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2020

Key Highlights of Union Budget for Financial Year 2020-21

Key Highlights of Union Budget for Financial Year 2020 21

Finance Minister Nirmala Sitharaman presented the Budget for the Financial Year 2020-21 on 1st February 2020. The Budget has especially brought cheers for middleclass people in the form of Income Tax slab rate cuts as well as increase in insurance cover for deposits. Let us discuss the key points of the budget.

Revision in Income Tax Slab Rates for Individual and HUF:

  • A new Section 115BAC has been proposed to be inserted to provide an alternative to Individuals and HUFs to pay tax at lower rates.
  • Option under this scheme can be exercised by every individual or the HUF.
  • However, an individual and HUF having business income, the option once exercised for a previous year shall be valid for that previous year and for all subsequent years.
  • The income under this scheme shall be computed without claiming any deduction under Chapter VI-A (except Sections 80CCD or 80JJAA) or Section 24 or exemptions.

Refer to below table for the new tax rates:

SLAB TAX RATE
From Up To Existing Scheme New Scheme
Re. 0 Rs. 2,50,000 0 0
Rs. 2,50,001 Rs. 5,00,000 5% 5%
Rs. 5,00,001 Rs. 7,50,000 20% 10%
Rs. 7,50,001 Rs. 10,00,000 20% 15%
Rs. 10,00,001 Rs. 12,50,000 30% 20%
Rs. 12,50,001 Rs. 15,00,000 30% 25%
Rs. 15,00,001 No Limit 30% 30%

Concessional Tax Rates for Co-operative Societies:

  • A new section 115BAD has been proposed to be inserted to provide an option to the co-operative societies to pay tax at the rate of 22% plus 10% surcharge and 4% cess.
  • The income of such societies shall be computed without claiming specified exemption, deduction or incentive available under the Act. Provisions of Alternate Minimum Tax (AMT) shall not apply to such co-operative societies.

Non-Availability of Certain Deductions to Domestic Companies:

  • The Finance Bill, 2020 proposes that companies opting for the concessional rates in accordance with section 115BAA and section 115BAB shall not be allowed a deduction under any provisions of Chapter VI-A other than section 80JJAA or section 80M.
  • Section 115BAB shall include within its ambit the companies engaged in the business of generation of electricity.

Abolition of Dividend Distribution Tax (DDT):

  • Dividend from the domestic company or income from units of a mutual fund shall be taxable in the hands of shareholders or unit holders at the applicable rate and the domestic company or mutual funds shall not be required to pay any distribution tax.
  • However, taxes shall be deducted from the payment of dividend or income of units, as the case may be.

Increase in Threshold Limit for Tax Audit:

  • The threshold limit for getting the accounts audited is proposed to be increased from Rs. 1 crore to Rs. 5 crores provided cash receipt or payment does not exceed 5% of total receipt or payment, as the case may be.

Extension in Return Filing Due Date:

  • The due date for filing of return by the companies and the persons who are required to get their accounts audited has been extended from September 30 to October 31 of the Assessment Year.

Relaxations in TDS Deduction under Certain Sections:

Section 194J:

  • Tax under Section 194J in case of fees for technical services (other than professional services) shall be proposed to be deducted at the rate of 2% (previously it was 10%).
  • The TDS rate in other cases including fees for professional services shall remain same.

Section 194LC:

  • Section 194LC of the Act provides for a concessional deduction of tax at 5% by a specified company or a business trust, on interest paid to non-residents.
  • The period of said concession deduction has been proposed to be extended up to 1st July 2023 from current 1st July 2020.
  • Further, the rate of TDS been reduced to 4% on interest payment against borrowings through issues of long-term bonds and RDB which are listed only on a recognised stock exchange in any IFSC.

Section 194LD:

  • Section 194LD of the Act provides for lower TDS of 5% in case of interest payments to Foreign Institutional Investors (FII) and Qualified Foreign Investors (QFIs) on their investment in Government securities and Rupee Denominated Bonds of an Indian company.
  • It has been proposed to extend the period of concessional TDS of 5% to 1st July 2023 from existing 1st July 2020.
  • Further, the concessional rate of TDS of 5% under the said section shall also apply on the interest payable to an FII or QFI in respect of the investment made in municipal debt security.


No Withholding of Tax at the Time of ESOP’s Allotment to the Employee:

Deduction of tax from perquisite arising on the allotment of shares, under ESOP to an employee of a Start-up, shall be proposed to be made at the time of happening of any of the following events:

1. On expiry of 4 year from the end of the Assessment year in which ESOP are exercised;
OR
2. At the time the employee leaves the organization;
OR
3. At the time of sale of shares allotted under ESOP.

TDS on Interest by Certain Co-operative Society:

  • The Finance Bill proposed that a co-operative society having gross receipts or turnover exceeding Rs.50 crore in the previous financial year is also required to deduct tax from interest if it exceeds Rs. 50,000 in case of a senior citizen and Rs. 40,000 in other cases.

TDS on E-commerce Transaction:

  • In order to widen and deepen the tax net by bringing participants of e-commerce within tax net, the Finance Bill has proposed that E-commerce operator shall deduct tax at the rate of 1% from sale done by the participant thought their platforms.

Scope of TCS widened:

  • The scope of TCS is proposed to be extended to overseas remittance, sale of overseas tour package and sale of goods.

Amendment in the Definition of ‘Work’ under section 194C:

  • Section 194C provides for deduction of tax from payment to a resident person for carrying out any “work”.
  • The definition of work has been proposed to be amended to provide that if any product is supplied or manufactured according to requirements of the customer, it shall fall under the category of ‘work’ even if raw material is supplied by the associated enterprise of such customer.

Fair Market Value of Property purchased before 1st April 2001:

  • If the land or building is purchased before 1st April 2001, the fair market value as on that date can be taken as cost of acquisition of such property as per existing provisions of the Act.
  • It has been proposed that such fair market value can’t exceed the stamp duty value of the property as on 1st April 2001.


Safe Harbor of 5% increased to 10%:

  • Safe harbor limit of 5% under Section 43CA, 50C and 56 has been extended to 10%.
  • These provisions shall not apply if the stamp duty value of an immovable property does not exceed 10% of the consideration or Rs. 50,000, whichever is higher.

Penalty for Fake Invoices:

  • To curb the practice of obtaining fake GST invoices so as to claim the input tax credit, a new section 271AAD has been proposed to be inserted to levy a penalty of an amount equal to the aggregate amount of such fake invoices.

Rationalization of Provisions of Section 35AD:

  • An assessee, who is engaged in the specified business, is allowed to claim deduction of capital expenditure under section 35AD.
  • At present, an assessee does not have any option of not availing the incentive under the said section.
  • The Finance Bill has proposed to make deduction under section 35AD optional.

Important Changes in Residential Status related Provisions:

  • It is proposed that irrespective of the residential status, an Indian Citizen shall be taxed in India as if he were a resident in the previous year if he is not taxed in any other country by reason of his domicile or residence.

Indian Citizens/ PIO stay in India restricted to 120 days instead of 182 days:

  • One of the conditions, to check the residential status of an individual in India, is that his period of stay in India should be more than 60 days. However, in case of an Indian Citizen or a person of Indian origin, the Income-tax Act provides relaxation of up to 182 days for residency check.
  • To curb the misuse of the said relaxation, the exception provided for Indian Citizen or a person of Indian origin, in clause (b) of Explanation 1 of section 6(1) is proposed to be decreased to 120 days from existing 182 days.

Non-Ordinarily Resident Redefined:

A person is said to be “not ordinarily resident” in India in any previous year, if such person is:

a) an individual who has been a non-resident in India in 7 out of the 10 previous years preceding that year;
or
b) An HUF whose manager has been a non-resident in India in seven out of the ten previous years preceding that year.


Non-Residents not to File ITR in respect of income from Royalty and FTS:

  • Exemption to file a return of income has been proposed to be extended to the non- residents earning income from Royalty and FTS provided taxes have been withheld from payment of such income.

Deduction in respect of Affording Housing Project:

  • Section 80EEA was introduced vide Finance (No. 2) Act 2019 to provide a deduction for the interest on loan taken to buy an affordable residential house property.
  • One of the conditions to claim this deduction is that loan should be sanctioned by the financial institution during the period from 01-04-2019 to 31-03-2020.
  • The period of sanctioning of loan by the financial institution is proposed to be extended to 31-03-2021.
  • Similarly, amendment has also been proposed to be made in section 80-IBA to extend the time limit for approval of affordable housing project.
  • The period of approval of the project by the competent authority is proposed to be extended to 31st March 2021 from 31st March 2020.

Deduction to Start-Ups:

  • Certain deductions are granted to start-ups u/s 80-IAC. The Budget proposes to amend aforesaid section to provide relief in conditions in availing such deductions.
  • Deduction shall be available to the eligible start-ups for a period of 3 consecutive assessment years out of 10 years. Earlier, this deduction was available for 3 consecutive financial years out of first 7 years.
  • Further, the turnover limit for claiming such exemption has been proposed to be raised to Rs. 100 crore from Rs. 25 crore.

Reporting requirements on receipt of Donation:

  • Entities receiving donation shall be required to file a statement of the donation received.
  • A certificate of receipt of donation must also be issued to the donor.
  • Section 80G is proposed to be amended to provide that the mechanism shall be similar to TDS/TCS.

Withdrawal of Exemption for Certain Bureaucrats:

  • Various exemptions in respect of certain perquisites or allowances are proposed to be withdrawn in respect of following assessees:
    • Chairman and Members of Union Pubic Services Commission (UPSC);
    • Chief Election Commissioner (CEC);
    • Election Commissioners.
  • Aforesaid allowances and perquisites are provided under section 10(45) of the Income-tax Act and Section 8 of the Election Commission (Conditions of Service of Election Commissioners and Transaction of Business) Act, 1991.


Exemption to a Wholly-Owned Subsidiary of ADIA and Sovereign Wealth Fund:

  • A new clause is proposed to be inserted in Section 10 of the Income-tax Act to provide an exemption to a wholly-owned subsidiary of the Abu Dhabi Investment Authority (ADIA), which is a resident of the United Arab Emirates (UAE) and which makes investment, directly or indirectly, out of the fund owned by the Government of the United Arab Emirates and a sovereign wealth fund.

Exemption to ISPRL:

  • A new clause is proposed to be inserted in section 10 to provide an exemption in respect of income accruing or arising to Indian Strategic Petroleum Reserves Limited (ISPRL), being a wholly-owned subsidiary of Oil Industry Development Board under the Ministry of Petroleum and Natural Gas.

Insolvency Professionals can act as “Authorized Representative”:

  • Section 288 is proposed to be amended to provide that Insolvency Professional can appear before any Income-tax Authority or the Appellate Tribunal on behalf of an assessee as its “authorized representative”.

Other Important Announcement of Budget 2020-21:

Increase in Deposit Insurance:

  • The insurance cover for each depositor will be increased from Rs 1 lakh to Rs 5 lakh.
  • Deposit insurance is a protection cover against losses on bank deposits if a bank fails financially and has no money to pay its depositors.
  • The deposit insurance scheme covers all banks operating in the country, including private sector, co-operative and branches of foreign banks in India.
  • The scheme insures all categories of bank deposits, including savings, fixed and recurring deposits, and the deposits are insured by Deposit Insurance and Credit Guarantee Corporation (DICGC), which is a subsidiary of Reserve Bank of India.
  • All deposits maintained by a depositor across all branches of a failed bank are clubbed together for the purpose for availing of the deposit insurance scheme.

Excise Duty Hike:

Excise duty has been raised on cigarettes, tobacco products by way of National Calamity Contingent Duty.

Customs duty Hiked on Certain Imports:

  • Finance Minister announced increase in customs duty on imported footwear and furniture.
  • She also imposed Health Cess on import of medical equipment.

 

Read Budget 2019-20 here

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