Direct Tax Proposals:
1. Tax Incentives
1.1 Relief in personal income-tax and simplification of taxation: In order to provide relief and simplify the taxation regime, it is proposed to provide an option to individual and Hindu undivided family to be taxed at following lower rates if they do not avail specified exemption/deductions:
|Total Income (Rs)||Rate (%)|
|From 2,50,001 to 5,00,000||5|
|From 5,00,001 to 7,50,000||10|
|From 7,50,001 to 10,00,000||15|
|From 10,00,001 to 12,50,000||20|
|From 12,50,001 to 15,00,000||25|
Surcharge and cess shall be continued to be levied at the existing rates.
1.2 Relief and simplification for co-operative societies: In order to provide relief and simplify the taxation regime, it is proposed to provide an option to cooperative societies to be taxed at 22% plus 10% surcharge plus 4% cess, if they do not avail certain specified deduction/exemption. Further, it is also proposed to exempt these cooperative societies from Alternative Minimum Tax (AMT).
1.3 Tax concession for foreign investments: In order to promote investment of sovereign wealth fund, including the wholly owned subsidiary of Abu Dhabi Investment Authority (ADIA),it is proposed to grant tax exemption to interest, dividend and capital gains income of Sovereign Wealth Fund and wholly owned subsidiary of the ADIA subject to fulfilment of certain conditions, in respect of investment made in the infrastructure sector or other deserving notified sectors before 31st March, 2024 and with a minimum lock-in period of 3 years.
1.4 Removal of Dividend Distribution Tax: At present dividend is taxed in the hands of company distributing such dividend. This is found to be iniquitous. It is proposed to shift to classical system of taxing dividend in the hands of shareholders.
1.5 Incentives for IFSC, municipal bonds and offshore borrowing: The concessional rate of Tax Deductible at Source (TDS) at five per cent currently available under section 194LC and 194LD for borrowing from overseas is proposed to be extended for three years to 30th June 2023. Further, specified municipal bonds would also be eligible for such concession on overseas borrowing. It is also proposed to provide that the withholding tax rate shall be four per cent on fresh overseas borrowing on or after the 1st day of April, 2020 but before the 1st day of July, 2023 which is listed only on a recognised stock exchange located in any IFSC.
1.6 Incentives to Affordable Housing: Currently, an additional deduction up to one lakh fifty thousand rupees is allowed for interest paid on loans sanctioned upto 31st March, 2020 for purchase of an affordable house. In order to incentivise the purchase of affordable housing, it is proposed to extend the date of sanction of loan to 31st March, 2021. Hence, this deduction will also be available in respect of housing loans sanctioned by 31st March, 2021.
Further, in order to boost the supply of affordable houses in the country, a tax holiday is provided on the profits earned by developers of affordable housing project approved by 31st March, 2020. In order to promote the affordable housing projects, it is proposed to extend the date of approval of affordable housing projects for availing this tax holiday by one more year. Accordingly, developers of affordable housing projects approved by 31st March, 2021 can also avail of the tax holiday.
1.7 Concession to Real Estate sector: Currently, safe harbour of 5% is allowed for computation of income in respect of transaction of immovable property where the consideration is less than the circle rate. In order to boost housing sector, it is proposed to increase this safe harbour to 10%.
1.8 Incentives to start-up: In order to encourage the start-ups to employ highly talented employees at a relatively low salary by granting them Employee Stock Option Plan (ESOPs), it is proposed to defer the tax payment on these ESOPs granted by start-up to their employees by five years or till the employee leaves the company or when the said employee sells those shares, whichever is earliest.
Further, in order to extend benefit of tax holiday to larger start-ups, it is proposed to increase the turnover threshold for claiming tax holiday from existing Rs. 25 crore to Rs. 100 crores. Further, in order to address the concerns of start-ups which may not have adequate profit in initial years for availing this holiday, it is proposed to extend the period of eligibility for claim of 100% deduction from the existing 7 years to 10 years.
1.9 Allowing carry forward of losses or depreciation in certain amalgamations: It is proposed to provide that the amalgamated public sector banks and insurance companies shall be eligible to take the benefit of unabsorbed losses and depreciation of the amalgamating entities.
1.10 Widening the definition of “business trust”: In order to encourage unlisted Infrastructure Investment Trust (InvIT) or a Real Estate Investment Trust (REIT), it is proposed to extend the same taxation regime as available to listed InvITs and listed REIT to unlisted REIT and InvIT.
1.11 Exemption to Indian Strategic Petroleum Reserves Limited: It is proposed to provide exemption to Indian Strategic Petroleum Reserves Limited (ISPRL) in respect of income accruing or arising 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 subject to the condition of replenishment of crude oil within three years.
1.12 Concessional tax rate for electricity generation companies: In order to attract investment in the power sector, it is proposed to extend the concessional corporate tax rate of 15% provided by the Taxation Laws (Amendment) Act, 2019 to new domestic companies that are engaged in the generation of electricity subject to the condition that they start generating electricity by 31st March, 2023.
2. Measures to provide tax certainty
2.1 Widening the scope of Safe Harbour Rules and Advance Pricing Agreement: In order to provide tax certainty to taxpayers in the matter of attribution of profit to permanent establishment (PE), it is proposed to widen the scope of Advanced Pricing Agreement (APA) and Safe Harbour Regime (SHR), by providing that determination of attribution of profit to PE shall also be in the scope of SHR and APA.
2.2 Rationalisation of deduction to insurance companies: It is proposed to provide that expenses disallowed in the hands of insurance companies for late payment of statutory dues shall be allowed in the year of payment.
2.3 Reduction in rate of Tax Deduction at Source (TDS): In order to reduce litigation, it is proposed to reduce rate for TDS in case of fees for technical services (other than professional services) to two per cent from existing ten per cent in order to align the same with the rate of TDS on works contract.
2.4 Vivad se Vishwas Scheme: It is proposed to bring out a scheme for reducing the direct tax litigation. Taxpayers in whose case appeals are pending at any level can take the benefit from this scheme. Under the scheme, taxpayer would be required to pay only the amount of the disputed taxes and there will be complete waiver of interest and penalty provided they make payment by 31st March, 2020. For disputed penalty, interest and fee not connected with the disputed tax, the taxpayer would be required to pay only 25% of the same for settling the dispute. A tax payer shall be required to pay 110% of the disputed tax (the excess 10% shall be limited to the amount of related penalty and interest, if any) and 30% of penalty, interest and fee in case of payment after 31st March, 2020.
3. WIDENING AND DEEPENING OF TAX BASE
3.1 TDS on E-commerce transactions: In order to widen and deepen the tax net, it is proposed to provide that e-commerce operator shall deduct TDS on all payments or credits to e-commerce participants at the rate of 1% in PAN/Aadhaar cases and 5% in non-PAN/Aadhaar cases. In order to provide relief to small businessman, it is proposed to provide exemption to an individual and HUF who receives less than Rs. 5 lakh and furnishes PAN/Aadhaar.
3.2 Enlarging the scope of TDS on interest: It is proposed to extend the TDS on interest paid by certain large co-operative societies whose gross receipts exceeds fifty crore rupees during the last financial year.
3.3 Widening the scope of TCS: It is proposed to provide for tax collection at source (TCS) on remittance under Liberalised Remittance Scheme of Reserve Bank of India exceeding seven lakh rupees in a year and on sale of overseas tour package. Further, TCS is also proposed on sale of goods in excess of fifty lakh rupee in a year by a seller whose turnover is more than 10 crore rupees.
3.4 Limit on exemption of Employer’s contribution to certain funds: It is proposed to put an upper cap of seven lakh and fifty thousand rupees in a year on tax exempt employer’s contribution in recognized provident fund, superannuation fund and NPS in the accounts of an employee.
4. IMPROVING EFFECTIVENESS OF TAX ADMINISTRATION
4.1 Faceless appeal: In order to impart greater efficiency, transparency and accountability to the assessment process, a new faceless assessment scheme has already been introduced. In order to ensure that the reforms initiated by the Income Tax Department to eliminate human interface from the system reach the next level, it is proposed to provide enabling power for launching of Faceless appeal on the lines of Faceless assessment.
4.2 Widening the scope of Dispute Resolution Panel (DRP): It is proposed to widen the scope of references to DRP by including all non-residents as eligible assessee and to clarify that all variation which are prejudicial to the assessee shall be within the scope of DRP.
4.3 Taxpayer’s Charter: With the objective of enhancing the efficiency of the delivery system of the Income Tax Department, it is proposed to provide that the CBDT shall adopt a Taxpayer’s Charter and issue necessary direction for the implementation of the Charter.
4.4 Modification in the scope of faceless assessment: It is proposed to widen the scope of faceless assessment scheme to cover those cases in which assessment is being completed ex-parte.
5. EASE OF COMPLIANCE
5.1 Raising of limit for tax audit: In order to help small and medium enterprises, it is proposed to raise the turnover threshold for compulsory tax audit from existing Rs. 1 crore to Rs. 5 crore in a case where cash receipt is not more than 5% of total receipt and cash payment is not more than 5% of total payment. Further, in order to reduce the compliance cost, it is also proposed to provide that tax audit report to be filed a month before the due date of filing income- tax return. Accordingly, the said due date for filing of income-tax returns is proposed to be changed from 30th September to 31st October of the relevant assessment year so that there is no change in the date of finalisation of tax audit.
5.2 Exempting non-resident from filing of Income-tax return on certain conditions: In order to reduce compliance burden of non-residents, it is proposed to exempt them from filing income-tax return on their income of the nature of royalty or fee for technical services, if tax has been deducted at the rate given in section 115A.
6. RATIONALISATION OF PROVISIONS OF THE INCOME-TAX ACT, 1961
6.1 It is proposed to withdraw the exemption on certain perquisites and allowances provided to Chairman and members of Union Public Service Commission and to Chief Election Commissioner and Election Commissioners.
6.2 It is proposed to rationalise the definition of ‘taxable commodities transactions’ for the purposes of levy of Commodity Transaction Tax.
6.3 It is proposed to enable the Central Government for notifying scheme for levying penalty in a faceless manner.
6.4 To increase transparency in survey operation, it is proposed to provide that if the survey is not based on information provided by prescribed authority, then approval of Commissioner or Principal Commissioner of Income-tax is required.
6.5 It is proposed to provide that Income Tax Appellate Tribunal can grant stay of demand only if the taxpayer has either paid twenty per cent of amount of demand or have provided security for an equal amount.
6.6 It is proposed to reduce the time of stay in India from 182 days to 120 days for an Indian citizen or person of Indian origin to become resident in India. Consequently, it is proposed to relax the provision of “resident but not ordinarily resident” so that a resident who has been non-resident in seven out of ten previous years would be resident but not ordinarily resident. It is also proposed to provide that an Indian citizen who is not liable to tax anywhere would be deemed to be resident in India.
6.7 It is proposed to amend the definition of “work” for the purpose of TDS under section 194C to provide that in a contract manufacturing, the raw material provided by the assessee or its associate shall fall within the purview of the ‘work’ under section 194C.
6.8 To discourage taxpayers to manipulate their books of accounts by recording false entries including fake invoices to claim wrong input credit in GST, it is proposed to provide for penalty for these malpractices.
6.9 It is proposed to amend the provision allowing India to enter into Double Taxation Avoidance Agreements (DTAA) with other countries or territories or association, to align with the new preamble mandated by Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (commonly referred to as MLI), as India has already ratified MLI.
6.10 It is proposed to defer the enactment of Significant Economic Presence (SEP) to Financial Year 2021-22 as G-20 OECD report on digital economy is expected by that time. It is also proposed to provide for source rule for revenue from advertisement targeted to India customers and revenue from sale of Indian sourced data.
6.11 It is proposed to align exemption from the provision of indirect transfer to Foreign Portfolio Investors in line with new SEBI FPI regulations. It is also proposed to rationalise the definition of royalty.
6.12 It is proposed to rationalise the provisions of section 115BAA and section 115BAB to provide that any domestic company (both existing as well as new) opting for concessional tax regime will not be allowed to claim any deduction under Chapter VI-A of the Act except deductions specifically allowed under said sections.
6.13 The conditions for setting up of offshore fund are proposed to be rationalised so as to facilitate setting up of fund management activity in India.
6.14 It is proposed to clarify that in case of a capital asset, being land or building or both, the fair market value of such an asset on 1st day of April, 2001 shall not exceed the stamp duty value of such asset as on 1st day of April, 2001, where such stamp duty value is available.
6.15 It is proposed to rationalise the process of registration in the case of trusts, institutions, funds, university, hospital etc. and approval in the case of association, university, college, institution or company etc. It is also proposed to provide filing of statement of donation by donee so that the deduction claimed by the donor in its tax return can be pre-filled.
6.16 It is proposed to rationalise the provision regarding uploading of Form 26AS so as to include all the prescribed information.
6.17 It is proposed to rationalise the provisions relating to cost of acquisition and period of holding with respect to segregated portfolios to provide clarity to taxpayers holding such portfolios.
6.18 It is proposed to authorise Board to prescribe person who can verify the return of income in the cases of a company and a limited liability partnership. It is also proposed to authorise Board to prescribe person who can appear as an authorised representatives. This will help companies under Insolvency proceedings and in liquidation. It is also proposed to align the due date of Partner and Firm.
6.19 In order to facilitate opting for new concessional tax regime by the domestic companies, it is proposed to rationalise the provisions of section 35AD so as to provide an option for claiming deduction under section 35AD.
6.20 In order to rationalise the provisions of section 94B, it is proposed to exclude payment of interest to a branch of non-resident bank in India from interest deductibility rule under section 94B.