Treatment of long term capital gains- Budget 2018.-by C.A.NIKUNJ SHAH-CHARTERED ACCOUNTANT.
As per the new provisions of the budget appicable from 1st April 2018, onwards, when you derive any long term capital gains on sale of listed shares or securities , the cost of acquisition shall be caluclated by “GRANDFATHERING CONCEPT”-which is explained as under-
TAKE THE ACUAL PURCASE COST OF ACQUISITION,
COMPARE it with the cutoff price(market price of the share) as on 31st JAN 2018,
Whichever is higher of the above, is the acual cost for the purpose of taxing the long term capital gains @ 10 percent.
In case if the market price of the stock as on 31st JAN 2018, (cut off price) is more than the actual cost, then just take this cutoff price as cost of acquisition and deduct it from the actual sale value of the stock.
For example- say your have sold Reliance shares on 1st april 2018 for Rs 1 lakh, (ASST YEAR 2019-20)
You have acquired Reliance shares in 2011 at a cost of Rs 25000/-.
The cutoff price as on 31st jan 2018 is Rs 85000/-.
The Long term capital gains shall be calulcated as under-
SALE VALUE= Rs 1 lakh
MINUS= COST OF ACQUISITION 25000 OR 85000-which is more =Rs 85000
Long term capital gains=Rs 15000/-.
Tax thereof @ 10 percent= 1500/-.
In short, you are at a liberty to adopt a higher purcase cost by substituting the FAIR MARKET VALUE OF THE STOCK AS ON 31ST JAN 2018, thereby reducing your Long term capital gains and its taxation effect thereon u/s 112.
SECTION 54F-
Now from assessment year 2018-19 onwards, you can claim exemption u/s 54F in respect of the long term capital gains on sale of equity shares, by utitilzing the sale proceeds of equity shares by investing in a residential house.
SECTION 54EC-
The lock in period for investing in NABARD ,NHAI Bonds is increased from 3 years to 5 years.
DEEMED DIVIDEND-2(22)-
Whenever there is a release of company's assets out of the accumulated profits , by way of loan by the company to the shareholder, or by way of reduction of share capital , or any payment by the company to an enterprise of a firm in which the shareholder has substantial interest(10 percent of voting power), then the company has to pay 30 percent tax by way of "DIVIDEND DISTRUBUTION TAX".
In short, previously the shareholder was taxable. But now the company (the payer )has to to pay the tax.
Therefore in my opinion, section 194-tds for deemed dividend, becomes redundant.
DEDUCTION U/C VIA-
Now you wont get any deduction u/c VIA unless the return is filed in time, within the due date u/s 139.
Section 80C- You will get an adittional deduction u/s 80C of Rs 50,000/-, in adittion to Rs 1,50,000 provided you invest in NATIONAL PENSION SCHEME.
LONG TERM CAP GAIN ON SALE AND PURCHASE OF RESIDENTIAL HOUSE-
Its now compulsory to sell a residential property only at the existing "STAMP VALUE", or more as per section 50 C. Otherwise, in case if you sell it at a price lower than the stamp duty value,
the difference shall be charged to tax under the head "CAPITAL GAINS.", in the books of the transferor.
Also, the purchaser of the property will be charged to tax u/s 56 under the head ""INCOME FROM OTHER SOURCES" in respect of the shortfall of the consideration paid by him by him to the vendor-(ie difference between the stamp duty value and the actual cost.)
Changes in sections 5 and 6-income tax as per budget 2020.-
Resident
A taxpayer would qualify as a resident of India if he satisfies one of the following 2 conditions :
1. Stay in India for a year is 120 days or more or (previously it was 182 days)
2. Stay in India for the immediately 4 preceding years is 365 days or more and 60 days or more in the relevant financial year
In the event an individual leaves India for employment during an FY, he will qualify as a resident of India only if he stays in India for 120 days or more. This otherwise means, condition (b) above of 60 days would not apply to him
If an individual qualifies as a resident, the next step is to determine if he/she is a Resident ordinarily resident (ROR) or an RNOR. He will be a ROR if he meets both of the following conditions:
1. Has been a resident of India in at least 4 out of 10 years immediately previous years (previously it was 2 years.)
Therefore, if any individual fails to satisfy even one of the above conditions, he would be an RNOR.
2-He is non resident in 9 out of 10 prev years.
An individual satisfying neither of the conditions stated in (a) or (b) above would be an NR for the year.
Indian citizens and person of Indian origin who were on visit to India had an extended period of 182 days of stay in India before they could be regarded as a resident of India from an income tax perspective. This period has been proposed to be reduced to 120 days now."
The Budget 2020 has proposed to remove the condition that the individual should be physically present for more than 729 days in last 7 years to become ordinarily resident. Further, second condition has been tweaked. Currently, second condition says that a person becomes resident individual if he/she has been resident individual in atleast 2 out of last 10 years. It has been proposed to hike this two years to four years.
If the non resident earns tax free income in Dubai, MAURITIUS, ETC, where the rates of tax are very low or nil, then they shall be deemed to be “Resident or NOT ORDINARY RESIDENT,” as they will have to fulfil the new conditions as per section 5 and 6. (as per the changes in the new definition as per above.).
They will cease to enjoy the status of “NON RESIDENT INDIAN.”
Hence they wont enjoy the exemption that a non resident enjoys in respect of his world income, which is exempt from income tax in India.
This world income will be taxable in india as per the Indian income tax rates.
Currently for a resident individual to be classified as ordinarily resident for income tax purposes in India, the individual has to satisfy two conditions. Budget 2020 has proposed changes in these conditions which determine whether a resident individual is a ‘Not ordinarily resident’ or ‘ordinarily resident’.
"Under the current tax residency rules, after having determined an individual as a resident, there is a secondary test to determine whether the individual qualifies as a not ordinary resident (NOR) or ordinary resident (OR). Individuals who qualify as OR are required to offer their overseas income to tax and disclose their overseas assets in their India tax return. This test of determining whether an individual is an NOR or OR has been modified significantly.
Further Budget 2020 also proposes that if an individual who is a citizen of India or person of Indian origin visits India for 120 days or more in a financial year and had spent more than 365 days in last four years, then such an individual will also become ‘resident’ in India.
The non resident may plan his duration of stay in india in such a manner that he can escape the tax liability from both the countires- the place of residence(current residency) , or the place of his origin country.
For example some NRIS who are PIO(PERSON OF INDIAN ORIGIN) may derive income in Dubai WHERE THE TAX RATE IS ALMOST “NIL”, or some other tax heavens like “MAURITIUS”, ETC-.
When it is determined that his stay in INDIA has crossed 120 days, -ie he resides in Dubai for a period of more than 240 days, then he is a resident-not ordinary resident. (ie deemed resident.)
At present the DUBAI income is exempt as it is the world income of the non resident.
But now , as per the new provisions, the entire income in Dubai shall be taxable.
In short, the non resident will be taxable in respect of his “WORLD INCOME”, provided it is exempt in that other country, because the non resident will be deemed to be an ordinary resident and hence the world income will be taxable.
Press release-feb 2020-
The government has clarified, via a press release that in case of an Indian citizen who becomes deemed resident of India under the changes proposed by UnionBudget 2020, income earned outside India by him/her shall not be taxed in India unless it is derived from an Indian business or profession.
The clarification has come after the Finance Bill, 2020 has proposed that an Indian citizen shall be deemed to be resident in India, if he is not liable to be taxed in any country or jurisdiction. This is an anti-abuse provision since it is noticed that some Indian citizens shift their stay in low or no tax jurisdiction to avoid payment of tax in India, says the release issued today.
The new provision is not intended to include in tax net those Indian citizens who are bonafide workers in other countries. The intrepretation of the proposed provision that those Indians who are bonafide workers in other countries, including in Middle East, and who are not liable to tax in these countries will be taxed in India on the income that they have earned there, is not correct, as per the press release.
The Union Budget 2020 has proposed changes in the definition of residency of an individual (with reference to tax residency in India) which determines how the person’s income tax liability will be calculated in a financial year. According to the proposal, if an individual has been a resident in atleast four out of last 10 financial years, then the individual will qualify as an ordinarily resident. This is bad news for the taxpayers as they will be required to pay tax on their foreign income and . report foreign assets in their income tax return (ITR) in India
BUDGET 2020-AMENDMENTS-
Taxation:
* New optional tax slabs: New income tax slabs will be available for those who forgo exemptions.
Taxable income slabs Tax rates
upto 5 lakhs nil
5 lakhs to 7.50 lakhs 10 %
7.50 lakhs to 10 lakhs 15%
10 lakhs to 12.50 lakhs 20 %
12.50 lakhs to 15 lakhs 25 %
15 lakhs and above 30 %
In short, in case if you wish to avail these concessional tax rates, then you have to forego all the deductions U/C VI-A. 80C,80D, 80G, ETC and all exemptions u/s 10. So overall, this is not practically feasible because at the end, you will tend to pay a higher tax. So its better not to exercise this option and stick to the normal tax rates at present which is as under- (for income above 5 lakhs.)
Upto 2.50 lakhs-nil
2.50 lakhs to 5 lakhs- 5 percent
5 lakhs to 10 lakhs-20 percent
Above 10 lakhs= 30 percent.
Senior citizens -60 to 80 years-
Less: Rebate under Section 87A =5000
Add: Health and Education Cess 4 %
Super senior citizens- above 80 years age-
Add: Surcharge and Health & Education Cess
) Surcharge:
Surcharge is levied on the amount of income-tax at the following rates if total income of an assessee exceeds specified limits:
The surcharge shall be subject to marginal relief:
It is better to opt for these existing tax rates-and not to go for the concessional tax rates because of denial of exemptions.
Short TERM CAP GAIN-SHARES=15 PERCENT-SECTION 111A
LONG TERM CAP GAIN-SHARES-10 PERCENT-Section 112- Provided gain is more than 1 lakh.
Dividend Distribution Tax (DDT) abolished; -Companies will not be required to pay DDT; dividend to be taxed only at the hands of recipients, at applicable rates.
New power generation companies to be taxed at 15%-
To boost power generation capacity, government has extended the new corporate tax regime for new manufacturing plants to new power generation companies.
New power generation companies will have to pay just 15 per cent tax under the new corporate tax regime.
The move will help is setting up of new power generation companies to meet the growing energy needs of India.
Tax exemption for sovereign funds to boost India infra play-
The decision of central government to grant 100% tax exemptions for sovereign wealth funds for their investments in infrastructure sector is expected to give a boost to the infra investments in India. Besides the exemption, abolition of dividend distribution tax (DDT) is also will give benefits to the global yield-seeking infrastructure investors in India.
In order to incentivise the investment by the Sovereign Wealth Fund of foreign governments in the priority sectors, there is 100% tax exemption to their interest, dividend and capital gains income in respect of investment made in infrastructure and other notified sectors before 31st March, 2024 and with a minimum lock-in period of 3 years,
India requires enormous investments in infrastructure sector that could be more than $1 trillion. .
Startups & MSME:
* Tax burden on employees due to tax on ESOPs to be deferred by five years or till they leave the company or when they sell, whichever is earliest.
Start-ups with turnover up to Rs. 100 crore to enjoy 100% deduction for 3 consecutive assessment years out of 10 years.
AUDT TURNOVER THRESHOLD LIMIT-
Turnover threshold for audit of MSMEs to be increased from Rs 1 crore to Rs 5 crore, to those businesses which carry out less than 5% of their business in cash.
Banking:
* To help bank depositors, government increases depositor insurance to Rs 5 lakh from current Rs 1 lakh.
Taxation for Non resident Indians.
The Residential status definition has been amended.
If an Indian Citizen or a person of Indian origin stays in India for a period of 120 days or more, or stays abroad for 240 days or more (previously it was 182 days), shall be deemed to be a non resident. This non resident will be taxable in respect of the world income in India -which was previously exempt.
This exemption can be sought provided the foreign country does not levy tax the foreign income of the non resident. Thus the non resident shall have to pay tax on his foreign income in India.
The non resident shall be deemed to be Indian resident for the purpose of the income tax and taxed accordingly as per the Indian income tax rates on his foreign income.
Explanation-
The Union Budget 2020 has proposed changes in the definition of residency of an individual (with reference to tax residency in India) which determines how the person’s income tax liability will be calculated in a financial year. According to the proposal, if an individual has been a resident in atleast four out of last 10 financial years, then the individual will qualify as an ordinarily resident. This is bad news for the taxpayers as they will be required to pay tax on their foreign income and . report foreign assets in their income tax return (ITR) in India
Currently for a resident individual to be classified as ordinarily resident for income tax purposes in India, the individual has to satisfy two conditions. Budget 2020 has proposed changes in these conditions which determine whether a resident individual is a ‘Not ordinarily resident’ or ‘ordinarily resident’.
"Under the current tax residency rules, after having determined an individual as a resident, there is a secondary test to determine whether the individual qualifies as a not ordinary resident (NOR) or ordinary resident (OR). Individuals who qualify as OR are required to offer their overseas income to tax and disclose their overseas assets in their India tax return. This test of determining whether an individual is an NOR or OR has been modified significantly.
The Budget 2020 has proposed to remove the condition that the individual should be physically present for more than 729 days in last 7 years to become ordinarily resident. Further, second condition has been tweaked. Currently, second condition says that a person becomes resident individual if he/she has been resident individual in atleast 2 out of last 10 years. It has been proposed to hike this two years to four years.
Further Budget 2020 also proposes that if an individual who is a citizen of India or person of Indian origin visits India for 120 days or more in a financial year and had spent more than 365 days in last four years, then such an individual will also become ‘resident’ in India.
EXAMPLE-
The non resident may plan his duration of stay in india in such a manner that he can escape the tax liability from both the countires- the place of residence(current residency) , or the place of his origin country.
For example some NRIS who are PIO(PERSON OF INDIAN ORIGIN) may derive income in Dubai WHERE THE TAX RATE IS ALMOST “NIL”, or some other tax heavens like “MAURITIUS”, ETC-.
When it is determined that his stay in INDIA has crossed 120 days, -ie he resides in Dubai for a period of more than 240 days, then he is a non resident.
At present the DUBAI income is exempt as it is the world income of the non resident.
But now , as per the new provisions, the entire income in Dubai shall be taxable as per the INDIAN APPLICABLE INCOME TAX RATES.
In short, the non resident will be taxable in respect of his “WORLD INCOME”, provided it is exempt in that other country.
TDS AND TCS-PROVISIONS AS PER THE NEW BUDGET-2020-
"Proposed TCS provisions apply even to exports, and Indian exporters (who receive more than Rs 50 lakh in a financial year) will need to collect 0.1% TCS from buyers.
- cases where the buyer doesn’t have a Permanent Account Number (PAN) or Aadhaar — which is the case with exports — the rate will be 1%, says the budget proposal.
E-commerce cos to collect 1% TDS from sellers under new levy-
SECTION 194O-
NEW DELHI: The government on Saturday proposed a new levy of 1 per cent TDS (tax deducted at source) on e-commerce transactions, a move that could increase burden on sellers on such platforms.
"In order to widen and deepen the tax net by bringing participants of e-commerce (sellers) within tax net, it is proposed to insert a new section 194-O in the Act so as to provide for a new levy of TDS at the rate of one per cent," according to Budget 2020-21 documents.
Also, consequential amendments are being proposed in Section 197 (for lower TDS), in Section 204 (to define person responsible for paying any sum) and in Section 206AA (to provide for tax deduction at 5 per cent in non-PAN/Aadhaar cases).
The documents said the e-commerce operator -- an entity owning, operating or managing the digital platform -- will have to deduct 1 per cent TDS on the gross amount of sales or service or both.
This provision will not apply in cases where the seller's gross amount of sales during the previous year through the e-commerce operator is less than Rs 5 lakh and the seller has furnished his PAN or Aadhaar number.
TCS ON LRS u/s 206(1G) Vs. INTERPLAY WITH LRS.-LIBERALISED REMITTANCE SCHEME-
In Para 3.3 of budget speech of FM, for widening the scope of TCS, it is proposed to provide for tax collection at source (TCS) on remittance under Liberalised Remittance Scheme of Reserve Bank of India exceeding seven lakh rupees.
As per proposed section 206(1G)- Every person,––
(a) being an authorised dealer, who receives an amount, or an aggregate of amounts, of seven lakh rupees or more in a financial year for remittance out of India from a buyer, being a person remitting such amount out of India under the Liberalised Remittance Scheme of the Reserve Bank of India;
shall, at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier, collect from the buyer, a sum equal to five per cent. of such amount as income-tax:
Scope of 206C(1G)
Section 206(1G) is binding on AD who receives an amount from a buyer for remittance out of India under the Liberalised Remittance Scheme of the Reserve Bank of India. The LRS scheme is applicable to resident individuals. Hence, Non-residents can not make use of LRS scheme and hence the provisions of section 206C is not applicable. Also the Scheme is not available to corporates, partnership firms, HUF, Trusts, etc. and hence the TCS is not applicable to them.
In terms of Section 5 of the FEMA, persons resident in India,-(as per the definition of non resident under FEMA) resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.
Regards
C.A.NIKUNJ SHAH
CHARTERED ACCOUNTANT.
C.A.NARESH SHAH
CHATERED ACCOUNTANT.
C.A.KUNJAN SHAH
CHARTERED ACCOUNTANT.
updates - Nov 17, 2014 12:2:56 PM