Budget 2020 - an Analysis by team Arun Valera

DIRECT TAX
Personal Tax
Option A - New Regime under section 115BAC for personal taxation
For Individuals and HUFs
Income
Tax Rate (%)
Upto Rs. 2,50,000
0%
Rs. 2,50,001 to Rs. 5,00,000
5%
Rs. 5,00,001 to Rs. 7,50,000
10%
Rs. 7,50,001 to Rs. 10,00,000
15%
Rs. 10,00,001 to Rs. 12,50,000
20%
Rs. 12,50,001 to Rs. 15,00,000
25%
Above Rs. 15,00,000
30%

Ø  Option parameters:
Eligible assessees
Exercise of option
Earning income other than business income
Option can be exercised in every previous year
Earning business income
Option once exercised in a previous year shall be valid for subsequent assessment years. Further, the option may be withdrawn only once, after which the assessee shall never be eligible to exercise the option
Ø  Under New Regime, Individuals and HUFs shall pay tax at reduced slab rates subject to foregoing of certain exemptions and deductions (#1).
Ø  Such Individual and HUF shall not be allowed to set off any brought forward loss or unabsorbed depreciation, which pertains to foregone exemption and deduction.
Ø  No set off of losses under the head house property shall be allowed under any other head of income.
Ø  Depreciation claim permitted as per normal provisions
Ø  Provisions of alternate minimum tax (AMT) shall not be applicable to Individual or HUF exercising this option.

#1 Following exemptions and deductions to be foregone to avail reduced tax rates:
§  10(5) – Leave travel concession
§  10(13A) – House Rent Allowance
§  10(14) – Covers special allowance detailed in Rule 2BB (such as children education allowance, hostel allowance, transport allowance, per diem allowance, uniform allowance, etc.)
§  10(17) – Daily allowance / any other allowance received by MP, member of state legislature, etc.
§  10(32) – Clubbing benefit of Rs. 1,500 per minor child
§  10AA – Exemption to SEZ unit
§  Section 16 – Standard Deduction from salaries and tax on employment
§  24(b) – Interest on borrowed loan for a Self Occupied property (rented property not covered)
§  32(1)(iia) – Foreign Motor Car
§  32AD – Investment Allowance for investment in Andhra Pradesh / Telangana / Bihar / West Bengal
§  33AB – Tea / Coffee / Rubber Development allowance
§  33ABA – Site Restoration Fund
§  35(2AA) – deduction for Payment to National Laboratory or University or IIT
§  35AD – Deduction in respect of specified business
§  35CCC – Expenditure on agricultural extension project
§  57(iia) – Family pension
§  Any provision of chapter VI-A [excluding section 80CCD(2) and section 80JJAA]


Option B - Old Regime for Personal Taxation
The tax rates have remained the same as in the earlier year as follows:
(A) For Individuals, HUFs, AOPs, BOIs [not covered in (B) & (C) below]
Income
Tax Rate (%)
Upto Rs. 2,50,000
0%
Rs. 2,50,001 to Rs. 5,00,000
5%
Rs. 5,00,001 to Rs. 10,00,000
20%
Above Rs. 10,00,000
30%

(B) Resident Senior Individuals (Age 60 years or more)

Income
Tax Rate (%)
Upto Rs. 3,00,000
0%
Rs. 3,00,001 to Rs. 5,00,000
5%
Rs. 5,00,001 to Rs. 10,00,000
20%
Above Rs. 10,00,000
30%

(C) Resident Very Senior Individuals (Age 80 years or more)

Income
Tax Rate (%)
Upto Rs. 5,00,000
0%
Rs. 5,00,001 to Rs. 10,00,000
20%
Above Rs. 10,00,000
30%




Surcharge for Individuals, HUFs, AOPs, BOIs
Existing Surcharge*
Proposed Surcharge*
Total Income
Rate of surcharge
Total Income
Rate of surcharge
Upto Rs. 50,00,000
0%
Upto Rs. 50,00,000
0%
Rs. 50,00,001 - Rs. 1,00,00,000
10%
Rs. 50,00,001 - Rs. 1,00,00,000
10%
Rs.1,00,00,001 - Rs.2,00,00,000
15%
Rs.1,00,00,001 - Rs.2,00,00,000
15%
Rs. 2,00,00,000 - 5,00,00,000
25%
Rs. 2,00,00,000 - 5,00,00,000
25%#
Rs. 5,00,00,000+
37%
Rs. 5,00,00,000+
37%#
[*Note: However, assessee would be eligible for Marginal Relief]
[#Note: The Surcharge shall not exceed 15% in case of STCG u/s 111A and LTCG u/s 112A]
Health and Education Cess @ 4% of Tax and Surcharge shall be levied. The same is applicable to all assessees.
Rebate for Resident Individuals
Rebate u/s 87A of Rs. 12,500/- shall be available for resident individuals whose total income does not exceed Rs. 5,00,000/-. The amount of rebate shall be lower of the actual tax payable or Rs. 12,500/-.

Corporate Tax
Ø  There is no change proposed in this Finance Bill for Tax Rates applicable on Domestic Companies and Foreign Companies.
Ø  15% concessional corporate tax rate will now is extended to new domestic companies engaged in generation of electricity.
Ø  Abolishment of Dividend Distribution Tax (DDT):
v  Currently domestic companies are subject to DDT and dividend income is exempt in the hands of the shareholders. Similar is the case of income distributed by mutual funds.
v  DDT is proposed to be abolished effective from Assessment Year 2021-22.
v  Moving to classical system of taxing dividend in the hands of shareholders / unit-holders.
v  To remove the cascading effect, deduction will be allowed in respect of certain inter-corporate dividends.
v  Consequential amendments in the relevant tax withholding provisions.
Our Comments:
ü  Small investor’s cash flows likely to increase due to this amendment.
ü  Non-residents will be able to claim foreign tax credit in their home country of the taxes paid in India.
Ø  Relief to start-ups:
v  Turnover threshold for start-ups eligible to claim 100% deduction increased from Rs. 25 crores to Rs. 100 crores.
v  Period for availing the aforesaid deduction extended to any 3 years out of 10 years (as against 7 years).

International Tax
Ø  Tax residency redefined:
v  Non-Resident Indian Citizens, who are not liable to tax in any other country shall be deemed to be resident in India.
v  Accordingly, if any Indian is holding Indian passport, he needs to establish residential status of other country if he claims to be a non-resident. Such Indian Citizen shall be required to pay tax on global income.
v  However, a clarification has been issued in this regards subsequently. In order to avoid any misinterpretation, it is clarified that in case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession.
v  Indian Citizens or Persons of Indian Origin, visiting India for determining residential status the stay period of 182 days has been reduced to 120 days.
v  An Individual or HUF would be not ordinarily resident in India if the individual or karta has been a non-resident in India in 7 out of 10 year preceding the relevant previous year (as against present condition of 9 out of 10 preceding years).
Ø  Exemption to non-residents in filing Return of Income if the total income consists of Royalty and FTS on which appropriate tax has been deducted (earlier only dividend and interest were covered for exemption from filing ROI).
Ø  TCS @ 5% on foreign remittance under LRS exceeding Rs. 7 Lakhs.
Ø  TCS @ 5% on overseas tour package.
Ø  E-commerce operators to withhold tax at the rate of 1% in case of sale of goods or provision of services exceeding Rs. 5 Lakhs. In the absence of PAN the withholding tax rate would be 5%.
Ø  DRP forums to be allowed to non-resident for all disputes and not just transfer pricing issues.
Ø  Significance Economic Presence to be deferred to Assessment Year 2022-23.
Ø  The source rule is being amended in line with global consensus that the source country / country of market should also have a taxing right. Accordingly, the income attributable to operations carried out in India shall include income from advertisement that targets Indian customers or income from sale of data collected from India or income from sale of goods and services using such data collected from India.
Ø  A specific preamble text alongwith adoption of Multilateral Instrument (MLI) has been incorporated in section 90.
Ø  Definition of Royalty proposed to be amended to include even consideration received from sale, distribution or exhibition of cinematographic films.
Ø  Provisions restricting interest deduction u/s 94B not to apply in case of borrowing from branch of a foreign bank.
Ø  Concessional TDS provisions u/s 194LC and 194LD extended upto 30.06.2023.
Ø  There will be liberalization of investment related conditions in the special taxation regime for offshore funds.
Ø  Indian Tax Administration will have the power to frame rules and procedures for arriving at the income of the non-resident.
Ø  Foreign portfolio investments will be aligned for exemption from taxability on account of indirect transfer of assets with amended scheme of SEBI.
  
Other tax proposals:
Ø  Rationalising tax audit and tax return filing:
v  Threshold limit for tax audit increased as under:
Particulars
Existing threshold (Rs)
Proposed threshold (Rs)
Total sales, turnover or gross receipt from the business
> 1 crore
> 5 crore
Gross receipts in case of profession
> 50 lakhs
> 50 lakhs

v  The increase is subject to a condition that cash transactions are less than 5%.
v  Tax audit report to be furnished at least one month prior to the due date of filing of return of income to enable pre-filled income tax return.
v  Tax return filing due date extended from September 30 to October 31.
Ø  Due date for transfer pricing audit preponed to October 31.
Ø  Similar to corporates, option to avail concessional tax rate extended to co-operative societies.
Ø  Variance allowed between stamp duty value and actual sale consideration on sale of a land or building increased from 5% to 10%.
Ø  Withholding taxes on Fees for technical services (other than professional services) paid to a resident reduced under section 194J from 10% to 2%.
Ø  Faceless appeal will be introduced to eliminate human interface during appeals.
Ø  Vivad se Vishwas Scheme will be introduced to reduce litigations in direct tax.
Ø  Taxpayers’ Charter will be institutionalized in statute to avoid any harassment for taxpayers.
Ø  There is an introduction of process for instant allotment of PAN based on Aadhaar.
Ø  Tax on ESOPs arising at the time of exercise in the hands of employees of eligible startups can now be deferred.
Ø  Employer’s aggregate contribution in excess of Rs. 7.5 lakhs towards RPF, NPS and ASF shall be taxable in the hands of employees. Any accretion on such amount shall also be taxable.
Ø  Filing of statement of donation by donee to cross-check claim of donation by donor.



TDS Rates
A. On payments to Residents
Section
Nature of Payment for Domestic Transactions
Threshold Limit
Individual / HUF
Others
(Rs)
TDS Rate
TDS Rate
192
Salaries and ESOP issued by eligible startups
N.A.
As per slabs
N.A.
192A
Premature withdrawal from EPF
50,000
10%
-
193
Interest on Securities
10,000
10%
10%
194
Dividends distributed by Domestic Company
5,000
10%
10%
194A
Bank Interest to other than Resident Sr. Citizen
40,000
10%
10%
194A
Bank Interest to Resident Senior Citizen
50,000
10%
10%
194A
Other Interest
5,000
10%
10%
194B
Winning from Lotteries
10,000
30%
30%
194BB
Winning from Horse Races
10,000
30%
30%
194C
Contractor – Single Transaction
30,000
1%
2%
194C
Contractor – Aggregated Transaction during the F.Y.
1,00,000
1%
2%
194D
Insurance Commission
15,000
5%
5%
194DA
Life insurance Policy
1,00,000
5%
5%
194EE
NSS
2,500
10%
10%
194F
Repurchase Units by MFs
20%
-
194G
Commission – Lottery
15,000
5%
5%
194H
Commission / Brokerage
15,000
5%
5%
194I
Rent of Land and Building / F&F
2,40,000
10%
10%
194I
Rent of Plant / Machinery / Equipment
2,40,000
2%
2%
194IA
Transfer of certain immovable property other than agriculture land
50,00,000
1%
1%
194IB
Rent by Individual / HUF (w.e.f. 01.06.2017)
50,000/PM
5%
-
194IC
Monetary Payment in respect of Joint Development Agreement
-
10%
10%
194J
Professional Fees / Royalties / Fees for Technical Services
30,000
10%
10%
194J
Payment to Call Centre Operator and FTS (not being professional fees)
30,000
2%
2%
194K
Income of units issued by Mutual Funds or Unit Trust of India
5,000
10%
10%
194LA
Compensation on compulsory acquisition of immovable property other than agricultural land
2,50,000
10%
10%
194LBA
Interest distributed from SPV distributed by Business Trusts i.e. REITs & INVITs
 -
5%
5%
194LBA
Dividend distributed from SPV distributed by Business Trusts i.e. REITs & INVITs
 -
10%
10%
194LBB
Income other than business income distributed by an Alternate Investment Fund (Category I and II)
 -
10%
10%
194LBC
Income in respect of investment in Securitization Trust
-
25%
30%
194M
Payments to Contractors/ Professionals (Other than those covered in 194C, 194H &194J)
50,00,000
5%
-
194N
Payment by a Banking company /Banking Institution/ Cooperative society engaged in banking business/ post office.
1,00,00,000
2%
2%
194O
E-commerce operator to E-commerce participant in respect of sale of goods / provision of services facilitated through its platform
5,00,000
1%
1%

Note: Above rates are subject to other provisions of the Act (Eg. TDS at higher rate in case of no PAN) and reading of bare text of the law.


B. On payments to Non-residents
Section
Nature of Payments to Nonresident Payee
Criteria / Conditions for Deduction
Tax Rates
111A
Tax on Short Term Capital Gains
On sale of shares or units of mutual funds where STT is paid
15%
45
Tax on Short Term Capital Gains
On sale of shares or units of mutual funds where STT is not paid
40% for companies 30% for persons other than companies
112
Tax on Long Term Capital Gains
Not being long term capital gains referred to section 10(33), 10(36) and 10(38) ie. on listed shares, units of an equity oriented fund, or units of business trust i.e. REITs & Invits [Except for transactions covered u/s 112(1)(c)(iii)]
20%
112
Tax on Long Term Capital Gains
On income by way of long-term capital gains from unlisted securities u/s 112(1)(c)(iii)
10%
112A
Tax on Long Term Capital Gains on Transfer of Equity Share in company or a unit of equity oriented mutual fund or a unit of Business Trust
(i) STT is applicable on acquisition/ transfer (except Transfer on a recognised stock exchange located in any International Financial Services Centre and consideration is received in foreign currency)
(ii) Tax on Long Term Capital Gains exceeding Rs. 1,00,000/-
10%
194B
Winning From Lotteries crossword puzzles, card games and other games of any sort
Payment in excess of Rs. 10,000/-
30%
194BB
Winning From Horse Race
Payment in excess of Rs. 10,000/-
30%
115A(1)(b)
Tax on royalty or copyrights or on fees for technical services matters included in industrial policy or under approved agreements by an Indian concern or by Government of India
Agreements made or entered into after 31st March, 1976
10%
115A(1)(a)
Tax on Interest
On borrowings in foreign currency by an Indian concern or by Government of India other than interest referred in (b) or (c) below
20%
194LB
Tax on Interest
On borrowings in foreign currency On notified infrastructure debt fund
5%
194LC
Tax on Interest
On borrowings in foreign currency By Specified Companies or Business Trusts (REITs & Invits) under a loan agreement or any long term bond
4%
194LC
Tax on Interest
Other than above
5%
194LBA
Income by way of interest from SPV distributed by Business Trusts (REITS & INVITs)
No Threshold Limit
5%
195
Income by way of Rent from SPV distributed by REITs
No Threshold Limit
Rates in force
194LBB
Income other than business income distributed by an Alternate Investment Fund (Category I & II )
No Threshold Limit
Rates in force
194LBC
Income in respect of Investment in Securitization Trust
No Threshold Limit
Rates in force
194LD
Income by way of interest to FII or QFI
On Rupee denominated Bonds of Indian Company and Government Securities.
5%
194E
Payments to Non-Resident Sportsmen/Entertainer/Sports Association
Other than to a non-resident being an Indian citizen
20%
-
Other income
(a) In case of non-resident companies
40%
-
Other income
(b) In case of non-residents other than foreign companies
30%
-
Dividends distributed by Domestic Company
2nd proviso to section 195 has been deleted, thereby dividend distributed and received by a non-resident would be covered under section 195
Rates in force
-
Equalisation Levy
for online advertisement / digital advertising space services provided by a non-resident to a resident or a permanent establishment of non-resident in India.
6%

#1 Surcharge and Cess, as applicable, shall be levied additionally.
#2 Beneficial Treaty rate shall apply only if TRC is produced.
#3 TDS @ 20% applies in all cases, if PAN is not quoted by the deductee except Interest, Royalties, FTS, Capital Gains (Rule 37BC) and Interest U/s 194LC.
#4 “Rates in force” means rate as per the Act or DTAA, whichever is more beneficial.
#5 Lower deduction certificate can be applied for section 195.
#6 Above rates are subject to other provisions of the Act (Eg. TDS at higher rate in case of no PAN) and reading of bare text of the law.

TCS
Nature of Goods/Contract/Licence /Lease
Criteria for Collection
Rate (%)
Alcoholic Liqour for Human Consumption
No Threshold Limit
1%
Tendu Leaves
No Threshold Limit
5%
Timber obtained under a Forest Lease
No Threshold Limit
2.5%
Timber obtained by any mode other than under a Forest Lease
No Threshold Limit
2.5%
Any other Forest produce
No Threshold Limit
2.5%
Scrap
No Threshold Limit
1%
Minerals, being Coal or Lignite or iron ore
No Threshold Limit
1%
Motor Vehicle
Payment in excess of Rs. 10,00,000/-
1%
Cash Sale of Bullion
Payment in excess of Rs. 2,00,000/-
1%
Cash Sale of any other goods (other than bullion and jewellery) or Providing any service for Cash
Payment in excess of Rs. 2,00,000/-
1%
Transfer of right or interest in any Parking Lot or Toll Plaza or Mining and Quarrying (other than of mineral oil) under any contract, licence and lease
No Threshold Limit
2%
Amount received by an Authorised Dealer from Buyer for Remittance out of India under the Libralised Remittance Schemen of the Reserve Bank of India
Rs. 7,00,000/-
5%
Amount received by Seller from Buyer in respect of overseas tour program package
No Threshold Limit
5%
Amount received by Seller as consideration for sale of any goods other than the goods covered in sub-section (1) or sub-section (1F) or sub-section (1G)
Only on amount exceeding Rs. 50,00,000/-
0.1%

Note: Above rates are subject to other provisions of the Act (Eg. TCS at higher rate in case of no PAN) and reading of bare text of the law.



INDIRECT TAX - GST
Ø  Definition of Union Territory to include (i) Dadra and Nagar Haveli and Daman & Diu (as one territory) and (ii) Ladakh.
Ø  Taxable persons engaged in following would not be eligible to opt for composition scheme -
¨      Supplying of services not leviable to tax
¨      Inter-state supply of services
¨      Supply of services through e-commerce operators
Ø  There is a relaxation in restriction of 30th September - the annual return deadline for input tax credit on debit notes with it now being linked to the debit note date instead of the original invoice date.
            There are financial benefits for many businesses; especially where price     adjustments are long drawn.
Ø  Punishment for offences has been extended to person who causes to commit offence and retains the benefit arising from such offence.
Ø  Fraudulent availment of input tax credit without invoice has been made cognizable and non-bailable offence.
Ø  Penalty provisions extended to cover persons who retain the benefits and at whose instance the following offences are committed:
¨      Supplies without issuing invoice or issuing false invoice
¨      Issue of invoice without supply in violation of the provisions of the GST law
¨      Availing or utilising input tax credit without actual receipt of goods or services
¨      Taking or distributing input tax credit in contravention of provisions of input service distributor (ISD)
            These amendments should help check tax evasion and control fake invoicing or   availment of credits.
Ø  Refund of compensation cess due to inverted duty structure on tobacco products has been retracted (made retrospectively effective for the period 1 July 2017 to 30 September 2019).
Ø  Invoice and ITC matching is being done. Deep data analytics and artificial intelligence tools are being used for ITC, refund and other frauds.
Ø  A simplified new return system to be introduced from April 1, 2020. It will have features like SMS based filing of nil returns, return pre-filling and improved ITC flow.
Electronic Invoice is to be introduced effective from April 1, 2020, for entities having turnover in excess of specified limit and issuing invoices to registered persons. Dynamic QR code to be used for consumer invoices.

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