IPCC Nov 2019 Direct Tax Amendments

Amendments play an important role in the Examination and especially in Direct and Indirect Taxation. Students looking for Direct Tax Amendments have landed on the correct page but those who are looking for amendments in GST shall follow this link – GST Amendments applicable for Nov 2019.

These Direct Tax Amendments are applicable to the students who are eligible to appear in CA IPCC  Nov 2019. Finance Act, 2017 will be applicable including significant notifications and circulars published upto 31st Oct 2017. The relevant assessment year for November 2018 is A.Y. 2018-19 and Financial Year 2017-18.

Amendments which will be applicable for the students appearing in November 2018 –

Amendments in the Tax Rate for Financial Year 2017-18

  • There is no amendments in Slab Rate. Income upto 2,50,000 is covered under Basic Exemption limit. Finance Act, 2017 has brought a change in the tax rate from 250000 to 500000. Income above 250000 upto 500000 will be taxable at the rate 5% which was earlier 10%.c
  • With the reduction in tax rate, Finance Act, 2017 has also introduced a change in the rebate u/s 87A which has reduced to Rs 2500/- from Rs 5000/- per year having income upto Rs 3,50,000 which was earlier Rs 5,00,000.
  • The government has also introduced a surcharge for the individuals having income above Rs 50 Lakh and limited to Rs 1 Crore at the rate of 10%. However, surcharge for the income above Rs 1 crore will be 15%.
  • As far as companies are concerned, tax rate would be limited to 25% for the Financial Year 2017-18 where the total turnover or gross receipts does not exceed 50 crore during the Financial Year 2017-18.

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    Amendments in the Capital Gain

    • Amendments Related to the Holding period of Capital Asset  – Finance Act, 2017 has introduced a change in the Holding period of Land and Building which has been reduced to 24 months from 36 months. With this amendment, holding period for different class of assets are as follows –
    Capital AssetHolding Period to be termed as Long term
    Land and Building24 Months or more
    Unlisted Shares24 Months or more
    Listed Shares12 Months or more
    Units of Equity Oriented Mutual Funds and Securities24 Months or More
    Other Capital Asset36 Months or more
    • Conditions to avail the exemption u/s 10(38) – Under Section 10(38) of Income Tax Act, 1961 Long Term Capital Gain on equity shares is exempt but subject to the following conditions –
      • Is these shares were purchased after 1/10/2004, then STT must have been paid on such.
      • Although these conditions are not applicable to the acquisition of IPO, Follow-on IPO, Right Issue or Bonus issue for which separate notification would be issued by Government.
    • Capital Gain Provisions related to the Joint Development Agreement u/s 45(5A) – A new provision has been inserted u/s 45(5A) to provide a relief for the Individuals or HUF who has entered into JDA (Joint Development Agreement) for their property (Land / Building) with the builders or developers. Earlier capital gain tax liability arises in the hands of the owner as soon as they entered into the JDA with the Builder. In order to overcome such issues, new provisions u/s 45(5A) has been inserted with the below mentioned conditions-
      • Owner of the Land and the builder or developer should be entered into a registered agreement, to develop real estate on the land and building or both or part in cash.
      • In such a case, capital gain tax liability will arise in the hands of the owner in the previous year in which the certificate of completion for the whole or part of the project is issued by the competent.
      • Stamp duty for the purpose of charging capital gain shall be taken of the date of issue of completion certificate.
    • Base Year has been switched from 01/04/1981 to 01/04/2001 for the purpose of computation of Capital Gain – As per the amendment made through the Finance Act, 2017 the assessee for the computation of CG has an option to take the FMV as on 01/04/2001 in respect of asset acquired prior to 01/04/2001 which was earlier 01/04/1981.
    • FMV to be deemed consideration in case of Unquoted Shares : With the introduction of new section 50CA by the Finance Act, 2017 in respect of the unquoted shares, Fair Market Value is deemed to be the full value of consideration if the FMV is higher than the actual sale consideration on the date of sale of shares. Now, buyer and seller both would have to pay the tax on the difference of the FMV and the actual consideration.
    • Section 56(2)(x) for the Firms / AOP and Widely held Companies : New Finance Act has introduced a new section in place of sec 56(2)(vii) which covers AOP, Firms and Widely held companies beside Individual and HUF which were not liable to pay tax in respect of acquisition of asset without consideration or inadequate consideration. With the new section 56(2)(x), Firms, widely held companies and AOP are liable to pay tax on the difference between FMV and the actual consideration of movable or immovable asset. Although, partition in HUF, transaction between relatives and trusts are still excluded from its scope.
    • Limit of Rs 2,00,000/- fixed in respect set off of interest of House Loan with other Heads : Earlier, set off housing loan in respect of let out property from the other heads were allowable without any limit. But Finance Act 2017, now has introduced a limit of Rs 200000/- for the adjustment of House property loss to be set off against the other head income and the balance would be allowed to carried forward for a maximum of 8 years. But such carried forward would be allowed to set off against “Income from House Property” without any limit.
    • Restriction on Making Corpus Donation u/s 10(23C) : New Finance Act has introduced some amendments related to trust –
      1. W.e.f 01/04/2017, a trust registered u/s 12AA or 10(23C) will not be permissible to make any “Corpus Donation” out of its income to any other registered trust u/s 10(23C) or 12AA. From now, these donations would not be treated as “Application of Trust”.
      2. Trust registered u/s 12A or 12AA modifies its objectives then it would required to apply for a fresh application within 30 days of such modification of its objective.
      3. If the income of trust before making any deduction exceeds the basic exemption limit for now it is Rs 2,50,000, then such trust is required to file income tax return.
      4. Finance Act has made a drastic change in respect of trust which says that trust will not be able to claim the benefit u/s 11 and 12 if they file ITR after the due date given u/s 139(1).
    •  Deemed Annual Value to be taken Nil in respect of vacant flats by builder – Earlier, Deemed Annual Value of vacant flats owned as a stock in trade was under dispute. However, Finance Act 2017 clarify this, which says that any property which held as stock in trade and also not let out either whole or any part of the previous year, “Deemed Annual Value” of such property is taken to be NIL for a period of 1 year from the end of the FY in which certificate is issued by the competent authority on completion of construction of property.
    • Limit of Rs 20000/- reduced to Rs 10000/- u/s 40A(3) – w.e.f 01/04/2017, limit of cash payment in respect of revenue expenditure has been reduced to Rs 10000/- from Rs 20000/- per day and per person. Although the limit of Rs 35000/- in respect of transporter continues to be same. Cash payment includes payment other than Account Payee cheque / draft, NEFT, RTGS, credit and debit cards.
    • Limit of cash payment in respect of Capital Asset by Sec 43(1)–   Earlier, there was no such restriction for the payment of cash in respect of acquisition of asset, this limit was set only towards revenue expenditure. But w.e.f 01/04/2017, any payment made in cash against acquisition of asset would  be cover by Sec 43(1). With this introduction, cash payment exceeding Rs 10000/- per day per person would not be allowed as a cost for the purpose of depreciation and neither it would be considered as a cost at the time of sale.
    • Sec 269ST restricts the receipt of cash of Rs 200000/- – New Finance Act, has introduced the restriction in respect of receipt of Cash of Rs 200000/- or more from a single person in a day or in respect of a single transaction or in relation to one event or occasion from a person. Violation of such section would result into imposing a penalty equal to the amount received on the receiver not the payer. With the wide coverage of this section, provisions relating to collection of TCS @ 1% on the cash sales of Rs 2 Lakh and Rs 5 Lakhs in case of jewellery are deleted.
    • Reporting of Cash Payment in Excess of Rs 200000/- –  Assessee covered under tax audit u/s 44AB is required to report cash payment in excess of two lakhs in a seperate form 61A for the sale of Goods or Services per transaction during the preceding F.Y. 01/04/2016 – 31/03/2017 upto 31/05/2017. Any delay would attract a penalty of Rs 100/- per day.
    • Reporting of cash deposited during Demonetisation–  Finance Act 2017, also said that any cash deposited during the period 9/11/2016 to 30/12/2016 would required to be reported in the Income Tax return of the assessee for the Financial Year 2016-17 if such deposit in aggregate is more than Rs 200000 or more.
    • Donation not eligible if paid in cash in excess of Rs 2000/- – Donation eligible for deduction if paid in cash in excess of Rs 2000/- (earlier limit was Rs 10000/-) would be disallowed.
    • Provisions relating to Transfer Pricing in case of transactions with related persons : This provision has provided a big relief to the number of assesses who were required to file 3CE report with the TP authorities in respect of any payment making in India for Rs 20 crore or more to some related person which were earlier covered under Domestic Transfer Pricing Study. This provision has been deleted from the Transfer Pricing
    • Limit for the Maintenance of Books of Accounts u/s 44AA – w.e.f. 1/04/2017, the Individual or HUF who are not covered by the presumptive taxation scheme in which they have to pay 8% or 6% of the T/O or 50% in case of gross receipts (professional) and income of which is likely to exceed Rs 150000/-  and Rs 2500000/- are required to maintain books of account (earlier this limit was Rs 120000/- and Rs 1000000/-).
    • Limit of Audit u/s 44AB: Assesses other than Company and LLP who are filing their return u/s 44AD or Sec 44ADA are not required to get their books of accounts audited u/s 44AB if their turnover does not exceed by Rs 2 crores and Rs 50 Lakhs respectively. Although company and LLP are required to get their books of accounts audited in case their turnover exceeds Rs 1 crore.
    • 8% reduced to 6% in case of Electronic Clearing System u/s 44AD – Under section 44AD, those assessee who received the payment of sales through the electronic clearing system either by account payee cheque or bank draft during the year or before the due date of furnishing of return u/s 139(1) will be required to pay tax @ 6% instead of 8%. To avail this lower rate benefit, assessee will have to maintain the separate records of cash sales and bank sales.
    • Dividend taxable in excess of Rs 10 Lakhs : w.e.f 01/04/2017, dividend received by all assesses except domestic companies, trust registered u/s 12A and institutions eligible u/s 10(23) in excess of 10 lakhs would  be taxable @ 10% in excess of Rs 10 Lakhs. Before the amendment, only resident individual, HUF and Firm were covered in this section.
    • Carried Forward of MAT credit has been expand for 15 years instead of 10 years – Finance Act 2017 has introduced in the MAT credit. With the amendment, assessee can carried forward the MAT credit for 15 years which was earlier limited to 10 years.
    • Delayed Filing of ITR : Finance Act, 2016 has reduced the limit of delayed filing of ITR by one year. Individual and HUF who are not covered u/s 44AB are required to file their ITR before 31st July and others are required to submit it before 30th Sep as per Sec 139(1). If any return filed after such date would attract a penalty –
      1. Filled upto 31st Dec – Rs 5000/-
      2. Between 1st Jan to 31st March – Rs 10000/-

    These are some major Direct tax amendments which are applicable for November 2018 Examinations covering each and every head plus filing of ITR.