25 Important Income Tax (Direct Tax) changes applicable from 1st April 2020 onwards (Financial Year 2020-21 – Assessment Year 2021-22)

1. New Tax Regime applicable to Individuals, HUFs:

A new concessional/ alternate tax regime under Section 115BAC of the Income Tax Act,1961 has been laid out wherein SIX different slab rates have been prescribed subject to some conditions. Some availments, benefits, deductions have to be forgone and only then this tax regime can be opted for.

2. Switch Over between Old Vs New Tax Regime:

The switch over between alternate tax regime is not possible for assessee’s having business or professional incomes. These assessee’s cannot switch over freely and are allowed only once and thereafter, they have to follow the opted out regime only.

However, other assessee’s with no business or professional income can freely switch over in the tax regimes every year.

The option for opting in the tax regime is available before filing the income tax return.

3. Change in the residential status as per Section 6:

An Indian citizen or PIO with total income exceeding Rs.15 lacs, other than foreign income, shall be Resident But Not Ordinarily Resident (RNOR), if his stay in India is more than 120 days and less than 182 days.

4. Deemed Or Domicile Based Residency Status:

The residential status of Citizen of India shall be Resident if his total income (excluding foreign income) exceeds Rs.15 lacs during the financial year and when he is not liable to be taxed in any other country due to his reason of his Domicile or residency.

5. Income from FTS or Royalty:

Non resident is exempt from filing income tax return u/s 115A if he has income from fees for technical services or royalty or dividend or interest income and Tds on such income has been deducted under Chapter XVII-B at the rates not lower than rates prescribed u/s 115A(1).

6. EPF, NPS and superannuation contribution:

Employer contribution to Employer provident fund, national pension scheme and superannuation, now, has a combined upper limit of Rs.7,50,000.00 p.a. Any amount above such limit will become part of the salary of the employee.

7. Audit Limit u/s 44AB enhanced

Audit limit increased from Rs.1 crores to Rs.5 crores with a condition that any cash payments shall not exceed 5% of the aggregate payments and cash receipt shall not exceed 5% of the gross receipts or turnover.

8. TCS on foreign remittances:

TCS at the rate of 5% (3.75% wef 14th May 2020) is now applicable on remittances of Rs.7 lacs or more under LRS (liberalized Remittance Scheme) route and on purchase of overseas tour program package.

10% (7.50% wef 14th May 2020), if Pan or Aadhaar is not available.

TCS of 0.5% (0.375% wef 14th May 2020) is applicable on loan taken for educational purposes.

9. Taxability of Dividends:

Dividends are now taxable in the hands of the shareholders as per their individual slab rates. Companies will no longer pay dividend distribution tax.

10. Business Connection definition widened:

The income attributable to operations shall include income from

  • Advertisements targeted at residents or through Indian IP address
  • Sale of data collected from residents or through Indian IP address
  • Sale of goods/ services from data collected from residents or through Indian IP address

11. Deemed Limit of 10% under Section 43CA, 50C, 56:

Safe harbor limit of difference between stamp duty value and sales consideration increased from 5% to 10%

12. Cost of property cannot exceed stamp duty value of immovable property:

The cost of immovable property determined as per fair market value as on 01st April 2001 cannot exceed Stamp duty value of the property, to calculate capital gains

13. Income from Mutual Funds:

Income from mutual funds is taxable in the hands of the unit holder. Tds @ 10% (7.50% wef 14th May 2020) shall be deducted for resident recipient if the income exceeds Rs.5000.

Tds @ 20% (15% wef 14th May 2020) shall be deducted in case of a non-resident unit holder.

14. Section 43B payments:

Allowing Deduction for amount disallowed u/s 43B, to insurance companies, shall be allowed on paid basis under section 43B.

15. TDS on employee stock options for start -ups

To ease the cash flow burden on employees of start ups, the eligible start-ups shall deduct Tds and pay tds within 14 days of deduction from earlier of:

  • Expiry of 48 months from the end of relevant Ay in which esops have been granted
  • Date of sale of such securities or
  • Date on which individual shall cease to be an employee

16. Works Contract definition changed u/s 194C:

Amendment in Definition of “work” 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.

An Associate is defined to mean a person who is placed similarly in relation to the customer as is the person placed in relation to the assessee under the provisions Section 40A(2)(b) of the Act.

17. Domestic Company u/s 115BAA and 115BAB:

Only deductions under Section 80JJAA and 80M allowed to the domestic company opting for concessional tax regime under Section 115BAA or 115BAB. Other Chapter VI-A deductions shall not be allowed.

Benefit of Section 115BAB shall also be available to a domestic company engaged in the business of generation of electricity.

18. Housing Loan deduction:

Additional housing loan deduction u/s 80EEA for rs.1,50,000.00 shall be allowed on house loan under affordable housing loan for loans sanctioned up to 31st March 2021.

19. Tds on fees for technical services u/s 194J:

Tds has been reduced to 2% u/s 194J on fees for technical services and 1.50% from 14th May 2020 till 31st march 2021.

20. Tds on payment of Cash u/s 194N:

5% on the amount withdrawn if it exceeds Rs.1 crores during the year and 3.75% wef 14th May 2020.

2% on the amount withdrawn if it exceeds Rs.20 lacs during the year and 1.50% wef 14th May 2020, in case of those persons who have not filed their Itr in last 3 preceding years.

21. Tds on E commerce operator u/s 194O:

Wef 01st October 2020, an e-commerce operator need to deduct tds @ 0.75% on the amount payable on sale of goods or provision of services while making payment to the e-commerce participant.

Threshold limit for non-deduction for individual or Huf is Rs. 5 lacs, if PAN or Aadhaar is furnished by the e-commerce participant.

22. TCS on sale of goods:

From 01st October 2020, tcs @ 0.1% (0.075% wef 14th May 2020) shall be collected by seller on payments to the supplier, in case supply exceeds Rs.50 lacs. This shall be applicable when the sellers turnover exceeds Rs.10 crores in the previous year.

1% tcs (0.75% wef 14th may 2020) in case of no Pan or Aadhaar.

23. Equalization Levy Definition Expanded:

2% equalization levy introduced on the sum received or receivable by the e-commerce operator on e-commerce supply of goods or services made or provided to

  • a resident person or
  • a person who buys such goods or services or both using internet protocol address located in India or
  • to a non-resident person

In case of sale of advertisement targeting a resident customer or a customer who accesses IP address located in India and sale of data to resident Indian or person using IP address located in India.

Threshold limit is Rs.2 crores for above.

The obligation to deduct Equalization levy in case of advertisement is on the payer to non-resident advertiser.

In case of non-resident e-commerce operator, the obligation is on e-commerce operator.

24. Cash donation limit:

Cash donation limit of Rs.10,000 is prescribed u/s 80GGA for organizations involved in scientific research or rural development.

25. Inclusion of PM CARES fund in Section 80G:

Under Section 80G, PM Cares fund has been included with 100% deduction exemption being eligible for the amount donated or contributed.

Disclaimer

While every care has been taken to ensure the accuracy/ authenticity of the above, the readers are advised to recheck/ reconfirm the same from the original sources/ relevant departments. The company shall in no way be responsible for any loss or damage suffered to any person on account of the same. The views expressed are personal opinion, compilation and is no way, to be used for any legal opinion, matters

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