INCOME TAX AMENDMENTS (For May and November 2019 exams)

1. Amendments relating to Income chargeable under Salaries


a. Standard Deduction [Section 16(ia)] – Standard deduction of Rs. 40,000 or the amount of the salary, whichever is less


b. Transport allowance – Exemption from transport allowance shall be made available to blind or handicapped employees only i.e., Rs. 3,200 p.m. and not to other employees


c. Gratuity Exemption u/s 10(10): For Government Employees – Fully exempt, for all other employees irrespective of whether they are covered under POGA (Payment of gratuity Act) or not, the ceiling limit is enhanced to Rs. 20 Lakhs.


d. Medical Reimbursement [Section 17(2)] – Omission of clause (v) of Section 17(2)(viii).

As a result of omission, benefit of exemption pertaining to reimbursement of medical expenditure incurred by the employee on his medical treatment or treatment of any member of his family (upto Rs. 15,000) in a private hospital shall not be available with effect from A.Y. 2019-20.


2. Presumptive Income u/s 44AE changed: Rs. 1,000 per ton in case of Heavy Goods Vehicle (exceedsb12,000 kgs weight), other vehicles remains at 7,500 pm


3. LTCG: Section 10(38) exemption removed and replaced with Section 112A special rate of tax @10% of LTCG exceeding Rs. 1 Lakh.


4. Section 54EC now covers only sale of Land and Building and not any LTCA to be invested in specified Bonds


5. Section 80D – Limit increased to 50,000 from 30,000 in case of senior citizen


6. Section 80DDB – Limit increased to 1 lakh for senior citizens, for others it remains at 40,000


7. Section 80TTB – Deduction for senior citizens removed from 80TTA and inserted in 80TTB upto 50,000 interest from FD and savings account. Accordingly TDS limit increased to 50,000 for senior citizens.


8. Amendment in Section 10(12A) and 10(12B): [Effective from A.Y. 2019-20]

Eligible Assessee: Any Assessee

Nature of Income: 40% of Total amount payable to him is exempt. Further, exemption is available in case of partial withdrawal not exceeding 25% of the contribution made by an employee.

Comments:

a. Such amount is payable at the time of closure of his account under NPS or opting out of the pension scheme referred to in Section 80CCD

b. If above amount has been received by nominee on death, then as per proviso to Sec 80CCD(3), nothing shall be taxed in the hands of nominee

Effect of Amendment: Earlier benefit if exemption u/s 10(12A) was made available to employees only. Now, it has been extended to every assessee who opts out of NPS. However, exemption for partial withdrawal is available only to an employee u/s 10(12B)

Example 1: Mr. Suresh, an employee of ECO Power Limited contributed Rs. 5,00,000 to New Pension Scheme (NPS) since few years and claimed deduction u/s 80CCD. Mr. Suresh was in need of money and therefore, planning to make partial withdrawal of Rs. 2,00,000 from the contribution made by him. Discuss taxability, if any. What would your answer be if he decided to opt put of NPS and received Rs. 11,00,000?

Would your answer be the same if Mr. Suresh is a self-employed person.

Answer:

A) Suresh is an employee


i)Partial withdrawal from NPS


Received 2 Lakhs

Exempt @25% of 5 Lakhs, ie 1.25 Lakhs

Taxable = Rs. 75,000


ii)Opting out of NPS

Received 11 Lakhs

Exempt@40% = 4.4 lakhs

Taxable = Rs. 6,60,000

B) Suresh is a self-employed person


i)Partial withdrawal from NPS

Taxable = Rs. 2,00,000

ii)Opting out of NPS

Rs. 6,60,000

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