The Finance Act 2020 has brought various amendments in the Income Tax which are relevant for the Financial Year (FY) 2020-21 some of the major amendments and new sections inserted by the Finance Act 2020 has been discussed in detail in the compilation attached here with.
The compilation has been prepared on the basis of the information as collected from the Finance Act 2020 and the memorandum explaining the finance bill 2020, the analysis portion of the compilation is completely personal opinion framed on the basis of interpretation of the law.
The Compilation also consists of discussions for certain relaxations granted under Direct Taxes due to COVID pandemic.
Major Amendments in Income Tax Act by Finance Act, 2020
Note: The compilation includes all the amendments made by the Finance Act 2020, under income tax Act relevant for the FY 2020-21, the amendments and insertions that are considered important in my opinion have been presented in detail whereas only the reference of sections has been given for other amendments.
Important Amendments at a glance:
1) Rate of Income Tax
2) Sec 80 IAC- Rationalization of provisions of start-ups
3) Sec 80IBA – Deduction to Builders under Affordable Housing
4) Sec 80EEA- Deduction for interest on loan taken for House Property
5) Sec 43CA, 50C and 56- Increase in safe harbour limit of 5 per cent to 10 percent
6) Section 35 AD-Providing an option to the assessee for not availing deduction .
7) Sec 115A- Exempting non-resident from filing of Income-tax return in certain
8) Sec 192-Deferring TDS or tax payment in respect of income pertaining ESOP of start- ups.
9) Sec 194J- Reducing the rate of TDS on fees for technical services
11) Sec 206C- Widening the Scope of Sec 206C for TCS levy on certain other transaction
12) Section 17- Rationalization of tax treatment of employer’s contribution to RPF,superannuation funds and NPS.
13) Section 6- Modifications of Residency Provisions
14) Sec 194C- Amending definition of Works under Sec 194C
15) Sec 115O, 115R, 10,115UA, 115BBDA,Sec 57, 194,196A,196C,196D-Removing dividend distribution tax (DDT) and moving to classical system of taxing dividend in the hands of shareholders/unit holders.
16) Section 55- Rationalization of provisions to compute cost of acquisition.
17) Sec44 AB- Rationalization of provision related to Tax Audit
18) Sec 288-Amendment in the provisions of Act relating to verification of the return of income and appearance of authorized representative.
19) Rationalisation of provisions relating to trust, institution and funds.
Insertion of New Sections/ provisions:
1) Sec 194-O- TDS on E commerce Transactions
2) Penalty for Fake Invoice
3) Sec 194K- TDS on income from Mutual Fund Units
4) Section 80M- Inter corporate Dividends
5) Sec 285BB- Form 26AS to provide multiple information
Certain Amendments and Relaxation due to CORONA pandemic
Rates of Income Tax
1. In case of an Individual (resident or non-resident) or HUF or Association of Person or Body of Individual or any other artificial juridical person
| Individuals | ||
| (Other than senior and super senior citizen) | ||
| Net Income Range | Rate of Income-tax | |
| Assessment Year 2021-22 | Assessment Year 2020-21 | |
| Up to Rs. 2,50,000 | – | – |
| Rs. 2,50,000 to Rs. 5,00,000 | 5% | 5% |
| Rs. 5,00,000 to Rs. 10,00,000 | 20% | 20% |
| Above Rs. 10,00,000 | 30% | 30% |
| Senior Citizen | ||
| (who is 60 years or more at any time during the previous year) | ||
| Net Income Range | Rate of Income-tax | |
| Assessment Year 2021-22 | Assessment Year 2020-21 | |
| Up to Rs. 3,00,000 | – | – |
| Rs. 3,00,000 to Rs. 5,00,000 | 5% | 5% |
| Rs. 5,00,000 to Rs. 10,00,000 | 20% | 20% |
| Above Rs. 10,00,000 | 30% | 30% |
| Super Senior Citizen | ||
| (who is 80 years or more at any time during the previous year) | ||
| Net Income Range | Rate of Income-tax | |
| Assessment Year 2021-22 | Assessment Year 2020-21 | |
| Up to Rs. 5,00,000 | – | – |
| Rs. 5,00,000 to Rs. 10,00,000 | 20% | 20% |
| Above Rs. 10,00,000 | 30% | 30% |
| Hindu Undivided Family (Including AOP, BOI and Artificial Juridical Person) | ||
| Net Income Range | Rate of Income-tax | |
| Assessment Year 2021-22 | Assessment Year 2020-21 | |
| Up to Rs. 2,50,000 | ||
| Rs. 2,50,000 to Rs. 5,00,000 | 5% | 5% |
| Rs. 5,00,000 to Rs. 10,00,000 | 20% | 20% |
| Above Rs. 10,00,000 | 30% | 30% |
Add:
a. Surcharge: Surcharge is levied on the amount of income-tax at following rates if total income of an assessee exceeds specified limits:-
|
Rate of Surcharge |
|||||||||
| Assessment Year 2021-22 | Assessment Year 2020-21 | ||||||||
| Range of Income | Range of Income | ||||||||
| Rs. 50 Lakhs t o Rs. 1 Crore | Rs. 1 C rore to Rs. 2 C rores | Rs. 2 C rores to Rs. 5 C rores | Rs. 5 cr ores to Rs. 10 Crores | Exceedin g Rs. 10 Crores | Rs. 50 Lakhs t o Rs. 1 Crore | Rs. 1 C rore to Rs. 2 C rores | Rs. 2 C rores to Rs. 5 C rores | Rs. 5 cr ores to Rs. 10 Crores | Exceedin g Rs. 10 Crores |
| 10% | 15% | 25% | 37% | 37% | 10% | 15% | 25% | 37% | 37% |
Marginal Relief:
Marginal relief has also been provided in all cases where surcharge is proposed to be levied
b. Health and Education Cess. Health and Education Cess is levied at the rate of 4% on the amount of income-tax plus surcharge.
Note: A resident individual (whose net income does not exceed Rs. 5,00,000) can avail rebate under section 87A. It is deductible from income-tax before calculating education cess. The amount of rebate is 100 per cent of income-tax or Rs. 12,500, whichever is less.
1. Special tax Rate for Individual and HUFs ( New Section 115BAC inserted)
The Finance Act, 2020, has provided an option to Individuals and HUF for payment of taxes at the following reduced rates from Assessment Year 2021-22 and onwards:
| Total Income (Rs) | Rate |
| Up to 2,50,000 | Nil |
| 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% |
Add:
a. Surcharge: Surcharge is levied on the amount of income-tax at following rates if total income of an assessee exceeds specified limits:-
| Assessment Year 2021-22 | ||||
| Range of Income | ||||
| Rs. 50 Lakhs to Rs. 1 Crore |
Rs. 1 Crore to R s. 2 Crores |
Rs. 2 Crores to R s. 5 Crores |
Rs. 5 crores to R s. 10 Crores |
Exceeding Rs. 10 C rores |
| 10% | 15% | 25% | 37% | 37% |
Marginal Relief:
Marginal relief has also been provided in all cases where surcharge is proposed to be levied
b. Health and Education Cess: Health and Education Cess is levied at the rate of 4% on the amount of income-tax plus surcharge.
Note 1: A resident individual (whose net income does not exceed Rs. 5,00,000) can avail rebate under section 87A. It is deductible from income-tax before calculating education cess. The amount of rebate is 100 per cent of income-tax or Rs. 12,500, whichever is less.
Note 2: The option to pay tax at lower rates shall be available only if the total income of assessee is computed without claiming specified exemptions or deductions.
1. Domestic Company
Income-tax rates applicable in case of domestic companies for assessment year 2020- 21 and 2021-22 are as follows:
| Domestic Company | ||
| Assessment Year 2020-21 | Assessment Year 2021-22 | |
| Where its total turnover or gro ss receipt during the previous year 2017-18 does not exceed R s. 400 crore | 25% | NA |
| Where its total turnover or gro ss receipt during the previous year 2018-19 does not exceed R s. 400 crore | NA | 25% |
| Any other domestic company | 30% | 30% |
Add:
a) Surcharge: The amount of income-tax shall be increased by a surcharge at the rate of 7% of such tax, where total income exceeds one crore rupees but not exceeding ten crore rupees and at the rate of 12% of such tax, where total income exceeds ten crore rupees.
b) Health and Education Cess: @4 Per cent of Corporate Tax
1. Special Tax rates applicable to a domestic company
The special Income-tax rates applicable in case of domestic companies for assessment year 2020-21 and 2021-22 are as follows:
| Domestic Company | ||
| Assessment Year 2020-21 | Assessment Year 2021-22 | |
| Where it opted for Section 115 BA | 25% | 25% |
| Where it opted for Section 115 BAA | 22% | 22% |
| Where it opted for Section 115 BAB | 15% | 15% |
Surcharge : The rate of surcharge in case of a company opting for taxability under Section 1 15BAA or Section 1 15BAB shall be flat 10% irrespective of amount of total income.
Health and Education Cess: @ 4percent of corporate tax and surcharge
MAT : The domestic company who has opted for special taxation regime under section 1 15BAA & 1 15BAB is exempted from provision of MAT. However, no exemption is available in case where section 11 5BA has been opted.
In that case, the provisions of Minimum Alternate Tax (MAT) applies, tax payable cannot be less than 15% (+HEC) of QBook profit’ computed as per section 11 5JB. However, MAT is levied at the rate of 9% (plus surcharge and cess as applicable) in case of a company, being a unit of an International Financial Services Centre and deriving its income solely in convertible foreign exchange.
Amendments of Sec 115BAA and 115BAB: Currently, section 1 15BAA and section
11 5BAB in the Act to provide domestic companies an option to be taxed at concessional tax rates provided they do not avail specified deductions and incentives Some of the deductions prohibited are deductions under any provisions of Chapter VI-A under the heading “C. Deduction in respect of certain incomes”other than the provisions of section 80JJAA Now the provisions of Sec 115BAA and BAB have been amended to not allow deduction under any provisions of Chapter VI-A other than section 80JJAA or section 80M, in case of domestic companies opting for taxation under these Sections.
Effective Date: 1st April 2020
2. Co-operative Society
Assessment Year 2020-21 and Assessment Year 2 021-22
| Taxable income | Tax Rate |
| Up to Rs. 10,000 | 10% |
| Rs. 10,000 to Rs. 20,000 | 20% |
| Above Rs. 20,000 | 30% |
Add.
2) Surcharge. The amount of income-tax shall be increased by a surcharge at the rate of 12% of such tax, where total income exceeds one crore rupees.
b) Health and Education Cess: @ 4 percent of income tax and surcharge
Marginal Relief:
Marginal relief has also been provided in all cases where surcharge is proposed to be levied 2. Special tax rates applicable to a Co-operative societies (New Section 115BAD inserted)
Assessment Year 2021-22
| Taxable income | Tax Rate | |
| Any income | 22% |
Note:
The Finance Act, 2020 has inserted a new section 115BAD in Income-tax Act to provide an option to the co-operative societies to get taxed at the rate of 22% plus 10% surcharge and 4% cess. The resident co-operative societies have an option to opt for taxation under newly section 115BAD of the Act w.e.f. Assessment Year 2021-22. The option once exercised under this section cannot be subsequently withdrawn for the same or any other previous year.
If the new regime of Section 115BAD is opted by a co-operative society, its income shall be computed without providing for specified exemption, deduction or incentive available under the Act. The societies opting for this section have been kept out of the purview of Alternate Minimum Tax (AMT). Further, the provision relating to computation, carry forward and set-off of AMT credit shall not apply to these 6uthoriz
The option to pay tax at lower rates shall be available only if the total income of co-operative society is computed without claiming specified exemptions or deductions
Income tax slabs for Firm/ Local Authorities : Remains unchanged.
Analysis of the Special rate structure:
1) In case an individual or HUF opts for paying tax at concessional rate by virtue of Sec 115 BAC various conditions have been prescribed, what are these conditions ?
The individual or HUF opting for taxation under the newly inserted section 115BAC of the Act shall not be entitled to the following exemptions/ deductions i.e. the total income of the individual or HUF shall be computed:
1) Without the following exemptions and deductions:
(i) Leave travel concession as contained in clause (5) of section 10;
(ii) House rent allowance as contained in clause (13A) of section 10;
(iii) Some of the allowance as contained in clause (14) of section 10;
(iv) Allowances to MPs/MLAs as contained in clause (17) of section 10;
(v) Allowance for income of minor as contained in clause (32) of section 10;
(vi) Exemption for SEZ unit contained in section 10AA;
(vii) Standard deduction, deduction for entertainment allowance and employment/professional tax as contained in section 16;
(viii) Interest under section 24 in respect of self-occupied or vacant property referred to in subsection (2) of section 23.(Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law);
(ix) Additional deprecation under clause (iia) of sub-section (1) of section 32;
(x) Deductions under section 32AD, 33AB, 33ABA;
(xi) Various deduction for donation for or expenditure on scientific research contained in subclause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35;
(xii) Deduction under section 35AD or section 35CCC;
(xiii) Deduction from family pension under clause (iia) of section 57;
(xiv) Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA,80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80- IB, 80-IBA, etc). However, deduction under sub-section (2) of section 80CCD (employer contribution on account of employee in notified pension scheme) and section 80JJAA (for new employment) can be claimed.
2)With the following deductions for allowances:-
(a) Transport Allowance granted to a divyang employee to meet expenditure for the purpose of commuting between place of residence and place of duty
(b) Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office;
(c) Any Allowance granted to meet the cost of travel on tour or on transfer;
(d) Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.
3)without set off of any loss,—
(a) carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in point no 1 above;
(b) under the head “Income from house property”with any other head of income;
4) by claiming the depreciation, if any, under section 32, except clause (iia) of sub- section (1) thereof, determined in such manner as may be prescribed; and
5) without any exemption or deduction-
for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.
The loss and depreciation referred to in point 3 above shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year so however, that where there is a depreciation allowance in respect of a block of asset which has not been given full effect to prior to the assessment year beginning on 1st April, 2021, corresponding adjustment shall be made to the written down value of such block of assets as on 1 st April, 2020 in the prescribed manner, if the option is exercised for a previous year relevant to the assessment year beginning on 1st April, 2021
2) How and when can the option for concessional rate be applied, and can the option once exercised be changed ?
In this regard Sub section 5 of section 115 BAC reads as under:
(5) Nothing contained in this section shall apply unless option is exercised in the prescribed manner by the person,—
(i) having income from business or profession, on or before the due date specified under sub-section (1) of section 139 for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2021, and such option once exercised shall apply to subsequent assessment years;
(ii) having income other than the income referred to in clause (i), along with the return of income to be furnished under sub-section (1) of section 139 for a previous year relevant to the assessment year:
Provided that the option under clause (i), once exercised for any previous year can be withdrawn only once for a previous year other than the year in which it was exercised and thereafter, the person shall never be eligible to exercise option under this section, except where such person ceases to have any income from business or profession in which case, option under clause (ii) shall be available.
SO:
How and When : choice of availing the scheme is at the time of filing the return of income.
Can the option once exercised be changed:
Yes,
Assessees having income other than income from business or profession has the right to choose between the old scheme and the new scheme for any previous year at the time of filing of his return of income u/s 139(1).
But,
An Assessee having income from business or profession can avail this option for any AY commencing on or after 1st April 2021 and the option once exercised shall apply to subsequent assessment years, in such case option once exercised for any previous year can be withdrawn only once for a previous year other than the year in which it was exercised and thereafter, the person shall never be eligible to exercise option under this section, except where such person ceases to have any income from business or profession.
3) At what rate should the employer deduct TDS in such situation when he is not confirmed about which scheme employee will avail?
CBDT has issued a circular vide F.No.370142/13/2020-TPL dated April 13, 2020 in this regard , circular reads that :
“In case of an employee having income other than income from Business or Profession, who intends to avail concessional rate of tax u/s 115BAC shall intimate the deductor (the employer) for each previous year. Upon such intimation, the deductor shall make TDS as per the concessional rate. If such intimation is not made by the employee, the employer shall make TDS without considering the provisions of Sec 115BAC.
The intimation so made to the deductor shall be only for the purposes of TDS during the previous year and cannot be modified during that year. But, this doesn’t mean the exercising the option u/s 115BAC. The option to choose the scheme is always at the time of filing of return of income u/s 139(1). Thus, the option at the time of filing of return of income and intimation made to the employer could be different.”
2. Sec 80 IAC- Rationalization of provisions of start-ups
Existing Provision: The existing provisions of section 80-IAC of the Act provide for a deduction of an amount equal to one hundred per cent of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of seven years, at the option of the assessee, subject to the condition that the eligible start-up is incorporated on or after 1st April, 2016 but before 1st April, 2021 and the total turnover of its business does not exceed twenty-five crore rupees.
Amended Provision: Now the provisions of the sections have been amended where
(i) the deduction under the said section 80-IAC shall be available to an eligible start-up for a period of three consecutive assessment years out of ten years beginning from the year in which it is incorporated;
(ii) the deduction under the said section shall be available to an eligible start-up, if the total turnover of its business does not exceed one hundred crore rupees in any of the previous years beginning from the year in which it is incorporated.
Effective Date: 1st April 2021
3. Sec 80IBA – Deduction to Builders under Affordable Housing
Existing Provisions: The existing provisions of section 80-IBA of the Act, inter alia, provide that where the gross total income of an assessee includes any profits and gains derived from the business of developing and building affordable housing projects, there shall, subject to certain conditions specified therein, be allowed a deduction of an amount equal to one hundred per cent of the profits and gains derived from such business. The conditions contained in the section, inter alia, prescribe that the project is approved by the competent authority during the period from 1st June, 2016 to 31st March, 2020.
Amended Provision: under the amended section 80IBA the period of approval of the project by the competent authority for availing deduction under this section has been extended to 31st March, 2021.
Effective date : 1st April 2021
4. Sec 80EEA- Deduction for interest on loan taken for House Property
Existing Provision: The existing provisions of section 80EEA of the Act provide for a deduction in respect of interest on loan taken from any financial institution for acquisition of an affordable residential house property. The deduction allowed is up to one lakh fifty thousand rupees and is subject to certain conditions. One of the conditions is that loan has been sanctioned by the financial institution during the period from 1st April, 2019 to 31st March, 2020 The said deduction is aimed to incentivise first time buyers to invest in residential house property whose stamp duty does not exceed forty-five lakh rupees.
Amended Provision: under the amended provision section 80EEA the period of sanctioning of loan by the financial institution for availing deduction under sec 80EEA has been extended to 31st March, 2021.
Effective date: 1st April 2021
5. Sec 43CA, 50C and 56- Increase in safe harbour limit of 5 per cent to 10 percent
| Section | Relevant provision related to amendment |
| 43CA | provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (i.e. “stamp valuation authority”) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall for the purpose of computing profits and gains from transfer of such assets, be deemed to be the full value of consideration. The said section also provide that where the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration. |
| 50C | provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed or assessable by stamp valuation authority for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall be deemed to be the full value of the consideration and capital gains shall be computed on the basis of such consideration under section 48 of the Act. The said section also provides that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration. |
| 56(2)(x) | provides that where any person receives, in any previous year, from any person or persons on or after 1st April, 2017, any immovable property, for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration shall be charged to tax under the head “income from other sources”. It also provide that where the assessee receives any immovable property for a consideration and the stamp duty value of such property exceeds five percent of the consideration or fifty thousand rupees, whichever is higher, the stamp duty value of such property as exceeds such consideration shall be charged to tax under the head “Income from other sources”. |
All these sections 43CA, 50C and 56(2)(x) presently provide for safe harbour limit of 5 per cent
Amended Provision: Now the relevant provisions of sec 43CA, 50C and 56(2)(x) has been amended whereby the safe harbour limit of 5 per cent has been increased to 10 per cent
Effective date: 1st April 2021
6. Section 35 AD-Providing an option to the assessee for not availing deduction.
Existing Provision: Section 35AD of the Act, relating to deduction in respect of expenditure on specified business, provides for 100 per cent. deduction on capital expenditure (other than expenditure on land, goodwill and financial assets) incurred by the assessee on certain specified businesses. Under sub-section (1) of section 35AD, the said deduction of 100 per cent. of the capital expenditure is allowable during the previous year in which such expenditure has been incurred. Further, sub-section (4) provides that no deduction is allowable under any other section in respect to the expenditure referred to in sub-section (1). Due to this, a legal interpretation can be made that a domestic company opting for concessional tax rate under section 115BAA or section 115BAB of the Act, which does not claim deduction under section 35AD, would also be denied normal depreciation under section 32 due to operation of sub-section (4) of section 35AD.
At present, an assessee does not have any option of not availing the incentive under said section.
Amended Provision: Subsection (1) of 35AD has been amended to make the deduction thereunder optional, and Subsection (4) of Section 35AD has been amended to provide that no deduction will be allowed in respect of expenditure incurred under sub-section (1) in any other section in any previous year or under this section in any other previous year, if the deduction has been claimed by the assessee and allowed to him under this section. Now as per The Finance Act 2020,
In section 35AD of the Income-tax Act,––
(i)in sub-section (1), for the words “An assessee shall”, the words “An assessee shall, if he opts,” shall be substituted;
(ii)in sub-section (4), after the words “in any other previous year”, the word
“, if the deduction has been claimed or opted by the assessee and allowed to him under this section” shall be inserted.
Effective date: 1st April 2020
7) Sec 115A- Exempting non-resident from filing of Income-tax return in certain conditions
Existing Provisions: Section 1 15A of the Act provides for the determination of tax for a non-resident whose total income consists of:
(a) certain dividend or interest income;
(b) royalty or fees for technical services (FTS) received from the Government or Indian concern in pursuance of an agreement made after 31stMarch 1976, and which is not effectively connected with a PE, if any, of the non-resident in India.
Sub-section (5) of said section provides that a non-resident is not required to furnish its return of income under sub-section (1) of section 139 of the Act, if its total income, consists only of certain dividend or interest income and the TDS on such income has been deducted according to the provisions of Chapter XVII-B of the Act.
The current provisions of section 11 5A of the Act provide relief to non-residents from filing of return of income where the non-resident is not liable to pay tax other than the TDS which has been deducted on the dividend or interest income, the same relief has not been extended to non-residents whose total income consists only of the income by way of royalty or FTS of the nature as mentioned in point (b) above.
Amended Provision: The provisions of Sec 115A have been amended to extend the relief form filling return by non residents if his total income consists of only certain dividend or interest income as referred to under clause (a) of subsection (1) of said section or royalty or FTS income of nature as specified in clause (b) of subsection (1) of said section. And TDS on such income has been deducted under the provisions of Chapter XVII B of the act,
Further certain other amendments have been made under Section:
1) In sub section (1) clause (a) of section the words “other than dividends referred to in section 115O have been omitted”
2) Clause (BA) of Section 115A currently provide that:
the income-tax payable shall be aggregate of
(BA) the amount of income-tax calculated on the amount of income by way of interest referred to in sub-clause (iia) or sub-clause (iiaa) or sub-clause (iiab) or sub-clause (iiac), if any, included in the total income, at the rate of five per cent
Now the clause has been amended to provide that the amount of income-tax calculated on the amount of income by way of interest referred to in,
(i)sub-clause (iia), if any, included in the total income, at the rate of five per cent.;
(ii) sub-clause (iiaa) or sub-clause (iiab) or sub-clause (iiac), if any, included in the total income, at the rate provided in the respective sections referred to in the said sub-clauses;”;
Effective date: 1st April 2021
8) Sec 192-Deferring TDS or tax payment in respect of income pertaining ESOP of start- ups.
Existing Provision: Sub section (1) and (1A) of the section 192 provide that:
(1)Any person responsible for paying any income chargeable under the head “Salaries” shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year.
(1A) Without prejudice to the provisions contained in sub-section (1), the person responsible for paying any income in the nature of a perquisite which is not provided for by way of monetary payment, referred to in clause (2) of section 17, may pay, at his option, tax on the whole or part of such income without making any deduction therefrom at the time when such tax was otherwise deductible under the provisions of sub-section (1).
Currently ESOPs are taxed as perquisites under section 17(2) of the Act read with Rule 3(8)(iii) of the Rules. The taxation of ESOPs is split into two components:
i. Tax on perquisite as income from salary at the time of exercise.
ii. Tax on income from capital gain at the time of sale.
The tax on perquisite is required to be paid at the time of exercising of option.
So, In order to ease the burden of payment of taxes by the employees of the eligible start-ups or TDS by the start-up employer. Sec 192 has been amended and Sub Section (1C) has been inserted by finance Act 2020 which reads as:
Amended Provision:
“(1C) For the purposes of deducting or paying tax under sub-section (1) or sub-section (1A), as the case may be, a person, being an eligible start-up referred to in section 80-IAC, responsible for paying any income to the assessee being perquisite of the nature specified in clause (vi) of sub-section (2) of section 17 in any previous year relevant to the assessment year, beginning on or after the 1st day of April, 2021, shall deduct or pay, as the case may be, tax on such income within fourteen days––
(i) after the expiry of forty-eight months from the end of the relevant assessment year; or
(ii) from the date of the sale of such specified security or sweat equity share by the assessee; or
(iii) from the date of the assessee ceasing to be the employee of the person,
whichever is the earliest, on the basis of rates in force for the financial year in which the said specified security or sweat equity share is allotted or transferred.
Similarly Sec 191 has been amended ( for assessee to pay tax direct in case of no TDS) sub section (2) has been inserted, section 156( for notice of demand) and Section 140A( for calculating self assessment) have also been amended to give effect to above provisions.
Effective Date: 1st April 2020
9) Sec 194J- Reducing the rate of TDS on fees for technical services. Existing Provision:
Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of—
(a) fees for professional services, or
(b) fees for technical services, or
(ba) any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company, or
(c ) royalty, or
(d) any sum referred to in clause (va) of section 28,
shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein
Amended Provision: Under the amended provision of Sec 194J the rate of TDS in case of fees for technical services (other than professional services or royalty where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic films) has been reduced to two per cent from existing ten per cent. The TDS rate in other cases under section 194J would remain same at ten per cent.
Effective Date: 1st April 2020.
10) Sec 194A- TDS on interest other than interest on securities
Existing Provisions: Section 194A of the Act governs interest other than interest on securities. Sub-section (1) thereof provides that any person not being individual or HUF who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall deduct income-tax at the rates in force.
Sub-section (3) of said section provides for circumstances in which the provisions of sub-section (1) shall not apply Clause (v) of sub section provides circumstance to be the income credited or paid by a co-operative society (other than a co-operative bank) to a member or to income credited or paid by a co-operative society to any other co-operative society.
Clause (vii a) provides circumstance to be the income credited or paid in respect of deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank and deposits (other than time deposits) with a co-operative bank other than a co-operative society or bank engaged in carrying on the business of banking.
Currently no TDS is required to be deducted under Sec 194A in case of interest credited or paid by co-operative society as mentioned under Clause (v) and (vii a ) of subsection (3) so, In order to extend the scope of this section to interest paid by large co-operative society Subsection (3) of section 194 has been amended to provide:
Amended Provision:
“Provided that a co-operative society referred to in clause (v) or clause (vii a) shall be liable to deduct income-tax in accordance with the provisions of sub-section (1), if—
(a) the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees during the financial year immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid; and
(b) the amount of interest, or the aggregate of the amounts of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than fifty thousand rupees in case of payee being a senior citizen and forty thousand rupees in any other case.”͖
Effective date: 1st April 2020
11) Sec 206C- Widening the Scope of Sec 206C for TCS levy on certain other transaction
Existing Provision: Section 206C of the Act provides for the collection of tax at source (TCS) on business of trading in alcohol, liquor, forest produce, scrap etc. Sub-section (1) of the said section, inter-alia, provides that every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of certain goods a sum equal to specified percentage, of such amount as income-tax.
Amended Provision: Now the scope of Section 206C has been widened to introduce TCS levy on sale of goods above the specified limit,
The amended provision of Sec 206C provides that:
| Person required to collect | Provisions |
| Seller of Goods | 1) 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, shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent. of the sale consideration exceeding fifty lakh rupees as income-tax:
2) In case buyer doesn’t provide PAN/Aadhaar the rate shall be one percent 3) The provisions are not applicable in case of goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) of Sec 206C 4) Only those seller whose total sales, gross receipts or turnover from the business carried on by it exceed ten crore rupees during the financial year immediately preceding the financial year, shall be liable to collect such TCS. 5) No TCS is to be collected from the Central Government, a State Government and an embassy, a High Commission, legation, commission, consulate, the trade representation of a foreign State, a local authority as defined in 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 conditions as prescribed in such notification. 6) No such TCS is to be collected, if the seller is liable to collect TCS under other provision of section 206C or the buyer is liable to deduct TDS under any provision of the Act and has deducted such amount. |
| Authorized Dealer/Seller of overseas tour | 1) Every person being an authorized 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 for the purpose other than purchase of overseas tour programme package.
2) A seller of an overseas tour program package who receives any amount from any buyer, being a person who purchases such package. Rate of TCS in above cases: @ 5 percent in all other cases , In non PAN/Aadhaar cases rate@ 10 per cent and @one half per cent of the amount or aggregate of the amounts in excess of seven lakh rupees remitted by the buyer in a financial year,if the amount being remitted out is a loan obtained from any financial institution as defined in section 80E, for the purpose of pursuing any education 3) Provisions not applicable if buyer is: a) liable to deduct tax at source under any other provision of the Act and he has deducted such amount. b) the Central Government, a State Government , an embassy, a High Commission, legation, commission, consulate, the trade representation of a foreign State, a local authority as defined in Explanation to clause (20) of section 10 or any other person notified by the Central Government in the Official Gazette for this purpose subject to such conditions as specified in that notification. 4) the Authorized dealer shall not collect the sum on an amount in respect of which the sum has been collected by the seller |
Effective Date : 1st October 2020.
Analysis of Sec 206C (1H) : TCS on sale of Goods
1) TCS to be collected only on the amount exceeding Rs 50 Lakhs
For E.g. if total ‘sales of goods’ during the year is Rs. 60 Lakhs then in that case TCS is to be collected on amount exceeding Rs. 50 lakhs only, i.e. TCS @0.1% is to be collected on Rs. 10 Lakh (60 Lakh – 50 Lakh).
2) TCS to be collected at the time of receipt
As per the interpretation of terms used in above section ‘at the time of receipt’ makes it clear that the TCS is to be collected at the time when actual payment is received by the seller
For E.g. If Mr A sells goods worth Rs 80 Lakhs to Mr. B ,Mr. B makes
Payment of Rs 50 Lakhs in at the time of purchase and balance Rs 30 Lakhs later, so on Rs 50 Lakhs no TCS will be collected as the limit of 50 Lakhs will be adjusted with it and the TCS on 30 Lakhs will be collected at the time of actual receipt.
3) The limit of Rs 10 crores of sales considered should be taken inclusive or exclusive of GST
No clarification has been provided by CBDT in this regard.
In my opinion to play safe the limit of Rs 10 crores should be taken including GST till any clarification from CBDT.
12) Section 17- Rationalization of tax treatment of employer’s contribution to RPF,superannuation funds and NPS
Existing Provisions: Under the existing provisions of the Act, the contribution by the employer to the account of an employee in a recognized provident fund exceeding twelve per cent. of salary is taxable.
Further, the amount of any contribution to an approved superannuation fund by the employer exceeding one lakh fifty thousand rupees is treated as perquisite in the hands of the employee.
Similarly, the assessee is allowed a deduction under National Pension Scheme (NPS) for the fourteen per cent. of the salary contributed by the Central Government and ten per cent. of the salary contributed by any other employer.
However, there is no combined upper limit for the purpose of deduction on the amount of contribution made by the employer.
Amended Provision: The provisions of Sec 17 have been amended to provide a combined upper limit of seven lakh and fifty thousand rupee in respect of employer’s contribution in a year to NPS, superannuation fund and recognized provident fund and any excess contribution is proposed to be taxable. Consequently, it is also provided that any 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 may be treated as perquisite to the extent it relates to the employer’s contribution which is included in total income.
Effective date: 1st April 2021
13) Section 6- Modifications of Residency Provisions
Existing Provisions: Sub-section (1) of section 6 of the Act provide for situations in which an individual shall be resident in India in a previous year. Clause ( c) thereof provides that the individual shall be Indian resident in a year, if he,-
(i) is in India in that year for a period or periods in all amounting in all to 182 days or more;
(ii) has been in India for an overall period of 365 days or more within four years preceding that year, and is in India for an overall period of 60 days or more in that
Clause (b) of Explanation 1 of said sub-section provides that an Indian citizen or a person of Indian origin shall be Indian resident if he is in India for 182 days instead of 60 days in that year, this provision provides relaxation to an Indian citizen or a person of Indian origin allowing them to visit India for longer duration without becoming resident of India.
Now the Finance Act 2020 has introduced the concept of Deemed Resident whereby a person shall be deemed to be resident if income earned or accrued in India exceeds 15 Lakhs rupees, the provisions in relation to same are as laid below;
Amended Provision:
In section 6 of the Income-tax Act, with effect from the 1st day of April, 2021 ,±± (a) in clause (1), in Explanation 1, in clause (b), for the words 3substituted’ occurring at the end, the words 3substituted and in case of the citizen or person of Indian origin having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year,’ for the words “sixty days” occurring therein, the words “one hundred and twenty days” had been substituted i.e. a person shall be deemed to be resident in India if a citizen or person of Indian origin having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year comes to India from outside India and is in India for 120 days or more;
and
if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature;
The above amendment has been brought by inserting new section 6(1A)
Explanation.For the purposes of this section, the expression “income from foreign sources” means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).
Currently Section 6(6) provides for the condition when the person is said to “not ordinarily resident” in India;
Provision provides that
A resident individual will be treated as resident and non ordinarily resident in India during the year if he satisfies following conditions:
1) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.
2) His stay in India is for 730 days or more during 7 years immediately preceding the relevant year.
In addition to the existing conditions, the finance act 2020 has added the following two more situations wherein a resident is deemed to be “not ordinarily resident in India”
1) if an Indian citizen or person of Indian origin having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year who has been is in India for 120 days or more but less than 182 days.
Or,
2) a citizen of India who is deemed to be resident in India under clause (1A).
Effective Date :1st April 2021
14) Sec 194C- Amending definition of Works under Sec 194C
Exisiting Provisions: Section 194C of the Act provides for the deduction of tax on payments made to contractors. The section provides that any person responsible for paying any sum to a resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract shall at the time of such credit or at the time of payment whichever is earlier deduct an amount equal to one per cent in case payment is made to an individual or an HUF and two per cent in other cases.
Clause (iv) of the Explanation of the said section defines “work”
Sub-clause (e) of this definition includes manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer within the definition. However, it excludes manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.
Amended Provision: The definition of work under Sec 194 C has been amended 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.
Associate has been 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 contained in clause (b) of sub-section (2) of section 40A of the Act.
Now the Amended provision reads as below:
in clause (iv),––
(i) for sub-clause (e ), the following sub-clause shall be substituted, namely:
“(e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer or its associate, being a person placed similarly in relation to such customer as is the person placed in relation to the assessee under the provisions contained in clause (b) of sub-section (2) of sect on 40A,”; in the long line, after the words “other than such customer”, the words “or associate of such customer” shall be inserted
Effective Date: 1st April 2020.
15) Sec 115O, 115R, 10,115UA, 115BBDA,Sec 57, 194,196A,196C,196D-Removing dividend distribution tax (DDT) and moving to classical system of taxing dividend in the hands of shareholders/unit holders.
Exisiting Provisions: Section 115-O provides that, in addition to the income-tax chargeable in respect of the total income of a domestic company, any amount declared, distributed or paid by way of dividends shall be charged to additional income-tax at the rate of 15 per cent. The tax so paid by the company (called DDT) is treated as the final payment of tax in respect of the amount declared, distributed or paid by way of dividend. Such dividend referred to in section 115-O is exempt in the hands of shareholders under clause (34) of section 10. In case of business trust, specific exemption is provided under sub-section (7) of section 115-O, subject to certain conditions.
Similarly, exemption is provided for distributed profits of a unit of an International Financial Service Centre, on fulfilment of certain conditions, under sub-section (8) of section 115-O. Similarly under section 115R, specified companies and Mutual Funds are liable to pay additional income-tax at the specified rate on any amount of income distributed by them to its unit holders. Such income is then exempt in the hands of unit holders under clause (35) of section 10.
The incidence of tax is, thus, on the payer company/Mutual Fund and not on the recipient, where it should normally be. The dividend is income in the hands of the shareholders and not in the hands of the company. The incidence of the tax should therefore, be on the recipient.
Amended Provision: Now as per the Finance Act 2020, the domestic company or the specified company or mutual funds are not required to pay any Dividend Distribution Tax(DDT) and that the dividend or the income from units shall be taxable in hands of shareholder/unit holder and hence the provisions of the following sections as mentioned below have been amended:
| Sections | Amended provision in relation to dividend |
| 1)115-O | to provide that dividend declared, distributed or paid after 1st April, 2003, but on or before 31st March, 2020 shall be covered under the provision of this section. i.e. No DDT after 31st March 2020. |
| 2)10 (34) | to provide that the provision of this clause shall not apply to any income, by way of dividend, received on or after 1st April, 2020. i.e. after 1st April 2020 dividend received will be taxable. |
| 3)1 15R | to provide that the income distributed on or before 31st March, 2020 shall only be covered under the provision of this section. i.e. No Tax on income distributed by specified co. or mutual funds after 31st March 2020. |
| 4)10(35) | to provide that the provision of this clause shall not apply to any income, in respect of units, received on or after 1st April, 2020. .i.e. after 1st April 2020 income received from units will be taxable |
| 5)10(23FC) | To provide that all dividends received or receivable by business trust from a special purpose vehicle is exempt income under this clause. i.e. earlier any dividend referred to in sub-section (7) of section 115-O. was exempt under this clause but now only dividend received from special purpose vehicle is exempt |
| 6)10(23FD) | to exclude dividend income received by a unit holder from business trust from the exemption so that the dividend income is taxable in the hand of unit holder of the business trust. |
| 7)115UA(3) | Current provisions of Sec 1 15UA provide as under: Notwithstanding anything contained in any other provisions of this Act, any income distributed by a business trust to its unit holders shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder as it had been received by, or accrued to, the business trust.
Subsection (3) of section provides If in any previous year, the distributed income or any part thereof, received by a unit holder from the business trust is of the nature as referred to in sub-clause (a) of clause (23FC) or clause (23FCA) of section 10, then, such distributed income or part thereof shall be deemed to be income of such unit holder and shall be charged to tax as income of the previous year Now subsection (3) has been amended to delete reference to sub-clause (a) so that distributed income of the nature as referred to in clause (23FC) or clause (23FCA) of section 10 shall be deemed to be income of the unit holder and shall be charged to tax as income of the previous year. Thus dividend income distributed by a special purpose vehicle to business trust would be taxed in the hands of unit holder |
| 8)10(23D) | clause (23D), in the opening portion, the words, figures and letter “subject to the provsions of Chapter XII-E,” shall be omitted; as mutual fund no longer required to pay additional tax. |
| 9)1 15BBDA | amend section 1 15BBDA which taxes dividend income in excess of ten lakh rupee in the hands of shareholder at ten per cent., to only dividend declared, distributed or paid by a domestic company on or before the 31st day of March, 2020. i.e. after 31st March 2020 assessee is no longer required to pay tax u/s 11 5BBDA where tax is to be paid at the rate of 10% on dividend exceeding Rs. 10 Lakh. However this is logical because Dividend income will now be included in total income of the assessee and assessee will anyway pay tax on this dividend income. |
| 10)57 | Currently Sec 57 provides that The income chargeable under the head “Income from other sources” shall be computed after making the following deductions, namely :
(i) in the case of dividends, other than dividends referred to in section 115-O, or interest on securities, any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realising such dividend or interest on behalf of the assessee ; Now the words “ other than dividends referred to in sec 115O has been omitted and a Proviso has been inserted which Provides no deduction shall be allowed from the dividend income, or income in respect of units of a Mutual Fund specified under clause (23D) of section 10 or income in respect of units from a specified company defined in the Explanation to clause (35) of section 10, other than deduction on account of interest expense, and in any previous year such deduction shall not exceed twenty per cent. of the dividend income, or income in respect of such units, included in the total income for that year, without deduction under this section” |
| 11)194 | Section 194 currently provides for deduction of TDS on dividend payment in cash or before issuing any cheque or warrant by the company at specified rates, also the sections provides that NO TDS shall be deducted where i) Dividend has been paid by account payee cheque and ii) the amount of such dividend or, as the case may be, the aggregate of the amounts of such dividend distributed or paid or likely to be distributed or paid during the financial year does not exceeds Rs 2500.
Now the provisions have been amended whereby:- 1)TDS shall be deducted @ 10 Per cent 2) Limit of Rs 2500 increased to Rs 5000 in case of dividends paid by account payee cheque or any mode other than cash. 3) The mode of payment has been changed to “ANY MODE” from cash or before issuing any cheque or warrant. Also the existing Third Proviso that no such deduction shall be made in respect of any dividends referred to in section 115-O. has been deleted So in Nutshell TDS will be deducted @ 10 percent for dividend paid on any amount in cash and in excess of Rs 5000 if paid by any mode other than cash. |
| 12)194LBA | to provide for tax deduction by business trust on dividend income paid to unit holder, at the rate of ten per cent. for resident. For non-resident, it would be 5 per cent for interest and ten per cent. for dividend. |
| 13)1 95 | to delete exemption provided to dividend referred to in section 115-O. |
| 14)196A | Currently provisions of Sec 196A subsection (1) provides ;Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any income in respect of units of a Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of twenty per cent :
Provided that no deduction shall be made under this section from any such income credited or paid on or after the 1st day of April, 2003. Now, (a) for the words “of the Unit Trust of India”, the words, brackets and figures “from the specified company referred to in the Explanation to clause (35) of section 10” shall be substituted; (b) for the words “in cash or by the issue of a cheque or draft or by any other mode” the words “ by any mode” shall be substituted; (c) the proviso shall be omitted. |
| 15)196C | to remove exclusion provided to dividend under section 115-O. It is also proposed to substitute “in cash or by the issue of a cheque or draft or by any other mode” with “by any mode” |
| 16)196D | to remove exclusion provided to dividend under section 115-O. It is also proposed to substitute “in cash or by the issue of a cheque or draft or by any other mode” with by any mode” |
Effective Date: Points 1 to 10 w.e.f 1st April 2021. Points 11 to 16 W.e.f 1st April 2020.
16) Section 55- Rationalization of provisions to compute cost of acquisition.
Existing Provision: The existing provisions of section 55 of the Act provide that for computation of capital gains, an assessee shall be allowed deduction for cost of acquisition of the asset and also cost of improvement, if any. However, for computing capital gains in respect of an asset acquired before 1st April, 2001, the assessee has been allowed an option of either to take the fair market value of the asset as on 1st April, 2001 or the actual cost of the asset as cost of acquisition.
Amended Provision: The provision of the section has been amended and a proviso has been inserted after Sub clause (ii) of clause (b) of Subsection (2) of section 55 that ‘Provided that in case of a capital asset referred to in sub-clauses (i) and (ii), being land or building or both, the fair market value of such asset on the 1st day of April, 2001 for the purposes of the said sub-clauses shall not exceed the stamp duty value, wherever available, of such asset as on the 1st day of April, 2001.
Explanation. For the purposes of this proviso“stamp duty value” means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property.’.
Effective date : 1st April 2021
17) Sec44 AB- Rationalization of provision related to Tax Audit
Existing Provisions: Under section 44AB of the Act, every person carrying on business is required to get his accounts audited before the specified date, if his total sales, turnover or gross receipts, in business exceed or exceeds one crore rupees in any previous year. In case of a person carrying on profession he is required to get his accounts audited before the Specified date, if his gross receipt in profession exceeds, fifty lakh rupees in any previous year.
Specified date: in relation to the accounts of the assessee of the previous year relevant to an assessment year, means the due date for furnishing the return of income under sub-section (1) of section 139.
Amended Provision: The provisions of Sec 44AB have now been amended to increase the threshold limit for a person carrying on business from one crore rupees to five crore rupees in cases where,-
(a) aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent. of the said amount; and
(b) aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent. of the said payment,
Specified date: now explained as “in relation to the accounts of the assessee of the previous year relevant to an assessment year, means “date one month prior to” the due date for furnishing the return of income under sub-section (1) of section 139.
The provisions of section 10, section 10A, section 12A, section 32AB, section 33AB, section 33ABA, section 35D, section 35E, section 44AB, section 44DA, section 50B, section 80-IA, section 80-IB, section 80JJAA, section 92F, section 115JB, section 115JC and section 115VW has been amended for giving effect to amendment of specified date.
Further Sec 139(1) has also been amended to provided that:
(A) providing 31st October of the assessment year (as against 30th September) as the due date for an assessee referred to in clause (a) of Explanation 2 of sub-section (1) of Section 139 of the Act; i.e. the due date for Income tax return extended to 31st October
(B) removing the distinction between a working and a non-working partner of a firm with respect to the due date as mentioned in sub-clause (iii) of clause (a) of Explanation 2 of sub-section (1) of Section 139 of the Act.
Effective Date: 1st April 2020
Also The amendment relating to extending threshold for getting books of accounts audited will have consequential effect on TDS/TCS provisions contained in sections 194A, 194C, 194H, 194I, 194J and 206C 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.
Therefore, it is proposed to amend these sections so that reference to the monetary limit specified in clause (a) or clause (b) of section 44AB of the Act is substituted with rupees one crore in case of the business or rupees fifty lakh in case of the profession, as the case may be.
Effective Date: 1st April 2020
18) Sec 288-Amendment in the provisions of Act relating to verification of the return of income and appearance of authorized representative.
Existing Provision: Section 140 of the Act provides that in case of company the return is required to be verified by the managing director (MD) thereof. Where the MD is not able to verify for any unavoidable reason or where there is no MD, any director of the company can verify the return. It is also provided that in case of a company in whose case application for insolvency resolution process has been admitted by the Adjudicating Authority (AA) under the Insolvency and Bankruptcy Code, 2016 (IBC), the return has to be verified by the insolvency professional appointed by such AA. Similarly, in case of a limited liability partnership (LLP), the return has to be verified by the designated partner of the LLP or by any partner, in case there is no such designated partner.
Sec 288 of the Act provides for the persons entitled to appear before any Income-tax Authority or the Appellate Tribunal, on behalf of an assessee, as its “authorised representative”, in connection with any proceedings under that Act.
Amended Provision: Clause ( c) and (cd) of Sec 140 of the act has been amended to enable any other person, as may be prescribed by the Board to verify the return of income in the cases of a company and a limited liability partnership.
And Subsection 2 of Section 288 has been amended to enable any other person, as may be prescribed by the Board, to appear as an authorised representative.
Effective date: 1st April 2020
19) Rationalisation of provisions relating to trust, institution and funds.
Section 11 of the Act provides for grant of exemption in respect of income derived from property held under trust for charitable or religious purposes to the extent to which such income is applied or accumulated during the previous year for such purposes in accordance with the provisions contained in sections 11, 12, 12A, 12AA and 13 of the Act.
Sub-section (7) of section 11 of the Act, inserted by the Finance (No. 2) Act, 2014 with effect from 1st April, 2015, provides that where a trust or an institution has obtained registration under section 12AA [as it stood immediately before its proposed amendment] or under section 12A [as it stood immediately before its amendment by the Finance (No 2) Act, 1996] and said registration is in force for any previous year, then, exemption under section 10 [except under clauses (1) and (23C)] shall not be allowed.
This sub-section was inserted on the basis that the provisions contained in sections 11, 12, 1 2A, 1 2AA and 13 of the Act constitute a complete code and that once any trust or institution has voluntarily opted for it by obtaining registration required for exemption of income, it should comply with the conditions of such exemption and in case of violation of such condition, if its income or part thereof becomes ineligible for exemption, no other provision of the Act should operate so as to exclude such income or part thereof from total income and that whether income which needs to be applied or accumulated under section 11 of the Act should include income which is exempt under section 10 of the Act.
Further the present process of registration of trusts, institutions, funds, university, hospital etc under section 1 2AA or under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10, and approval of association, university, college, institution or company etc need improvement with the advent of technology and keeping in mind the practical issue of difficulty in obtaining registration! approval! notification before actually starting the activities.
It may further be mentioned that certain provisions of the Act provide that an exempt entity may accept donations or certain sum for utilisation towards their objects or activities in respect of which the payer, being the donor, gets deduction in computation of his income. At present, there is no reporting obligation by the exempt entity receiving donation! any sum in respect of such donation! sum.
Hence to address the above anomalies following amendments have been made to provide that :
1) similar to exemptions under clauses (1) and (23C), exemption under clause (46) of section 10 shall be allowed to an entity even if it is registered under section 12AA subject to the condition that the registration shall become inoperative. If the entity wishes to make it operative in the future, it will have to file an application and then it would not be entitled for deduction under clause (46) from the date on which the registration becomes operative.
2) the registration under section 1 2AA would also become inoperative in case of an entity exempt under clause (23C) of section 10 as well, to have uniformity. The condition about making it operative again would also be similar to what is proposed for clause (46) of section 10.
3) an entity approved, registered or notified under clause (23C) of section 10, section 12AA or section 35 of the Act, as the case may be, shall be required to apply for approval or registration or intimate regarding it being approved, as the case may be, and on doing so, the approval, registration or notification in respect of the entity shall be valid for a period not exceeding five previous years at one time calculated from 1st April, 2020.
4) an entity already approved under section 80G shall also be required to apply for approval and on doing so, the approval, registration or notification in respect of the entity shall be valid for a period not exceeding five years at one time.
5) application for approval under section 80G shall be made to Principal Commissioner or Commissioner.
6) an entity making fresh application for approval under clause (23C) of section 10, for registration under section 12AA, for approval under section 80G shall be provisionally approved or registered for three years on the basis of application without detailed enquiry even in the cases where activities of the entity are yet to begin and then it has to apply again for approval or registration which, if granted, shall be valid from the date of such provisional registration. The application of registration subsequent to provisional registration should be at least six months prior to expiry of provisional registration or within six months of start of activities, whichever is earlier.
7) the application pending for approval, registration, as the case may be, shall be treated as application in accordance with the new provisions, wherever they are being provided for.
8) deduction under section 80G/ 80GGA to a donor shall be allowed only if a statement is furnished by the donee who shall be required to furnish a statement in respect of donations received and in the event of failure to do so, fee and penalty shall be
9) similar to section 80G of the Act, deduction of cash donation under section 80GGA shall be restricted to Rs 2,000/- only.
Effective Date: 1st June, 2020.
NEW Sections
1) Sec 194-O- TDS on E commerce Transactions
After section 194N of the Income-tax Act, the following section is inserted with effect from the 1st day of October, 2020, the section provides for the deduction of TDS @ 1 percent with the following key points:
1) The TDS is to be deducted and paid by e-commerce operator for sale of goods or provision of service facilitated by it through its digital or electronic facility or platform;
2) E-commerce operator is required to deduct tax at the time of credit of amount of sale or service or both to the account of e-commerce participant or at the time of payment thereof to such participant by any mode, whichever is earlier.
3) The tax at one per cent is required to be deducted on the gross amount of such sales or service or both.
4) Any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant shall be deemed to be amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sales or services for the purpose of deduction of income-tax.
5) The sum credited or paid to an e-commerce participant (being an individual or HUF) by the e-commerce operator shall not be subjected to provision of this section, if the gross amount of sales or services or both of such individual or HUF, through e-commerce operator, during the previous year does not exceed five lakh rupees and such e-commerce participant has furnished his Permanent Account Number (PAN) or Aadhaar number to the e-commerce operator.
6) A transaction in respect of which tax has been deducted by the e-commerce operator under this section or which is not liable to deduction under the exemption discussed in point 5 above, there shall not be further liability on that transaction for TDS under any other provision of Chapter XVII-B of the Act. This is to provide clarity so that same transaction is not subjected to TDS more than once. However, it has been clarified that this exemption will not apply to any amount received or receivable by an e-commerce operator for hosting advertisements or providing any other services which are not in connection with the sale of goods or services referred to in sub-section (1) of the proposed section.
Explanation.—For the purposes of this section,—
(a) “electronic commerce” means the supply of goods or services or both, including digital products, over digital or electronic network;
(b) “e-commerce operator” means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce;
(c) “e-commerce participant” means a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce;
(d) “services” includes ‘‘fees for technical services’’ and fees for ‘‘professional services’’, as defined in the Explanation to section 194J.’.
If the e-Commerce participant does not furnish his PAN or Aadhaar, TDS must be deducted at the rate of 5%, as per provisions of Section 206AA.
Effective Date: 1st Oct 2020 Analysis:
1) Explanation of Sec 194 O with example
ABC, a partnership firm selling its product X at Amazon India. Amazon India has credited the account of ABC on 31st December 2020 for the sale of products X made during the month of December 2020 by sum of Rs. 5,70,300 and made payment for sum of Rs. 5,70,300 on 03rd Jan 2021. Further Mr. Ram, who purchase product X from Amazon India has made the payment of Sum of Rs. 25,200 directly to ABC on 15th Dec. 2020. Now the following will be impact of provisions of section 194-O.
- Amazon India has to be pay the TDS being the e commerce operator for facilitation service of selling of goods electronically.
- Amazon India has to deduct the TDS on 31st December 2020 being date whichever is earlier of payment or credit the account.
- TDS will be deducted on gross amount of Rs. 5,95,500 (Rs.5,70,300+ Rs.25,200) being the amount directly paid to seller by buyer is also deemed to be paid by e-commerce operator and the same has also to be included in gross amount along with the amount paid or credited by e-commerce operator for the purpose of deduction of TDS.
2) Exceptions to the provisions of Sec 194O
a) Non-resident e-Commerce participants are exempted from the scope of this As the requirement is only to deduct TDS in case of resident participants.
b) A ceiling limit of Rs 5 lakh is set only for resident individuals and HUF. Thus, an e-Commerce operator is not required to deduct TDS if the amount, paid or credited to individuals/HUF during a financial year, does not exceed Rs 5 lakh and they furnish their PAN or Adhaar.
3) Is there any provision for lower or no Tax deduction
Yes, Section 197 has also been amended which provides for lower deduction or Non deduction of TDS as specified u/s 197 on submission of Form no. 13 and subject to fulfilment such conditions as specified therein.
4) Important provisions related to exemptions
Provisions of Section provides that If TDS deducted under section 194 O, no TDS would be deducted under Chapter XVII- B of the act. In simple terms, if any TDS deducted under 194 O, no TDS to be deducted 194 J, 194C. Also, one big relief under section 194 O(3) is that if you are exempt from the purview of section 194 O i.e. individual or HUF having sales or receipts less than 5 lakhs, they would also be exempt from provisions of section 194J, 194C
However, service fees or commission that e-commerce operator charge from participants would not be exempted, i.e. e-commerce participants would still have to deduct TDS of e-commerce operator under 194H or 194J.
5) Will TDS be deducted even if E Commerce operator is Non Resident
Here, an e-commerce operator includes both residents and non-resident. Therefore, responsibility has been cast on non-residents also. Non-residents e-commerce operators already have to collect equalization levy at 2 percent w.e.f 01.04.2020 from online sales of goods or services in India. This would further add to there compliance burden.
Also section 204 has been amended to define the person responsible for paying any sum in case of Non resident “ “(v) in the case of a person not resident in India, the person himself or any person authorized by such person or the agent of such person in India including any person treated as an agent under section 163.”
2) Penalty for Fake Invoice
After section 271AAC of the Income-tax Act, the following section shall be inserted, namely:—
‘27 1AAD.
(1) Without prejudice to any other provisions of this Act, if during any proceeding under this Act, it is found that in the books of account maintained by any person there is—
(i) a false entry; or
(ii) an omission of any entry which is relevant for computation of total income of such person, to evade tax liability,
the Assessing Officer may direct that such person shall pay by way of penalty a sum equal to the aggregate amount of such false or omitted entry.
(2) Without prejudice to the provisions of sub-section (1), the Assessing Officer may direct that any other person, who causes the person referred to in sub-section (1) in any manner to make a false entry or omits or causes to omit any entry referred to in that sub-section, shall pay by way of penalty a sum equal to the aggregate amount of such false or omitted entry.
Explanation.––For the purposes of this section, “false entry” includes use or intention to use—
(a) forged or falsified documents such as a false invoice or, in general, a false piece of documentary evidence; or
(b) invoice in respect of supply or receipt of goods or services or both issued by the person or any other person without actual supply or receipt of such goods or services or both; or
(c)invoice in respect of supply or receipt of goods or services or both to or from a person who does not exist.’.
Effective Date : 1st April 2020
3) Sec 194K- TDS on income from Mutual Fund Units
A new Section 194 K has been inserted which provides for deduction of TDS on income from mutual funds the provisions of the sections reads as under:
Any person responsible for paying to a resident any income in respect of––
(a) units of a Mutual Fund specified under clause (23D) of section 10; or
(b) units from the Administrator of the specified undertaking; or
(c)units from the specified company,
shall, at the time of credit of such income to the account of the payee or at the time of payment thereof by any mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.:
Provided that the provisions of this section shall not apply—
(i) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person responsible for making the payment to the account of, or to, the payee does not exceed five thousand rupees; or
(ii) if the income is of the nature of capital gains.
Explanation 1.—For the purposes of this section,—
(a ) “Administrator” means the Administrator as referred to in clause (a) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002;
(b) “specified company” means a company as referred to in clause (h) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002;
(c ) “specified undertaking” shall have the meaning assigned to it in clause (i) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002.
Explanation 2.––For the removal of doubts, it is hereby clarified that where any income referred to in this section is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.’.
Effective Date : 1st April 2020
4) Section 80M- Inter corporate Dividends
The provisions of newly inserted section 80M reads as under:
80M. (1) Where the gross total income of a domestic company in any previous year includes any income by way of dividends from any other domestic company or a foreign company or a business trust, there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of such domestic company,
a deduction of an amount equal to so much of the amount of income by way of dividends received from such other domestic company or foreign company or business trust as does not exceed the amount of dividend distributed by it on or before the due date.
(2) Where any deduction, in respect of the amount of dividend distributed by the domestic company, has been allowed under sub-section (1) in any previous year, no deduction shall be allowed in respect of such amount in any other previous year.
Explanation.––For the purposes of this section, the expression “due date” means the date one month prior to the date for furnishing the return of income under sub-section (1) of section 139.’.
Effective Date: 1st April 2021
5) Sec 285BB- Form 26AS to provide multiple information
Currently 5ection 203AA of the Act, inter-alia, requires the prescribed income-tax authority or the person authorized by such authority referred to in sub-section (3) of section 200, to prepare and deliver a statement in Form 26A5 to every person from whose income, the tax has been deducted or in respect of whose income the tax has been paid specifying the amount of tax deducted or paid.
The Form 26A5 as prescribed in the Rules, inter-alia, contains the information about tax collected or deducted at source.
However, with the advancement in technology and enhancement in the capacity of system, multiple information in respect of a person such as sale/purchase of immovable property, share transactions etc. are being captured or proposed to be captured.
As the mandate of Form 26AS would be required to be extended beyond the information about tax deducted, a new section 285BB has been inserted in the act regarding annual financial statement this section provides as under:
“The prescribed income-tax authority or the person authorized by such authority shall upload in the registered account of the assessee an annual information statement in such form and manner, within such time and along with such information, which is in the possession of an income-tax authority, as may be prescribed”.
Explanation.––For the purposes of this section, “registered account” means the electronic
filing account registered by the assessee in designated portal, that is, the web portal designated as such by the prescribed income-tax authority or the person authorized by such authority.’.
Consequently Sec 203AA has been deleted
Effective Date: 1st June 2020
1) Extending the applicability of Clause 30C and 44 of the Tax audit report
As per circular No 10/2020 F. No. 370142/9/2018-TPL dt. 24th April 2020, the reporting under clause 30C and Clause 44 of TAR shall be kept in abeyance till 31st March 2021. Clause 30C:- Whether the assessee has entered into an impermissible avoidance arrangement, as referred to in section 96, during the previous year
Clause 44- Break-up of total expenditure of entities registered or not registered under the GST
2) Relaxation in residency provisions under section 6 of the Act
Circular No 11/2020 F. No. 370142/18/2020-TPL dt. 8th May 2020, provides relaxation in terms of residency provisions for the person who came from outside India and were in India due to Corona Lockdown:
For the purpose of determining the residential status under section 6 of the Act during the previous year 2019-20 in respect of an individual who has come to India on a visit before 22nd March 2020 and:
1) Has been unable to leave India on or before 31st March 2020, his period of stay in India from 22nd March 20 to 31st March 2020 shall not be taken into account
2) Has been quarantined in India on account of COVID on or after 1st March 2020 and has departed on an evacuation flight on or before 31st March 2020, his period of stay from the beginning of his quarantine to his date of departure or 31st March 2020, as the case may be shall not be taken into account
3) Has departed on an evacuation flight on or before 31st March 2020, his period of stay in India from 22nd March 2020 to his date of departure shall not be taken into account.
Relaxation as declared in the press release of Finance Minister dated 13.05.2020
1) TDS and TCS rates for non salaried specified payments made to residents and specified receipts reduced by 25 per cent of the existing rates , reduction applicable for remaining part of FY 20-21 i.e. from 14th May 20 to 31st March 21.
2) Due dates for income tax return for the FY 19-20 will be extended from 31st July 2020 & 31st October 2020 to 30th Nov 2020 and Tax Audit from 30th Sep 20 to 31st Oct 20.
3) Date of Assessments getting barred on 30th Sep 20 extended to 31st Dec 20 and on 31st March 21 extended to 30th Sep 21.
4) Period of Vivad se Vishwas Scheme for making payment without additional amount extended to 31st Dec 20.
List of other sections amended/inserted by Finance Act 2020:
1) Sec 10(45) – exemption on certain perquisites or allowances provided to Union Pubic Services Commission(UPSC) Chairman and members and Chief Election Commissioner and Election Commissioners- CLAUSE 45 of SECTION 10 HAS BEEN DELETED NOW
2) Sec 10(23 FE)- Exemption in respect of certain income of wholly owned subsidiary of Abu Dhabi Investment Authority and Sovereign Wealth Fund.
3) Section10(48C)- Exemption in respect of certain income of Indian Strategic Petroleum Reserves Limited.
4) Sec 9A- Modification in conditions for offshore funds’exemption from “business connection”.
5) Sec 115BAB- to include generation of electricity as manufacturing.
6) Sec 194LC- to extend the period of concessional rate of withholding tax and also to provide for the concessional rate to bonds listed in stock exchanges in IFSC
7) 194LD- to extend the period of concessional rate of withholding tax and also to extend this concessional rate to municipal debt securities
8) Sec 94B- Excluding interest paid or payable to Permanent Establishment of a non-resident Bank for the purpose of disallowance of interest under section 94B.
9) Sec 72AA Allowing carry forward of losses or depreciation in certain amalgamations.
10) Sec 2(1 3A)-Modification of the definition of “business trust”
11) Sec 92CB and CC- Amendment for providing attribution of profit to Permanent Establishment in Safe Harbour Rules under section 92CB and in Advance Pricing Agreement under section 92CC
12) First Schedule Rule 5- Allowing deduction for amount disallowed under section 43B, to insurance companies on payment basis.
13) Sec 116,117 and 118 of Finance Act 2013- Widening the scope of Commodity Transaction Tax (CTT).
14) Sec 143(3A)- Modification of e-assessment scheme.
15) Sec 144C- Amendment in Dispute Resolution Panel (DRP).
16) Sec 250 –Inserted Sub section 6B for Provision for e-appeal.
17) Sec 133A(6)- Providing check on survey operations under section 133A of the Act.
18) Sec 254(2A)- Clarity on stay by the Income Tax Appellate Tribunal (ITAT)
19) Sec 274(2A)- Provision for e-penalty
20) Insertion of Taxpayer’s Charter in the Act.
21) Section 90 and 90A- Aligning purpose of entering into Double Taxation Avoidance Agreements (DTAA) with Multilateral Instrument (MLI).
22) Sec 9 and Sec 295- Deferring Significant Economic Presence (SEP) proposal, Extending source rule, Aligning exemption from taxability of Foreign Portfolio Investors (FPIs), on account of indirect transfer of assets, with amended scheme of SEBI, and rationalising the definition of royalty.
23) Section 49 and 2(42A)- Rationalisation of the provisions of section 49 and clause (42A) of section 2 of the Act in respect of segregated portfolios.
Note: The compilation has been prepared on the basis of the information as collected from the Finance Act 2020 and the memorandum explaining the finance bill 2020 , the analysis portion of the compilation is completely personal opinion framed on the basis of interpretation of the law, However In the compilation all the efforts have been made to present all amendments in detail as considered important, however the reference should be made to the respective amended sections from the Act for better understanding and interpretation of the conditions attached with these amendments and the Law.
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