DIRECT TAX PROPOSALS – BUDGET 2020

DIRECT TAX PROPOSALS – BUDGET 2020

Hon’ble Finance Minister Smt Nirmala Sitharaman presented the Budget on Saturday, February 01, 2020. The Budget seeks to provide momentum to the buoyancy in direct taxes through tax incentives, reducing tax rates, deepening and widening of tax base, removing difficulties faced by tax payers, curbing tax abuse and enhancing tax effectiveness, transparency and accountability.

Here are some of the key highlights of the important Direct Tax proposals announced

I) TAX RATES:

1) Individual Income Tax Rate – Simplified Optional Tax Regime (Section 115BAC):-

  1. It is proposed to give the Individual / HUF an Option to continue with the existing tax rates or opt for the following simplified tax rates:
 

Income Slabs

Existing Tax Rates

New Simplified Tax Rates

0 – 2.5 Lakhs

NIL

NIL

2.5 – 5 Lakhs

5%

5%

5 – 7.5 Lakhs

20%

10%

7.5 – 10 Lakhs

15%

10 – 12.5 Lakhs

30%

20%

12.5 – 15 Lakhs

25%

Above 15 Lakhs

30%

 

       B. The conditions for opting for simplified tax rates will be as under:

            a. No deduction shall be allowed for the following:

 

Income Head

Particulars

Existing exemption

Salaries

 

 

 

 

 

 

 

 

 

 

 

 

10(5) – Leave Travel Allowance

Available twice in every block of 4 years

10 (13A) – House Rent Allowance

Available in respect to housing rent paid

10 (14) – Allowances for expenses to perform duties

Eg: Uniform Allowance, Helper Allowance, Children Allowance etc.

10(17) – Allowances to MPs and State legislature

Daily Allowance, Constituency allowance.

10 (32) – Deduction in respect of clubbed income of minor child

Rs. 1,500/- from the total clubbed income

16(ia) – Standard deduction

Rs. 50,000/- from total salary

16(ii) – Entertainment allowance

Available to government employees upto Rs. 5,000/-

16(iii) –Profession Tax

Amount of profession tax paid

Income from House Property

24 (b) – Interest on housing loan for self-occupied property.

Upto Rs. 2,00,000/-

Income from Business / Profession

32(1)(iia) – Depreciation

Additional depreciation of 20% on new plant/machinery

Specified business deductions u/s 32AD, 33AB, 33ABA, 35(2AA)(1)(iii)(iia)(ii), 35AD

Related to specific business.

10AA - SEZs

Deduction for newly established SEZs.

Income from Other Sources

57(iia) – Deduction against family pension

1/3rd of family pension or 15,000/- whichever is less.

Chapter VI-A

All sections except u/s 80CCD – Contribution to Pension scheme, 80JJAA – deduction for new employees

Common deductions like LIC, EPF, PPF, ELSS, housing loan repayment, education loan, Mediclaim etc.

 

       b. No set off of loss allowed for:

  • Carry forward loss or depreciation of previous years if the same are attributable to losses arising from above sections;
  • Loss from House property against any other head of income;

        c. No exemption / deduction / allowances / perquisites allowed under any other law:

       d. Manner of exercising the option for simplified tax rate:-

  • In case of Individual/HUF not having any Business Income:
  •   A person can freely opt in scheme and opt out of the scheme. The tax Rates will be applicable as per the Option exercised at the time of filing of Return every   year.
  •   The option can be exercised while filing Return of Income.
  •   Option has to be exercised every year.
  • In case of Individual/HUF having any Business Income:
  •   Option has to be exercised once and it will be valid for that year and subsequent years.
  •   Option has to be exercised before the Due Date of filing Return for the Assessment Year in the form and manner to be prescribed.
  •   If a person wants to opt out of the scheme in any subsequent assessment year, he can do so but only once. The person can never opt in the Scheme again.
  •   However if in any year he is not having any Business Income, then he can opt in the Scheme in that year as in case of Individuals without Business Income,  who  have to exercise option every year.

2) Removal of Dividend Distribution Tax (DDT)

Presently, companies are required to pay DDT @ 15% on dividend declared. Consequently in the hands of the shareholder dividend was tax-free and if total dividend exceeds Rs. 10 lakhs, dividend was taxable @ 10%.

It is proposed to remove levy of DDT on dividends declared by the company. Consequently any dividend received by the shareholders shall be taxable in their hands.

3) Concessional Tax rate for Resident Co-operative Societies – Section 115BAD :

Keeping in line with the concession provided to domestic companies, Section 115BAD will be inserted to provide a concessional income tax rate of 22% to co-operative societies provided:

  1. No deduction is claimed u/s 10AA, 32(1)(iia), 32AD, 33AB, 33ABA, 35(2AA)(1)(iii)(iia)(ii), 35AD, 35CCC or Chapter VI-A;
  2. No set off of loss allowed for carry forward loss or depreciation of previous years if the same are attributable to losses arising from above sections;
  3. Return of Income is filed within due date u/s 139(1);

 

4) Concessional Tax rate for Electricity Generation Companies:

It is proposed to include in new domestic companies u/s 115BAB the electricity generation companies and thus taxable at a concessional rate of 15%.

 

5) Concessional Tax scheme for domestic companies u/s115BAA and 115BAB:

It is proposed that companies opting for concessional tax rate u/s 115BAA and 115BAB will not be allowed deduction under chapter VI-A other than section 80JJAA and 80M.

 

II) START-UPS:-

1) Rationalization of Section 80-IAC:

Existing provisions u/s 80-IAC provide that eligible start-ups can claim deduction of 100% of profits and gains from business for a period 3 consecutive years on fulfillment of certain conditions. These conditions are proposed to be modified as under:

  1. Deduction will be available for a period of 3 consecutive years out of first 10 years of company’s incorporation;
  2. Deduction shall be available if total turnover does not exceed INR 100 crore in any year from the date of its incorporation.

2) Deferment of Taxation of Employee Stock Option Plan (ESOP) of start-ups:

Presently ESOPs are taxable at the time of exercise of the option and then at the time of sales of those shares. It is proposed to defer the tax on ESOPs and ESOPs of eligible start-ups will now be taxed within 14 days of the following whichever is earlier:

  1. Expiry of 48 months from the end of relevant assessment year;
  2. Date of sales of such ESOPs;
  3. Date on the which the employee ceases to be employed with such start-up

 

III) INCOME FROM BUSINESS AND PROFESSION:-

1) Tax Audit Limit for SMEs:

Presently Tax audit is applicable to businesses having a turnover exceeding 1 crore. With a view to reduce compliance burden and encourage cashless economy it is proposed to increase the threshold limit to Rs. 5 crore if the following conditions are satisfied:

  1. aggregate of all receipts in cash during the previous year does not exceed five per cent of such receipts;
  2. aggregate of all payments in cash during the previous year does not exceed five per cent of such payments.

 2) Penalty for Fake Invoices – Section 271AAD:

It is proposed in case it is found that that there is:

  1. False entry; or
  2. An omission of entry to evade tax liability.

Penalty equal to amount of such false entry or omitted entry may be levied.

Similar penalty may also be levied on person who causes the above person to make a false entry or omit such entry.

“False Entry” includes use of intention to use:

  1. forged or falsified documents such as a false invoice or, in general, a false piece of documentary evidence; or
  2. 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
  3. invoice in respect of supply or receipt of goods or services or both to or from a person who do not exist.

 

IV) RETURN FILING, COMPLIANCE AND TAX ADMINISTRATION:-

1) Due Date for Return filing in case of Tax Audit:

Due date of filing of Return for assesses required to file Audit Report u/s 44AB and other sections of the Act is proposed to be extended by 1 month to 31st October u/s 139(1).

2) No Dispute but Trust Scheme – ‘Vivad Se Vishwas’Scheme:

Under this scheme, Taxpayer would be required to pay only the amount of the disputed taxes and will get complete waiver of interest and penalty provided taxpayer pays by 31st March, 2020. Availing of this scheme after 31st March, 2020 will have to pay some additional amount. The scheme will remain open till 30th June, 2020.

3) Stay by ITAT:

ITAT may grant a stay on demand provided assessee has deposited 20% of the disputed tax demand.

4) E-assessment:

Best judgement assessment u/s 144 now covered under E-assessment.

5) E-appeal:

Government to notify scheme for e-appeal before Commissioner.

6) Survey Operation u/s 133A:

In case information is received from prescribed authority, survey operations to be conducted after obtaining approval of Joint Director / Joint Commissioner.

In any other case approval of Director / Commissioner is needed.

 

V) INTERNATIONAL TAXATION, NON-RESIDENTS AND TRANSFER PRICING:-

1) Definition of “Resident” modified:

Present Conditions for Resident

Proposed Conditions for Resident

·        He / she is in India for 182 days or more during the financial year.

OR

·        If he/she is in India for at least 365 days during the 4 years preceding that year AND at least 60 days in that year (182 days if you take job/ business outside).

·        He / she is in India for 182 days or more during the financial year.

OR

·        If he/she is in India for at least 365 days during the 4 years preceding that year AND at least 60 days in that year (120 182 days if you take job / business outside).

 

 2) Definition of “Resident but Not Ordinarily Resident” modified:

 

Present Conditions

Proposed Conditions

If you have been an NRI in 9 out of 10 financial years preceding the year.

OR

You have during the 7 financial years preceding the year been in India for a period of 729 days or less.

If you have been an NRI in 7 out of 10 financial years preceding the year.

 

 

3)Taxability of Income of NRI:

If an Indian citizen on account of domicile or residence or other similar reasons is not liable to tax in any other country or territory, then he / she shall be deemed to be resident of India and thus the global income will be taxable in India.

4) Tax Collected at Source (TCS) @5% on foreign remittance through Liberalised Remittance Scheme (LRS):

TCS shall be collected @5% from the buyer by an authorized dealer who receives more than Rs. 7 lakhs in a financial year for remittance out of India from a buyer under Liberalized Remittance Scheme remitting such amount out of India;

Other Conditions:

  • TCS is not required to be collected if the buyer is liable to deduct and has deducted TDS under any other section;
  • In case no PAN / Aadhar is furnished by the buyer TCS is to be collected @10%

5) Modification in condition for offshore funds exemption from “business connection”:

It is proposed to amend section 9A of the Act to relax the two conditions so as to provide that:

  1. For the purpose of calculation of the aggregate participation by Indian resident, contribution of the eligible fund manager during first three years up to Rs. 25 crore shall not be accounted for; and
  2. The condition of monthly average of the corpus of the fund to be at Rs 100 crore shall be fulfilled within twelve months from the last day of the month of its establishment or incorporation.

6) Certain non-residents exempt from filing Return of Income:

Non-residents will not be required to file Return of Income if:

  1. Total income consists only of dividend, interest income u/s 115A (1)(a), or royalty / FTS income u/s 115A(1)(b);
  2. TDS has been duly deducted at prescribed rates.

7) Safe Harbour Rules (SHR) u/s 92CB and Advance Pricing Agreement (APA) u/s 92CC to cover determination of attribution of profit to Permanent Establishment (PE):

To reduce avoidable disputes it is proposed to cover determination of attribution of profit to Permanent Establishment (PE) under SHR and APA.

 

VI) CAPITAL GAINS:-

1) Cost of Acquisition u/s 55:

Presently in case if a property was acquired before 01.04.2001, the cost acquisition shall be higher of:

  1. Fair market value as on 01.04.2001; or
  2. Cost of Acquisition.

It is proposed to amend the section whereby the Fair Market Value as on 01.04.2001 shall not exceed the Stamp duty value as on 01.04.2001

2) Increase in safe harbor limit from 5% to 10% for land and building value u/s 43CA, 50C and 56

It is now proposed that as per section 43CA, 50C and 56(2)(x) if the consideration value is less than 90% (presently 95%) of the stamp duty value then the stamp duty value shall be deemed to be full value consideration for these sections.

 

VII) TAX DEDUCTED / COLLECTED AT SOURCE:-

1) TDS on Technical services u/s 194J reduced to 2%:

TDS on technical services other than professional services is proposed to be reduced to 2% from 10% presently.

2) TDS u/s 194C now applicable on contract manufacture:

Definition of “work” proposed to be amended to include contract manufacturing wherein the associate purchases raw material from the assessee, manufactures / processes the same as per the instructions of the assesse and then the associate sells the final product to the assessee.

The assessee will now be required to deduct u/s 194C.

3) TDS on e-commerce transactions (Sec. 194O):

  1. TDS is to be deducted @1% by the E-commerce operator on gross payments made by him to the E-commerce participant;
  2. TDS will not be applicable if the E-commerce participant is an individual / HUF who has furnished PAN to the E-commerce operator and the gross sale of goods / services through the E-commerce operator does not exceed Rs. 5 lakhs.

4) Tax Collected at Source (TCS) @ 5% on remittance under Liberalised Remittance Scheme: (discussed under International Taxation section)

5) Tax Collected at Source (TCS) @ 5% on selling of overseas tour package:

TCS shall be collected @5% from the buyer by a seller of an overseas tour program package who receives any amount from the person purchasing such package.

Other Conditions:

  • TCS is not required to be collected if the buyer is liable to deduct and has deducted TDS under any other section;
  • In case no PAN / Aadhar is furnished by the buyer TCS is to be collected @10%

6) Tax Collected at Source (TCS) @ 0.1% on sale of goods exceeding Rs. 50 lakhs:

  1. A seller of goods whose total turnover in the immediately preceding year exceeds Rs. 10 crore will collect TCS @ 0.1% from a buyer if total sales to such buyer exceeds Rs. 50 lakhs;
  2. If no PAN / Aadhar is furnished, TCS shall be collected @ 1%.

 

Regards,

Tax Team - LedgerPro

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Disclaimer:

  • The above highlights are proposals and are subject to approval by the parliament.
  • The above note is based on the budget speech and is subject to further study and clarifications.
  • This note does not form any kind of opinion from our end and before taking any action based on above it is recommended to take consultation from our experts in the subject.