The Union Minister for Finance made her maiden Budget Speech and presented the Union Budget 2020-21 before the Parliament. The Seventeen Practical Important highlights of Budget 2020 are as follows:

1. Incentives to resident co-operative societies.

It is proposed to insert a new section (115BAD) in the Act to provide that a co-operative society resident in India shall have the option to pay tax at 22 percent in respect of its total income so however that if it fails to satisfy the conditions in any previous year, the option shall become invalid and other provisions of the Act shall apply;

It is further proposed to amend section 115JC of the Act so as to provide that the provisions relating to Alternate Minimum Tax (AMT) shall not apply to such co-operative society.

It is also proposed to amend section 115JD of the Act so as to provide that the provisions relating to carry forward and set off of AMT credit, if any, shall not apply to such co-operative society.

This amendment will take effect from assessment year 2021-22 and subsequent assessment years.

2. Incentives to Individual and HUF

It is proposed to provide option to individual and HUF by insertion of section 115BAC in the Act, which provides the following:-

(a) On satisfaction of certain conditions, an individual or HUF shall, from assessment year 2021-22 on wards, have the option to pay tax in respect of the total income at following rates:

Total Income(Rs) Rate
Upto 2,50,000 Nil
From 2,50,001 to 5,00,000 5 percent.
From 5,00,001 to 7,50,000 10 percent.
From 7,50,001 to 10,00,000 15 percent.
From 10,00,001 to 12,50,000 20 percent.
From 12,50,001 to 15,00,000 25 percent.
Above 15,00,000 30 percent.

(b) The option shall be exercised for every previous year where the individual or the HUF has no business income, and in other cases the option once exercised for a previous year shall be valid for that previous year and all subsequent years.

(c) The option shall become invalid for a previous year or previous years, as the case may be, if the Individual or HUF fails to satisfy the conditions and other provisions of the Act shall apply.

(d) The condition means that 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) 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 sub-section (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 sub-clause (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

It is further proposed to amend section 115JC of the Act so as to provide that the provisions relating to AMT shall  not apply to such individual or HUF having business income.

It is also proposed to amend section 115JD of the Act so as to provide that the provisions relating to carry forward and set off of AMT credit, if any, shall not apply to such individual or HUF having business income.

This amendment will take effect from assessment year 2021-22 and subsequent assessment years.

3. Rationalization of provisions relating to tax audit in certain cases.

Under section 44AB of the Act, it is proposed to increase the threshold limit for a person carrying on business from one crore rupees to five crore rupees in cases where-

(i) aggregate of all receipts in cash during the previous year does not exceed five per cent of such receipt;and

(ii) aggregate of all payments in cash during the previous year does not exceed five per cent of such

Further, to enable pre-filling of returns in case of persons having income from business or profession, it is required that the tax audit report may be furnished by the said assessees at least one month prior to the due date of filing of return of income. This requires amendments in all the sections of the Act which mandates filing of audit report along with the return of income or by the due date of filing of return of income. Further, the due date for filing return of income under sub-section (1) of section 139 is proposed to be amended and providing 31st October of the assessment year (as against 30th September in earlier)

These amendments will take effect from the assessment year 2020-21 and subsequent assessmet years.

4. Rationalization of provisions relating to tax audit will effect on TDS provisions:

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, 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.

These amendments will take effect from 1st April, 2020.

5. Rationalization of provision relating to Form 26AS

The Form 26AS as prescribed in the Rules, 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. In future, it is envisaged that in order to facilitate compliance, this information will be provided to the assessee by uploading the same in the registered account of the assessee on the designated portal of the Income-tax Department, so that the same can be used by the assessee for filing of the return of income and calculating his correct tax liability, it is proposed to introduce a new section 285BB in the Act regarding annual financial statement

These amendments will take effect from 1st June, 2020.

6. Rationalization of provisions of start-ups.

The existing provisions of section 80-IAC of the Act provide for a deduction of an amount equal to one hundred percent of the profit sand 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, Now it is proposed to allow deduction three consecutive assessment years out of ten years and total turnover of its business does not exceed one hundred crore rupees in any of the previous years.

This amendment will take effect from assessment year 2021-22 and subsequent assessment years.

7. Reducing the rate of TDS on fees for technical services (other than professional services).

It is proposed to reduce rate for TDS in section 194J in case of fees for technical services (other than professional services) 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.

This amendment will take effect from 1st April, 2020.

8. Enlarging the scope for tax deduction on interest income under section 194A of the Act.

In order to extend the scope of this section to interest paid by large co-operative society, it is proposed to amend sub-section (3) of Section 194A and insert proviso to provide that a co-operative society 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 amount 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.

This amendment will take effect from 1st April, 2020.

9. Widening the scope of TDS on E-commerce transactions through insertion of a new section.

In order to widen and deepen the tax net by bringing participants of e-commerce within tax net, it is proposed to insert a new section 194-O in the Act so as to provide for a new levy of TDS at the rate of one per cent. with the following key points:

  • The TDS is to be paid by e-commerce operator for sale of goods or provision of service;
  • 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.
  • The tax at one per cent is required to be deducted on the gross amount of such sales or service or both.
  • E-commerce participant should be an individual or HUF and the gross amount of sales or services or both through e-commerce operator, during the previous year should exceed five lakh rupees.
  • TCS will be applicable when TDS/TCS under any other provision of Chapter XVII-B of the Act is not apply.
  • “e-commerce operator” is defined to mean any person who owns, operates or manages digital or electronic facility or platform for electronic commerce and is a person responsible for paying to e-commerce participant.
  • “e-commerce participant” is defined to mean 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.

This amendment will take effect from 1st April, 2020.

10. Widening the scope of section 206C to include TCS on sale of goods, TCS on foreign remittance and TCS on selling of overseas tour package.

a) TCS on Sale of Goods

It is proposed to amend section 206C to levy TCS on sale of goods, as under:

  • A seller of goods is liable to collect TCS at the rate of 1 per cent. on consideration received from a buyer in a previous year in excess of fifty lakh rupees. In non-PAN/ Aadhaar cases the rate shall be one percent.
  • 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
  • Central Government may notify person, subject to conditions contained in such notification, who shall not be liable to collect such
  • No TCS is to be collected from the Government 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.
  • 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.

b) TCS on overseas remittance and TCS on sale of overseas tour package

  • An authorised dealer receiving an amount or an aggregate of amounts of seven lakh rupees or more in a financial year for remittance out of India under the LRS of RBI, shall be liable to collect TCS, if he receives sum in excess of said amount from a buyer being a person remitting such amount out of India, at the rate of five per In non- PAN/Aadhaar cases the rate shall be ten percent.
  • A seller of an overseas tour program package who receives any amount from any buyer, being a person who purchases such package, shall be liable to collect TCS at the rate of five per In non-PAN/ Aadhaar cases the rate shall be ten per cent.
  • The above TCS provision shall not apply if the buyeris,-

a. liable to deduct tax at source under any other provision of the Act and he has deducted such amount.

b. the Government 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.

These amendments will take effect from 1st April, 2020.

11. Increase in safe harbor limit of 5 per cent. under section 43CA, 50C and 56 of the Act to 10 per cent.

Section 43CA of the Act 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 percent 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.

Section 50C of the Act provides that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and five percent 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.

Clause (x) of sub-section (2) of section 56 of the Act provide that where the assessee receives any immovable property for a consideration and the stamp duty value of such property exceeds five per cent 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”.

Thus, the present provisions of section 43CA, 50C and 56 of the Act provide for safe harbour of five per cent.It is, therefore, proposed to increase the limit to ten percent.

This amendment will take effect from the assessment year 2021-22 and subsequent assessment years.

12. Provision for e-appeal.

It is proposed to insert sub-section (6A) in section 250 of the Act to provide for the following:—

  • Empowering Central Government to notify an e-appeal scheme for disposal of appeal so as to impart greater efficiency, transparency and accountability.
  • Eliminating the interface between the Commissioner (Appeals) and the appellant in the course of appellate proceedings to the extent
  • Optimizing utilization of the resources through economies of scale and functional specialisation.
  • Introducing an appellate system with dynamic jurisdiction in which appeal shall be disposed of by one or more Commissioner(Appeals).

It is also proposed to empower the Central Government, for the purpose of giving effect to the scheme directions are to be issued on or before 31st March 2022. It is proposed that every notification issued shall be required to be laid before each House of Parliament.

This amendment will take effect from 1st April, 2020.

13. Provision for e-penalty.

It is proposed to insert a new sub-section (2A) of Section 274so as to provide that the Central Government may notify an e-scheme for the purposes of imposing penalty so as to impart greater efficiency, transparency and accountability by,—

(a) eliminating the interface between the Assessing Officer and the assessee in the course of proceedings to the extent technologically feasible;

(b) optimising utilisation of the resources through economies of scale and functional specialisation;

(c) introducing a mechanism for imposing of penalty with dynamic jurisdiction in which penalty shall be imposed by one or more income-tax authorities.

It is also proposed to empower the Central Government, for the purpose of giving effect to the scheme directions are to be issued on or before 31st March 2022. It is proposed that every notification issued shall be required to be laid before each House of Parliament.

This amendment will take effect from 1st April, 2020.

14. Insertion of Taxpayer’s Charter in the Act.

It is proposed to insert a new section 119A in the Act to empower the Board to adopt and declare a Taxpayer’s Charter and issue such orders, instructions, directions or guidelines to other income-tax authorities as it may deem fit for the administration of Charter.

This amendment will take effect from 1st April, 2020.

15. Penalty for fake invoice.

It is proposed to introduce a new provision in the Act to provide for a levy of penalty on a person, if it is found during any proceeding under the Act that in the books of accounts maintained by him there is a (i) false entry or (ii) any entry relevant for computation of total income of such person has been omitted to evade tax liability. The penalty payable by such person shall be equal to the aggregate amount of false entries or omitted entry. It is also propose to provide that any other person, who causes in any manner a person to make or cause to make a false entry or omits or causes to omit any entry, shall also pay by way of penalty a sum which is equal to the aggregate amounts of such false entries or omitted entry. The false entries is proposed to include 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 do not exist.

This amendment will take effect from 1st April, 2020.

16. Rationalization of provisions of section 55 of the Act to compute cost of acquisition.

It is proposed to rationalise the provision and to insert a proviso below sub-clause (ii) of clause (b) of Explanation under clause (ac) of sub-section (2) of the said section to provide that in case of a capital asset, being land or building or both, thefair market value of such an asset on 1st April, 2001 shall not exceed the stamp duty value of such asset as on 1st April, 2001 where such stamp duty value is available. It is also proposed to insert an Explanation so as to provide that for the purposes of sub-clause (i) and (ii), “stamp duty value” shall mean 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.

These amendments will take effect from the assessment year 2021-22 and subsequent assessment years.

17. Filing of statement of donation by donee to cross-check claim of donation by donor

It may 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. With the advancement in technology, it is now feasible to standardise the process through which one-to-one matching between what is received by the exempt entity and what is claimed as deduction by the assessee. This standardisation may be similar to the provisions relating to the tax collection/ deduction at source, which already exist in the Act. Therefore, the entities receiving donation/ sum may be made to furnish a statement in respect thereof, and to issue a certificate to the donor/ payer and the claim for deduction to the donor/ payer may be allowed on that basis only. In order to ensure proper filing of the statement, levy of a fee and penalty may also be provided in cases where there is failure to furnish the statement.

These amendments will take effect from 1st June, 2020.

Also read:-

Budget 2020: Exhaustive summary of changes in Income Tax Provisions

Finance Bill 2020 / Union Budget 2020-21

Source: Union Budget 2020

Compiled By: M/s Agrawal Vikas & Co., Chartered Accountants

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