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Paper 4 - Taxation (CA Intermediate)

Relevant amendments applicable for AY 2020-21

Below are the amendments which are applicable for the May 2020 and the Nov 2020 exams. While studying this, please refer to the new study material (for AY 2020-21) available at this link https://icai.org/post.html?post_id=15923. It is recommended to not use the old material (for AY 2019-20) as the answers and the application of the amendments will differ.

The specific amendments at places are mentioned in bold for emphasis. Please refer to your study material with respect to the corresponding chapters and the sections for further understanding. This is only a summary for your quick revision for the exams. I have also tried to quote the relevant problems from the Study Material and the RTP (May 2020) for practical application of the amendments. All the best!

Rebate under section 87A

In order to provide tax relief to the individual taxpayers who are in the 5% tax slab, section 87A provides a rebate from the tax payable by an assessee, being:

An individual resident in India, whose total income does not exceed Rs. 500,000. The rebate shall be equal to the amount of income tax payable on the total income for any assessment year or an amount of Rs.12,500 whichever is less.

Note: Rebate under section 87A is not available in respect of tax payable at 10% on long term capital gains taxable under section 112A

[Chapter 1: Basic Concepts] Refer Illustration 6

Amendments applicable for CA Intermediate - Paper 4 - Income tax for AY 2020-21

Surcharge

Surcharge is an additional tax payable over and above the income- tax. Surcharge is levied as a percentage of income-tax. In case where the total income of an individual/HUF/AOP/BOI/Artificial Juridical Person.

Total Income of individual/ HUF/ AOP/ BOI/ Artificial Juridical Person

Surcharge

Rs. 50 lakhs ≤ Rs. 1 crore

10% of income-tax

Rs. 1 crore ≤ Rs. 2 crore

15% of income-tax

Rs. 2 crore ≤ Rs. 5 crore

25% of income-tax

Rs. 5 crore

37% of income-tax

Refer RTP - MCQ 6; Application in Total income problems

Salaries

  1. Deduction u/s 16(ia): Standard Deduction is increased from Rs. 40,000 to Rs. 50,000
  1. Exemption in respect of Gratuity u/s Section 10(10): The statutory limit in Gratuity (Not covered by the Payment of Gratuity Act, 1972) is extended from 10 lakh to 20 lakh

Application in salary income/ total income problems

Income from House property

1. Taxation of property held as Stock in trade:

  • In some cases, property consisting of building or land appurtenant thereto, maybe held as stock in trade and the whole or any part of the property may not be let out during the whole or any part of the previous year. In such cases, annual value of such property shall be NIL.
  • The benefit would be available for a period of upto 2 years (earlier it was one year) from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, if such property is not let-out during such period.
  • After the expiry of two years, income from house property has to be computed on a notional basis by taking the Expected rent as the GAV.

Multiple choice questions can be asked

2. Deemed let out Property:

  • In case of self-occupied property or unoccupied property, where the assessee owns more than two properties for self- occupation, then the income from any two properties (earlier it was one self-occupied property only), at the option of the assessee, shall be computed under the self-occupied property category and its annual value will be Nil. The other self-occupied/ unoccupied properties shall be treated as 'deemed let out' properties.

[Chapter 4: Unit 2] Refer Illustration 8

PROFITS AND GAINS OF BUSINESS OR PROFESSION

1. Change in Depreciation Rates [Notification 69/2019] dated 20.9.2019 - Refer to RTP

Particulars

Depreciation allowable as a % of WDV

  1. Motor buses, motor lorries and motor taxis used in a business of running them on hire, acquired during the period from 23.8.2019 to 31.3.2020 and put to use on or before 31.3.2020.

45%

(earlier this was 30%)

  1. Motor cars other than those used in a business of running them on hire, acquired during the period from 23.8.2019 to 31.3.2020 and put to use on or before 31.3.2020.

30%

(earlier this was 15%)

The changed rates will not apply in case of vehicles already existing with the business. In case acquisition is before the said date of 23.8.2019, then the old rates of 30% and 15% will apply respectively.

Refer RTP - Question 10 (important); Application in Depreciation/ Business / Total income problems

2. Section 43B - scope expanded to include sum payable as interest to NBFCs

  • any sum payable by the assessee as interest on any loan or advances from a deposit-taking NBFCs and systemically important non deposit-taking NBFCs shall be allowed as deduction if it is actually paid on or before the due date of furnishing the return of income of the relevant previous year

Business income questions; Payments made under section 43B can include this kind of payments to NBFC. Allowability needs to be determined based on payment and not due basis

CAPITAL GAINS

Capital Gains on sale of residential house [Section 54]

Where the amount of capital gains exceeds Rs 2 crore

Where the amount of capital gain exceeds Rs 2 crore, one residential house in India should be purchased within 1 year before or 2 years after the date of transfer (or) constructed within a period of 3 years after the date of transfer.

Where the amount of capital gains does not exceed Rs 2 crore

Where the amount of capital gains does not exceed Rs 2 crore, the assessee i.e., individual or HUF, may at his option,

  • purchase two residential houses in India within 1 year before or 2 years after the date of transfer (or)
  • construct two residential houses in India within a period of 3 years after the date of transfer.

Where during any assessment year, the assessee has exercised the option to purchase or construct two residential houses in India, he shall not be subsequently entitled to exercise the option for the same or any other assessment year.

Explanation: This implies that if an assessee has availed the option of claiming benefit of section 54 in respect of purchase of two residential houses in Jaipur and Jodhpur, say, in respect of capital gains of Rs 1.50 crores arising from transfer of residential house at Bombay in the P.Y.2019-20 then, he will not be entitled to avail the benefit of section 54 again in respect of purchase of two residential houses in, say, Pune and Baroda, in respect of capital gains of Rs 1.20 crores arising from transfer of residential house in Jaipur in the P.Y.2023-24, even though the capital gains arising on transfer of the residential house at Jaipur does not exceed Rs 2 crore.

Application in capital gains problems for claiming deduction u/s 54

Income from other sources & Incomes not forming part of total income

Interest income receivable by a non-resident from a unit located in IFSC in respect of moneys borrowed by it on or after 1.9.2019 would be exempt u/s 10(15). [Inserted]

Aggregation of income, set-off and Carry forward of Losses

Note inserted in Study Material relevant for May 2020:

Note - With effect from April 1, 2018, the long-term capital gain exceeding Rs 1,00,000 arising on sale of equity shares or units of equity-oriented fund or unit of business trust on which STT is paid

  • in respect of equity shares, both at the time of acquisition and sale and
  • in respect of units of equityoriented fund or unit of business trust, at the time of sale

is taxable under section 112A @10%. Long-term capital loss on sale of such shares/units can, therefore, be set-off and carried forward for set-off against long-term capital gains by virtue of section 70(3) and section 74.

Refer to: Question 5 and Question 9 of Practical Questions

Deductions from Gross Total Income

1. National Pension Scheme

a. Section 80CCD(2) - Deduction for Employer share of contribution to NPS:

Deduction under section 80CCD(2) is restricted to 14% of salary (instead of 10% earlier), in case of contribution made by the Central Government, and to 10% of salary, in case of contribution made by any other employer. (Earlier It was restricted to 10% of salary for both type the employees)

b. Section 10(12A)

As per the erstwhile provisions, any payment from the NPS Trust to an assessee on closure of his account or on his opting out of the pension scheme, to the extent it does not exceed 40% of the total amount payable to him at the time of such closure or on his opting out of the scheme, was exempt from tax. With a view to enable the pensioner to have more disposable funds, the exemption from 40% was increased to 60% of the total amount payable to the person at the time of closure or his opting out of the scheme

2. Section 80EEA (new section inserted)

Deduction in respect of interest payable on loan taken for acquisition of residential house property [Section 80EEA]

  1. Eligible assessee: An individual who has taken a loan for acquisition of residential house property from any financial institution. Interest payable on such loan would qualify for deduction under this section.
  2. Conditions: The conditions to be satisfied for availing this deduction are as follows -
    • Stamp Duty Value of house ≤ Rs. 45 lakhs
    • The individual should not own any residential house on the date of sanction of loan
    • Loan should be sanctioned by a Financial Institution during the P.Y.2019-20
    • The individual should not own any residential house on the date of sanction of loan
  3. Period of benefit: The benefit of deduction under this section would be available from A.Y.2020-21 and subsequent assessment years till the repayment of loan continues.
  4. Quantum of deduction: The maximum deduction allowable is Rs. 1,50,000. The deduction of up to Rs 1,50,000 under section 80EEA is over and above the deduction available under section 24(b) in respect of interest payable on loan borrowed for acquisition of a residential house property. In respect of self-occupied house property, interest deduction under section 24(b) is restricted to Rs. 2,00,000. In case of let out or deemed to be let out property, even though there is no limit under section 24(b), section 71(3A) restricts the amount of loss from house property to be set-off against any other head of income to Rs. 2,00,000. Accordingly, if interest payable in respect of acquisition of eligible house property is more than Rs. 2,00,000, the excess can be claimed as deduction under section 80EEA, subject to fulfilment of conditions.
  5. No deduction under any other provision: The interest allowed as deduction under section 80EEA will not be allowed as deduction under any other provision of the Act for the same or any other assessment year.

Refer to Illustration 12 of Study material (important); MCQ no. 5 From May 2020 RTP

3. Section 80EEB (new section inserted)

Deduction in respect of interest payable on loan taken for purchase of electric vehicle [Section 80EEB]

  1. Eligible Assessee: An individual who has taken a loan for purchase of an electric vehicle from any financial institution. Interest payable on such loan would qualify for deduction under this section.
  2. Conditions: The conditions to be satisfied for availing this deduction are as follows -
    • Loan should be taken for purchase of an electric vehicle
    • Loan should be sanctioned by a FI (bank or specified NBFCs)
    • Loan should be sanctioned during the period between 1.4.2019 and 31.3.2023
    • The assessee should be an individual
  3. Period of benefit: The benefit of deduction under this section would be available from A.Y.2020-21 and subsequent assessment years till the repayment of loan continues.
  4. Quantum of deduction: Interest payable, subject to a maximum of Rs. 1,50,000.
  5. No deduction under any other provision: The interest allowed as deduction under section 80EEB will not be allowed as deduction under any other provision of the Act for the same or any other assessment year.

Refer Illustration 12 of Study Material

Advance tax, TDS & TCS

1. Interest on securities [Section 194A]

  • The TDS (at 10%) is to be made if the amount of income by way of interest credited/ paid during the FY to the payee is more than Rs. 5000.
  • Threshold limit is Rs. 40,000 (earlier this was Rs. 10,000) and Rs. 50,000 in the case of resident senior citizen in case the interest paid on -
    • Time deposits with a banking company;
    • Time deposits with a co-operative society/ Co-operative banks engaged in banking business;
    • Deposits with post office under notified schemes

2. Rent [Section 194-I]

The threshold limit of Rs. 1,80,000 is increased to Rs. 240,000.

3. Payment on transfer of certain immovable property other than agricultural land [Section 194-IA]

Section 194-IA of the Act relates to payment on transfer of certain immovable property other than agricultural land and provides for levy of TDS at the rate of 1% on the amount of consideration paid or credited for transfer of such property. The term ‘consideration for immovable property’ was earlier not defined for the purposes of this section.

'Consideration for transfer of immovable property' include all charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property.

4. New section [Section 194M]

  • A person being an individual or HUF (in cases where tax audit is not applicable), paying any sum to a resident, for carrying out any work (including the supply of labour) under any contract or by way of fees for professional services rendered during the financial year, exceeding Rs 50,00,000 in a year will have to deduct TDS at 5%.
  • If tax audit is applicable to the individual or HUF, TDS deduction will be applicable as per Section 194C and 194J (and not section 194M).

5. New section [Section 194N] - TDS on cash withdrawals

  • Section 194N is applicable in case of cash withdrawals of more than Rs 1 crore during a financial year. This section will apply to all the sum of money or an aggregate of sums withdrawn from a particular payer in a financial year.
  • The section will apply to withdrawals made by any taxpayer including an Individual, Hindu Undivided Family (HUF), Company, partnership firm, LLP, local authority, AOP, BOI
  • The following payers are covered under this section:
    • A banking company
    • A co-operative society engaged in banking business/ co-operative bank
    • A post office
  • The tax will be deducted at 2% by the payer while making payment to any individual in cash from a taxpayer’s bank account on the amount in excess of Rs 1 crore.
  • The limit of Rs 1 crore in a financial year is with respect to per bank or post office account and not a taxpayer’s individual account. For example, a person having three bank accounts with three different banks, he can withdraw cash of Rs 1 crore * 3 = Rs 3 crores without any TDS.

Provisions for filing return of income and self-assessment

Compulsory filing of return of income [Section 139(1)]

Earlier, a person other than a company or a firm was required to furnish the return of income only if his total income exceeded the maximum amount not chargeable to tax, subject to certain exceptions. Therefore, a person entering into certain high value transactions was not necessarily required to furnish his return of income. In order to ensure that persons who enters into certain high value transactions furnishes their return of income, section 139 was amended to provide that a person shall be mandatorily required to file his return of income, if during the previous year, he:

  1. has deposited an amount or aggregate of the amounts exceeding one crore rupees in one or more current account maintained with a banking company or a co-operative bank; or
  2. has incurred expenditure of an amount or aggregate of the amounts exceeding two lakh rupees for himself or any other person for travel to a foreign country; or
  3. has incurred expenditure of an amount or aggregate of the amounts exceeding one lakh rupees towards consumption of electricity; or
  4. fulfils such other prescribed conditions, as may be prescribed.

Inter-changeability of PAN with the Aadhaar number

Every person who is required to furnish or intimate or quote his PAN may furnish or intimate or quote his Aadhar Number in lieu of the PAN w.e.f. 1.9.2019 if he has not been allotted a PAN but possesses the Aadhar number

Quoting of Aadhaar Number [Section 139AA] mandatory in returns filed on or after 1.4.2019 [Circular No. 6/2019 dated 31.03.2019]

As per section 139AA(1)(ii), with effect from 01.07.2017, every person who is eligible to obtain Aadhaar number has to quote Aadhaar number in the return of income. However, this would not apply to an individual:

  • a non-resident as per Income-tax Act, 1961;
  • not a citizen of India
  • of the age of 80 years or more at any time during the previous year;
  • residing in the States of Assam, Jammu & Kashmir and Meghalaya

Hope you will find the above helpful.

The author can also be reached at info@superradacademy.com.

Rock your May 2020 and Nov 2020 exams!!


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