By Swatantra Sethi (@swatsethi)

Amendments to the Income-tax Act, 1961 by the Finance Act, 2018 affecting Resident Individuals are summarised hereunder. These amendments are effective from assessment year 2019-20 (financial year 2018-19 beginning on 1st April, 2018) unless otherwise specified.

Cess on income-tax

As per Finance Act, 2018 from the assessment year 2019-20 the “education cess” and “secondary and higher education cess” chargeable at 2% and at 1% respectively of the amount of income-tax and surcharge has been substituted by “health and education cess” at 4% of the amount of income-tax and surcharge.

Standard deduction to salaried individuals

For salaried assessees, standard deduction of Rs. 40,000 or the amount of salary whichever is lower, shall be admissible. However, following exemptions shall not be admissible from AY 2019-20.

  1. exemption of reimbursement of medical expenses to the extent of Rs. 15,000 per annum; and
  2. exemption of transport allowance for commuting between the place of residence to the place of duty to the extent of Rs. 1,600 per month.

Computation of capital gains in certain cases

  1. For computation of capital gains in respect of immovable property, where the stamp duty value does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall be deemed to be the full value of consideration.
  2. Where the capital gain arises from the transfer of an asset which was converted into capital asset from inventory of a business, the cost of acquisition of such asset shall be deemed to be fair market value which had been taken into account for the purpose of such conversion.

Tax on Long Term Capital Gains (LTCG) from listed securities

Long term capital gains (LTCG) exceeding one lakh rupees in a previous year and arising from a long term capital asset being equity share, unit of a mutual fund or unit of a business trust which is listed on a recognised stock exchange on the date of its transfer shall be charged to income-tax at a special rate of ten per cent under section 112A. Capital gains on transfer of aforesaid securities are taxable under section 112A if the following conditions are fulfilled:

  1. in case of equity shares, securities transaction tax (STT) has been paid on acquisition and transfer of such shares; and
  2. in case of units of an equity oriented fund or units of a business trust, STT has been paid on transfer of such units.

However, the aforesaid condition of payment of STT shall not apply in respect of long term capital gains arising from aforesaid transactions undertaken in foreign currency on a recognised stock exchange located in an International Financial Services Centre (IFSC).

Other conditions and provisions with respect to taxation of LTCG on listed securities are as under:

  1. No deduction under Chapter VI-A of the Income-tax Act, 1961 (Sections 80C to 80U) would be allowed from long term capital gains taxable under section 112A. For computing deductions under Chapter VI-A, long term capital gains shall be excluded from the gross total income.
  2. If the total income from all sources (including LTCG under section 112A) after allowing deduction under Chapter VI-A is less than the maximum amount not chargeable to tax, no tax would be payable on LTCG chargeable to tax under section 112A.
  3. If the total income from all sources (including LTCG under section 112A) after allowing deduction under Chapter VI-A exceeds maximum amount not chargeable to tax, but the excess is less than the amount of LTCG under section 112A, then only the amount of LTCG which exceeds maximum amount not chargeable to tax would be taxed at 10% under this section. No benefit of lower rate of tax would be available in such case though the total income falls in a slab chargeable to tax at a lower rate.
  4. For computation of rebate under section 87A tax payable on such capital gains shall not be considered.

For example, total income of an individual is Rs. 5,00,000 which comprises of taxable long term capital gains amounting to Rs. 3,50,000 and income from other sources taxable at normal rates amounting to Rs, 1,50,000. Deductions admissible under Chapter VI-A comprise of Rs. 1,50,000 under section 80C, Rs. 20,000 under section 80D and Rs. 5,000 under section 80G. As per the provisions of the Income-tax Act, total amount of Rs. 1,75,000 is admissible as deduction under Chapter VI-A.  However, in this case maximum amount which can be claimed as deduction is restrictedRs. 1,50,000  being amount of income excluding capital gains as no deduction shall be admissible from long term capital gains of Rs. 3,50,000.

After said deduction total income is Rs. 3,50,000, which is chargeable to tax. Income-tax will be calculated on amount of income in excess of basic exemption limit at 10 per cent. In this case tax shall be payable on Rs.1,00,000 at the rate of 10 per cent, i.e., at special rate and not at the rate of 5 per cent at normal rate applicable to the slab. Moreover, no rebate under section 87A shall be admissible.

Specific provisions for ascertainment of cost of acquisition of such securities which were acquired before 1st February, 2018 have been inserted so that gains accrued on such securities upto 31st January, 2018 are not taxed. In respect of such securities the cost of acquisition for computation of capital gains shall be ascertained as under:

  1. Ascertain fair market value of the securities on 31st January, 2018.
  2. Ascertain full value of consideration received or accruing as a result of transfer of the securities.

Lower of amount ascertained at (1) or (2) above shall be the cost of acquisition, where actual cost of acquisition is less than the lower amount so ascertained. However, if actual cost of acquisition is more than the lower amount so ascertained, then actual cost of acquisition shall be taken as cost of acquisition for computing LTCG.

Fair market value for above computation means:

  1. Where the security is listed on a recognised stock exchange on 31st January, 2018, fair market value shall be the highest price of the security quoted on such exchange on 31st January, 2018.
  2. Where the security is listed on a recognised stock exchange on 31st January, 2018 but no trading happened of such security on 31st January, 2018 on such exchange, the highest price of such security on such exchange on a date immediately preceding the 31st January, 2018 when such security was traded on such exchange shall be the fair market value.
  3. In case security is a unit which is not listed on a recognised stock exchange on 31st January, 2018 the net asset value of such unit on the said date shall be the fair market value.
  4. In case the security is an equity share in a company which is
    • not listed on a recognised stock exchange as on 31st January, 2018 but listed on such exchange on the date of transfer;
    • listed on a recognised stock exchange on the date of transfer and which became the property of the assessee in consideration of share which was not listed on such exchange as on 31st January, 2018 by way of transaction not regarded as transfer under section 47;

the fair market value shall be the amount which bears to the cost of acquisition the same proportion as cost inflation index for the financial year 2017-18 bears to the cost inflation index for the first year in which the security was held by the assessee or for the year beginning on 1st April, 2001, whichever is later.  For example, where equity share is acquired in financial year 2009-10 for Rs. 100 per share, its fair market value of 31st January, 2018 shall be as under:

Cost inflation index for 2009-10 is 148

Cost inflation index for 2017-18 is  272

Fair Market value of equity share on 31st January, 2018 – (100*272/148 = 184.46)

Deduction from LTCG on investment in specified bonds

Deduction under section 54EC from LTCG shall now be available only in respect of transfer of land or building or both. Earlier the deduction was admissible against long term capital gains from any type of capital asset. The deduction is available on investment in Capital Gains Bonds issued by NHAI and REC. Earlier the tenure and lock in period of such bonds was three years which has been increased to five years in respect of investments made on or after 1st April, 2018.

Transfer of immovable property for inadequate consideration

Where an immovable property is transferred and the amount of consideration is less than the stamp duty value of the property, such transfer is said to be for inadequate consideration. When transfer is for inadequate consideration, entire amount of excess of stamp duty value over consideration shall be taxed, if such excess is more than the higher of the following amounts:

  1. the amount of fifty thousand rupees; and
  2. the amount equal to five per cent of consideration.

The amount shall be taxed in the hands of the transferee under the head “Income from other sources”. However, such transfers from specified relatives shall not be taxable.

For example :

Consideration amount is Rs. 9 lakhs

Stamp duty value Rs. 9.48 lakhs

The excess of stamp duty value over consideration though more than five per cent of consideration amount does not exceed Rs. 50,000. Therefore, the excess will be ignored and no amount will be taxable in the hands of the transferee under the head “Income from other Sources”.

Now, if in the above example stamp duty value is Rs. 9.55 lacs. The excess of stamp duty value over consideration will be more than five per cent as well as Rs. 50, 000. Therefore, the entire amount of excess of stamp duty value over consideration amounting to Rs. 55,000 shall be taxable in the hands of transferee as “Income from other Sources”.

Amount received from NPS

Any amount received from the National Pension System Trust by an assessee other than an employee, under the pension scheme referred to in section 80CCD, on closure of his account or on his opting out of the pension scheme shall not be included in his total income to the extent of forty per cent of the total amount payable to him at the time of such closure or his opting out of the scheme. Earlier up to assessment year 2018-19 this exemption is available only to employees. From assessment year 2019-20 this exemption shall be available to all the assessees.

Deduction in respect of health insurance premium – section 80D

Provisions with respect to deduction admissible under section 80D have been amended and provisions applicable from AY 2019-20 vis-a-vis provisions applicable for AY 2018-19 are summed up as under:

Maximum Deduction Admissible

(In Rupees)

AY 2018-19 AY 2019-20
A Expenses in respect of self, spouse and dependent children:
(i) Health insurance premium 25,000 25,000
(ii) Health insurance premium where senior citizen is covered under the policy 30,000 50,000
(iii) Contribution to Central Government Health Scheme or any other notified scheme 25,000 25,000
(iv) Aggregate expenses on preventive health check up 5,000 5,000
(v) Medical expenditure for a very senior citizen who is not covered under health insurance 30,000 50,000
(vi) Medical expenditure for a senior citizen who is not covered under health insurance Nil 50,000
Aggregate total deduction:

a         Where no expenditure is incurred under items (ii) and/or (v) and/or (vi)

b        Where expenditure is incurred under items (ii) and/or (v) and/or (vi)

 

25,000

 

 

25,000

 

30,000 50,000
B Expenses in respect of Parents:
(i) Health insurance premium 25,000 25,000
(ii) Health insurance premium where senior citizen is covered under the policy 30,000 50,000
(iii) Aggregate expenses on preventive health check up 5,000 5,000
(iv) Medical expenditure for a very senior citizen who is not covered under health insurance 30,000 50,000
(v) Medical expenditure for a senior citizen who is not covered under health insurance Nil 50,000
Aggregate total deduction:

a         Where no expenditure is incurred under items (ii) and/or (iv) and/or (v)

b        Where expenditure is incurred under items (ii) and/or (iv) and/or (v)

 

25,000

 

 

25,000

 

30,000  

50,000

 

Senior citizen means an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year. Very senior citizen means an individual resident in India who is of the age of eighty years or more at any time during the relevant previous year.

Health insurance cover extending over more than one year

Sub-section 4A of section 80D has been introduced by the Finance Act, 2018 to allow deduction of health insurance premium paid on a policy extending over for more than one previous year. Such deduction shall be allowed during all the relevant  previous years in which the policy is effective. The deduction admissible for each relevant previous year shall be equal to the appropriate fraction of the amount paid. “Appropriate fraction” means the fraction the numerator of which is one and the denominator of which is the total number of relevant previous years. “Relevant previous year” means the previous year beginning with the previous year in which such amount is paid and the subsequent previous year or years during which the insurance shall have effect or be in force.

For example Mr. X pays health insurance premium amounting to Rs. 100,000 to cover a period of five previous years, viz., PY 2018-19, PY 2019-20, PY 2020-21, PY 2021-22 and PY 2022-23. Mr. X shall be allowed a deduction of Rs. 20,000 for each of these previous years.

Deduction in respect of medical treatment of specified disease or ailment

Provisions with respect to deduction admissible under section 80DDB in respect of medical treatment of specified disease or ailment have been amended and provisions applicable from AY 2019-20 vis-a-vis provisions applicable for AY 2018-19 can be summed up as under:

Maximum Deduction Admissible

(In Rupees)

AY 2018-19 AY 2019-20
1 Amount spent in respect of person undergoing medical treatment who is not a senior citizen 40,000 40,000
2 Amount spent in respect of person undergoing medical treatment who is a senior citizen 60,000 1,00,000
3 Amount spent in respect of person undergoing medical treatment who is a very senior citizen 80,000 1,00,000

Deduction admissible to senior citizens in respect of interest on deposits

In terms of provisions of section 80TTB inserted by the Finance Act, 2018, deduction shall be allowed from gross total income of the individual assessee who is a senior citizen for amount not exceeding in the aggregate fifty thousand rupees where the gross total income of the assessee includes any income by way of interest on deposits with

  1. a banking company including regional rural banks;
  2. a co-operative society engaged in carrying on the business of banking including a co-operative land mortgage bank or a co-operative land development bank; or
  3. a Post Office.

Unlike section 80TTA this section covers interest on savings as well as time deposits. However, no deduction shall be admissible to senior citizens under section 80TTA.

Income of transporters under presumptive taxation scheme

Minimum income of transporters under presumptive taxation scheme in terms of section 44AE shall be presumed as under:

  1. in case of a heavy goods vehicle an amount equal to one thousand rupees per ton of gross vehicle weight or unladen weight, as the case may be, for every month or part of a month during which the heavy goods vehicle is owned by the assessee during the previous year.
  2. In case of other than heavy goods vehicles an amount equal to seven thousand five hundred rupees for every month or a part of a month during which the goods carriage is owned by the assessee in the previous year.

Earlier, minimum income presumed was seven thousand five hundred rupees for every month or a part of a month during which the goods carriage was owned by the assessee in the previous year.

[Second Edition of the book “Self Preparation and Filing of Income Tax Returns by Individuals” incorporating amendments as per Finance Act, 2018 and new requirements for  filing income-tax returns for assessment year 2018-19  will be released shortly after Income-tax Return Forms are notified.]