UNION BUDGET 2020: KEY CHANGES | INCOME TAX ACT

union budget 2020

Hon’ble Finance Minister Nirmala Sitharaman presented union budget 2020 – 21 in parliament on 1st February 2020 around 3 prominent themes –

  1. Aspirational India,
  2. Economic Development and
  3. Caring society.

Apart from allocation of funds for different sectors such as education, railway, etc. she proposed various major amendments in Income Tax Act, 1961 and few amendments in Goods and Service tax law.

In this article, we will go through around all major amendments in Income Tax Act, 1961.

AMENDMENTS IN INCOME TAX ACT, 1961 proposes in Budget 2020

Amendments in Income Tax Act, 1961 proposed with objective of stimulate growth, simplified tax structure, easy compliance and minimum litigations. With these objectives, following changes are proposed:

1. Income Tax slabs under Budget 2020

1.1 Change in Income tax slab of Individuals/HUFs under Budget 2020

  • No changes are proposed in existing income tax slab rates applicable for Individual or HUFs, which is as follows:
Net Taxable Income Existing Rate of Income Tax
0-2,50,000* NIL
2,50,000- 5,00,000 5%
5,00,001-10,00,000 20%
10,00,001 and Above 30%

* INR 3,00,000 applicable for resident Senior Citizens (Who is more than 60 years but less than 80 years at any time during Financial year) and INR 5,00,000 applicable for super senior citizens (Who is more than 8p years at any time during Financial year)

  • A new slab of Income tax rates has been proposed for Individuals or HUFs, which is as follows:
Taxable IncomeSlab (`) Proposed rate of Income Tax
0-2,50,000 Exempt
2,50,000-5,00,000 5%
5,00,001-7,50,000 10%
7,50,001-10,00,000 15%
10,00,001-12,50,000 20%
12,50,001-15,00,000 25%
15,00,001 and Above 30%

1.2  Exemptions Not allowed under New Slab Rates in Budget 2020

A new section 115BAC has been introduced vide Finance Act, 2020, wherein option is provided to Individuals/HUFs to pay tax at new slap rates subject to following conditions:

  1. This option is available to Individuals or HUFs only;
  2. New slab rates are an option available to individuals/HUFs. They may still opt to pay tax as per existing slab rates.
  3. For the purpose of computation of taxable income as per new slabs, following exemptions or deduction will not be available:
    1. Exemption of Leave travel concession given under section 10(5);
    2. Exemption of House rent allowance under section 10(13A);
    3. Exemption of Allowances received by MPs/MLAs under section 10(17);
    4. Exemption on clubbing of income of minors given under section 10(32);
    5. Exemptions to newly established entities in Special Economic Zones under section 10AA;
    6. Standard deduction given of INR 40,000 given under section 16;
    7. Deduction of entertainment allowance given under Section 16;
    8. Deduction of interest on self occupied or vacant property given under section 24;
    9. Deduction of additional depreciation given under section 32(1)(iia);
    10. Deduction under section 32AD for Investment in new plant or machinery in notified backward areas in certain States;
    11. Deduction under section 33AB for Tea development account, coffee development account and rubber development account;
    12. Deduction under section 33ABA Site Restoration Fund.
    13. Deduction for donations or expenditure incurred on scientific research under section 35;
    14. Deduction under section 35AD for expenditure on specified business.
    15. Deduction under section 35CCC for Expenditure on agricultural extension project.
    16. Deductions for family pension under section 57(iia);
    17. Any deduction prescribed under Chapter-VIA except deductions under section 80CCD(2) and 80JJAA (like deduction available under section 80C, 80D etc.)
  • While computing taxable income under new tax rate slabs, assessee shall not allowed to set-off any carried forward losses or depreciation accumulated for any of the above mentioned deductions.
  • Losses under head House property shall not be allowed to set off against income under any other head.
  • No deduction or exemption shall be available for any allowance or perquisites given under any other law.
  • If assessee fails to comply with any of the above mentioned condition then he shall be assessed as per existing Income Tax slab.
  • If an Assessee opts for this option then he may withdraw from this option only once in any subsequent year. However, this option shall not be available to him thereafter. If assessee doesn’t have business Income then he may opt for this option.
  • Accordingly, before deciding slab for payment of income tax, you need to consider following points:
    • Tax payable under both options;
    • Complexity or authenticity of exemptions or deductions available;
    • Deductions or exemptions that may be available in future.

1.3 Change in Income tax slab of Co-operative Society under Budget 2020

  • Similar to Individuals/HUFs, an option is also provided to co-operative societies,wide section 115BAD, to pay Income tax at the rate of 22% subject to similar conditions provided for Individuals/HUFs above.
  • Following is the existing slabs for co-operative societies:
Total Income Rate of tax
0-10,000 10%
10,001-20,000 INR 1000+ 20% on income in excess of INR 10,000
20,001 and above INR 3000+ 30% on income in excess of INR 20,000

1.4 Change in Income tax slab of Companies under Budget 2020

  • Companies opting to pay tax under section 115BAA (Concessional rate of Tax on income of certain domestic companies) and 115BAB (concessional rate of Tax on income of new manufacturing domestic companies) were not eligible for deduction under chapter V1-A except Section 80JJAA. However, now deduction under 80M has also been allowed.
  • Business of generation of electricity is proposed to be qualify as manufacturing business for the purpose of Section 115BAB.

1.4 Change in provisions of determination of Residential status of an individual under Budget 2020

  • As per existing provisions, if any person resides in India for 182 days or more during any year then such person is considered as “Resident” for such year for the purpose of Income Tax Act, 1961.
  • Consequently, his income shall be subject to Income tax during such year. Such period of 182 days are proposed to reduce to 120 days with effect from 01.04.2021.
  • So, if you are frequently visiting India then please make note of this provisions as any negligence may trigger your Income tax liability in India.
  • A new provision is also provided which specifies that if a citizen of India is staying in any other country and his income is not liable to tax in such other country by the reasons of domicile or residence or any other criteria of similar nature then such person shall be consider as resident of India.
  • An individual shall be qualified as “Resident but not ordinarily resident” if he has been non-resident in India for any 7 out of 10 preceding years. (Earlier it was 9 out of 10)

2. Withdrawal of Exempted Income under section 10 in Budget 2020

  • Exemption given to UPSC Chairman and members and chief election commission and election commissioners from taxability of certain allowances has been proposed to withdraw.
  • Finance Act, 2020 has proposed to exemption interest or dividend income earned from wholly owned subsidiary or Abu Dhabi Investment Authority and Soverign wealth fund.
  • Exemption is also proposed for income accruing or arising to Strategic Petroleum Reserves Limited (ISPRL), being a wholly owned subsidiary of Oil Industry Development Board under the Ministry of Petroleum and Natural Gas, as a result of an arrangement for replenishment of crude oil stored in its storage facility in pursuance to directions of the Central Government in this behalf.

3. Taxability of employer contribution to EPF, Superannuation funds and National Pension Scheme

  • At present following are the tax implication on contribution made by employer:
    • Contribution of recoginised provident fund in excess of 12% of salary is taxable;
    • Any contribution to approved superannuation funds in excess of INR 1,50,000 is taxable as perquisite;
    • Deduction is allowed to assessee to the extent of 14% contribution to National Pension Scheme (NPS) and 10% contribution by any other employer.
  • However, there is no combined upper limit is given. Therefore, a combined upper limit of INR 7,50,000 is proposed to imposed. Accordingly, aggregate contribution in excess of INR 7,50,000 shall be subject to income tax.

4. Provisions related to Tax Audit under Income Tax Act in Budget 2020

  • As per existing provisions, a business is required to get his accounts audited under section 44AB of Income Tax Act, 1961 where gross receipts exceeds INR 1 Crore during a year. Threshold limit of audit is INR 50 Lacs for professionals.
  • To ease compliance  burden, it has been proposed to increase the threshold limit for business upto INR 5 crores subject to following conditions:
  • cash receipts during the year does not exceeds INR 5% of aggregate receipts during the year; and
  • cash payments during the year does not exceeds INR 5% of aggregate payments during the year

5. Changes in due date of furnishing of Income tax return in Budget 2020

Considering time should be given for filing return of income after filing tax audit report, due date of furnishing of income tax return in case of tax audit report is proposed to extend till 31st October.

6. Determination of cost of acquisition in certain cases under head Capital gains in Budget 2020

  • As per section  43CA (Transfer of land or building other than capital asset), 50C (transfer of land or building as capital asset) or 56(2)(x) (receipt of immovable property by one person from another), if stamp duty value of land or building is more than value of consideration, then stamp duty value shall be consider as sales consideration for the purpose of charging Income Tax. However, if value of stamp duty does not exceeds 105% of the actual consideration then actual consideration shall be taken up.
  • Such variation of 5% has been proposed to increase to 10%.
  • For the purpose of indexation of cost of acquisition of land or building purchased before 01.04.2001, assessee is available with an option to take fair market value as on 01.04.2001 or actual cost of asset as cost of acquisition.
  • Not through finance act, 2020, it is proposed that if fair market value as on 01.04.2001 should not exceed stamp duty value on such date.

7. Abolition of Dividend Distribution Tax in Budget 2020

  • As per existing provisions, any dividend distributed by the company is subject to Dividend Distribution Tax (DDT) under section 115-O at the rate of 15%. Company is liable to pay such tax.
  • However, such dividend is exempted in hands of recipients under section 10.
  • It is proposed to limit provisions of section 115-O to dividend distributed upto 31.03.2020. Accordingly, any dividend distributed after 01.04.2020 shall be taxable in hands of recipients not company.
  • Accordingly, corresponding exemption has section 10 has been withdrawn.
  • Further, section 57 has also been amended to provide deduction of 20% from dividend Income.

8. TCS on foreign remittances under section 206C

  • An authorised dealer receiving an amount or an aggregate of amounts of Seven Lakh Rupees or more in a financial year for remittance out of India under the LRS of RBI, shall be liable to collect TCS, if he receives sum in excess of said amount from a buyer being a person remitting such amount out of India, at the rate of 5%. In non-PAN/Aadhaar cases the rate shall be 10%.
  • A seller of an overseas tour program package who receives any amount from any buyer, being a person who purchases such a package, shall be liable to collect TCS at the rate of 5%. In non-PAN/ Aadhaar cases the rate shall be 10%.

 The above provisions shall apply from 1st April 2020.

For more detail read here TCS on Foreign remittances through Liberalised Remittance Scheme (LRS) and on Selling of Overseas Tour Packages @ 5%

9. Changes in provisions of TDS in Budget 2020

  • As per Section 194J, TDS @ 10% is deductible on payment made for professional service or technical service. TDS rate is proposed to reduce to 2% on payment for technical services.
  • New section 194K is proposed to introduce to deduct TDS on any payment made to resident for income in relation to Units of mutual funds or units from the Administrator of the specified undertaking or units from the specified company at the rate of 10%. However, no TDS is required if amount of such income does not exceeds INR 5,000.

10. TDS deduction by e-commerce operator in Budget 2020

  • A new provision is proposed to insert vide section 194O which provides that if any person provides services or sales goods through e-commerce operator then e-commerce shall be liable to deduct TDS @ 1% at the time of making payment to e-commerce participants.
  • If any payment is made by buyer of goods or recipient of service directly to supplier of goods or provider of service then e-commerce operator shall be liable to deduct TDS on such amount also.
  • No TDS is deductible if gross amount of sales or provision of service does not exceeds INR 5 Lacs and e-commerce participant has furnished PAN to e-commerce operator.
  • If e-commerce participant fails to furnish his PAN then e-commerce operator shall be liable to deduct TDS @ 5%.
  • No TDS is applicable under this section on payment made by e-commerce operator for hosting advertisement or providing any other service which is not connected with supply of goods or provision of service through e-commerce operator.
  • If on any transaction, TDS is deducted under this section then no other TDS shall be deducted on such transaction.
  • Benefit of reduced rate of deduction of TDS under section 194LC has been extended till 01.07.2023 from 01.07.2020. Further, TDS rate has also been reduced to 4% from 5% on the interest payable to a non-resident, in respect of monies borrowed in foreign currency from a source outside India, by way of issue of any long term bond or RDB on or after 1st April, 2020 but before 1st July, 2023 and which is listed only on a recognised stock exchange located in any IFSC.
  • Benefit of reduced rate of TDS under section 194LD has been extended till 01.07.2023 from 01.07.2020 and also concessional rate of TDS has been reduced to 4% from 5% on interest payable, on or after 1st April, 2020 but before 1st July, 2023, to a FII or QFI in respect of the investment made in municipal debt security.

11. Penalty for fake invoices issued under GST

  • If Assessee records any false entry in books of accounts or omit to record any entry in books of accounts to evade tax then he shall be pay penalty equal to the aggregate amount of such false or omitted entry.
  • Any person who cause to make such false entry or omitted entry shall also be liable to pay penalty equal to the aggregate amount of false or omitted entry.

12. Rationalization of provisions of Section 80-IAC

  • Section 80-IAC provide for 100% deduction of profit earned from eligible business by an eligible start upfor 3 consecutive years out of 7 years provided that total turnover of the business does not exceeds INR 25 Crores.
  • Finance Act, 2020 has proposed to allow deduction for 3 consecutive years out of 10 years and also turnover limit has been extended to 100 crores.

13. Other key changes in Budget 2020

  • Section 80-IBA provides for 100% deduction of profits earned from any business of developing and building affordable housing project provided approval for such project is obtained during the period of 01.06.2016 to 31.03.2020. Such period has been extended to 31.03.2021. Similarly, time limit for sanction of such loan for the purpose of deduction u/s 80EEA has been extended to 31.03.2021.
  • Procedure of granting registration to fund or trust or institution or university or other educational institution or hospital or other medical institution under section 10(23C) has been substantially changed.
  • Fresh procedure has been proposed for registration of trust under section 12A vide newly inserted section 12AB. Trusts shall be required to renew their registration after every 5 years.
  • Earlier, Assessments were made online under section 143(1) and 143(3) to improvise efficiency and for this E-assessment scheme, 2019 was notified under section 143(3A). Scope of such scheme has been extended to 144 related to Best judgment assessment.
  • To improvise efficiency, appeals with CIT(A) are also proposed to be made electronic.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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