Hon’ble Finance Minister Nirmala Sitharaman presented union budget 2020 – 21 in parliament on 1st February 2020 around 3 prominent themes –
- Aspirational
India,
- Economic
Development and
- 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:
- This option is available to Individuals or HUFs only;
- New slab rates are an option available to individuals/HUFs. They may still opt to pay tax as per existing slab rates.
- For the purpose of computation of taxable income as per new slabs, following exemptions or deduction will not be available:
- Exemption of Leave travel concession given under section 10(5);
- Exemption of House rent allowance under section 10(13A);
- Exemption of Allowances received by MPs/MLAs under section 10(17);
- Exemption on clubbing of income of minors given under section 10(32);
- Exemptions to newly established entities in Special Economic Zones under section 10AA;
- Standard deduction given of INR 40,000 given under section 16;
- Deduction of entertainment allowance given under Section 16;
- Deduction of interest on self occupied or vacant property given under section 24;
- Deduction of additional depreciation given under section 32(1)(iia);
- Deduction under section 32AD for Investment in new plant or machinery in notified backward areas in certain States;
- Deduction under section 33AB for Tea development account, coffee development account and rubber development account;
- Deduction under section 33ABA Site Restoration Fund.
- Deduction for donations or expenditure incurred on scientific research under section 35;
- Deduction under section 35AD for expenditure on specified business.
- Deduction under section 35CCC for Expenditure on agricultural extension project.
- Deductions for family pension under section 57(iia);
- 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 60days or more during any year and his aggregate stay is for 365 days or more during immediately preceding 4 years then such person is considered as “Resident” for such year for the purpose of Income Tax Act, 1961.
- However, if any person is a citizen of India or a person of Indian origin and he stays outside India and if he comes to India for visit during any previous year then such 60 days shall be considered as 182 days.
- Consequently, his income shall be liable to Income tax during the year in which he stayed in India for 182 days of more.
- However, where such person is having total income, other than Income from foreign sources, exceeding 15 lacs during any previous year then for such year 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 these 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.
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