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India publishes 2019/20 Finance Bill

Executive summary

The Finance Minister of India for the new government has presented the 2019 Finance Bill (‘the Bill’) in Parliament on 5 July 2019, proposing changes to the tax laws starting 1 April 2019. This Finance Bill follows the interim budget announcement in February 2019 which was made ahead of the recent national elections.

A number of tax laws will change including a significant increase in the rate of surcharge for high income earners. The proposed key amendments to personal income tax, which will apply from 2019/20 include:

  • Increase in the effective tax rate for high income earners to a maximum rate of 42.74%
  • Inter-changeability of personal identifiers
  • Deemed taxation of gifts made to individuals outside India
  • Tax incentives for affordable housing and electric vehicles
  • Broadening of the criteria for those required to file tax returns
  • Increase in the amount of exemption for disbursals from the National Pension System (NPS)
  • Pre-populated tax return forms
  • Faceless e-Assessment
  • Clarification on factors applicable to the Black Money Act (BMA)

Budget proposals

Increase in the effective marginal tax rate for high income earners

The rate of surcharge for taxpayers with income of INR 20,000,000 (USD 285,714) to INR 50,000,000 (USD 714,286) has been increased from 15% to 25%, taking the effective marginal tax rate to 39%. The rate of surcharge for taxpayers with income in excess of INR 50,000,000 (USD 714,286) has been increased from 15% to 37%, taking the effective marginal tax rate to 42.74%. There are no other proposed changes to tax bands or rates for individual taxpayers.

Inter-changeability of PAN and Aadhaar

With effect from 1 September 2019, Aadhaar (a 12-digit unique identification number) can be inter-changeably used with the Permanent Account Number (PAN). A PAN was required for all tax return filing and under the proposed rules an Aadhaar can be used instead if a person is not allotted a PAN or if the person allotted with a PAN has linked their Aadhaar with their PAN.

In addition, if a PAN is not linked with Aadhaar, the PAN will become inoperative from 1 September 2019.

Deemed taxation of gifts made to an individual outside India

As per the budget, gifts (money paid and/or property transferred) made by an individual resident in India to an individual outside of India are currently being reported as non-taxable in India as the income does not accrue or arise in India. An amendment has been proposed to tax such gifts (made on or after 5 July 2019) in India in the hands of the recipients, subject to certain exceptions/ treaty reliefs where applicable.

Tax incentive for affordable housing and electric vehicles

For first time home buyers, the Bill proposes an additional deduction of INR 150,000 (USD 2,143) in respect of mortgage interest, provided certain conditions are met. This would be in addition to the existing INR 200,000 (USD 2,857) deduction available for mortgage interest on housing loans.

First time buyers of electric vehicles can benefit from a deduction of INR 150,000 (USD 2,143) for interest on vehicular loans, subject to certain conditions.

Additional categories for those required to file tax returns

Taxpayers now meeting any of the below criteria during the fiscal year will also be required to mandatorily file tax returns:

  • Deposits in one or more current accounts exceeding INR 10,000,000 (USD 142,857); or
  • Expenditure incurred on foreign travel exceeding INR 200,000 (USD 2,857); or
  • Electricity expenditure exceeding INR 100,000 (USD1,428); or
  • Satisfying other previously stipulated conditions

Increase in tax exemption for National Pension Scheme (NPS) subscribers

Currently, any payment from the NPS trust to subscribers on closure of an account or opting out of the scheme is tax exempt to the extent of 40% of the total amount payable. The proposed Bill has increased the exemption limit to 60% in order to incentivise NPS subscribers.

Pre-populated tax return forms

To enable pre-populated data on tax return forms (including salary, bank interest, capital gain from securities & dividend), it has been proposed that relevant information could be directly received from sources including banks, stock exchanges, mutual funds, the PF department and state registration departments.

Introduction of e-Assessment

A scheme for faceless e-Assessments using an electronic process has been proposed with a view to reducing the need for a human interface at tax offices.

Clarification on Black Money Act (BMA)

It has been clarified that under the BMA, the residential status of the taxpayer during the fiscal year in which the income is earned or the asset is acquired, shall be the determinative factor for whether the BMA is applicable. 

Next steps

The provisions of the Bill will not become law until these are approved by both houses of the Indian Parliament and receive the assent of the President of India. Once approved, the provisions will apply for the 2019/20 Indian fiscal year (1 April 2019 to 31 March 2020).

Taxpayers and employers should review the proposed provisions and assess where changes to payroll systems may be required, based upon an expectation that the proposed provisions will be approved.

EYG no. 003234-19Gbl

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