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Impediments to Income Tax Act for assessment year 2019-20

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The thrust of framing amendments in Income Tax Act (“IT Act”) was on social infrastructure, ease of living, and technology-led governance aiming at inclusive and equitable growth which means greater public expenditure.  With the following trends of market, IT Act ought to be updated from time and onwards. Following are the amendments made to the IT Act with effect from assessment year 2019-20:

  • Conversion of stock-in-trade into capital asset
    In accordance with section 2 (24), a new sub-clause (xiia) has been appended, stating fair market value of inventory to be included in income.

  • Modification in terms of employment
    Sub-clause (xviib) introduced in section 2 (24) will include any compensation or other payment referred to in section 56 (2) (x).

  • Determination of period for which the capital asset is held by the assesse
    In reference to section 2 (42A), new sub-clause (ba) has been introduced to provide conversion of inventory to be treated as a capital asset. The holding period shall be enumerated from the date of its conversion or the treatment. For the purpose of section 2 (42A), “equity oriented mutual funds” will have the same meaning assigned to it in section 112A.

  • Aligning the scope of business connection with modified permanent establishment (PE) Rule as per multilateral instrument
    According to section 9 (1) (i), a person acting on behalf of a non-resident should commence any business activity to halt contracts or habitually plays the principal role leading to pinnacle of the contracts by the non-resident. 
  • Business connection to include significant economic presence
    Economic presence in India shall also aggregate business connection. For this purpose significant economic presence shall include:

  • – Any transaction regarding any goods, property or services undertaken by a non-resident in India including provision of downloading any software or data in India provided the accumulation of payments arising from any such transaction (s) exceeds the prescribed amount at any time during preceding year; or
  • – Imploring of its business operations, systematically and continuously; or
  • – Interacting with number of prescribed users in India via digital mode. 
  • Standard deduction
    Interpolation of sub-clause (ia) in section 16 states standard deduction for amount decided INR 40,000 or the amount of salary, whichever is lower in reckoning income accountable under the head “salaries”.
  • Deduction in respect to any market loss
    There are certain deductions that are under the head of “profits and gains of business or profession”. Sub-clause (xvii) conditions deduction in accordance with Income Computation and Disclosure Standards (ICDS) in respect to market loss shall be allowed.
  • Cost of acquisition
    Cost of acquisition shall be deemed to be the fair market value which has been taken into account for the purpose of section 28 (via).
  • Stamp duty value exceeds 105% of consideration
    According to section 56 (2) (X), the statement will be pertinent if a person removes an immovable property from any person. Also, subduction value between consideration and stamp duty value is more than INR 40,000.
  • Standard deduction for medical insurance on senior citizens level
    According to Section 80D, deduction of INR 30,000 shall be permitted for a senior or super senior citizen. 
  • Incentive for employment generation
    The minimum number of days of employment in the years of employment shall be 150 days in place of 240 days.

  • Conditions for section 80PA
    The assesse is a producer company under section 581 A, total turnover is less than INR 100 crores in any previous year.

  • Failure to furnish return
    Provision to section 276CC administers that a person shall not be proceeded under the said section for dilapidation to furnish return if the tax payable by him on the total income determined on regular assessment (as reduced by advance tax / tax deducted at source) does not exceed INR 3,000

The above forecast highlights some areas which can be of great value for improving Indian income tax system. Rationalisation of tax rates, timely disposal of taxes, and upgradation of technology and tax regimes can help in improvement in tax administration. These changes in IT Act endeavour an extensive pre-lustration of different aspects of IT Act in India, but still there is a scope for further research in income taxation. Moreover, some studies conducted to examine various aspects of IT system and perception of professionals and taxpayers can be an addition to get a better IT Act regime. If you require any assistance in your tax compliances, tax computation, return filing, tax assessments or would like to discuss the above amendments further, our team of tax experts can assist you.

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