPIIT.

18. 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.

19. 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.

20. 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.

21. 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.

22. 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.

23. 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.

24. 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 introduce special 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.

25. 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 should bring clarity on this issue.

26. 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 upcoming budget.

27. 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.

28. 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. Alternatively, the exemption should be allowed for both hotel and travel expenditure if the destination is in India and only for travel expenses if vacation happened in an overseas country.

29. 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 whom 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 2020 should bring about suitable amendments to end the litigations.

30. 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.

31. 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.

32. 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.

33. 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.

34. 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 2020 shall amend section 11 and include non-deduction of expense if tax is not deducted from payment to non-resident.

35. 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.

36. 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.

37. 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.

38. 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.

39. 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.

40. 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.

41. 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).

42. 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.

43. 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.