KEY TAX HIGHLIGHTS – Budget 2020

KEY TAX HIGHLIGHTS – Budget 2020

The Hon’ble finance minister Nirmala Sitharaman has presented union budget 2020 before the parliament on February 01, 2020. Key tax proposal made in this budget have been highlighted in this document are as under.
  1. Individual taxation slab
In line with options provided to domestic companies of lower taxation rate it has been proposed in the budget to provide similar option to individual and HUF by insertion of section 115BAC in the Act, which provides the following. On satisfaction of certain conditions, an individual or HUF shall have the option to pay tax in respect of the total income at following rates.
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
Above 15,00,000 30
  For assessee having Business Income, once the option is exercised for a previous year it shall be valid for all subsequent years. Whereas for assessee having no income under the head profits and gains from business and profession, this option has to be exercised every year. The above option is available to the Individual or HUF whose total income is computed
  1. without any exemption or deduction provided under different section as under;
    • Leave travel concession;
    • House rent allowance;
    • Allowance for clubbing of income of minor (Rs 1500);
    • Exemption for SEZ unit;
    • Standard deduction(Rs 50,000), deduction for entertainment allowance and professional tax;
    • Loss of Interest paid in respect of self-occupied or vacant property;
    • Additional deprecation;
    • For donation for or expenditure on scientific research;
    • Any deduction under chapter VIA (e.g. section 80C, 80CCD, 80D etc). However, deduction employer contribution on account of employee in notified pension scheme and section 80JJAA for new employment can be claimed.
  2. Without set off of any loss
  • If Carried forward loss or depreciation is attributable to the above exemptions
  • Of House Property
  1. Without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.
GSRA views: - Every individual or HUF should make the comparison of their tax liability under the current tax rate structure and the proposed tax rate structure to assess the benefits of the concessional rate scheme. (Applicable from assessment year 2021-22 onwards)
  1. Abolishment of Dividend distribution tax (DDT) (Section 115-O)
Non-availability of credit of DDT to most of the foreign investors in their home country results in reduction of rate of their return on equity capital. In order to increase the attractiveness of the Indian Equity Market and to provide relief to a large class of investors, it is proposed to remove DDT and adopt 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 rate. Further, in order to remove the cascading effect, it has been proposed to allow deduction for the dividend received by holding company from its subsidiary. This is another bold move which will further make India an attractive destination for investment. GSRA views: - This will have major impact on recipient of dividend. Tax will increase in the hand of small individual investor as dividend was exempt earlier up to INR 10 Lacs. (Applicable from assessment year 2021-22 onwards)
  1. Section 44AB of the Act- Increase in tax audit limit in certain cases.
The threshold limit for a person carrying on business has been increased from one crore rupees to five crore rupees in cases where,-
  • Aggregate of all receipts in cash during the previous year does not exceed five per cent of such receipt; and
  • Aggregate of all payments in cash during the previous year does not exceed five per cent of such payment.
GSRA views: - This shall reduce the burden of compliance on small businessman. It is to be noted that proposed amendment talks about receipt and payment not income and expenses. (Applicable from assessment year 2020-21 onwards)
  1. Change in due date of filing of tax return
The due date for filing return of income under section 139(1) is proposed to be 31st October of the assessment year (as against 30th September). Further, In case of persons having income from business or profession, the tax audit report may be furnished at least one month prior to the due date of filing of return of income. Thus, no change in due date of furnishing Tax Audit Report. (Applicable from assessment year 2020-21 onwards)
  1. Reduction in rate of TDS on fee for technical service u/s 194J
It is noticed by the govt that there are large number of litigations on the issue of short deduction of tax treating assessee in default where the assessee deducts tax under section 194C, while the tax officers claim that tax should have been deducted under section 194J of the Act. Therefore to reduce litigation, 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)
  1. Exempting non-resident from filing of Income-tax return on certain conditions:
In order to reduce compliance burden of non-residents, it has been proposed to exempt them from filing income-tax return on their income of the nature of royalty or fee for technical services, if tax has been deducted at the rate given in section 115A. (Applicable from assessment year 2020-21 onwards)
  1. Increase in safe harbour limit to 10% from existing limit of 5% under section 43CA, 50C, and 56.
As per existing provisions, if the difference between the sale consideration of transfer of land or building or both and stamp value is less than 5% of Stamp Duty Value, only then such difference is acceptable. Now it is proposed to increase the above limit to 10%. The above amendment is being done considering the present situation of real estate market where the market prices of land or building or both is so down. Various representation has been given to the govt in this regard requesting that the said safe harbour of five per cent should be increased. Therefore. Govt. has proposed to increase said limit to 10% (Applicable from assessment year 2021-22 onwards)
  1. Section 57 of the Act relating to deductions in case of income from other source.
As dividend Income become taxable in the hand of shareholder therefore it is also proposed in the budget to provide that the deduction for expense under section 57 of the Act shall be maximum 20 per cent of the dividend or income from units. Further, no deduction shall be allowed from dividend income, or income in respect of units of mutual fund or specified company, other than deduction on account of interest expense. (Applicable from assessment year 2021-22 onwards).
  1. E- Penalty
It is proposed introduced the provision for e-penalty in order to impart greater efficiency, transparency and accountability to the assessment process under the Act.
  1. E- Appeals
It is proposed introduced the provision for e-appeals in order to impart greater efficiency, transparency and accountability to the assessment process under the Act.
  1. Extension in Time limit under Section 80EEA
Extending time limit for sanctioning of loan for affordable housing for availing deduction under section 80EEA of the Act to March 2021.
  1. ‘Vivad Se Vishwas’ scheme:
It is proposed to introduce a scheme similar to the indirect tax “Sabka Vishwas” Scheme for reducing litigations even in the direct taxes named “Vivad Se Vishwas” scheme. According to which:
  1. A taxpayer would be required to pay only the amount of the disputed taxes and will get complete waiver of interest and penalty provided he pays by 31st March, 2020.
  2. Those who avail this scheme after 31st March, 2020 will have to pay some additional amount. The scheme will remain open till 30th June, 2020.
  3. Taxpayers in whose cases appeals are pending at any level can benefit from this scheme.
  ------------------------------------------------------------- The information contained herein is of general nature and is not intended to address the circumstances of any particular entity or individual. Although we endeavour to provide accurate and timely information, there can no guarantee that such information is accurate as on the date or it will continue to be accurate in future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation

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