Finance Bill 2020 has proposed significant amendments in direct tax provisions. I would like to highlight the changes which are applicable for Individual assessees. Read on.

♣ Dividend Distribution Tax Abolishment: Upto financial year 2019-2020, domestic company was required to pay dividend distribution tax u/s 115-O at the rate of 15% (effective rate 20.56%) on the amount of dividend declared/distributed. Also u/s 115BBDA, dividend received by person resident in India other than domestic company, Charitable Trust/institution eligible for registration u/s 10(23C) or registered u/s 12AA of Income Tax Act was taxable at 10% on dividend amount exceeding Rs.10 Lakhs. But now ,under the proposed amendments, a domestic company is not required to pay dividend distribution tax. However, dividend received by the shareholder will be taxable at the slab applicable to such person with no dividend amount being exempted.

♣ Donations to charitable trusts/institutions: An individual will be able to claim deduction u/s 80G for donations made to charitable trusts/institutions only when the concerned charitable trusts/institutions have filed a statement of donations received within the time prescribed by rules. This amendment will be applicable from  01-06-2020. The main reason for such amendment could be to curb the incorrect/false claims made by people in their Income Tax Returns.

  Increase in tolerance band in provisions of section 43CA, 50C and 56(2)(X) of Income Tax Act: In the existing provisions, consideration on transfer of land and building should be equal to stamp duty value when the stamp duty value exceeds 105% of the net sales consideration. It had increased the tax burden on Individuals. In order to reduce the tax burden on them, the aforesaid limit of 5% over the net sales consideration has been substituted with 10% limit.

In the changed scenario, if the stamp duty value of land and building does not exceed 110% of the net sales consideration, then the net sales consideration amount can be used for the purpose of calculating capital gain. This is a welcome step in favour of taxpayer.

Tax audit limit (Section 44AB) : As per the existing provisions of section 44AB, every person carrying on business is required to get his books of accounts audited by a Chartered Accountant if total turnover exceeds Rs.1 Crore. The limit of Rs.1 Crore has been increased to Rs.5 Crores provided the following conditions are satisfied:

    • Annual cash receipts don’t exceed 5% of total receipts and
    • Annual cash payments don’t exceed 5% of total payments.

The above changes in Section 44AB are not applicable to persons carrying on profession.

Increase in threshold limit will reduce the tax compliance burden on small and medium enterprises provided both the conditions are satisfied. However, it must be noted that such increase in limit will not be applicable for the purpose of deducting/collecting tax u/s 194A, 194C, 194H, 194I, 194J and 206 C.

Hence,tax will be deducted/collected when total turnover exceeds Rs.1 Crore. This amendment is applicable from Assessment Year 2020-2021.

♣  Changes in due date of furnishing tax audit report and income tax return: Presently, the due date of furnishing tax audit report and income tax return is 30 September of the relevant assessment year. In order to enable pre filled tax return forms and easy compliance by taxpayers, it has been proposed that in cases of persons having income under the head Profit and gains from business and profession , tax audit report shall be furnished one month prior to the date of filing income tax return. Hence , due date for tax audit report is 30 September of relevant assessment year and due date of income tax return of such assessees eligible for tax audit is 31 October of the relevant assessment year.  This amendment is applicable from Assessment Year 2020-2021.

♣ New taxation regime at reduced rates: This was the welcome move for small taxpayers. Section 115BAC has been introduced with reduced tax rates in case of individuals. New slab rates as compared to old rates are:

Income Old rate New rate
(In Lacs) (%) (%)
Upto 2.5 Nil Nil
2.5 – 5 5 5
5 – 7.5 20 10
7.5 -10 20 15
10 – 12.5 30 20
12.5 -15 30 25
Above 15 30 30

Surcharge, education cess and section 87A rebate will continue to be applicable as before.

Following deductions are nor allowed when tax opted for paying tax at reduced rates:

1. Leave travel allowance u/s 10(15)

2. House rent allowance

3. Allowance u/s 10(14)

4. Standard deduction and professional tax u/s 16

5. Interest on housing loan

6. Exemption of minor child’s income

7. Specified expenses for computing profits under the head profit and gains from business and profession

8. Deduction of family pension

9. Chapter VI-A deduction, other than of NPS.

However, deduction u/s 80JJAA will be allowed.

The new tax regime will have effect as follows:

  • Individuals with no business income can exercise this option every year at the time of filing return.
  • Individuals with  business income can exercise this option on/before due date of filing the return. Option once exercised cannot be changed in subsequent years.

However, there cannot be a general conclusion in favour of the new tax regime. One has to calculate the tax benefits by comparing the tax payable under both regimes. The table attached herewith will illustrate this.

Tax Table

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Location: Dewas, Madhya Pradesh, IN
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March 2021