Introduction

With soaring expectation from various stakeholders, Finance minister Smt. Nirmala Sitharaman presented the Union budget 2020-2021 on 1st February 2020. The budget aims to open up avenues for vibrant and dynamic economy supported by the new technologies. This is essential keeping in view that India become fifth largest economy in the world. The budget is woven around three prominent themes namely Aspirational India, Economic Development and Caring Society.

The key takeaways of this budget are ample fund for education sector, agriculture, big push to infra, transport and other priority sectors, promoting make in India, abolition of DDT for companies, attracting foreign investment through various exemptions and deductions, introduction of amnesty scheme with an aim to wipe off pending litigations in direct taxes, introducing new but optional tax regime for Individuals and HUFs, regulating tax leakages through use of modern era technologies such as AI and Deep Data analytics etc.

The key challenges included dealing with current slowdown in the economy, sagging demand, rising inflation, reduction in consumer confidence, fiscal consolidation keeping in view that Government debts are significantly higher, disinvestment of LIC by way of IPO to be brought in, increase in customs duty in respect of auto/auto parts etc. Considering the above, achieving the nominal growth being set to 10% also seems to be a big challenge. Budget may be recapped in the below sections.

Key Direct Tax Proposals

  • Changes in Personal income tax slab rates for individuals and HUFs on forgoing certain deductions, allowances and exemptions under Income Tax Act including certain Chapter- VI-A deductions through new personal income tax regime which is optional at the end of assessee. Option to follow new tax regime to be exercised each year afresh. New tax rates may be tabulated below: –
Taxable Income Slab (INR) Tax Rates (%) Existing tax regime Tax Rates (%) New tax regime
0-250,000 0 0
250,000-500,000 5 5
500,000-750,000 20 10
750,000-1,000,000 20 15
1,000,000-1,250,000 30 20
1,250,000-1,500,000 30 25
Above 1,500,000 30 30

Further, Nil amount of tax up to taxable income of INR 5,00,000 is present in both the regimes mentioned above.

  • Removal of Dividend distribution tax (DDT) by applying the classical system of dividend taxation under which the companies would not be required to pay DDT. The dividend shall be taxed only in the hands of the recipients at their applicable rates.
  • Cascading effect arising on account of dividend received by holding company from its subsidiary is eliminated by way of allowing deduction.
  • Concessional tax rate of 15% for domestic companies engaged in Electricity generation which start power generation by 31 March 2023.
  • Tax concessions for foreign investments in certain priority sectors such as infrastructure and other notified sectors in respect of investments made before 31 March 2024 with minimum lock in period of 3 years. Accordingly, 100% tax exemption is given for interest, dividend and capital gains income accruing on account of such investments.
  • Concessional withholding rate of 5% under sections 194LC and 194LD for interest payment to non-residents, Foreign Portfolio Investors and Qualified Foreign Investors in respect of moneys borrowed and bonds issued up to 30 June 2023 by Indian Companies, Government securities and Municipal Bonds.
  • Withholding rate changed from 5% to 4% on interest payment on the bonds listed on International Financial Service Center (IFSC) exchange.
  • Proposal to defer perquisite taxation on exercise of ESOP to earlier of 5 years from the said date or date of leaving of employment or the date of actual sale of shares for employees of eligible startups.
  • Turnover based limit increased from INR 25 Crores to INR 100 Crores for claiming 100% deduction in respect of profits earned by the start-ups. Period of eligibility to claim this deduction extended from 7 years to 10 Years.
  • Cooperative societies may opt to be taxed at 22% plus 10% Surcharge and 4% education cess with no exemptions and deductions under new tax regime (NTR) as against 30% tax plus applicable surcharge and education cess in old tax regime (OTR). Alternative Minimum Tax (AMT) is also relaxed in case they follow NTR.
  • Tax audit limit increased from INR 1 Crore to INR 5 Crores for small Traders, retailers falling under MSMEs. Increased limit will apply only for those businesses involving less than 5% cash transactions.
  • Deduction for interest on loan taken for affordable housing will apply to loans sanctioned up to 31 March 2021 as against 31 March 2020. Limit of deduction is unchanged at INR 1,50,000.
  • Tax holiday period for developers of affordable housing is extended to 31 March 2021 from 31 March 2020.
  • Increasing the tolerance range for difference between sale consideration and circle rate from 5% to 10% to minimize the hardship faced on real estate transactions generating income under heads of capital gains, profits and gains from business and profession and Other sources.
  • Process of registration of charitable institutions to be completely electronic through allotment of unique registration number (URN).
  • Provisional registration is allotted for 3 years to the new charity institutions who are yet to start the charitable activities.
  • Donations made to charitable institutions to reflect automatically in donor’s return of income based on the basis of the information of donations furnished by the donee.
  • Faceless appeals to be introduced in line with faceless assessments to enable maximum governance with minimum government by eliminating the human interface.
  • An amnesty scheme in line with SVLDRS of Indirect taxation has been brought into direct tax naming “No dispute but trust scheme-Vivad se vishwas scheme” (NDTS/VSVS). It allows a complete waiver of interest and penalty if the disputed tax is deposited by 31 March 2020. Taxpayers opting the scheme after 31 March 2020 but before 30 June 2020 will have to pay some additional amount apart from the disputed tax.
  • On account of consolidation of financial sector on merger of public sector banks, the unabsorbed losses and depreciation of amalgamating entities to be allowed to amalgamated entity.
  • Taxpayer’s charter to be notified and introduced to bring in trust between income tax administration and taxpayers.
  • Instant PAN through Aadhaar to be allotted through complete online process in the new system to be launched soon.
  • TDS on E-commerce transactions have been introduced to widen the tax base wherein E-commerce operators to deduct tax on payments to E-commerce participants at 1% in case of PAN/Aadhaar availability and 5% in other cases.
  • No TDS is required to be deducted in case of Individuals and HUFs receiving less than INR 5 lakh and providing PAN/Aadhaar in E-commerce transactions.
  • It is proposed to amend the definition of “work” for the purpose of TDS under section 194C to provide that in a contract manufacturing, the raw material provided by the assessee or its associate shall fall within the purview of the ‘work’ under section 194C.
  • In order to reduce litigation, TDS in case of fees for technical services (other than professional services) proposed to be reduced to 2% from existing 10 % in order to align the same with the rate of TDS on works contract.
  • TDS now extended on interest paid by certain large co-operative societies whose gross receipts exceeds INR 50 crores during the previous financial year.
  • Tax collection at source (TCS) is required to be collected on sale of goods exceeding INR 50 lakh by a seller whose turnover is more than INR 10 Crores. TCS is to be applied in case of liberalized remittance scheme of RBI if remittance is exceeding INR 7 lakh in a year and on sale of overseas tour package.
  • An upper cap of INR 7.5 lakh in a year is fixed on tax exempt employer’s contribution in recognized provident fund, superannuation fund and NPS in the accounts of an employee.

Key Indirect Tax Proposals : Goods and Service Tax (GST)

  • Simplified return to be implemented from 1 April 2020 to make the return filing simple with features such as SMS based filing for nil returns, prefiling of returns, improved input tax credit (ITC) flow leading to overall simplification.
  • Electronic invoicing to be implemented in phased manner from February 2020 itself on an optional basis.
  • Artificial Intelligence, Deep data analytics, Dynamic QR codes for consumer invoices alongside cash rewards to incentivize consumers seeking the invoice is to be introduced.
  • Returns containing ITC mismatch of more than 10% or above a threshold to be Fraudulent availment of ITC without an invoice or bill to be considered a cognizable and non-bailable offence.
  • Section 16(4) of CGST Act is amended to delink the date of issuance of debit note from the date of issuance of the underlying invoice for purposes of availing input tax credit.
  • Section 29(1)(c) of the CGST Act is being amended to provide for cancellation of registration which has been obtained voluntarily under Section 25(3).

Key Indirect Tax Proposals : Customs

  • Central Government is empowered to regulate injury to the economy of the country by the uncontrolled import or export of gold or silver by widening the horizon of Section 11(2)(f) of the Customs Act, 1962 to include such goods under “any other goods”.
  • Section 51B has been inserted for creation of Electronic Duty Credit Ledger (EDCL) to replace duty remission with duty credit in relation to exports or other such activities. Various enabling provisions on recovery and review of EDCL system is also inserted in the Customs Act, 1962
  • Various amendments made in the First Schedule of the Customs Tariff Act, 1975 to increase the Custom duty on wall fans from 7.5% to 20%, including television set as new tariff item with rate of 15%, segregating the solar sets both assembled in module/panel and not assembled with tariff rate of 20%.
  • Anti-dumping rules are changed to strengthen the anti-circumvention measures by making them widen and comprehensive. These rules are amended to enable investigation in the cases involving circumvention.
  • Review of Customs duty exemption for certain imported goods falling in the category of Agro and animal-based products, Items of Metal, Machinery, Electronic Items etc. These exemptions/concessions have been withdrawn.
  • Increase in Customs duty for creating a level playing field for MSME and promoting Make in India for certain category of goods including household goods and appliances, Electrical appliances, Footwear, Furniture Goods, Stationery items, Toys and Machinery, Phased Manufacturing Programme (PMP) and Electronic Vehicles and Cellular Mobile Phones etc.
  • To promote domestic manufacturing, Customs duty on Raw materials and inputs for certain category of goods have been reduced. The items included Fuels, Chemicals, Plastics, Precious Metals, Machinery, Sports Goods and Newsprint.
  • Health Cess of 5% has been imposed on certain specified medical equipment. It will not apply on those items which involve “nil” BCD.
  • Increase in National Calamity Contingent duty (NCCD) on Cigarettes and Tobacco Products.

Other Major Reforms :

i. Agriculture, Irrigation and Rural Development

  • PM-KUSUM scheme to cover 20 lakh farmers for stand-alone solar pumps and further 15 lakh farmers for grid connected pump sets.
  • Viability gap funding for creation of efficient warehouses on PPP mode.
  • SHGs run Village storage scheme to be launched.
  • “Kisan Rail” and “Krishi Udaan” to be launched by Indian Railways and Ministry of Civil Aviation respectively for a seamless national cold supply chain for perishables.
  • Agriculture credit target for the year 2020-21 has been set at INR 15 lakh crores. All eligible beneficiaries of PM-KISAN will be covered under the KCC scheme.
  • Doubling of milk processing capacity from 53.5 million MT to 108 million MT by 2025.
  • Raising fish production to 200 lakh tonnes and fishery exports to INR 1 lakh crore by 2024-25.
  • Allocation of INR 2.83 lakh crores has been made for the year 2020-21 for the sector comprising of Agriculture and allied activities, Irrigation and Rural Development.

ii. Wellness, Water and Sanitation

  • Viability gap funding proposed for setting up hospitals in the PPP mode.
  • Jan Aushadhi Kendra Scheme offering 2000 medicines, 300 surgicals to be expanded to all districts by 2024.
  • INR 12,300 allocated for Swachh Bharat Mission in 2020-21. INR 69,000 crore allocated for Health Sector.

iii. Education and Skills

  • 150 higher educational institutions to start apprenticeship embedded courses by March 2021. Internship opportunities to fresh engineers by Urban Local Bodies.
  • Special bridge courses to improve skill sets of those seeking employment abroad. Degree level online education programmes for students of deprived sections of the society.
  • Ind-SAT to be conducted in Asia and Africa under Study in India Programme.
  • A National Police University and a National Forensic Science University also proposed.
  • Allocation of INR 99,300 crore for education sector in 2020-21 and INR 3,000 crore for skill development.

iv. News Economy

  • Policies to be made to enable private sector to build Data Centre parks throughout the country. It will enable firms to skillfully incorporate data in every step of their value chains.
  • Fibre to the Home (FTTH) connections through Bharatnet to link 100,000 gram panchayats in 2020-21. Allocation of INR 6,000 crore for Bharatnet programme has been proposed.
  • Knowledge Translation Clusters would be set up across different technology sectors including new and emerging areas.
  • It is proposed to provide an outlay of INR 8000 crore over a period of 5 years for the National Mission on Quantum Technologies and Applications.
  • Two new National Level Science Schemes to create a comprehensive database.
  • A digital platform would be promoted that would facilitate seamless application and capture of IPRs. Also, in an Institute of Excellence, a Centre would be established that would work on the complexity and innovation in the field of Intellectual Property.

v. Industry, Commerce and Investment

  • Investment Clearance Cell will be set up that will provide “end to end” facilitation and support, including pre-investment advisory, information related to land banks and facilitate clearances at Centre and State level.
  • Five new smart cities proposed to be developed in collaboration with States in PPP mode.
  • Scheme to encourage manufacturing of mobile phones, electronic equipment and semi conductor packaging.
  • To position India as a global leader in Technical Textiles, a National Technical Textiles Mission is proposed with a four-year implementation period from 2020-21 to 2023-24 at an estimated outlay of INR 1,480 crore.
  • NIRVIK Scheme for higher export credit disbursement launched.
  • It is proposed to digitally refund to exporters, duties and taxes levied at the Central, State and local levels.
  • INR 27,300 crore allocated for development and promotion of Industry and Commerce for the year 2020-21.

vi. Infrastructure

  • National Logistics Policy to be launched soon. Proposal to monetise at least twelve lots of highway bundles of over 6,000 km before 2024.
  • Setting up a large solar power capacity alongside the rail tracks is proposed.
  • Four station re-development projects and operation of 150 passenger trains to be done through PPP mode. More Tejas type trains to connect iconic tourist destinations.
  • Under consideration, corporatizing at least one major port and subsequently listing on the stock exchanges.
  • 100 more airports to be developed under UDAAN.
  • INR 1.70 lakh crore proposed to be allocated for transport Infrastructure in 2020-21. INR 22,000 crore proposed to be allocated to power and renewable energy sector in 2020-21.
  • Efforts to replace conventional energy meters by prepaid smart meters in the next 3 years. It is proposed to expand the national gas grid from the present 16200 km to 27000 km.
  • An International Bullion Exchange to be set up at GIFT City.

vii. Women, Child and Social Welfare

  • A Task Force to be appointed to recommend regarding lowering MMR and improving nutrition levels.
  • INR 35,600 crore proposed to be allocated for nutrition-related programmes for the financial year 2020-21 and INR 28,600 crore for programs that are specific to women. INR 85,000 crore towards the welfare of Scheduled Castes and Other Backward classes and INR 53,700 crore towards welfare of Scheduled Tribes.
  • An enhanced allocation of about INR 9,500 crore for senior citizens and Divyang.

viii. Culture, Tourism and Environment

  • A proposal to establish Indian Institute of Heritage and Conservation.
  • Five archaeological sites to be developed as iconic sites with on-site Museums.
  • A museum on Numismatics and Trade to be established. Tribal Museum to be set up at Ranchi and Maritime Museum to be set up at Lothal.
  • Proposed allocation of INR 3,150 crore for Ministry of Culture and INR 2,500 crore for tourism promotion.
  • Implementing plans for cleaner air in cities above 1 million. Allocation proposed INR 4,400 for 2020-21

ix. Fiscal Management and Others

  • The Deposit Insurance and Credit Guarantee Corporation (DICGC) has been permitted to increase Deposit Insurance Coverage for a depositor, from INR 1 lakh to INR 5 lakh per depositor.
  • It is proposed to sell the balance holding of Government of India in IDBI Bank to private, retail and institutional investors through stock exchange.
  • The limit for FPI in corporate bonds, currently at 9% of outstanding stock, will be increased to 15% of the outstanding stock of corporate bonds.
  • The government now proposes to sell a part of its holding in LIC by way of Initial Public Offer (IPO).
  • Revised Estimates of Expenditure for the Financial Year 2019-20 are at a level of INR 26.99 lakh Crore and the Receipts are estimated at INR 19.32 lakh crore.
  • Nominal growth of GDP for year 2020-21, on the basis of trends available, has been estimated at 10%. Accordingly, receipts for the year 2020-21 are estimated at INR 22.46 lakh crore and, level of expenditure has been kept at INR 30.42 lakh crore.
  • Fiscal deficit of 8% has been estimated in RE 2019-20 and 3.5% for BE 2020-21.

Hope this serves a quick reference of Budget 2020 !!

Author Bio

Qualification: CA in Practice
Company: JPP & Co.
Location: New Delhi, IN
Member Since: 05 Feb 2020 | Total Posts: 1

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