HIGHLIGHTS – DIRECT TAX PROPOSALS OF UNION BUDGET 

UNION BUDGET 2020 FEATURES

The review of the budget is divided into two main categories: (a) Direct Tax (b) Indirect Tax, with a significant emphasis on the proposed change to the Direct Tax.

The budget was very strong on the expectations of individual taxpayers, as the hopes for tax relief were very high. The key themes of this budget were the aspiration of India, economic growth, and the creation of a caring community.

The budget statement was the largest speech recorded by any finance minister, but N. Sitharaman still failed to energise the stock market as the market responded negatively.

In this report, the Government’s Direct Tax Plan, which is divided into different categories, will be discussed as follows:

• Individual taxpayers
• Corporate
• NRIs
• Foreign
• Others

INDIVIDUAL TAX RATES

The budget provided taxpayers a new choice to apply for a lower slab rate if they forgave any deductions or exemptions available under the Income Tax Act, 1961. The updated tariffs are as follows:

S.No	Income (Lakh)	Old Slab rate (%)	Income	New Slab rate (%)
1	2.50L-5.0L	5	2.50-5.0L	5
2	5.0-10L	20	5.0-7.5L	10
3	10L & Above	30	7.5-10L	15
4			10-12.5L	20
5			12.5-15L	25
6			Above 15L	30

The Finance Bill gives taxpayers the opportunity to exercise the different choice of using new rates or staying under the old regime.

Main change is that although the exemptions under section 10 of the Income Tax Act 1961 extend to new rates, the housing interest rate and principal deduction under section 24B and the deductions available under chapter VI-A cannot be used. As a result, no such benefit will be accessible under the proposed format.

NEW SURCHARGE RATES APPLICABLE FOR THE FINANCIAL YEAR 2020-21

S.No	Assesse Type	Net Income up to	Surcharge Rate (%)
1	Individual/HUF/AOP/BOI	Exceeds 50L upto 1Cr	10
2	An Individual/HUF/AOP/BOI	From 1 Cr to 2 Cr	15
3	Individual/HUF/AOP/BOI	From 2 Cr to 5 Cr	25
4	An Individual/HUF/AOP/BOI	Beyond 5 Cr	37
5	Domestic Company	1 to 10Cr	7
6	The Domestic Company	Exceeds 10Cr	12
7	Firm/LLP/Cooperative Society/Local authority	Exceeds 1Cr	12
8	Foreign Company	1 to 10 Cr	2
9	The Foreign Company	Exceeds 10Cr	5

Limit for tax audit

• Tax audit In compliance with section 44AB, the threshold is now increased to Rs. 5 Cr in order to promote small medium-sized enterprises that were needed to carry out such audits.
• The tax audit limit has been raised from Rs 1 crore to Rs 5 crore given that the turnover/gross receipts in cash did not exceed 5 percent in the previous year.
• In addition, the payment made in P.Y. in cash does not exceed 5%. For such taxpayers, the time limit for the tax audit has been extended from 30 September to 31 October.

Intellectual Property

• It is recommended that a digital network be set up to promote the smooth implementation and security of intellectual property rights.
• In comparison, it is suggested that the Center of the Institute of Excellence should be developed to work on the complexities and creativity of intellectual property.

Rates for Real Estate Circle and Stamp Duty Variation

• The Bill aims to expand the exemption by allowing for a difference of 10% between the real consideration and the circle rate as opposed to the existing 5% rate.
• This is a significant relief for the seller of the property for the measurement of profit and profit on the selling of immovable property.

TDS DEDUCTION BY E-COMMERCE OPERATORS FOR SALES AND SERVICES THEIR WEBSITE.

New section 194-O is intended to be introduced whereby ‘e-commerce operators’ would be allowed to deduct tax at a source of 1% of the gross sum of sales and services promoted or delivered via their digital or electronic platforms.

The person or HUF e-commerce participant with less than 5 lakhs of sales and his PAN shall not be liable.

Cooperative Societies

Cooperative Societies by new section 115BAD will be taxed at a tax concessions tax rate of 22 percent without exemptions compared to the current 30 percent.

The taxability of the dividend in the hands of the beneficiary is increased to Rs. 5000 of Rs. 2500 Taxpayer’s Charter in the Act.

New section 119A of the Act under which the Board shall declare a Taxpayer’s Charter and give such orders, directives, instructions or guidance to other revenue-tax authorities as it may find necessary for the administration of the Charter.

Abu Dhabi Investment Authority and Sovereign Wealth Fund Certain Income Exemption

Section 10 of the Income Tax shall provide for the exemption of any income in the form of a dividend, interest or long-term capital gain arising from an investment made in India before 31.03.2024 and retained for a period of three years in respect of equity and debt investment, and such investment will be made in respect of any prescribed sector.

The privileges provided to the assessee, with income and earnings from the business of establishing and building affordable homes subject to circumstances, can be deducted at a rate equal to 100% of the profits and earnings from that business.

The requirements are that such business must be licensed by the competent authority during the period from 1 June 2016 to 31 March 2021. Enhancing the benefits of these kinds of projects to one more year pursuant to Section 80-IBA of the Act.

Electricity generation companies under the concept of manufacturing

New Amendment of Section 115BAB to incorporate the generation of electricity as production as current domestic manufacturing companies formed on or after 1 October 2019 and which start production or production on or before 31 March 2023 and which do not gain from any concessional deductions or incentives may pay tax at a rate of 15%. The same section will now also provide a gain of adding the “electricity generation business” as described in the concept of output.

DEPOSIT INSURANCE LIMIT INCREASED TO RS. 5 LAKH

• The other major announcement made was with respect to bank deposit insurance, which would be raised to Rs. 5 Lakhs from Rs. 1 lakhs, which was founded in May 1993.
• Cap will be raised by the Deposit Insurance and Credit Guarantee Company. This is a major relief for depositors in the recent case of Punjab and Maharashtra Cooperative Bank’s inability to pay and eventual RBI action on depositor and other issues.
• In the case of banks, the rise will mean further premium charges to insurance co. Hopefully, this would bring more relief to the depositor, however, the real problem is the Financial Resolution and Deposit Insurance Bill, 2017 the real devil for the depositor.

Non-residents Definition changes & taxability

• The third big reform is the concept of non-resident and the status of taxability if you are not taxed anywhere around the world.
• Now the non-resident is a person who has remained outside India for a period of not 182 days but 246 days. Thus a person has to stay a little later to claim the status of a non-resident otherwise as a resident and is liable to be taxed on both Indian and non-Indian income.

Taxability of non-tax residents anywhere in the world

• Further to the above, if a person is a citizen of India and is not liable for tax in any foreign country on the grounds of residency, that person would be a resident of INDIA and would be liable for tax on his or her global income in India.
• Hence the government widens the coverage of residents and targets Indian people who live or make arrangements where they do not pay tax elsewhere they will be liable to pay tax in India.

Exemption from the filing of an income tax return to non-residents

• Exemptions for non-residents from the completion of the Income Tax Return under 139(1) by revising Section 115A, which now states that if the overall non-resident income contains royalties or fees for technical services (FTS) then they are not required to file the return.
• Existing provisions allow for relief only in the event of an interest or dividend income and TDS has been charged on that income.

ETF for G-Sec investment for the retail investor

• Retail investors now have a new investment door through the G-Securities ETF following the success of the Bharat Bond ETF, which expanded the scope for any further issues.

AMENDMENT PROPOSED FOR CORPORATE

Dividend Distribution Tax

• Currently, dividends paid by a corporation are subject to the DDT at an effective rate of 20.56%. Such Dividend Distribution Tax is applied to the company’s post-tax revenue, i.e. after the company has already suffered corporate tax on its profits.
• Although Dividend Distribution Tax is a tax liability of the distributing business i.e. it is not in the essence of the source tax deduction), such Dividend Distribution Tax is not available as a credit to the shareholder.
• The dividend so earned from the distribution company is excluded from tax on the part of the shareholders Excluding a few having a dividend income of Rs. 10L.
• DDT has been discontinued. Instead, the recipients of the dividend will have to pay tax at their applicable rate. The dividend Distribution Tax has been abolished. Instead, the recipients of the dividend will have to pay tax at the respective applicable Tax Rate.
• Currently the same would be being eliminated for companies and will be taxed after 31.03.2020 in the hands of the Shareholder but still the responsibility is to deduct TDS is on the Company, again making the compliance burden.

Decriminalization of the Rules on Corporations

• It is recommended that the Government expand its attempts to eliminate criminal liability under the Companies Act, 2013. The activities would be in line with the priorities of the Ease of Doing Business.
• Measures are already being taken with more new steps in the new FY that would pave the way for such decriminalisation of the provisions of the Companies Act, in particular those relating to directors and non-commissioned officers.

CELL INVESTMENT CLEARANCE

• A proposal has been made to set up an Investment Clearance Cell through a portal that will provide “end to end” facilitation and support, including pre-investment guidance, information on land banks and facilitate clearance at central and state level.
• This initiative is in line with ongoing government efforts to make “ease of doing business” in India.. This is to help the entrepreneur with the clearance and knowledge available in a free and hassle-free way.

ESOP & ITS TAXABILITY

• Start-ups and companies depend on ESOP to attract and retain talent, but the same ESOP is now becoming a source of a burden as tax provisions are complicated.
• But the Bill has made life easier as ESOPs are taxed earlier than 5 years or leave the Business or sell shares.
• Under the Section 80-IAC of the I Tax Act relating to special arrangements in respect of the prescribed business.
• It provides for the deduction of a sum equal to 100 percent of the income and benefits obtained from a qualified company by an eligible start-up for three consecutive assessment years out of 10 years at the option of the assessor and the gross turnover of its business does not exceed INR 100 Crore.
• The turnover cap for start-ups is then raised to INR 100 Crore from 25 Cr and also to 10 years.

FEW OTHER CHANGES ARE HEREUNDER:

• The Government has introduced a new income regulatory structure Section 115BAC, which entails a major improvement in the rate of tax levies.
• Taxpayers have been given a choice whether they want to pay taxes under the new scheme or whether they want to continue paying taxes under the old scheme.
• But a few taxpayers might not be able to go back to the old tax slab once they chose to adopt the latest one.
• Through Section 194J-Technical Services Fees, TDS was decreased from 10% to 2%.
• Section 80EEA, the incremental deduction of Rs.1.5 lakh for interest paid on home loans will also be given for loans approved prior 31 March 2021.

TDS Rates – Financial Year 2020-21  i.e. Assessment Year 2021-22

Section	Particulars	Domestic Company (in %)	Other than domestic Company (in %)	TDS Rate Individual/ HUF (Indian Resident)(in %)	TDS Rate for (NRI) in India (in %)
194H	Commission or brokerage (Monetary Limit – Rs 15,000)	5	–	5	–
194-I	Rent (Monetary  Limit   –  Rs  2,40,000)
	a. Plant &  Machinery	2	–	2	–
	b. Land or  building or  furniture or fitting	10	–	10	–
194-IA	Payment on transfer of certain immovable property other than agricultural  land (Monetary  Limit  –Consideration exceeding Rs 50,00,000)	1	–	1	–
194-IB	A Payment of rent by an individual   or  HUF not liable to tax audit (Monetary Limit – Rent for the month or part of the month exceeds Rs  50,000)	–	–	5	–
194K	Payment of any income in  respect of: a) Units of a  Mutual Fund as  per  Section  10(23D) b)The Units from    the administrator c) Units from the specified company	10 (w.e.f. 01.04. 2020)	–	10 (w.e.f. 01.04.2020)	–
194M	Payment of commission  (not being insurance commission),  brokerage,  contractual fee, the professional fee to a resident person by an Individual or a HUF who are not liable to deduct TDS under section 194C, 194H, or 194J.	5	–	5	–
194N	Cash withdrawal in excess of Rs. 1 crore during the previous year from one or more account maintained by a person with a banking company, co-operative society engaged in the business of banking or a post office	2	–	2	–
194-O	Applicable for E-Commerce operator for sale of goods or provision of service facilitated by it through its digital or electronic facility or platform.	1 (w.e.f.  01.04.2020)	–	1 (w.e.f. 01.04.2020)	–
195	Payment of any other sum to a Non-­resident
	a)Any other income	–	41.60	–	31.20
	b)Income by way of fees for technical services	–	–	–	10.40
	c) Income in respect of investment made by a Non-resident Indian Citizen	–	–	–	20.80
	d) Income by way of interest payable by Government or an Indian concern on money borrowed or debt incurred by Government or the Indian concern	–	–	–	20.80
	e) Income by way of long-term capital gains as referred to in Section 112A	–	–	–	10.40
	f) Income by way of short -term capital gains referred to in Section 111A	–	–	–	15.60
192	Payment of salary	–	–	Normal Slab Rate	Normal Slab Rate
194J	A Payment  for fees for  Technical  services, Professional services    or royalty etc. (Monetary Limit –Rs  30,000 p.a)
	a. Fee for  technical  services	2 (w.e.f. 01.04. 2020)	–	2 (w.e.f. 01.04.2020)	–
	b. Fee in other all cases as per Section 194J Note: With effect from June 1, 2017, the rate of TDS would be 2% in case of payee engaged in the business of operation of the call center.	10	–	10	–
194	Dividend (monetary limit- Rs 5000)	10 (W.e.f. 01.04. 2020)	–	–	–
194A	Income by way of interest other than “Interest on securities” (Monetary Limit – Rs 40,000)	10	–	10	–
194B	Income by way of winnings from lotteries, crossword puzzles, card games and other games of any sort (Monetary Limit – Rs 10,000)	31.20	–	30	–
194BB	Income by way of winnings from horse races (Monetary Limit – Rs 10,000)	31.20	–	30	–
194C	A Payment to contractor/ sub­contractor (Monetary Limit – Rs 30,000 per contract or Rs 1,00,000 for aggregate amount during the year)
	a. HUF/ Individuals	1	–	1	–
	b. Others	2	–	2	–
194D	Insurance commission (Monetary Limit – Rs 15,000)	10	–	5	–
194DA	Payment in respect of life insurance policy w.e.f. 1/9/2019, the tax shall be deducted on the amount of income comprised in insurance pay-out (Monetary Limit – Rs 1,00,000)	–	–	5	–

New Deadline Dates for Return filing and TDS Payment :

Month of Deduction	Due dates for TDS payment through challan		Quarter ending		Due Date for filing of Return for All Deductors
	For Govt. Deductor	For Other Deductor
April May June	7th May 7th June 7th July		30th June		31st July
July August September	7th August 7th September 7th October		30th September		31st October
October November December	7th November 7th December 7th January		31st December		31st January
January February March	7th Feb 7th March 7th April	30th April	31st March	31st May

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