The Indian Finance Minister Smt. Nirmala Sitharaman presented comprehensive budget before the Parliament on 1st February, 2020 to address multi-dimentional issues facing the economy. The Indian Government has taken a number of steps in the recent past & in this budget to achieve its objective of providing ease of doing business in India & proceed towards better tax compliant society.
We have prepared a note focusing on some of Direct tax proposals. The same is attached herewith.
1. Tax Rates
The tax rates and Income slabs under the Income Tax Act, 1961 remains the same, other than following proposed changes.
i. Companies:
Domestic companies continue to be taxed at 15% / 22% / 25% / 30% depending on factors like nature of business, commencement of operations, turnover in FY 2018-19, choice of claiming certain exemption etc.
Section 115BAA: It has been inserted on 20th Sep 2019 to give benefit of reduced corporate tax rate for domestic companies.
It states that domestic companies have the option to pay tax at a rate of 22% from FY 2019-20 (AY 2020-21) on wards if such companies adhere to certain conditions specified.
Section 115BAB: It has been inserted on 20th Sep 2019 to give benefit to manufacturing domestic companies.
It states that domestic companies set up and registered on or after 01st October 2019 and has commenced manufacturing on or before 31st March 2023.
Tax rate applicable would be 15% subject to satisfaction of condition attached with the section.
In Budget 2020, Benefit of section 115 BAB is expanded to include the companies engaged in the business of generation of electricity.
ii. Partnership firm and LLP:
No Change. It continues to be taxes at 30%.
iii. Individual & HUF:
Tax rates remain unchanged. However the finance bill proposes to provide these taxpayers an option to pay tax as per specified lower tax slab as mentioned under provided they forego their claim of certain prescribed exemption and deductions.
| Total Income | Existing | Proposed (Option) |
| 0-2,50,000 | Nil | Nil |
| 2,50,001 to 5,00,000 | 5% | 5% |
| 5,00,001 to 7,50,000 | 20% | 10% |
| 7,50,001 to 10,00,000 | 15% | |
| 10,00,001 to 12,50,000 | 30% | 20% |
| 12,50,001 to 15,00,000 | 25% | |
| More than 15,00,000 | 30% |
There is no change in surcharge and education cess.
iv. Co-operative societies:
The bill proposes to provide an option to resident co-operative societies to pay tax at a lower rate of 22% upon fulfillment of prescribed conditions as compared to the current maximum slab rate of 30%.
2. Dividend distribution tax (DDT)
Currently, dividends distributed by company are subject to dividend distribution tax at an effective rate of 20.56%. Under the proposed regime it has been abolished and dividend will be taxable in the hands of shareholder at the applicable tax rates.
However, Company would be required to deduct tax at source at the rate of 10%.
3. TDS (Tax deduction at source) & TCS (Tax collection at source)
1. Fees for technical services shall be subject to 2% TDS under section 194J (Previously it was 10%) TDS rate in other cases including fees for professional services shall remain same.
2. The bill proposes to insert a new section (194-O) in the IT Act to levy TDS at the rate of 1% on th gross amount paid by ‘E-commerce operator’ to the ‘E-commerce participant’.
- Where E-commerce participant is Individual or HUF, the new TDS levy shall not apply if (i) the aggregate amount receivable by the E-commerce participant does not exceed INR 0.5 million and E-commerce participant has furnished PAN or Aadhaar number to E-commerce operator.
- When E-commerce participant doesn’t furnish PAN, the minimum rate of TDS shall be 5%.
3. Amendment in the definition of work under section 194C. The bill proposes to amend the scope of work to include contract manufacturing arrangement where the contract manufacturer does not purchase material from customer but from specified related party of such customer. Accordingly tax would be deducted where a contract manufacturer purchases material from a specified related party of the customer and sells the finishes product to the customer.
4. The scope of TCS is proposed to be extended to overseas remittance, sale of overseas tour package and sale of goods.
4. Tax audit & Revised due dates of filling
1. Currently IT Act mandates filling of Tax audit report in cases where business receipts exceeds INR 1 crore. The bill proposes to increase the aforesaid threshold to INR 5 crore provided receipts / payments in cash do not exceed 5% of all receipts/ payments.
2. The bill further proposes that such tax audit report should be furnished one month prior to the due date of filling return of income.
3. Thought the bill proposed that tax payers are not required to get accounts audited, taxpayers would still required to comply with existing withholding tax provision if gross receipts from business exceeds INR 1 crore.
Exiting:
| Turnover or Gross Receipts | Profit and gains | Tax Audit applicable?
Individual, HUF & Partnership firm |
Tax Audit applicable?
Others such as LLP, Company |
| Up to 1 Crore | More than 6% or 8% | No | No |
| Less than 6% or 8% | Yes (44AD) | ||
| 1-2 Crore | More than 6% or 8% | No | Yes (44AB) |
| Less than 6% or 8% | Yes (44AD) | ||
| More than 2 crore | Any profit | Yes (44AB) |
Proposed:
| Turnover or Gross Receipts | Profit and gains | Tax Audit applicable?
Individual, HUF & Partnership firm |
Tax Audit applicable?
Others such as LLP, Company |
||
| Cash receipts and payment | Cash receipts and payment | ||||
| Up to 5% | >5% | Up to 5% | >5% | ||
| Up to 2 Crore | More than 6% or 8% | No | No | No | Yes |
| Less than 6% or 8% | Yes (44AD) | Yes (44AD) | |||
| 2-5 Crore | Any profit | No | Yes | ||
| More than 5 crore | Any profit | Yes | Yes | Yes | Yes |
5. Affordable housing gets tax holiday boost
Section 80-IBA provides 100% deduction of profits and gains derived from the business of developing and building affordable housing projects provided that the project should be approved by competent authority.
The bill proposes to extent period of approval of affordable housing from 31st March 2020 to 31st March 2021.
Corresponding amendment proposed under section 80EEA. Now deduction up to Rs 1,50,000 in respect of payment of interest on loan taken for affordable housing sanctioned upto 31st March 2021 will be available.
6. Startup Deduction Section 80IAC
| Particulars | Existing | Proposed |
| Period of claiming deduction of 100% of Net profit for 3 consecutive assessment year | Within 7 years from the incorporation | Within 10 years from incorporation |
| Turnover limit for availment of deduction | Up to 25 crore | Up to 100 crore |
7. Residential Status
i. Indian citizen / Person of Indian origin stay in India restricted to 120 days instead of 182 days
One of the condition to check 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 Indian citizen or PIO, the Income tax Act provides relaxation of up to 182 days for residency check.
The intent underlying reduction in days count is primarily to curb misuse in cases where NRIs are actually carrying out substantial economic activities from India and manage their stay to avoid being categorized as an Indian resident.
To address the misuse, days count is proposed to be decreased to 120 days from existing 182 days in clause (b) of explanation 1 of section 6(1).
ii. Citizenship check to prevail over domicile check
It was observed by government that several individuals are managing their presence in such a way that they do not pay tax in any other country. Accordingly the bill proposes to deem Indian citizen to be resident of India, where the individual is not liable to tax in any other country by reason of domicile, residence or other criteria.
iii. Not ordinary resident redefined
A person is said to be not ordinarily resident in India in any previous year, if such person is:
1. An individual who has been a non-resident in India in 7 out of 10 previous years preceding that year or
2. A HUF whose manager has been a non-resident in India in 7 out of 10 previous years preceding that year.
8. Vivad se Vishwas scheme
1. Under the scheme, a taxpayer would be required to pay only the amount of the disputed taxes and will get complete waiver of interest and penalty provided he pays it by 31st March 2020
2. Those who avail this scheme after 31st March 2020 will have to pay some additional amount. The scheme will remain open till 30th June 2020.
9. Penalty
To curb the practice of obtaining fake 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.
This presentation has been prepared solely for general information purpose and is not intended to constitute a recommendation, offer or advice.
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