Highlights on Union Budget 2020-21

SYNOPSIS of UNION BUDGET 2020-21

Please find below the synopsis of Union Budget 2020-21

Direct Taxation:

Personal Taxation:

1. A new slab rate has been announced in the Budget for Individuals which is as under

Income Group	Slab
0-2,50,000	Nil
2,50,000-5,00,000	5%
5,00,000-7,50,000	10%
7,50,000-10,00,000	15%
10,00,000-12,50,000	20%
12,50,000-15,00,000	25%
>15,00,000	30%

However, the assesse has to forego certain exemption/deduction to avail this slab rate.

Further, the slab rate is optional in nature and the assessee can continue to pay that at the earlier slab rate and avail the exemptions/deductions.

2. Widening of the definition of Perquisites

Applicability: 1^st April, 2021 (AY 2021-22)

a. The term perquisite is proposed to be widened by including:

The amount or the aggregate of amounts of any contribution made to the account of the assessee by the employer––

• in a recognized provident fund;
• in the scheme referred to in sub-section (1) of section 80CCD; and
• in an approved superannuation fund,

to the extent it exceeds seven lakh and fifty thousand rupees in a previous year;

b. the annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the fund or scheme referred above in any previous year computed in such manner as may be prescribed.

Corporate Taxation

Slab Rate:

1. No change in slab rate for companies

Dividend Distribution Tax:

1. Dividend Distribution Tax (DDT) has now been abolished. Instead the investor now has to pay the Tax on the dividend as per the applicable slab rate.

2. In order to remover the cascading effect, a deduction for dividend received by the holding company from its subsidiary.

Concessional Rates on various entities

• Electricity companies

1. Concessional Rate of Tax @15% has also been proposed to be extended to new domestic companies engaged in the generation of electricity.

• Foreign Investments

1. 100% Tax exemption in Interest, Dividend and capital gain income in respect of investment made in infrastructure and other notified sectors before 31^st March’ 2024 with minimum lock in period of 3yeards to Sovereign wealth funds of Foreign Government.

2. Period extended for lower income Tax till 30^th June’ 2023 on Interest income paid to non-resident referred to under Section 194LC, 194LD.

3. Further, withholding Tax rate of 5% under Section 194LD has been extended to the interest payment made on the municipal bonds.

• Start ups

1. Start-ups generally use Employee Stock Option Plan (ESOP) to attract and retain highly talented employees. ESOP is a significant component of compensation for these employees. Currently, ESOPs are taxable as perquisites at the time of exercise. This leads to cash-flow problem for the employees who do not sell the shares immediately and continue to hold the same for the long-term.

To ease the burden of Taxation on the employees it is proposed to defer the Tax Payment

– By 5 years or

– till they leave the company or

– Whenever they sell the shares, whichever is earliest

2. Further, an eligible Start-up having turnover up to 25 crores is allowed deduction of 100% of its profits for three consecutive assessment years out of seven years if the total turnover does not exceed 25 crore rupees. In order to extend this benefit to larger start-ups, it is proposed to increase the turnover limit from existing 25 crore to 100 crores. Moreover, considering the fact that in the initial years, a start-up may not have adequate profit to avail this deduction, it is proposed to extend the period of eligibility for claim of deduction from the existing 7 years to 10 years.

• Co-operative societies

To provide a level playing field to the co-operative societies with companies, following amendments have been proposed which are optional to be availed by such Co-operative societies

1. Slab Rate

Tax rate reduced from 30% to 22% plus 10% surcharge and 4% cess with no exemption/deductions

2. Non applicability of Alternate Minimum Tax(AMT)

It is proposed to exempt these co-operative societies from AMT provisions too.

• Medium, Small and Micro Enterprises (MSME)

Applicability of Tax Audit increased from the turnover limit from existing 1 crore to 5 crore if such businesses carry out less than 5% of their business transactions in cash.

• Consequential amendment in TDS and TCS provisions because of above increase in Tax Audit Limit

It will have consequential effect on TDS/TCS provisions contained in Sections 194A (Clause 75), 194C (Clause 76), 194H (Clause 77), 194I (Clause 78), 194J (Clause 79) and 206C (Clause 93) as these provisions fasten liability of TDS/TCS on certain categories of person, if the gross receipt or turnover from the business or profession carried on by them exceed the monetary limit specified in clause (a) or clause (b) of section 44AB W.E.F. 01-04-2020 i.e. Substitute with “rupees one crore in case of the business or rupees fifty lakh in case of the profession.

• Affordable housing

An additional deduction of up to one lakh fifty thousand rupees for interest paid on loans taken for purchase of an affordable house. The deduction was allowed on housing loans sanctioned on or before 31st March, 2020. The period for availment of Interest has been increased by 1 year.

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.

• Real Estate Transactions

Currently, while taxing income from capital gains, business profits and other sources in respect of transactions in real estate, if the consideration value is less than circle rate by more than 5 percent, the difference is counted as income both in the hands of the purchaser and seller. In order to minimize hardship in real estate transaction and provide relief to the sector, it is proposed to increase the limit of 5% to 10%.

• Charitable Trusts

a. Registration of trusts is proposed to be made online from this year under which a unique registration number (URN) shall be issued to all new and existing charity institutions.

b. For New charity institution which is yet to start their charitable activities, it is proposed to allow provisional registration for three years.

Amendment in TDS/TCS provisions

1. Amended section 194J of the Income-tax Act, in sub section (1) w.e.f. 01/04/2020 [Clause 44]

In section 194J of the Income-tax Act, in sub-section (1),––

In the long line, for the words, “10% of such sum” the words and brackets 2% of such sum in case of fees for technical services (not being a professional service).

Thus after the amendment, deduction of TDS under Section 194J is as under:-

S.NO.	Nature of Payment	Rate
1.	Fee for Professional Service	10%
2.	Fee for Technical Service	2%
3.	Any remuneration or fees or commission	10%
4.	Royalty	10%
5.	Any sum Referred to in clause (va) of section 28	10%

3. TDS on payment made to E-Commerce participant by an E-Commerce provider Section 194O (Amendment E.F.1^st Day of April 2020)

E-commerce operator (who owns, operates or manages digital or electronic platform for supply of goods and services or both including digital products over digital or electronic network and is responsible for paying to e-commerce participant consideration for supply of goods or services or both shall deduct income tax @ 1% of the gross amount of sales or services or both made on digital or electronic facility or platform managed by E-Commerce operator.

any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant for the sale of goods or provision of services or both, facilitated by an e-commerce operator, shall be deemed to be the amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sale or services for the purpose of deduction of income-tax under this subsection.

No deduction if payment made to an individual/ HUF where the gross amount of such sale or services or both during the previous year does not exceed five lakh rupees and such e-commerce participant has furnished his Permanent Account Number or Aadhaar number to the e-commerce operator.

Notwithstanding anything contained in Part B of Chapter XVII-B, a transaction in respect of which tax has been deducted by the e-commerce operator under sub-section (1), or which is not liable to deduction under sub-section (2), shall not be liable to tax deduction at source under any other provision of this Chapter

The provisions of this sub-section shall not apply to any amount or aggregate of amounts received or receivable by an e-commerce operator for hosting advertisements or providing any other services which are not in connection with the sale or services.

4. TCS by unauthorized dealer and seller of overseas tour program package Section 206C (1G) (Amendment w.e.f.1^st Day of April 2020)

An authorised dealer, who receives an amount, or an aggregate of amounts, of seven lakh rupees or more in a financial year for remittance out of India from a buyer, being a person remitting such amount out of India under the Liberalised Remittance Scheme of the Reserve Bank of India;

A seller of an overseas tour program package, who receives any amount from a buyer, being the person who purchases such package, shall, at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier.

Collect from the buyer, a sum equal to five percent of such amount as TCS

Definition of Authorised Dealer:

–“authorised dealer” means a person authorised by the Reserve Bank of India under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 to deal in foreign exchange or foreign security;

Definition of Overseas Tour program Package:

–“overseas tour program package” means any tour package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.

Exclusion to section 206C (1G)

– liable to deduct tax at source under any other provision of this Act and has deducted such amount;

– the Central Government, a State Government, an embassy, a High Commission, a legation, a commission, a consulate, the trade representation of a foreign State, a local authority as defined in the Explanation to clause (20) of section 10 or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

5. TCS on Purchase of Goods exceeding 50 Lacs in a previous year (206C (1H)

Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than:

• Consideration for sale of a motor vehicle of the value exceeding Rs.10 lakh;
• Remittance out of India of an aggregate amount of Rs.7lakhormore;
• Sale consideration of an overseas tour program package

shall, at the time of receipt of such amount , collect from the buyer, a sum equal to 0.1 percent (5% in case of no PAN/Aadhaar) of the sale consideration exceeding fifty lakh rupees as TCS.

The provisions of this sub section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act and has deducted such amount.

Others

• Tax Audit

Due date for filing the tax audit report has been amended to one month prior to due date of filing of the return of Income. Thus, for assesses who are required to file their return of income on 30^th September are required to file Tax Audit report by 31^st August.

• Return filing for Various Assesssees

(a) Where the assessee other than an assessee referred to in clause (aa) is—

(i) a company; or

(ii) a person (other than a company) whose accounts are required to be audited under this Act or under any other law for the time being in force; or

(iii) a working partner of a firm whose accounts are required to be audited under this Act or under any other law for the time being in force, the 30th day of September 31st day of October of the assessment year”.

• Compliance Form 10DA for claiming deduction under Section 80JJAA

Similar amendment has been done under Section 80JJAA, whereby due date for filing the form is the due date of filing the Tax Audit Report.

• Faceless Appeals

It is proposed that along with assessments, appeals at various levels (CIT (A), ITAT, High Court and Supreme Court) to become faceless and eliminate human interface.

• No Dispute but Trust Scheme – “Vivad Se Vishwas” Scheme

Currently there are 4,83,000 direct Tax cases pending at various appellate forums i.e. CIT(A), ITAT, High Court and Supreme Court. In order to reduce litigation a scheme is proposed to be implemented under “Vivad Se Vishwas” Scheme. Salient Features of the Scheme are as under-

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 by 31^st March, 2020.

b. Those who avail this scheme after 31st March, 2020 will have to pay some additional amount and calculation of such additional amount is yet to be notified.

c. The scheme shall remain valid till 30^th June, 2020.

• Taxpayers charter

To mandate the Central Board of Direct Taxes (CBDT) to adopt a Taxpayers’ Charter. The details of the contents of the charter shall be notified soon.

• Instant PAN through Aadhar

In order to further ease the process of allotment of PAN, soon we will launch a system under which PAN shall be instantly allotted online on the basis of Aadhaar without any requirement for filling up of detailed application form. 

Indirect Taxation:

 Goods and Service Tax (GST)

• Pilot run of new Returns under GST has commenced effective from 01.4.2020.
• Refund process has been automated and simplified with no human interface
• E-Invoice is another innovation which will be implemented in phased manner form this month on optional basis
• Dynamic QR code is proposed for customer invoices and a system of cash rewards is envisaged to incentivise customer to seek invoice
• Deep data analytics and AI tools are being used for crackdown on GST input tax credit, refund, and other frauds and to identify all those who are trying to game the system
• Invoice and input tax credit matching is being done wherein returns having mismatch more than 10 percent or above a threshold are identified and pursued

Customs

• India’s quantum leap in the Trading across Border parameter of Ease of Doing Business rankings by the World Bank is a testimony to these efforts. India’s rank on this parameter improved from 146 to 80 in 2018 and further to 68 in 2019
• Strengthening provisions relating to safeguard duties which are applied when surge in imports causes serious injury to domestic industry. Amended provisions shall enable regulating such surge in imports in a systematic way
• Customs duty is being raised on items like footwear and furniture
• It is proposed to impose a nominal health cess, by way of a duty of customs, on the imports of medical equipment keeping in view that these goods are now being made significantly in India. The proceed from this cess shall be used for creating infrastructure for health services in the aspirational districts
• It is proposed to reduce basic customs duty on imports of news print and light-weight coated paper from 10% to 5%.
• It is proposed to raise excise duty, by way of National Calamity Contingent Duty on Cigarettes and other tobacco products. However, no change is being made in the duty rates of Bidis. 

Companies Act

• There has been a debate about building into statutes, criminal liability for acts that are civil in nature. Hence, for Companies Act, certain amendments are proposed to be made that will correct this. Similarly, other laws would also be examined, where such provisions exist and attempts would be made to correct them.

Foreign Exchange Management Act

• External Commercial Borrowing and Foreign Direct Investments to be leveraged to improve the education system

Other Budget Highlights

• Fiscal Defecit of 3.8% in 2019-20 And 3.5% for BE 2020-21
• Net market borrowings for the year 2019-20 would be 4.99 lakh crore and for the year 2020-21, it would be 5.36 lakh crore.
• Estimated nominal growth of GDP for year 2020-21, on the basis of trends available, at 10%. Accordingly, receipts for the year 2020-21 are estimated at 22.46 lakh crores and, keeping in mind commitment of the Government towards various schemes and need for improvement in quality of life, level of expenditure has been kept at 30.42 lakh crore.
• The limit for Foreign Portfolio Investment limit in corporate bonds, currently at 9% of outstanding stock, will be increased to 15% of the outstanding stock of corporate bonds.
• Deposit Insurance and Credit Guarantee Corporation (DICGC) has been permitted to increase Deposit Insurance Coverage for a depositor, which is now one lakh to five lakh per depositor.