UNION BUDGET 2020

By Karan Gupta | 6 min read

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UNION BUDGET 2020

SPC TAX TRAX

Personal Taxation

  1. No change has been proposed in existing tax slab rates; however, an optional tax regime has been introduced whereby individuals may opt to pay tax as per following reduced rates, subject to non-availability of specified deductions / losses (including house rent allowance, leave travel concession, standard salary deduction, interest for self-occupied property, deduction for investments etc).
  2. Deduction of INR 1.50 lakhs available for interest on loan taken for affordable residential house property has been extended to loans sanctioned till March 31, 2021 as against the present limit of March 31, 2020 [w.e.f. FY 2020-21]
  3. Dividend income and income from mutual fund units shall be taxable in the hands of shareholders as per applicable rates, subject to deduction of interest expense to the extent of 20 percent of income [w.e.f. FY 2020-21].
  4. Under the existing provisions, taxability in case of ESOPs gets attracted at the time of exercise of options. Relaxation in this regard has been provided to employees of eligible start-ups whereby taxability has been deferred till earlier of five years from the end of FY or sale of shares or termination of employment [w.e.f. April 1, 2020].
  5. Combined contribution by employer in NPS, superannuation fund and recognised provident fund in excess of INR 750,000 along with corresponding interest / dividend income thereon shall be taxable in the hands of employees [w.e.f. FY 2020-21].
  6. Modification in Indian tax residency provisions [w.e.f. FY 2020-21]
  • Limit of 182 days has been reduced to 120 days to qualify as tax resident in India,
  • Condition to qualify as ‘Not ordinarily resident’ has been relaxed to include individual who has been non-resident in India in 7 out of 10 previous years as against the existing limit of 9 out of 10 years),
  • Indian citizens shall be deemed to be tax residents in India in case they are not liable to tax in any other country due to domicile / residency etc

NEW TAX SLAB RATES

Corporate Taxation

  1. No changes have been proposed in existing corporate tax rate
  2. Having regard to change in dividend taxation regime, Dividend Distribution Tax (DDT) shall not be applicable on dividends distributed after March 31, 2020. Further, domestic companies shall be entitled to claim deduction for inter-corporate dividend from domestic companies to the extent of dividend distribution by the recipient company till one month prior to return filing date [w.e.f. FY 2020-21].
  3. Domestic companies opting for concessional rates of taxation at the rate of 22 percent or 15 percent shall not be entitled to claim any deduction under Chapter VIA, except deduction for new employees and inter-corporate dividends [w.e.f. FY 2019-20].
  4. Tax deduction available for development of affordable housing projects has been extended by one more year to projects approved till 31st March 2021 [w.e.f. FY 2020- 21]
  5. Eligible start-ups are presently entitled to claim deduction for 100% business profits for three consecutive years out of initial seven years. This limit of seven years has been extended till ten years. Further, the deduction can be claimed by eligible start-ups having turnover less than INR 100 crores during earlier years (as against present limit of INR 25 crores) [w.e.f. FY 2020-21]
  6. Threshold limit for tax audit under section 44AB has been increased from existing limit of INR 1 crore to INR 5 crores in case of taxpayers carrying on business, provided cash receipts and payments are limited to 5 percent [w.e.f. FY 2019-20].
  7. Due date of return filing for corporates (other than transfer pricing cases) has been extended by one month to 31st October of the relevant assessment year [w.e.f. FY 2019 20]
  8. Audit reports under various provisions, including tax audit report, transfer pricing report etc., shall be required to be filed one month prior to the due date for return filing [w.e.f. FY 2019-20].
  9. Under the existing provisions, transfer of immovable property at less than stamp value attracts taxability in the hands of transferor and transferee, subject to safe harbour limit of 5 percent. This limit has been relaxed from 5 percent to 10 percent [w.e.f. FY 2020-21]

KEY POINTS

Withholding Taxation

  1. Withholding tax rate on fees for technical services (other than professional services) under section 194J has been reduced to 2 percent from existing rate of 10 percent [w.e.f. April 1, 2020]
  2. E-commerce operators shall be liable to withhold tax at the rate of 1 percent (5 percent in non-PAN / Aadhaar cases) on payment for sale of goods /services to ecommerce sellers / service providers, including on payments made directly by customers to sellers / service providers. Provisions not to apply in case of sales / services by any individual / HUF seller to the extent of INR 5 lakhs provided PAN / Aadhaar number is furnished [w.e.f. April 1, 2020].
  3. Withholding tax provisions under section 194C on supply of product as per customer’s specification shall also be attracted in case the raw material is purchased by contractor from any related party of the customer [w.e.f. April 1, 2020].
  4. Dividend payments in cash to resident shareholders (exceeding INR 5,000) shall attract withholding tax at the rate of 10 percent [w.e.f. April 1, 2020].
  5. Concessional TDS rate of 5 percent on interest payment on specified borrowings form non-residents / foreign companies by an Indian company has been extended to borrowings till 30th June, 2023 [w.e.f. April 1, 2020].
  6. Tax Collected at Source (TCS) provisions have been expanded to cover following transactions, subject to certain exclusions [w.e.f. April 1, 2020]:
  • Foreign Remittance of INR 7 lakhs or more under Liberalised Remittance Scheme shall attract TCS at the rate of 5 percent (10 percent in non-PAN / Aadhaar cases),
  • Payment for overseas tour package shall attract TCS at the rate of 5 percent (10 percent in non-PAN / Aadhaar cases)
  • Sale of goods for consideration exceeding INR 50 lakhs by sellers having turnover exceeding INR 10 crores in previous year shall attract TCS at the rate of 0.1 percent (1 percent in non-PAN / Aadhaar cases).

KEY POINTS

International Taxation

1. Non-residents shall not be liable to file return of Income in India in case income consists only of royalty / fees for technical services, subject to the condition that tax has been withheld at the rate of 10 percent (subject to surcharge & cess) [w.e.f. FY 2019-20].

2. Source based taxation has been extended to include following income [w.e.f. FY 2020-21]:

  • advertisements targeting Indian customer / customers accessing advertisement through Indian IP address
  • Sale of data collected from Indian, residents / users of Indian IP address,
  • Sale of goods/ services using data collected from Indian residents / users of Indian IP address

3. Limitation of interest deduction under section 94B shall not apply to interest payment on debt issued by Indian PE of non-resident bank.

4. In alignment with Multilateral Instrument, relevant amendments have been made in the provisions dealing with double taxation relief to provide that the relief is not intended to create opportunities for non-taxation or reduced taxation through tax evasion / avoidance [w.e.f. FY 2020-21].

5. Under the existing provisions, foreign companies are entitled to adopt alternative appellate mechanism before Dispute Resolution Panel (DRP) in case of tax adjustments by revenue authorities. Applicability of the same has been extended to include all the non-residents [w.e.f. April 1, 2020].

6. Scope of Safe Harbour Rules and Advance Pricing Agreement have been expanded to cover determination of attribution of profits to Permanent Establishment (PE) in India [w.e.f. FY 2019-20].

7. Provisions concerning Significant Economic Presence to determine business connection in India have been deferred to April 1, 2022 having regard to ongoing discussion in G20-OECD BEPS project.

Tax Administration

1. Scope of e-assessment scheme expanded to include best judgement assessment cases [w.e.f. April 1, 2020].

2. In line with e-assessment scheme, following schemes have been proposed to be introduced [w.e.f. April 1, 2020]:

  • E-penalty scheme for penalty proceedings,
  • E-appeal scheme for first appellate proceedings [ie, appeals before Commissioner
    (Appeals)].

3. In case of appeal before Income-tax Appellate Tribunal, stay of demand can be granted by ITAT only where 20 percent of demand / security in lieu thereof is furnished by the taxpayer [w.e.f. April 1, 2020].

4. Taxpayer’s Charter to be adopted and declared by CBDT [w.e.f. April 1, 2020]

5. Scope of Form 26AS is proposed to be extended include multiple information such as sale/ purchase of immovable property, share transactions etc. Further, an annual information statement is proposed to be uploaded in the registered account of the taxpayer which can be used for return filing purposes [w.e.f. June 1, 2020].

6. To tackle fraudulent Input Tax Credit under GST regime, penal provisions have been introduced whereby in case of any false entry (including false invoice), penalty equal to aggregate amount of entry may be levied by the tax officer [w.e.f. April 1, 2020].

Goods & Services Tax (GST)

1. Persons making following supplies shall be excluded from ambit of composition
scheme:

  • Supply of ‘services’ not liable to tax
  • Inter-state outward supply of ‘services’
  • Outward supply of ‘services’ through e-commerce operator.

2. In case of claim of Input tax credit (ITC) pertaining to debit notes, limitation period referred to in section 16(4) shall get attracted from the date of debit note (and not from the date of original invoice).

3. Beneficiary of the transactions of passing on / availing fraudulent ITC shall also be liable for similar penalty as applicable upon the person committing the offence.

4. Fraudulent availment of ITC without invoice / bill shall be considered as a non-bailable offence.

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