Amidst the COVID-19 outbreak and lockdown in various states, the Finance Bill 2020 ( Bill) introduced vide Union Budget 2020-21 was passed by both Houses of Parliament, with certain amendments. On 27 March 2020, the Bill has received President’s assent. Read-President Assents Finance Act, 2020
Key amendments by Finance Act , 2020 in Comparison to changes Proposed by Finance Bill 2020.
Rate of income tax
A taxpayer having no business income can opt for the existing regime or the proposed regime every year upon analysing what is more beneficial. However, a taxpayer having a business income can withdraw from the option so exercised only once and thereafter he/she cannot change the same. The said condition has also been extended to income from profession as well.
Change to tax residency rules for non-residents
- Tightening the relaxation enjoyed by an Indian citizen/ person of Indian origin form becoming a “resident” from 182 days to 120 days. However limit of 120 days applies only to the individual whose total income, other than the income from foreign sources, exceeds Rs. 15 lakhs during the financial year.
- An Indian citizen is deemed to be “resident” in India if he is not liable to tax in any other country or territory by virtue of domicile/residence or any other criteria. However the same has been restricted to only those Indian citizen individuals whose Indian sourced income exceeds Rs. 15 lakhs in the relevant financial year. However, such a person shall be considered as a not ordinary resident.
- The conditions for becoming ‘not ordinarily resident’ in India which was relaxed in the by bringing it down to 7 years from 9 years out of 10 years, the same is again amended to keep at 7 years out of 10 years.
- Criteria of less than 730 days in 7 years have been reinstated.
- Surcharge on dividend income for a taxpayer being an individual, HUF, Association of Persons, Body of Individuals or Artificial Juridical Person restricted to 10% if total income (including dividend income) does not exceed Rs 10 lakhs and 15% if total income (including dividend income) exceeds Rs 10 lakhs.
- Deduction of inter-corporate dividend u/s 80M of the Income-tax Act, 1961 (“ITA”) extended to the dividend received from a foreign company or REIT /InvIT.
- Transitional dividend (dividends declared on or before 31 March 2020 but received by shareholders on or after 01 April 2020) shall be exempt in the hands of recipient shareholder if the applicable Dividend Distribution Tax is paid by the domestic company and tax u/s 115BBD (tax on dividend income exceeding INR 1mn), if applicable, is paid by recipient resident shareholder.
- Unit holders of REIT / InvIT shall not be required to pay tax on dividend income distributed by REIT / InvIT if SPV from which dividend income is received by REIT / InvIT has not opted for a lower corporate tax of 22% u/s 115BAA of the ITA.
- Scope of Equalization levy extended to extend to all sales, gross receipts or turnover of non-resident not having PE, who is providing the online sale of goods or provision of services or both to a person resident in India or a non-resident in specific circumstances such as the sale of advertisement targeted to Indian market or sale of data collected from India market.
- The said levy will be applicable at the rate of 2%.
- The said levy will not be applicable if sales, turnover or gross receipt of such E-commerce operator is less than Rs 20 lakhs during the relevant financial year.
Tax collected at source
- Tax collection at source (TCS) applicability on remittances under Liberalised Remittance Scheme, overseas tour package and sale of goods as well as the applicability of new withholding on e-commerce operator deferred to 1 October 2020.
- Rate is reduced to 0.5% if the amount being remitted is a loan obtained from any financial institution as defined in section 80E of the IT Act to pursue any education.
- Export of goods is not covered under TCS on sale of goods
Tax deducted at source
- TDS on professional fees at a concessional rate of 2% has also been extended to royalty in the nature of consideration for sale, distribution or exhibition of cinematographic films.
- TDS on payment to E-commerce participants by E-commerce operator has been deferred to 1 October 2020. The definition of E-commerce operator has been amended to remove the condition of direct payment to E-commerce participants.
- The Scope of TDS on cash withdrawal has been extended. TDS at 2% is required to be deduced if the withdrawer has not filed his tax return for three years and withdrawal during the year exceeds Rs 20 lakhs but is less than Rs 1 crore. For withdrawal more than Rs 1 crore at 5%.