GLIMPSE OF INCOME TAX CHANGES PROPOSED
FINANCE BILL 2020
DATED 01ST FEBRUARY 2020
Change in Income Tax Rate
- Rate of Income Tax for Individuals & HUFs:
- Currently Individual and HUFs are liable to pay income tax as per following slab rates
|Up to Rs. 250000/-||Nil|
|From 2,50,001 to 5,00,000||5%|
|From 5,00,001 to 10,00,000||20%|
This budget prescribed the reduction in income tax rate subject to fulfilment of certain conditions*
|Up to Rs. 250000/-||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%|
- The following deductions from taxable income will not be available
- Deduction available in respect of Leave travel concession
- Deduction available in respect of House rent allowance
- Deduction available in respect of all allowance as contained in clause (14) of section 10 except Transport allowance to divyang employee, Tour or travelling allowance on transfer, Daily allowance and conveyance allowance.
- Deduction available in respect of Allowances to MPs/MLAs as contained in clause (17) of section 10
- Deduction available in respect of Allowance for income of minor as contained in clause (32) of section 10
- Exemption for SEZ unit contained in section 10AA
- Standard deduction U/s 16 @ 40000/-
- Deduction available in respect of Entertainment Allowance
- Deduction available in respect of Professional Tax paid
- Deduction available in respect of Interest paid on Housing Loan u/s 24
- Deduction available in respect of Additional depreciation on acquisition of new plant & Machinery U/s 32(1)(iia)
- Deduction available in respect of Investment in new plant or machinery in notified backward areas in certain States u/s 32AD
- Deduction available to person engaged in extraction or production of petroleum, minerals etc. u/s 33ABA.
- Deduction available to Tea & Coffee Manufacturers u/s 33AB.
- Various deduction for donation for or expenditure on scientific research u/s 35, 35AD, 35CCC
- Standard deduction available u/s 57 in respect of family pension
- Any deduction under chapter VIA except Section 80CCD(2) and section 80JJAA i.e. Employer contribution for NPS & additional Deduction of 30% of employee cost in respect of recruitment of new employee.
- Set off or carry forward of losses and unabsorbed depreciation will also not allowed.
- Provisions related to alternate minimum tax will not be applicable
- Individuals not having business income can opt in or opt out every year but individual or HUF having business income can opt in once and opt out once. Individuals or HUF having business income can once opt in the new tax rate mechanism and have to compulsorily follow the new tax rates till the time they decided to opt out and once opted out they can not opt in for new tax rate system again.
Explanation: Individuals or HUFs having business income, who opt for the new tax rate mechanism once and have to compulsorily follow the new tax rates till the time they decide to opt out and once opted out the same, they cannot opt in the new tax rate regime again.
The scope of fulfilment of certain condition for availment of concessional Individual income tax is so wide that it leaves no room for tax planning and savings even. It primarily can be availed by individual or HUF who don’t have investments parked in tax saving instruments and also don’t have diverse salary structure.
Change in Corporate Tax Rate
Corporate tax Rate
The rate of Income tax remains unchanged and companies (both domestic and others) will be taxed at earlier prescribed rate itself as prescribed through previous finance Act.
Section 115BAA & Section 115BAB was introduced through TLAA (Taxation law amendment Act) paving the way for reduced rate of income tax for domestic companies viz; 22% and 15% with an additional surcharge of 10% on such income tax. However, this reduced rate of corporate tax for domestic companies was subject to fulfilment of certain condition like waiver of deductions and incentives available to corporate assesses.
The prohibited deductions are earlier as provided in Part C of Chapter VIA. However, after amendment any deduction as provided through Chapter VIA is prohibited except section 80JJAA & Section 80M i.e. deduction available in respect of employment of new employees and inter corporate dividend.
- Rate of Income tax for Cooperative society
In line with option provided to individual taxpayers as well as domestic companies regardingconcessional income tax rate subject to fulfilment of certain conditionssection 115BAD introduced to extend such option to cooperative societies as well.
- Rate of Income tax for Persons other Individual, Companies & Cooperative Societies.
Apart from Individuals, HUFs, Domestic companies and cooperative societies there is no change in Income tax rate, Health and education cess as well as surcharge even.
Changes in TDS /TCS Provisions
- Deduction of TDS by E-commerce operator Section (194M)
Tax is required to be deducted by e-commerce operator on sale of goods or services, including Digital products by E-commerce participant through E-commerce platform. Rate of TDS deduction would be 1% of gross value of goods or services so sold. The gross value of goods or services will include any amount paid directly by consumer to E-commerce participant.
Deduction liability will arise in case of every person except Individual or HUF whose total sale on particular E-commerce platform doesn’t exceed 05 Lakh Rupees in whole financial year.
- Collection of TCS on Foreign remittance, Sale of tour package & other goods
- On foreign remittance under LRS if the remittance is from a buyer and sum so remitted exceeds Rs. 750000/- (aggregate of total remittances in a financial year) then TCS collection will be made by Authorised dealer bank @ 5%. In no PAN Aadhar Case the rate of TCS collection will be 10%
- Upon sale of overseas tour programme packages, Seller will collect TCS @ 5% from Buyer and in no PAN Aadhar case rate of TCS collection would be 10%
However, TCS collection will not take place in above 02 cases if The transaction is liable for TDS deduction under any other provisions of the Act and Deduction took place. Further Collection of TCS is also not required if the buyer is either government or notified person in this behalf.
- A seller of goods is liable to collect TCS from buyer of goods if his total receipt from such buyer exceed Rs. 50 Lakh in a financial year. The rate of TCS would be 0.1% and in no PAN Aadhar Case 1%
Seller is liable only if his total turnover exceeds Rs. 10 crores in a year and the receipts are not subject to either TDS deduction or TCS collection under any other provision of this act. Also if the buyer being government or other notified person in this behalf then liability to TCS collection will not arise.
- Other changes in TDS law
- Fees for technical services will be liable for TDS @ 2% instead of 10% u/s 194J
- Employee salary will not include ESOPs while calculation of total taxable salary income for the purpose of TDS deduction u/s 192. This will be applicable only in case of eligible start-ups referred in section 80IAC.
- Section 194A will now include interest payment made by Co-operative societies as well which was earlier excluded. The cooperative societies whose sales or turnover exceeds Rs. 50 crores are included.
- In section 194C even if the raw material is supplied by the person other than customer and such supplier is a associate of principal customer then will be treated as Work and TDS deduction will take place accordingly
Amendments in ERA of Charitable & Religious Institutions
- Validity of Trust Registration under section 12AA & 80G as well
The trust registered under section 12AA & 80G will now have to apply for renewal after 05 years of its registration. For existing institutions who are already registered, the period of five years will be calculated from 01st April 2020.
The system of provisional registration will also have brought in where registration will be granted without detailed enquiry and before start of its activities even. The validity of provisional application will be 03 years and entity have to apply for its renewal 06 months prior to expiry of provisional registration or 06 months post commencement of activities whichever is earlier.
- Section 12A exemption Vs Section 10(46) & 10(23C) exemption
Charitable institutions, hospitals, universities etc. already registered u/s 12AA can apply for exemption under section 10(46) & 10(23C) also.
However, once they opted out to have exemption u/s 10(46) or 10(23C), their 12AA registration will become inoperative and can not claim exemption benefit under the provisions of section 11 & 12.
- Filing of donation report by Trust/Charitable Institutions
Donor who are making donation to charitable institution and seeks to claim deduction under section 80G can do so only if the donee i.e. Charitable institution files report with the Income tax.
If his PAN is appearing online in his income tax pre-validated data then only Donee can have eligibility to claim deduction u/s 80G
This increases compliance burden on part of Charitable institutions but ensures transparency too in context of prevention of abuse of such deduction exemption benefit.
Changes in E-Filing of TAX Return & TAX Audit
- Change in Tax Audit Threshold Limit
The proposal is to extend the threshold limit from 01 crore to 05 crore subject to certain conditions.
- Aggregate of total cash receipt or cash payment during a year will not exceed 05 % of total receipt or total payment particularly.
- Limit increase is for person carrying on business only and for professionals there is no change.
- Change in due date for Filing of Tax Return
The due date for filing of Income tax return in case of Company and partnership firms or other person whose books of accounts are required to be audited is extended from 30th September to 31st October.
- Change in Due date for filing of Tax Audit reports
The Tax audit report filing due date will be 01 month prior to filing of Income Tax return. This will equally applicable for Tax Audit report in form 3CB-CD, 10B, 10BB and all other formats as applicable.
- Increase in scope of 26AS reporting.
More transactions will be reported in form 26AS thereby ensuring greater transparency and data integrity.
- Non filing of Income Tax return by certain Non-residents.
If the non-resident is in receipt of income in the form of Royalty or Fees for Technical services or Interest or dividend or combination of either some or all of these and TDS had been deducted at rate provided in section 115A of the Act, then they are exempted from filing of income Tax return.
Other Miscellaneous Changes
- While calculating the cost of acquisition of Capital asset being land or building acquired before 01st April 2001, its FMV as on 01st April 2001 should not exceed Stamp value as on date i.e. 01st April 2001
- CDT (Corporate dividend Tax) abolished and now will be included in taxable income of Recipient itself.
- An Indian citizen who is not liable to tax in any other country or territory shall be deemed to be tax resident in India.
Further, for determination of residential status of Person being Indian Citizen or of Indian Origin who comes to India on a visit, the period of 182 days reduced to 120 days now.Also, for the purpose of Determination of Resident but not ordinarily resident status, the criteria of 09 out of 10 previous years changed to 07 out of 10 previous years.
- Electronic procedures will be extended to Penalty proceedings u/s 274, appeal proceedings U/s 246 etc. in same pattern with E-Assessment scheme for section 143, 144, 147 Assessments proceedings.
- Section 10 (45) which provides for exemption to certain allowances paid to UPSC Chairman & Members and Chief election commissioners and election commissioners now removed.
- Income of ADIA (Abu Dhabi Investment Authority) in the form of Interest, Dividend or Long Term Capital Gain arising out of investment made by it in India made Exempted.
- Concessional rate of Income Tax for company’s u/s 115BAB i.e. 15% extended to companies engaged in generation and distribution of electricity as well.
- Concessional rate of TDS under section 194LC & 194LD is extended till 01st July 2023 against the earlier period of 01st July 2020.
- The acceptable difference between Purchase or sale consideration and Stamp value of capital asset being land or building or both as enumerated in section 50C & 56(2)(vii) now increased to 10% from 05 %.
- The benefit of deduction under section 80EEA for investment in a house property can now be availed even if the house acquired before 31st March 2021. Earlier this period was before 31st March 2020.