Back to top

Snapshot of Direct Tax Proposals in Budget 2020 

Feb 02, 2020

The Union Budget 2020, presented by Hon’ble Finance Minister Nirmala Sitharaman on 1st Feb, 2020 has announced a new regime for individual taxpayers to make a choice between the old and new regimes with an objective that the taxpayers would be able to file their Income tax returns themselves;  Amongst the various proposals contained in the Union Budget 2020-21 in the form of Finance Bill, 2020, at Taxsutra database Budget special, we bring to you Snapshot of 11 important proposed amendments;

Snapshot of Direct Tax Proposals in Budget 2020 

1) Personal Income Tax Rate** 

Total Income (Rs)

Rate (%)

Upto 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

*An option to individual and HUF to be taxed at lower rates if they do not avail specified exemption/deductions

**Contributions made by employer`s in excess of INR 750,000 into EPF, NPS, SAF accounts, will now be taxable.

2) Residential Status 

a) Indian Citizens or Person of Indian origin living outside India: The “period of stay”, to determine residential status for Indian Citizen or for Persons of Indian Origin, is reduced to 120 days (earlier 182 days)

b) Individuals/HUF: To qualify as not ordinary resident, individual or the manager of the HUF has been a non-resident in India in seven out of ten previous years proceeding that year.

c) Deemed Residency Status: Indian citizens deemed to be a resident in India if not a tax resident of any other country or territory, income shall be taxable in India.

3) Dividends from domestic companies

Dividend distribution tax is abolished w.e.f. 01 April, 2020,

New section 80M inserted to remove the cascading effect, with a change that set off will be allowed only for dividend distributed by the company one month prior to the due date of filing of return, in place of due date of filing return earlier; 

4) Dividend taxation

a) Dividend taxable u/s 194K in the hands of resident shareholders or unit holders at the rate at 10% if dividend exceeds Rs. 5,000

b) No deduction allowed from dividend income or income in respect of units of mutual fund other then Interest expense to the extent of 20% 

5) Withholding Tax

a) TDS on Interest u/s 194A : Co-operative societies having gross receipts exceeding Rs. 50 crore during the last financial year are required to deduct tax from interest credited or paid if more than 50,000 in case of payee being a senior citizen and Rs. 40,000 in any other case

b) E-commerce operators to deduct TDS at the rate of 1% on payments or credit to e-commerce participants and at 5% if no PAN/Aadhaar; Exempts an individual and HUF who receives less than Rs. 5 lakh and furnishes PAN/Aadhaar

c) TDS in case of fees for technical services u/s 194J (other than professional services) to deduct 2% from existing 10%. TDS rate in other cases including fees for professional services shall remain same.

d) An authorised dealer receiving an amount or an aggregate of amounts of seven lakh rupees or more in a financial year to collect TCS at the rate of 5% on overseas remittance / sale of overseas tour package and at 10% if no PAN / Aadhaar

e) TCS on sale of goods - A seller of goods with turnover exceed Rs . 10 crore is liable to collect TCS at the rate of 0.1% from a buyer purchasing goods in excess in excess of rs. 50 lakh and at 1% if no PAN / Aadhaar 

6) Rationalization of provisions for Startup`s

a) Enhancement of time limit - Deduction u/s 80-IAC available to an eligible start-up for a period of three consecutive AYs out of 10 years (from exiting 7 years) beginning from the year in which it is incorporated

b) Turnover criteria for eligible Startup`s increased from existing Rs. 25 crore to Rs. 100 crores

c) Defer perquisite taxation on ESOPs granted by start-up to their employees by 5 years or till the employee leaves the company or when the said employee sells those shares, whichever is earliest; 

7) Tax administration

a) Insert a new section 119A, empower the CBDT to adopt and declare a Taxpayer’s Charter and issue orders, instructions, directions or guidelines to other IT authorities for the administration of such Charter.

b) Widen the scope of references to DRP by including all non-residents as eligible assessee and to eligible Taxpayer`s to file his objection where the AO proposes to make any variation (as opposed to variation only to income or loss) which is prejudicial to the interest of a Taxpayer

c) ITAT to grant stay of demand on deposit of 20% of the amount of tax, interest, fee, penalty, or any other sum payable or furnish security of equal amount;

d) E-appeal scheme (including e-scheme for imposing Penalty) be notified on the lines of e-assessment scheme for greater efficiency, transparency and accountability.

e) Insolvency Professional entitled to appear before any Income-tax Authority or the Appellate Tribunal on behalf of an assessee as its “authorised representative”, in connection with any proceedings under that Act

8) Ease of compliance

a) Turnover limits for Tax Audit: Turnover limits for applicability of Tax Audit, increased from existing Rs. 1 crore to Rs. 5 crore in a case where cash receipt is not more than 5% of total receipt and cash payment is not more than 5% of total payment.

b) Tax audit report to be filed a month before the due date of filing income- tax return and due date for filing of income-tax returns is extended from 30thSeptember to 31stOctober of the relevant AYs

c) Non-residents (No PE in India) exempt 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.

9) Penalty for fake invoice

Insert a new section 271AAD relating to penalty for “false entry” or omission of entry in books of account. “False entry” includes (a) forged or falsified documents such as a false invoice or, in general, a false piece of documentary evidence; or (b) 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 (c) invoice in respect of supply or receipt of goods or services or both to or from a person who does not exist. 

10) Capital gain

a) Cost of acquisition 

Fair market value of a capital asset, being land or building or both acquired before 01-4-2001 shall not exceed the stamp duty value of such asset as on 1st April, 2001 where such stamp duty value is available.

b) Increase in safe harbour limit 

Safe harbour limit (variation between stamp duty value and the sale consideration) of 5% on or after the 01.04.2017 u/s 43CA, 50C and 56 has been extended to 10% of the consideration for the purposes of computing profits and gains from transfer of asset, the excess amount if it is more than Rs. 50,000 shall be charged to tax under the head income from other sources.

11) Vivad Se Vishwas Scheme

Vivad Se Vishwas Scheme for reducing the litigation under Direct Tax. Taxpayers in whose case appeals are pending at any level can take the benefit from this scheme. Taxpayers would be required to pay only the amount of the disputed taxes and there will be complete waiver of interest and penalty provided they make payment by 31.03.2020. For disputed penalty, interest and fee not connected with the disputed tax, the taxpayer would be required to pay only 25% of the same for settling the dispute .

If Taxpayers opt to pay after 30.03.2020, he shall be required to pay 110% of the disputed tax (the excess 10% shall be limited to the amount of related penalty and interest, if any) and 30% of penalty, interest and fee in case of payment .