32 Income Tax Amendments – Assessment Year 2020-21

32 Amendments relating to Assessment Year 2020-21 (Finance Act 2019) alongwith Section 111A, 112, 112A, 115JB, 115JC, 115BAA and 115BAB explained

RATES OF TAXES APPLICABLE TO ASSESSMENT YEAR 2020-2021 (FINANCIAL YEAR 2019-2020)

A. INDIVIDUAL AND HINDU UNDIVIDED FAMILY

a) Individual Below 60 years /HUF

b) Basic Exemption for Individual of age from 60 years to less than 80 years: Rupees 3.00 lakhs; above rate structure same.

c) Basic Exemption for Individual of age 80 years or more: Rupees 5.00 lakhs; above rate structure same.

d) Surcharge on Income Tax:

B. FIRM

C. DOMESTIC COMPANY

D. TAX U/S 115JB (M.A.T) :

a) Tax Rate reduced from 18.5 % to 15% + Surcharge (on the basis of slab of income, i.e. Nil /7% / 12%) + Cess.

b) Provisions of Section 115 JB shall not apply to a person who has exercised option u/s 115BAA or u/s 115BAB. Further provisions of Section 115 JAA for carry forward of unabsorbed MAT credit shall not apply a person who has exercised option u/s 115 BAA [Section 115JAA(8)] ( e.f. Ass.Yr. 2020-21 ) .

E. TAX U/S 115JC (A.M.T) :

a) Tax Rate is 18.5% (same) + Surcharge (on the basis of slab of income for Individual/ HUF) + Cess.

b) Tax Rate is 18.5% (same) + Surcharge (on the basis of slab of income of Firm) + Cess.

F. TAX U/S 111A (Short Term Capital Gain) :

a) Short Term Capital Gain (S.T.C.G.) arising to an assessee on sale of equity shares of a company or Units of an Equity Oriented Fund / Business Trust on which Securities Transaction Tax has been paid.

b) Tax is levied @ 15% + Surcharge (on the basis of slab of income) + Cess

G. TAX U/S 112 (Long Term Capital Gain )

a) On transfer of long term capital asset by a resident Individual, H.U.F., domestic Company: Tax payable @ 20 %

b) On transfer of long term capital asset by a non-resident or foreign Company :

(i) Tax payable @ 20 % on Long Term Capital Gains arising from transfer of a long term capital asset ,except where such gain arises from Capital Asset referred to in Para (ii) hereinbelow;

(ii) In case of transfer of unlisted securities or shares of private limited company , tax payable @ 10 % on Long Term Capital Gains without giving effect to First Proviso to Section 48 [ First Proviso is applicable in the case of sale of shares / debentures of Indian Company by non-resident assessee whereby Capital Gain is calculated by converting cost of acquisition and sale consideration into foreign currency and then reconverting Capital Gain so calculated into Indian Rupees] and also Second Proviso to said Section whereby Indexation benefit is available to assessee in the case of sale of Long Term Capital Asset [ Other than sale of shares / debentures by non-resident referred to in First Proviso ] .

H. TAX U/S 112A (Long Term Capital Gain ) :

a) Transfer of Long Term Capital Asset being Equity Share of a Company or Unit of Equity Oriented Fund;

b) Securities Transaction Tax has been paid on acquisition as well as sale of Equity Share ;

c) Securities Transaction Tax has been paid on sale of Unit of Equity Oriented Fund / Business Trust;

d) Tax payable on Long Term Capital Gain exceeding Rupees One Lakh: @ 10 %.

e) This Section is applicable to all assessees.

f) This Section is effective from Assessment Year 2019-20.

Surcharge (as applicable) and Health and Education Cess @ 4% on total of Income Tax and Surcharge shall be levied in all cases.

AMENDMENTS APPLICABLE TO ASSESSMENT YEAR 2020-2021

(FINANCIAL YEAR 2019-2020)

NOTE: Some amendments were made by Finance Act, 2020 which are effective from Assessment Year 2020-21 [e.g. amendment made in Section 44 AB for Tax Audit enhancing Turnover Limit to Rs. 5 crores in certain cases]. The said amendments were discussed in detail in my previous Article published on 12.2.2020 on Taxguru site, namely “Finance Bill 2020 – Analysis of 19 Important changes in Income Tax”. Accordingly said amendments have not been repeated above.

TAX RATE IN THE CASE OF CERTAIN DOMESTIC COMPANIES (SECTION 115BAA) (W.E.F ASST. YEAR 2020-2021 AND ONWARDS)

(1) A Domestic Company shall be liable to pay Tax @ 22% if following conditions are satisfied:-

i) Total Income is computed without claiming following deductions:

> tax Holiday for units in Special Economic Zones (Section 10AA)

> additional depreciation u/s 32(1)(iia)

> investment linked deduction u/s 32AD

> benefits u/s 33AB or 33ABA

> accelerated R&D allowance (Sub Clause (ii), (iia), (iii) of Sub Section (1), Sub Section (2AA) or Sub Section (2AB) of Section 35)

> allowances u/s 35AD, 35CCC or 35CCD

> deductions under Chapter VIA under the heading “C-Deductions in respect of certain income” (However deduction in respect of employment of new employees shall be allowed u/s 80JJAA)

ii) Total income is computed without set off of any loss carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in clause (i) above.

iii) Total income is computed without set off of any loss or allowance for unabsorbed depreciation deemed so under section 72A, if such loss or depreciation is attributable to any of the deductions referred to in clause (i) above.

iv) Total income is computed by claiming depreciation under any provision of section 32 [however additional depreciation under section 32(1)(iia) shall not be allowed as stated in clause (i) above].

(2) The loss and depreciation referred to in clause (ii) and clause (iii) of para (1) above shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year.

Provided that where there is a depreciation allowance in respect of a block of asset which has not been given full effect to prior to the assessment year beginning on the 01.04.2020, corresponding adjustment shall be made to the written down value of such block of assets as on the 01.04.2019 in the prescribed manner, if option under section 115BAA is exercised for financial year relevant to assessment year 2020-2021.

(3) The option is to be exercised by Company u/s 115BAA on or before due date of filling of Return u/s 139 for assessment year 2020-2021 or subsequent assessment year in Form 10 IC if the Company so desires, option once exercised shall also apply to subsequent years.

(4) Where a company which has opted for lower tax @ 15% u/s 115BAB and thereafter the company violates conditions specified in that section, then the company can exercise the option u/s 115BAA (i.e. Tax @ 22%).

(5) The company can-not withdraw option exercised u/s 115BAA for the assessment year for which exercised or any subsequent assessment year.

(6) Provisions of MAT u/s 115JB shall not apply to a company who has exercised option u/s 115BAA or Section 115 BAB.

(7)  Tax paid under this section shall be enhanced by surcharge @ 10% of such Tax and also Cess @ 4 %; Effective Tax Rate shall be 25.168 %.

TAX ON INCOME OF NEW MANUFACTURING DOMESTIC COMPANIES @ 15% (SECTION 115BAB) (W.E.F ASST. YEAR 2020-2021 AND ONWARDS)

A new manufacturing domestic company shall be liable to pay Income Tax @ 15%, if following conditions are satisfied:-

(1)  The assesse is a domestic company (this section is not applicable to other persons like Individual, Firm, LLP, etc.).

(2) The company has been setup and registered on or after 01.10.2019 and has commenced production of articles or things on or before 31.03.2023.

(3) The business of the company is not formed by splitting or reconstruction of business already in existence provided that this condition shall not apply in cases of re-establishment/re-construction/ revival u/s 33B.

(4)  i) The company does not use any machinery or plant previously used for any purpose in India.

ii) Any machinery or plant used outside India shall not be regarded as previously used if following conditions are fulfilled:-

a) such machinery/plant not used in India

b) such machinery/plant is imported from any country outside India

c) no deduction for depreciation was claimed for such machinery/plant

d) where the company uses plant/machinery previously used whose value does not exceed 20% of total value of machinery/plant used by the company, then condition for eligibility of section 115BAB shall be deemed to have been fulfilled

(5) The company does not use any building previous used as hotel/convention centre in respect of which deduction u/s 80ID has been claimed.

(6) i) The company is not engaged in any business other than business of manufacture/production of articles/things and sale of such articles/things.

ii) Business of manufacture or production shall not include following businesses:-

> development of computer software in any form in any media

> mining

> conversion of marble blocks or similar items into slabs

> bottling of gas into cylinder

> printing of books or production of cinematograph film

> any other business as may be notified by the Central Government

iii) Word `Manufacture’ has been defined in section 2(29BA) of the Act, as follows:-

“Manufacture, with its grammatical variations, means a change in a non-living physical object or      article or thing;

i) Resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use.

ii) Bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure”.

Word `Production’ has not been defined in the Act. However, Hon’ble Apex Court in various judgments has held that word production has a wider connotation in comparison to word manufacture and further held that any activity which brings a commercially new product into existence constitutes Production.

Whether manufacture or production should be on account of self or it can be out-sourced i.e. Job Work is a question which has not been answered in the Amendment Act.

(7) i) Total income of the company is computed without claiming following deductions:-

> tax Holiday for units in Special Economic Zones (Section 10AA)

>  additional Depreciation u/s 32(1)(iia)

>  investment linked deduction u/s 32AD

>  benefits u/s 33AB or 33ABA

>  accelerated R&D allowance (Sub Clause (ii), (iia), (iii) of Sub Section (1), Sub Section (2AA) or Sub Section (2AB) of Section 35)

>  allowances u/s 35AD, 35CCC or 35CCD

>  deductions under Chapter VIA under the heading “C-Deductions in respect of certain income” (However deduction in respect of employment of new employees shall be allowed u/s 80JJAA)

ii) Total income is computed without set off of any loss or allowance for unabsorbed depreciation deemed so under section 72A, if such loss or depreciation is attributable to any of the deductions referred to in clause 7(i) above.

iii) The loss referred to u/s 72A shall be deemed to have been given full effect to and no further deduction for such loss shall be allowed for any subsequent year.

iv) Total income shall be computed by claiming depreciation under provisions of section 32 except additional depreciation under section 32(i)(iia).

(8)

(i) Where it appears to A.O., owing to close connection between company claiming Tax rate @ 15% under this section and any other person, business of said company produces more than ordinary profits, A.O. shall assess profits of the company claiming lower Tax rate as may be reasonable.

(ii) If the aforesaid arrangement involves a specified domestic transaction referred to section 92BA, the profit shall be determined having regard to arm’s length price.

(9)

(i) The option is to be exercised by Company u/s 115BAB on or before due date of filling of Return u/s 139 for assessment year 2020-2021 or subsequent assessment year in Form 10 ID , if the Company so desires.

(ii) Option once exercised for any assessment year, can-not subsequently be withdrawn for the same assessment year or any subsequent assessment year.

(10) Provisions of MAT u/s 115JB shall not apply to a company who has exercised option u/s 115BAB.

(11) Tax paid under this section shall be enhanced by surcharge @ 10% of such Tax and also Cess @ 4%; Effective Tax Rate shall be 17.16 %.

Disclaimer:

The entire contents of this article have been prepared on the basis of relevant provisions and the information existing at the time of preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, author assumes no responsibility, therefor. Users of this information are expected go through the relevant provisions of applicable laws. The user(s) of the information agrees that the information is not professional advice and is subject to change without notice. Author assumes no responsibility for the consequences of the use of said information.