Finance Act 2020: Highlights
(in operation from 1st April 2020)
Finance Minister Nirmala Sitharaman presented Finance Bill 2020 of India on the 1st February 2020 in the lower house of parliament, which was passed in Lok Sabha on 23rd March 2020 and duly returned by the Rajya Sabha just before adjourning.
As the country headed for a lockdown to fight the COVID-19 crisis (Coronavirus crisis), about 59 amendments have been incorporated while passing the Finance Act 2020. The Finance Bill 2020 has received the assent of President of India on the 27th March 2020 and now has become The Finance Act 2020.
The following are some changes brought by this Finance Act that will be effective from the 1st April 2020 except specific mention.
1. Now, Person of Indian Origin, Indian Citizen on employment outside India and member of the crew of Indian Ship shall be Resident of India if he stays in India for 120 days or more in the previous year and 365 days or more in 4 preceding previous years. Earlier 182 days or more were required like 120 days or more now after the amendment. This will only cover an Indian citizen/Person of Indian Origin, if that individual’s total income, (other than ‘income from foreign sources’) exceeds INR 15 Lakh during the previous year. ‘Income from foreign sources’ has been defined as income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).
2. If Resident of India is Non-Resident in 9 out of 10 preceding previous years or stays in India for 729 days or less in preceding 7 previous years then he or she shall be Resident But Not Ordinary Resident of India for the previous year. This will only cover an Indian citizen/Person of Indian Origin, if that individual’s total income, (other than ‘income from foreign sources’) exceeds INR 15 Lakh during the previous year and who has been in India for 120 days or more but less than 182 days; or Indian citizen who is deemed to be resident (i.e. Indian citizen with total income, other than income from foreign sources, exceeding INR15 lakh during the previous year) not liable to tax in any other jurisdiction (by reason of his domicile or residence).
3. An Indian citizen who is non-resident but is not liable to tax in any other country or territory by reason of his domicile, residency or any other criterion of similar nature shall be considered as a Deemed Resident of India. But It will only cover that Indian citizen whose total income (other than ‘income from foreign sources’) exceeds INR 15 lakh. ‘Income from foreign sources’ has been defined as income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India). 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 taxable in India unless it is derived from an Indian business or Profession.
4. The choice is available to adopt a ‘Personal Income Tax Regime’ (Sect. 115BAC) without claiming major deductions like standard deduction & other deductions under head salary, life & health insurance premiums, Housing loan principal repayments, ELSS Investments, NPS, EPF & PPF contributions, Tuition fee, Tax Saving Bank FDs & Post office FDs & other deductions under sect. 80C. House Property Loss of Current year can not be set off against any other income. Set off of Brought forward losses and unabsorbed depreciation will not be allowed. Other Deductions Under Chapter VIA will also not be available.
Individuals/HUFs with income either from the business or profession have to continue with the new regime for all subsequent years, once they have opted for this regime. They are allowed a one-time exit from the regime but will then not be able to opt for the lower rate regime again unless they cease to have income from business or profession.
5. First time affordable home buyers can avail additional benefit up-to 1.5 Lakhs on loan availed from financial institutions. The Finance Bill has extended the time-limit for sanction of housing loan by the financial institution till 31-03-2021.
6. Rate of surcharge in case of an individual or HUF or association of persons or body of individuals or every artificial juridical person in relation to the dividend income of such persons included in their total income shall be capped to 15%.
7. Alternative tax rate of 22% under Sec.115BAA will be available to domestic companies if such companies do not avail deductions & exemptions except deduction for scientific expenditures under section 35 and salary expenses of new employees under section 80JJAA. Sect. 80G is allowed for FY 2019-20 for donation made till 30th June 2020.
8. Alternative tax rate of 15% under Sec.115BAB will be available to domestic companies incorporated on or after 1st October 2020 if such companies do not avail deductions & exemptions except deduction for scientific expenditures under section 35 and salary expenses of new employees under section 80JJAA. 80G is allowed for FY 2019-20 for donation made till 30th June 2020.
9. Threshold Limit for Tax Audit is increased to Rs. 5 Cr. (only for business) from FY 2019-20 and onwards if-
a) An aggregate of all receipts in cash during the previous year does not exceed five percent of such receipts and
b) An aggregate of all payments in cash during the previous year does not exceed five percent of such payments.
10. Safe Harbour Limit, that is an allowable gap between actual sale price & stamp duty value of an immovable property for the purpose of capital gain taxation was 5%, which has now been increased to 10%.
11. The exemption to the contribution of an employee to the Provident Fund, Superannuation Fund and National Pension Scheme shall be restricted to Rs. 7,50,000 p.a. in aggregate. Contributions in excess of Rs. 7,50,000 shall be taxable in the hands of the employee. Further, accruals on such excess contributions will also be taxable as a prerequisite.
12. The Finance Bill has extended the time-limit for approval of an affordable housing project for availing deduction up-to 100% of profit under section 80-IBA to 31-03-2021.
13. Turnover limit for eligible start-up has been increased up to Rs. 100 Cr.
14. For eligible startups, the benefit of tax holiday will be given for 3 consecutive years out of the first 10 years from the year of incorporation.
15. In case of Eligible Startups, ESOP shall not be taxed at the time of exercise of the option, but Tax shall be levied on the occurrence of earliest of the following events-
1) after the expiry of 48 months from the end of the relevant AY
2) from the date of the sale of such sweat equity share by the Employee
3) from the date of the person ceasing to be the employee of the employer who allotted or transferred him such sweat equity share
16. To reduce litigation, it is proposed to reduce the rate for TDS in section 194J in case of fees for ‘technical services (other than professional services)’ and on ‘royalty which is in the nature of consideration for sale, distribution or exhibition of cinematographic films’ to 2% from the existing 10%. The TDS rate in other cases under section 194J would remain the same at 10%.
Technical Services u/s 194J includes-
1.Managerial
2.Technical
3.Consultancy (Excluding Professional Services u/s 194J)
17. Dividend Distribution Tax on dividend has been abolished so shareholders and unitholder’s dividend Income is taxable at normal income tax slab rates in the hands of shareholders as well as unitholders & there is no basic exemption limit. The taxpayer shall be permitted a deduction of interest expense against the dividend income but to the extent of 20% of the dividend income. (Sect. 57)
Dividends declared to non-resident shareholders will require to deduct TDS in India at the rate of 20% plus applicable surcharge and cess. Such taxpayers can avail concessional tax rates for dividends as provided under the applicable tax treaties if any.
FA 2020 now states that dividends received by shareholders on or after 1 April 2020 on which tax has been paid under section 115-O or section 115BBDA, shall be exempt in the hands of the shareholder.
18. The E-Commerce Operator (Amazon) shall deduct TDS on the transactions with a resident E-Commerce Participant (Online Retailers) @ 1% of the gross value of the sale of goods or provision of services through the E-Commerce platform. Where the e-commerce participant does not have a PAN, the tax shall be withheld at 5%.
If the participant is an individual or HUF then TDS must be deducted only if the Gross payment in the previous year exceeds Rs. 5,00,000.
19. TDS will be deducted at the rate of 2% on withdrawal of cash (from a bank, co-operative bank and Post Office) exceeding INR 1 crore in aggregate during the year. In the case of a person who has not filed a return of income for the preceding 3 years, TDS will be deducted at 2% on withdrawal exceeding INR 20 lakh and at 5% on withdrawal exceeding INR 1 crore. These provisions will be applicable from 1st July 2020.
20. The seller should collect 0.1 % TCS from a buyer on the sale of goods worth more than Rs. 50 lakh in a year if the seller’s own sales exceed Rs 10 crore during the year. If the buyer does not have a PAN or an Aadhaar, then the rate of TCS would be 1 percent. This TCS provision shall not apply in case of export sales. Here buyer does not include persons importing goods into India. TCS provisions relating to the sale of goods shall apply from 1 October 2020.
21. The seller of the overseas tour program package shall collect tax at source at the rate of 5% on any amount received from the buyer of the tour package. In case, if the buyer does not have PAN/Aadhaar, the rate applicable for TCS shall be 10%.TCS provisions relating to the sale of overseas tour program packages shall apply from 1 October 2020.
22. AD (Bank) will collect TCS at the rate of 5% on the sum received from the person remitting such amount out of India under the Liberalised Remittance Scheme (LRS).
1. AD Bank will not collect TCS on the amount being remitted under LRS on which TCS has already been collected by the seller of the overseas tour program package.
2. If the remittance under the LRS is not for overseas tour program package, there will be no TCS if the remittance is below Rs. 7 Lakhs.
3. In case of remittance under the LRS scheme over Rs. 7 Lakhs out of loan obtained from the specified financial institutions, for any education, the rate of TCS will be 0.5% instead of 5%.
TCS provisions relating overseas remittances shall apply from 1 October 2020. In case, if the person does not have PAN/Aadhaar, the rate applicable for TCS shall be 10%.
23. Due date of return of Income filing where Tax Audit is applicable but Transfer Pricing provisions are not applicable is now 31st October. It is extended by 1 month from the earlier due date 30th September.
24. Due date of Tax Audit Report filing where Transfer Pricing provisions are applicable is now 31t October. It is reduced by 1 month from earlier due date 30 November.
25. Now there shall be a penalty for “false entry” in the books of account which is-
a) Forged or falsified documents such as a false invoice or, in general, a false piece of documentary evidence,
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. The penalty payable by such person shall be equal to the aggregate amount of false entries or omitted entry.
26. Voluntary contributions received by Sect. 10(23C) entities with a specific direction that they will form part of the corpus shall not be included in the taxable income of such entity.
27. Voluntary contributions made to certain funds/Trusts/institutions/universities/other educational institutions/hospitals / other medical institutions (specified under section 10(23C) of the Act) is not be treated as application of income of such donor if such contribution is made with a specific direction that they shall form part of the corpus of the done.
28. Every trust which is registered u/s 80G shall be required to file a statement of donations received in the prescribed manner. Deduction for donations u/s 80G to the donors shall be available only if the aforesaid statement/return is furnished by the charitable institution with details of the donor. Non-submission of the return & statement will attract a late fee and fine.
29. Equalization Levy will now be extended to an e-commerce operator on ‘e-commerce supply and services’ undertaken on or after 1 April 2020. An “e-commerce operator” means a non-resident who owns, operates or manages digital or electronic facility or platform for the online sale of goods or online provision of services or both.
With regard to the above, the Equalization Levy shall not be levied-
1. Where the e-commerce operator has a Permanent Establishment (PE) in India and the e-commerce supply or service is effectively connected to its PE.
2. Where Equalization Levy is already levied on an online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement.
3. Where sales, turnover or gross receipts of the e-commerce operator from the e-commerce supply and services is less than INR 2 crore during the previous year.
This Equalization Levy will be at the rate of 2% on the amount of consideration from e-commerce supply and services made or provided or facilitated by an e-commerce operator to:
1. a person resident in India
2. a non-resident in the following specified circumstances:
(a) Sale of advertisement, which targets a customer, who is resident in India or a
customer who accesses the advertisement through an internet protocol address
located in India.
(b) Sale of data, collected from a person who is resident in India or uses the
internet protocol address located in India.
3. To a person who buys such goods or services or both using an internet protocol address located in India.
Income arising from e-commerce supply or services which will be covered by the
Equalization Levy will now be exempt from tax under section 10(50).
Update-
Keeping in mind the need for having a dedicated national fund with the primary objective of dealing with any kind of emergency or distress situation, like posed by the COVID-19 pandemic, and to provide relief to the affected, a public charitable trust under the name of ‘Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund’ (PM CARES Fund)’ has been set up.
Donation made to this fund is eligible for a 100% deduction under section 80G of the IT Act. Further, the limit on the deduction of 10% of gross income shall also not be applicable for donations made to PM CARES Fund. As the date for claiming deduction u/s 80G under IT Act has been extended up to 30.06.2020, the donation made up to 30.06.2020 shall also be eligible for deduction from income of FY 2019-20. Hence, any person including the companies paying concessional tax on the income of FY 2020-21 under new regime can make a donation to PM CARES Fund up to 30.06.2020 and can claim deduction u/s 80G against income of FY 2019-20 and shall also not lose his eligibility to pay tax in concessional taxation regime for the income of FY 2020-21.
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