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  • Tax Matters: What are the changes in the IT law from April 2019?

    A tax payer can claim exemption under Section 54 even if he invests in two residential houses in India if the capital gain does not exceed Rs 2 crore

    The new fiscal year has begun. What are the various changes in the income tax (IT) law applicable from 1 April 2019?

    — Raman Thiru, e-mail

    The amount of tax rebate available to a resident individual, whose total income does not exceed Rs 5 lakh under Section 87A of the IT Act, 1961, has been increased to Rs 12500 from Rs 2500 from April 2019. The limit of standard deduction for the salaried class tax payers has been hiked to Rs 50000 from Rs 40000.

    Earlier, only one house property, as per the choice of an individual owning more than one self-occupied house property, was treated as self-occupied. Its annual value was computed as nil. The other house property was deemed to be let-out, as per Section 23 of the IT Act, and a notional rent was computed and charged to tax under the head, ‘Income from house property'. Section 23 was amended from 1 April 2019 to provide relief to the tax payers by allowing them an option to claim nil annual value for any two houses declared as self-occupied. The aggregate deduction for interest on housing loan for both houses cannot exceed Rs 30000 for repairs or Rs 2 lakh for construction.

    Any long-term capital gain arising to an individual or Hindu undivided family from the sale of residential house property is exempted under Section 54 of the IT to the extent such capital gain is invested in another residential house property. Earlier, the tax payer was allowed to invest only in one residential house in India under Section 54.

    A tax payer can claim exemption under Section 54 even if he invests in two residential houses in India. However, the benefit will be available when the capital gain does not exceed Rs 2 crore. The option can be exercised only once in a lifetime.

    Section 194A of the IT Act has been amended to increase the threshold limit to Rs 40000 from Rs 10000 for deduction of tax at source on interest income other than interest on securities paid by a banking company, co-operative society or a post office. The threshold limit for deduction of tax at source, under Section 194-I of the IT Act, on rental income has been increased to Rs 2.40 lakh from Rs 1.80 lakh.

    Starting 1 April 2019, capital gain on investments made in India through companies in Mauritius and Singapore is fully taxable.

    As a businessman, I take lot of risks. These can result in financial liabilities. Hence, I want to know about the Married Women Property (MWP) Act, 1874, and its application to life insurance.

    — Jagat Sonar, e-mail

    Section 6 of the MWP Act provides that the policy of insurance effected by any married man on his own life and expressed on the face of it to be for the benefit of his wife, children or any of them is ensured and deemed to be a trust for the benefit of his wife and children or any of them. It will remain so as long the interests so expressed and any of the objects of the trust remains subject to the control of the husband and his children and form part of his estate.

    The proposal and the policy must specifically state that the insurance is to be effected for the benefit of the life insured's wife, wife and any of his children under the provisions of the MWP Act. As a policy effected by a married man under the MWP Act results in a trust, the life insured does not have any interest in nor can he control the policy. The policy will not be a part of his estate and cannot be taken by his creditors. The MWP Act cannot be applied to a policy after it has been issued. Married man includes widowers and divorcees. The last two are applicable when the beneficiaries are the children of the man. The adopted child of a Hindu can be a beneficiary. A separate policy can also be taken for each beneficiary.

    There can be no change in the beneficiaries, unless there is a divorce, in a policy bought by a married man under the MWP Act. Section 6 of the MWP Act applies to policies that are undertaken by a married man on his own life.

    Only whole life and endowment plans are available under the MWP Act, created exclusively for wife and children. The individual, that is, the husband, has no rights on the policy. The policy is protected for the purpose it has been issued. Beneficiaries named can avail loans jointly with the life insured.

    The life insured can, with the written consent of the named beneficiaries, if they are major and competent to contract, surrender the policy. The surrender value will be paid to the trustee, if there is one, or to the beneficiaries.

    Application of the MWP Act means the life insured cannot avail of a bonus option that allows him pay-outs or to take term insurance, paid up additions, or offset premium payments. Bonus can only be allowed to accumulate.

    For a policy written for a married man payment is made to the beneficiary by the insurer or to the official trustee. If any of the beneficiaries has died, the insurer has to make payment to the appointed trustee, if there is one, or to the official trustee of the state where the insurer has an office.

    What is this presumptive scheme under the goods and services tax (GST)?

    — Veda Chhel, e-mail

    A new scheme allows a tax payer to pay GST on a presumptive basis at the rate of 6%, that is, 3% Central GST and 3% State GST or Union Territory GST. It is similar to the existing composition scheme but is not a composition scheme.

    The scheme can be availed of by eligible registered persons on or after 1 April 2019 for intra-state supplies of goods or services or both. The supplier who wishes to opt for the scheme in the financial year (FY) 2019-20 should not have had a turnover of more than Rs 50 lakh in FY 2018-19. The turnover limit of Rs 50 lakh is calculated based on the permanent account number (Pan). The supplier availing the scheme is not eligible to pay tax under the composition scheme.

    The supplier should not be in the business of making any supplies on which GST is not levied, that is, petro products or alcoholic liquor. He should not be in the business of supply of ice cream and other edible ice or pan masala or tobacco and manufactured tobacco substitutes. He should not be making any inter-state outward supplies. He should be neither a casual taxable person nor a non-resident taxable person. He should not be making any supply through e-commerce operator on which tax collection of source applies. He is not allowed to claim credit of taxes paid on inputs goods or services or capital goods.

    The supplier opting for the presumptive scheme cannot collect any tax from the buyer of goods or services. Every bill of supply is required to have the name of the taxable person paying tax not eligible to collect tax on supplies.

    What are the different types of health insurance plans available?

    — Baalu Thayag, e-mail

    The health policy plans available in India include individual health insurance plans. Only the person availing it will be able to claim the benefit of the sum assured along with all the benefits covered in the plan. It is non-transferrable. The premium is as per the individual's age.

    A family floater health insurance plan is a single policy for the entire family. The health coverage amount can be utilized for hospitalization expense of any family member. The insured gets to avail a cover for the family at a much cheaper rate. The disadvantage is that the entire amount of the cover can be exhausted due to hospitalization charges of a single member. Usually, family floater plan covers the individual, spouse and children. Certain insurance service providers also cover dependent parents and siblings.

    Senior citizen health insurance plans come with stringent medical checkups, high premium amount, longer waiting period for pre-existing illnesses and many more exclusion clauses.

    Top-up and super top-up health insurance plans come with a ‘deductible' clause. A large cover can be purchased at a low premium. For example, a top-up or super top-up policy of Rs 20 lakh, with a deductible of Rs 5 lakh, covers all the hospitalization expenses over the deductible amount.

    Critical illness health insurance plans cover specific illnesses such as heart disease of cancer, often avoided by many insurers. The premium for such policies is high since the risk for the insurer is also high. Group health insurance plans are deployed by employers to cover their employees. Unit-linked health plans have the dual benefit of investment and insurance. A portion of the paid premiums is utilized in the stock market. The subscriber is offered with insurance coverage.

    I am confused with different audit limits under the Income Tax (IT) Act, 1961, Central Goods and Services Tax (GST) Act, 2017, and further changes in these limits. Who is mandatorily subject to tax audit under the IT Act?

    — Rajappa Raju, e-mail

    Tax audit is mandatory if the gross sales or receipts of a person carrying on business exceed Rs 1 crore per annum. Tax audit applies even if there is loss if the turnover is Rs 1 crore and more. Tax audit is compulsory for a professional if his gross receipts are more than Rs 50 lakh per annum.

    Tax audit is required if a person opts for presumptive taxation under Sections 44AD, 44AE and 44ADA of the IT Act and claims income or gains lower than the prescribed limit under the presumptive taxation scheme and the income exceeds maximum amount not chargeable to tax.

    However, tax audit will not apply if the business loss and income of a person carrying on business opts for the presumptive scheme under Section 44AD does not exceed the basic exemption limit.

    A persons carrying on the business and not eligible to claim presumptive taxation under Section 44AD on opting for presumptive taxation in one tax year and not opting for presumptive tax for any of the subsequent five consecutive years will be subject to tax audit if income exceeds the maximum amount not chargeable to tax in the subsequent five consecutive tax years from the tax year where presumptive taxation was not opted for.

    Normally, all professionals such as chartered accountants help family members and firms in preparing accounts and filing income tax and goods and services tax (GST) returns without charging anything. Will such complementary service come under GST?

    — Eshwar Pancholee, e-mail

    Supply made between related persons for inadequate or no consideration is covered under schedule I of the GST Act, 2017. Such transactions are treated as ‘supply' only if they occur in the course or furtherance of business. The Union government has clarified that GST supplies need not be added to the value of supply. However, the clarification is for original equipment manufacturers.

    There are various conflicting decisions taken by two or more state Appellate Authorities for Advanced Rulings (AAARs) on the issue. At present, there is no provision of a centralized AAAR. In its 31st meeting, the GST Council had recommended the creation of a centralized AAAR to deal with such rulings. Based on the definition of supply and of free services as per the decision of AAR, family members of professionals are subject to GST.

    The replies are only in the nature of guidelines. The tax counsellors and the publication are not responsible for any decision taken by readers on the basis of the same. Readers may e-mail their queries on direct taxation to: tax-matters@capitalmarket.com

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Flash News 06-Jun-2020
  •  ( 17:07) Vedanta Q4 net loss at Rs 12,521 cr on one-time loss  
  •  ( 17:06) Relaxo Footwears Q4 PAT declines 5% to 52 cr  
  •  ( 15:59) Divis Laboratories consol. Q4 PAT up 32.96% Y-o-Y to Rs 388.23 cr  
  •  ( 14:32) Sumitomo Chemical Q4 consol. PAT at Rs 22.91 cr  
  •  ( 13:29) Gujarat Gas consol. Q4 PAT up 114.80% Y-o-Y to Rs 250.46 cr  
  •  ( 12:38) L&T consol. PAT down 6.5% at Rs 3197.07 cr  
  •  ( 12:03) Exide Industries consol. Q4 PAT down 22.2% Y-o-Y to Rs 235.57 cr  
  •  ( 09:16) Nasdaq hits a record after surprise jobs surge boosts recovery bets  
  •  ( 09:15) Dow jumps more than 800 points on Friday  
  •  ( 09:02) Silver Lake hikes stake in RIL's Jio Platforms  
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