KEY HIGHLIGHTS POINTS OF BUDGET 2019

The Hon’ble Finance Minister has announced the Union Budget 2019 on 5th July 2019.

There are various Key points related to Budget 2019.

• Reduced Tax rate: Lower Corporate tax rate of 25% extended to all companieswith annual turnover upto INR 400 crores (current limit of INR 250 crores).
• Lower interest burden: Interest subvention scheme for MSMEs, INR 350 crorehas been allocated for FY 2019-20 for 2% interest subvention for all GSTregistered MSME’s on fresh or incremental loans.
• Elimination of multiple Labour Law compliances: Consolidation of multiplelabour laws into a set of 4 labour codes to reduce compliances (currently thereare 16 labour laws in India)
• GST filling made simpler: Taxpayer having annual turnover of less than INR 5crore shall be required to file quarterly return (currently monthly returns arerequired to be filed), automated GST refund system to be initiated.
• Pension benefit to Self Employed: More than 3 crore Retailers with an annualturnover of less than INR 1.5 crore will get pension benefit under the PradhaanMantri Man Dhan Yojna.
• Ease of doing Business: To create a payment platform for MSMEs to enable fillingof bills and payment thereof on the platform itself to avoid the delays inGovernmentpayments to suppliers and contractors.
• Promoting cashless economy: 2% TDS on cash withdrawal exceeding INR 1 crorein a year from bank account to discourage cash transactions.
• No Income Tax Scrutiny on angel tax (subject to filing of necessary declarationand provide the information)
• To make Aadhar, PAN interchangeable to file tax Return, It means fromAssessment Year 2020-21 if a person does not have PAN, he can file his IncomeTax Return via ADHAAR.
• A person having Income less than Rs.5 Lakh, need not to file ITR.
• No changes in Income Tax Slabs and Threshold Limit.
• Deduction of Rs.1,50,000/- on interest on loan for purchase of Electric Vehicleu/s 80EEB
• Additional deduction up to Rs.1.5 lakhs for interest paid on loans borrowed upto 31st March, 2020 for purchase of house valued up to Rs.45 lakh u/s 80EEA
• Higher Surcharge on individuals having taxable income from 2 crore to 5 croreand 5 crore and above so that effective tax rates for these two categories willincrease by around 3 % and 7 % respectively.
• TDS on payment by individual/HUF to contractors and professionals exceedingINR 50 lakhs in a year w.e.f 1st Sep 2019.
• Raising Custom duty on Gold and precious metals to 12.5%
• 5% Custom duty being imposed on Imported Books
• Custom duty being exempted on some parts of Electric VehicleGST reduced from 12% to 5% on Electric Vehicle
• Basic Customs Duty increased on cashew kernels, PVC, tiles, auto parts, marbleslabs, optical fiber cable, CCTV camera etc.
• Exemptions from Custom Duty on certain electric items now manufactured inIndia withdrawn.
• Exemptions to various kinds of papers withdrawn.
• Custom duty reduced on certain raw materials such as:
• Inputs for artificial kidney and disposable sterilized dialyzer and fuels fornuclear power plants etc.
• Capital goods required for manufacture of specified electronic goods.

RELIEF FOR START-UPS

The Start-ups were having high expectations from the first budget of ModiGovt. 2.0and the Finance Minister, Smt. Nirmala Sitharaman hasn’t let down theirexpectations. She proposed to start a television programme within the DD bouquetof channels exclusively for start-ups. Further, tax proposals made by Finance Minister were aimed to encourage start-ups by releasing entrepreneurial spirits. The key tax proposals announced in the union budget impacting start-ups are discussed as under.

1. Investment of LTCG from Residential House Property in shares of Eligible Start-up[Applicable from Assessment Year 2020-21]

Section 54GB provides exemption to an Individual and HUF from the long-term capital gains arising from transfer of a residential house property. The exemption is allowed if the amount of capital gains is invested in equity shares of an ‘eligible company’. The exemption is allowed subject to fulfilment of following conditions:

a. The company is incorporated in India on or after April 1 of the previous year, in which capital gains arises, and up to the due date of furnishing the return of income.

  b.  It is engaged in the business of manufacture of any article or thing or in an eligible business.

c.  The transferor (assessee) of residential property has more than 50% share capital (or voting right) of such company (after subscription).

d.  The company is either an eligible start-up or SME.

e.  The company utilizes the amount to purchase new assets, which shall notbe transferred for 5 years from the date of acquisition.

The exemption is available only if the original asset is transferred between April 1, 2012 and March 31, 2017. However, if the capital gain has to be invested in an eligible start-up, the original asset can be transferred up to March 31, 2019.

To incentivize the start-ups, the Finance Bill 2019 proposed following amendments in section 54GB:

  a.  It extended the sunset date for transfer of original capital asset (residential property) for investment in eligible start-ups from March 31st 2019 to March 31st 2021

  b.  The condition of minimum holding of 50% of share capital or voting rightsin the start-up is proposed to be relaxed to 25%

The condition which restricts the transfer of new asset for 5 years is proposed to be reduced to 3 years in case of computer or computer software.

2. Exemption given to Category II AIF from ‘Angel Tax'[Applicable from Assessment Year 2020-21]

As per section 56(2)(viib), if a closely held company receives, from any resident person, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares is taxable as income from the other sources.

However, exemption from this provision has been provided for the consideration received by a venture capital undertaking from a venture capital company or a venture capital fund or by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Currently the benefit of exemption is available to Category I Alternative Investment Fund (AIF). The Finance Bill, 2019 proposed to amend this provision to extend the exemption to capital received by venture capital undertakings from Category II AIF as well.

3. Exemption given to Category II AIF from ‘Angel Tax'[Applicable from Assessment Year 2020-21]

As per section 56(2)(viib), if a closely held company receives, from any resident person, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares is taxable as income from the other sources.

However, exemption from this provision has been provided for the consideration received by a venture capital undertaking from a venture capital company or a venture capital fund or by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Currently the benefit of exemption is available to Category I Alternative Investment Fund (AIF). The Finance Bill, 2019 proposed to amend this provision to extend the exemption to capital received by venture capital undertakings from Category II AIF as well.

4. Conditions of Section 79 relaxed to allow an eligible start-up to carry forward the losses[Applicable from Assessment Year 2020-21]

The current provisions of Section 79 have imposed following certain conditions to carry forward the losses in case of closely held companies:

  a.  In the year of set-off of losses, at least 51% of voting power should be beneficially held by the same persons who held them on the last day of the year in which loss was incurred.

  b.  In case of an eligible start-up, 100% of shareholders, on the last day of the previous year in which loss was incurred, should continue to hold the shares on the last day of the previous year in which loss is set-off. Further, losses should have been incurred during the period of 7 years from the year of incorporation.

To further facilitate ease of doing business in case of an eligible start-up, it is proposed to amend section 79 so as to provide that loss incurred, by the 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 two conditions specified above, i.e. continuity of 51% shareholding or continuity of 100% of original shareholders.

Some Points:-

• “Angel tax” issue resolved start-ups and investors filing requisite declarations andproviding information in their returns not to be subjected to any kind of scrutinyin respect of valuations of share premiums.
• Funds raised by start-ups to not require scrutiny from Income Tax DepartmentE-verification mechanism for establishing identity of the investor andsource of funds.
• Special administrative arrangements for pending assessments and grievanceredressal.
• No inquiry on such cases by the Assessing Officer without obtainingapproval of thesupervisory officer.
• Pre-filled tax returns will be made available to taxpayers which will contain detailsofsalary income, capital gains from securities, bank interests, and dividends etc. andtaxdeductions. Information regarding these incomes will be collected from theconcernedsources such as Banks, Stock exchanges, mutual funds, EPFO, StateRegistrationDepartments etc. This will not only significantly reduce the time taken to file a taxreturn, but will also ensure accuracy of reporting of income and taxes.
• Faceless e-assessment

The existing system of scrutiny assessments in the Income-tax Department involvesahigh level of personal interaction between the taxpayer and the Department, whichleads to certain undesirable practices on the part of tax officials. To eliminate suchinstances, and to give shape to the vision of the Hon’ble Prime Minister, a scheme offaceless assessment in electronic mode involving no human interface is being launchedthis year in a phased manner. To start with, such eassessments shall be carried out incases requiring verification of certain specified transactions or discrepancies.

• Compulsory filing of return:

It is proposed to make return filing compulsory forpersons,who have deposited more than Rs. 1 crore in a current account in a year, or who haveexpended more than Rs. 2 lakh on foreign travel or more than Rs. 1 lakh on electricityconsumption in a year or who fulfils the prescribed conditions, in order to ensure thatpersons who enter into high value transactions also furnish return of income. It is alsoproposed to provide that a person whose income becomes lower than maximumamount not chargeable to tax due to claim of rollover benefit of capital gains shall alsobe required to furnish the return.

• Apart from this a major change has been considered to increasing the minimum publicshareholding in the listed companies. The hon’ble Finance Minister asked SEBI toconsider raising the current threshold of 25% to 35%.