Hon’ble Finance Minister presented the Budget for the Year 2020-2021 on 1st February, 2020. This budget was a landmark budget so far as it introduced notable amendments providing major relief across all the sectors, ranging from individuals to the corporates. Amendments were provided for both Income Tax Act and Goods and Service Tax Act and various other important statues.
All amendments introduced in this budget do become applicable with effect from 1st April, 2020 (i.e. for Previous Year 2020-2021, Assessment Year 2021-2022). However, few provisions came into effect from a different date.
We have incorporated amendments provided by Finance Act, 2020 in this article and corresponding date of its applicability. Some of the major Amendments and new sections introduced in the budget, hereby giving to the glance before describe each one:
1. GIST OF APP AMENDMENTS ALONG WITH DATE OF ITS APPLICABILITY
Now some notable changes introduced in this budget are summarized as below:
|S. No.||Section||Date of Applicability|
|1||Optional Tax rate for individuals and HUF (Applicable w.e.f. From AY 2021-22)||Applicable from AY 2021-22|
|2||Amendment of Section 194- TDS on dividend||01-04-2020|
|3||Amendment of Sec 194A, Sec 194C, Sec 194H, Sec 194J- Amendment of threshold limit for TDS deduction||01-04-2020|
|4||Introduction of Section 194K- TDS on income distributed by Mutual Funds||01-04-2020|
|5||Rescindment of Sec 115-O – Dividend Distribution Tax||01-04-2020|
|6||Introduction of Section 194N- TDS on cash withdrawal from bank account||01-07-2020|
|7||Insertion of Section 206C(1H)- TCS on sale of goods||01-10-2020|
|8||Introduction of Section 194-O- TDS on sale proceeds of e-commerce participants||01-10-2020|
|9||Section 6 – Amendment of meaning of Residence in India||01-04-2021|
|10||Amendment of Sec 43CA & 50C-Special provision for full value of consideration for transfer of assets other than capital assets in certain cases||01-04-2021|
|11||Introduction of Proviso to Section 57- Deduction from Income of Other Sources||01-04-2021|
|12||Amendment of Section 80EEA – Deduction in respect of interest on loan taken for certain house property||01-04-2021|
|13||Re-introduction of Section 80M – Deduction in respect of inter-corporate dividends||01-04-2021|
|14||Amendment of Section 115BAA and Section 115BAB||01-04-2021|
|15||Amendment of Section 115BBDA||01-04-2021|
2. INCOME TAX ACT
2.1 Optional Tax rate for individuals and HUF (Applicable w.e.f. From AY 2021-22)
In order to provide relief to the Individuals and Hindu Undivided Family (hereinafter referred to as HUF), a new Section 115BAC has been introduced in Income Tax Act, 1961. This section provides a new Income Tax Slab rate for Individual and HUFs. All individuals and HUF have the option to opt for a new slab rate with effect from Financial Year 2020-21 (Assessment Year-2021-22).
|Income Tax Limits||Current Tax rates||Optional (with effect from Previous year 2020-2021)|
|Upto Rs. 2,50,000||Nil||Nil|
|From Rs. 2,50,000 to Rs. 5,00,000||5 Percent||5 Percent|
|From Rs. 5,00,000 to Rs. 7,50,000||20 Percent||10 Per Cent|
|From Rs. 7,50,000 to Rs. 10,00,000||20 Percent||15 Percent|
|From Rs. 10,00,000 to Rs. 12,50,000||30 Percent||20 Percent|
|From Rs. 12,50,000 to Rs. 15,00,000||30 Percent||25 Percent|
|Above Rs. 15,00,000||30 Percent||30 Percent|
As per Sub-Section 5 of Section 115BAC of Income Tax Act, 1961, Individual or HUF has to opt this option in the following manner:
- An Individual or HUF, having income from business or profession, shall be required to exercise this option at the time of filing of Income Tax return from FY 2020-21 onwards.
- An Individual or HUF not having any income from business or professional, shall be required to exercise such option on or before the due date of filing of Income tax return of any Assessment commending from 1st April, 2021.
Such option once exercised by a person having income from business can be withdrawn only once and thereafter, the person shall never be eligible to exercise the option under this section. However, if in future assessment year, such person ceases to have any business income then he can avail the benefit of this section.
In a nutshell, the assessee will have to assess whether it shall be beneficial or not to opt for taxation under the new regime considering all pros and cons of this taxation regime.
2.2 Amendment of Section 194- TDS on dividend
With Finance Act, 2020, threshold limit under section 194 for deduction of TDS on dividend has been increased from INR 2500 to INR 5000.
Such amendment came into effect from 01.04.2020.
Read Here Income Tax on Dividends Income
2.3 Amendment of Sec 194A, Sec 194C, Sec 194H, Sec 194J- Amendment of threshold limit for TDS deduction
Earlier, an individual or HUF was liable to deduct TDS of another person under the aforementioned sections if gross receipts or turnover during the preceding year exceeds threshold limit mentioned for tax audit under section 44AB.
However, The limit has been changed to INR 1 Crores in case of Business and INR 50,00,000 in case of profession during the previous Preceding Year.
Such amendment came into effect from 01.04.2020.
2.4 Introduction of Section 194K- TDS on income distributed by Mutual Funds
Earlier incomes distributed in respect of units of mutual funds was not liable to TDS as same was not taxable in the hands of the recipient. However, with abolition of DDT, a new section has been introduced wherein any mutual fund distributing income to its unitholders shall deduct TDS @ 10% wherever the amount to be credited or paid exceeds INR 5000 in any particular previous year.
However, this section shall not apply where the amount distributed pertains to any Capital Gains
This section came into effect from 01.04.2020..
2.5. Rescindment of Sec 115-O- Dividend Distribution Tax
Section 115-O deals with Dividend Distribution Tax payable by the companies on dividend declared, distributed or paid by the company. However, vide Finance Act, 2020, Dividend Distribution Tax has been done away with and now dividend is taxable directly in the hands of s Shareholders and the company is liable to deduct TDS while distributing the same.
Accordingly, no DDT is payable with respect to dividend declared on or after 1st April, 2020.
2.6. Introduction of Section 194N- TDS on cash withdrawal from bank account
Section 194N has been introduced which places a liability over the banks, banking co-operative societies and Post Office paying a sum of INR 1 Crore or more in any particular year from one or more accounts to a person, then it shall be liable to deduct TDS @ 2%.
However, where the recipient has failed to file the returns of income for all of the 3 assessment years relevant to the 3 previous years, for which the time limit of filing return has expired under section 139(1). In such case, TDS shall be deducted at the rate of 2% on amounts in excess of INR 20 Lakh upto INR 1 Crores and at the rate of 5% on amounts exceeding INR 1 Crores. For this purpose, the account holder shall file the declaration to the concerned bank that specifying details of ITR filed during 3 assessment years.
This provision has come into effect from 01.07.2020.
2.7. Insertion of Section 206C(1H)- TCS on sale of goods
A new sub-section (1H) has been inserted in Section 206C of Income Tax Act, 1961. As per new sub-section (1H), every seller is required to collect TCS (“Tax Collected At source”) @ 0.1% (0.075% is applicable till 31.03.2021) from buyer of goods where aggregate consideration received from the buyer exceeds INR 50 Lacs during the year. TCS should be collected on amount received over and above INR 50 lacs.
This provision is applicable to sellers whose gross receipts or sales during the preceding year exceeds INR 10 Crores.
Provision of Section 206C(1H) has become applicable with effect from 01.10.2020. Therefore, all receipts on or after 01.10.2020 in excess of INR 50 Lacs shall attract TCS @ 0.1%.
2.8. Introduction of Section 194-O- TDS on sale proceeds of e-commerce participants
This Section is applicable on payment of amounts by e-Commerce operators to e-Commerce participants.
When an e-Commerce participant sells goods or provides services through any e-commerce platform through its digital or electronic facility or platform, then, such e-commerce operator shall at the time of payment of sales consideration to such e-commerce participant deduct income-tax at the rate of 1% (0.75% is applicable till 31.03.2021) of the gross amount of such sales or services or both.
However, no deduction shall be made in case of Individual or HUF if value of sale of Goods or Services does not exceed INR 5,00,000 and such person has furnished his Permanent Account Number or Aadhar number to e-Commerce operator.
Amendment came into effect from 1st october 2020.
2.9 Amendment of meaning of Residence in India (Section 6)
2.9.1 Amendment in stay period to determine residential status in India
A person shall be considered as resident in India if:
- he stays in India for a period of 182 days or more during relevant previous year; or
- his stay during relevant previous year is 60 days or more and stays for 365 days or more during 4 years immediately preceding the relevant previous year
However, as per clause No. b of Explanation-1 to Section 6(1), in case of a person of Indian origin or citizen of India, who stays outside India and comes to India for visit in any previous year then a period of 60 days shall be substituted for 182 days.
However, vide finance Act, 2020, for the purpose of explanation, the period of 182 days has been reduced to 120 days in those cases where Income from sources other than Foreign sources was exceeding 15 Lacs during previous year.
Provision of this section becomes applicable from 01.04.2021.
2.9.2 Taxability of Income of Indian Citizens (Introduction of Section 6(1A))
As per Section 6(1A), introduced via Finance Act, 2020, any person who is a citizen of India and is not liable to tax in any other country or territory by reason of his domicile or residence, then such person shall be deemed as resident of India under Income Tax Act. Accordingly, he shall be liable to pay Income tax on his Global Income as per the relevant provisions of the Act. However, this provision shall apply only if his total income, other than Income from foreign Sources, is exceeding INR 15 lacs during the previous year.
This subsection shall come into effect from 01.04.2021.
2.9.3 Amendment in determining resident but not ordinary resident status (Section 6(6))
As per section 6(6) of Income Tax, 1961, if a person is non-resident during 9 out of 10 previous years immediately preceding the relevant previous year then he shall be considered as “Resident but Not Ordinary Resident”. This period was proposed to be reduced from 9 years to 7 years vide finance Act, 2020..
However, such an amendment was not approved and therefore, provisions of Section 6(6) continue to remain the same.
2.10 Amendment of Sec 43CA & 50C-Special provision for full value of consideration for transfer of assets other than capital assets in certain cases
Section 43CA deals with scenarios where consideration received for transfer of land or building, other than capital asset, is less than value adopted for stamp duty valuation. Similarly, Section 50C deals when land and building is transferred as capital asset. As per provisions of both sections, in such case, value assessed by stamp duty authority is considered as a sales consideration for Income Tax Act. However, if the value assessed by stamp duty authority does not exceed 105% of sales consideration then actual consideration shall be considered as sales consideration.
However, 5% of variation has been amended vide Finance Act, 2020 wherein relaxation of 5% has been increased to 10% giving benefit to the assessee.
For e.g. earlier the assessee had sold the land or building or both as Stock in Trade for Rs. 9.40 Lakh whereas the Stamp Duty Value of the property was Rs. 10 Lakh, then prior to Finance Act, 2020, if the assessee held the asset as stock in trade, then he was liable to tax on deemed sale value of Rs. 10 Lakh. Whereas after Finance Act, 2020, the Sale consideration shall be deemed to be Rs. 9.40 Lakhs only.
Amendment shall be effective from 01.04.2021.
2.11 Introduction of Proviso to Section 57-Deduction from Income of Other Sources
Under Section 57, a new Proviso has been inserted which states that no deduction of any expenditure shall be allowed from:
- dividend income, or
- Income from Mutual Fund specified under Section 10(23D), or
- Income from units from a specified company defined in the Explanation to Section 10(35)
Deduction shall be allowed only with respect to interest expenditure provided that amount of deduction shall not exceed 25% of such income.
Such provision shall come into effect from 01.04.2021.
2.12 Amendment of Section 80EEA-Deduction in respect of interest on loan taken for certain house property
Section 80EEA provides for Deduction in respect of interest on loan taken for certain house property.
Earlier, when this section was introduced, it was stipulated that the loan should have been sanctioned by the financial institution during the period beginning on the 1st day of April, 2019 and ending on the 31st day of March, 2020.
Now, the time limit has been relaxed and now the loan can be taken up till 31st Day of March, 2021 in order to boost the Real Estate Sector of the country.
Amendment shall become applicable from 01.04.2021.
2.13 Re-introduction of Section 80M- Deduction in respect of inter-corporate dividends
Section 80M has been reintroduced vide Finance Act, 2020. When a domestic company receives any dividend Income from another domestic company. Deduction shall be allowed of so much of the amount by way of dividends received from such other domestic company or foreign company or business trust as does not exceed the amount of dividend distributed by it on or before the due date.
Provisions of this section shall come into effect from 01.04.2021.
2.14 Amendment of Section 115BAA and Section 115BAB
Before this amendment, a company could opt for special tax rate of 22% (or 25% in case of manufacturing companies) only if they agree to forego the deductions under the provisions of Chapter VI-A under the heading C, i.e. Deductions in respect of certain incomes other than the provisions of section 80JJAA.
Now, this has been amended to widen the scope and allow the companies to avail the deduction under section 80M, i.e. deduction in respect of dividends, while enjoying the benefits of these sections.
This amendment came into effect from 01.04.2021.
2.15 Dividend Distribution Tax Abolished | Amendment of Section 115BBDA
At the time of applicability of Dividend Distribution Tax (“DDT”), Dividend income was not taxable in the hands of the recipient of dividend. However, as per Section 115BBDA, If dividend Income of any person exceeds INR 10 lacs then on such dividend income Income tax was payable @ 10%.
However, with abolishment of DDT through Finance Act, 2020, now dividend income is taxable in hands of the recipient itself. Therefore, section 115BBDA shall not be applicable for dividend declared on or after 31st March, 2020.
This section came into effect from 01.04.2021.