1. Change in slab rates
The rate of income tax is proposed to be reduced to 5% (from 10%) for income between INR 2.5 to INR 5 lakhs. This is likely to bring tax saving of at least INR 12,875 for all taxpayers with an income exceeding INR 5 lakhs. Other tax slab and rates remain unchanged.
Comparative chart of tax rates applicable to individuals are as follows:
* Education cess and surcharge as applicable
2. Do you own an immovable property in India? If yes, here is something to cheer about:
a. To qualify as long term capital asset, period of holding of immovable property, being land or building or both has been reduced from the existing 36 months to 24 months, reducing capital gains tax impact.
b. The capital gains of assessee entering into a joint development agreement (JDA) of a project shall be chargeable to tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority, alleviating hardships and tax burden involved with payment of capital gains tax on signing of JDA.
c. Shifting base year from 1981 to 2001 for computation of capital gains: Currently, for assets purchased prior to 01 April, 1981, the cost of acquisition is either the fair market value of the asset as on 01 April, 1981 or the actual cost, at the option of the assessee.
With a view to reduce the difficulties faced by the assessee with respect to availability of information for fair market value as on 01 April, 1981, it is proposed to change the base year to 2001. The assessee shall now have the option to consider the fair market value of the asset as on 01 April, 2001 as the cost of acquisition.
d. Investment in any bond redeemable after three years which has been notified by the Central Government (CG) shall now be eligible for exemption of Long Term Capital Gains (LTCG), providing more investment avenues.
However, a proposed amendment limits the set off of house-property loss against any other income to INR 200,000 (earlier no limit).
3. Have you invested in Masala Bonds [Rupee Denominated Bonds]???
a. At the time of redemption of the rupee denominated bonds ['RDB'] of an Indian Company, the appreciation of rupee shall be ignored for the purpose of computation of full value of consideration while computing capital gains tax, if any.
b. Transfer of RDB, of an Indian Company issued outside India, by a non-resident (NR) to another NR shall not be regarded as a transfer, hence no capital gain tax implications.
c. Benefit of lower rate of withholding tax of 5% to be applicable to RDBs issued outside India before 1 July 2020.
4. In case you have a return filing obligation in India, you may want to adhere to the due dates!
In order to ensure that return is filed within due date, fee for delay in furnishing of return shall be levied where return is not filed within due dates specified. Consequentially, penalty for failure to furnish return of income shall not apply. This step is taken to ensure speedy and timely disposal of assessments.
5. India is moving towards a digital economy
a. No deduction shall be allowed in respect of donation exceeding INR 2,000 unless such sum is paid by any mode other than cash.
b. The monetary threshold for disallowing revenue expenditure incurred in cash for business purposes has been reduced from INR 20,000 to INR 10,000.
6. Are you a NR businessman? if so below amendments are for you
a. Expenditure in respect of which payment has been made to "relatives"is to be excluded from the scope of Specified Domestic Transaction (SDT), thereby reducing compliance requirements for NR businessmen making payments to relatives.
b. Conversion of preference share of a company into equity share of that company shall not beregarded as transfer, bringing preference shares at par with conversion of bonds or debentures and encouraging investments.
c. Where credit for foreign taxes paid is not given for the relevant assessmentyear on grounds that payment of such foreign tax was in dispute, the AO shall rectify the assessment orderor an intimation, if the assessee within six months from the end of the month in which thedispute is settled, furnishes proof of settlement of such dispute, submits evidence before the AO that the foreigntax liability has been discharged and furnishes an undertaking that credit of such amount of foreign tax paid has not been directlyor indirectly claimed or shall not be claimed for any other assessment year, allowing for simple process of claiming tax credit.
d. Where Securities Transactions Tax (STT) could not be paid on shares acquired through IPO, FPO, bonus or right issue by a listed company, acquisition by NR in accordance with FDI policy of the Government etc., the condition of chargeability to STT on acquisition for claiming LTCG tax exemption shall not apply, further encouraging investments into primary capital market.
e. Receipt of sum of money or property by any person without consideration or for inadequate consideration in excess of Rs. 50,000 shall bechargeable to tax in the hands of the recipient under the head "Income from other sources" (IFOS). One has to exercise caution and plan in advance while engaging in transfer of funds or property in India to avoid attracting provisions of IFOS.
f. Where any term used in tax treaty is defined therein, the said term shall be assigned the same meaning, and where the term is not defined in the tax treaty but defined in the Act, it shall be assigned the meaning under the Act and any explanation issued by the CG.Definitions under the Actare wider when compared to the tax treaty and will have to be kept in mind while entering into cross border transactions. This reduces litigation by laying to rest interpretational issues.
Disclaimer: The article is informative and intended for general guidance only. No one should act on such information without appropriate professional advice. Opinions expressed in this article are author's personal opinions and do not reflect the views of Connected to India and the management of the company does not assume any responsibility or liability for the article.