Snr budget 2020 direct tax proposals

BUDGET 2020
Direct Tax Proposals

Introduction to Budget
Direct Taxes- Highlights
Personal Taxation
Corporate Tax
Cross Border Taxation
Withholding Tax (TDS)
Taxation of NGOs
Ease of Tax Compliance
Litigation Management
Other Changes

Introduction to
Page 4 of 37Private & Confidential
Union Finance Minister Nirmala Sitharaman presented the Union Budget for the financial year 2020-2021 on 1st February 2020
in the Lok Sabha that has placed significant emphasis on agriculture, wellness and education. These three areas have huge
potential to impact the lives of a large part of the population. There is also a strong message towards gaining people’s
confidence and trust through assurance about the stability of the banking system, making proposals like decriminalizing the
Companies Act, relooking at other laws, fine-tuning the Contract Act, increasing the deposit insurance and creating a
Taxpayers’ Charter in the statute to prevent harassment.
Recognizing urban centers as the growth engines and giving importance to the role of the private sector, there are proposals
to develop five smart cities, promoting electronics manufacturing, solar infrastructure, more trains, more airports and data
center parks under the PPP mode.
As outlined by the Finance Minister, the budget is woven around three prominent themes:
 Aspirational India in which all sections of the society seek better standards of living, with access to health, education
and better jobs;
 Economic Development for all, indicated in the Prime Minister’s exhortation of “SabkaSaath, SabkaVikas, SabkaVishwas”.
This would entail reforms across swathes of the economy. Simultaneously, it would mean yielding more space for the
private sector. Together, they would ensure higher productivity and greater efficiency; and
 Caring Society that is both humane and compassionate.

Highlights
 New simplified personal income tax regime proposed;
 Currently there are more than 100 exemptions and deductions in the IT Act, Budget proposes
removal of 70 exemptions / deductions;
 Abolishes Dividend Distribution Tax (DDT) and moves back to classic tax system under which
dividend to be taxed in the hands of shareholders and companies not required to pay DDT;
 Extends concessional corporate tax of 15% to companies in electricity generation [power
generation companies];
 194LC - 5% withholding tax rate extended to 30 June 2023;
 For Start-ups : Defers ESOP taxation to 5 years or when the employee leaves job [whichever is
earlier] as against present taxation at perquisite level;
 Section 80IAC turnover limit increased from Rs 25 Cr to 100 Cr and duration from three
continuous years out of 7 years to 10 years for start-up’s;
 Exempts co-operative societies from Alternate Minimum tax and option to be taxed @22% plus 4%
if no deductions/exemptions claimed;

 Turnover threshold for tax audit increased from 1 Cr to 5 Cr;
 Additional deduction for interest paid on housing loans for affordable housing - loan sanction
date extended to March 2021 from March 2020;
 Tax holiday for profits earned by developers of affordable housing projects approved by March
2021 from 31 March 2020 (i.e. extends tax holiday by one year for affordable housing projects
developer);
 For claiming donation under section 80G, donee details to be mentioned in the return of income;
 New charity institution registration process be completely electronic mode;
 To amend Income tax Act for faceless appeals after faceless assessments;
 Income Tax dispute settlement scheme (Vivaad se Vishwaas scheme) to be introduced (scheme
similar to Sabka Vishwas scheme for indirect taxes);
 Settlement Scheme to remain open till June 30, 2020, however those paying tax amount by
March 31, 2020 will not have to pay interest and penalty (i.e. proposes complete waiver of
interest & penalty provided he pays disputed tax amount by March 2020);
 Necessary amendment to enable taking benefit of unabsorbed losses in amalgamation of Public
Sector Banks;
 Directs CBDT to adopt Taxpayer Charter, CBDT to notify contents of the charter;
Highlights

Individual Tax Payers
(Till 60 Years of Age)
Senior Citizens
(60 to 80 Years of Age)
Senior Citizens
(80 Years and above)
Income Tax Rate
Upto 2,50,000 Exempt
2,50,001 to 5,00,000 5%
5,00,001 to 10,00,000 20%
Above 10 Lacs 30%
Income Tax Rate
3,00,001 to 5,00,000 5%
5,00,001 to 10,00,000 20%
Above 10 Lacs 30%
Income Tax Rate
5,00,001 to 10,00,000 20%
Above 10 Lacs 30%
Surcharge : Applicable @ 10% in cases of income between 50 Lacs to 1 Crores
@ 15% in case income is between 1 Crores to 2 Crores
@ 22% in case income is between 2 Crores to 5 Crores
@ 37% in case income is more than 5 Crores
Cess : Health & Education Cess of 4% would continue.
PERSONAL TAX RATES
Existing Structure – No Change

 Section 115BAC has been introduced providing the Individual tax payers and HUF an option to
pay tax at reduced rates;
 A Comparative Study of Basic tax rates under the new and old regimes is tabulated below:
 However, in order to exercise this option, the eligible taxpayers are required to forego
certain deductions and/or exemptions which are stated in subsequent page.
Slab of Total Income (INR) Existing Tax
Rate (%)
Proposed
Tax Rate (%)
Effective
Change (%)
0-2.5 Lakhs 0 0 0
Above 2.5 Lakhs to 5 Lakhs 5 5 0
Above 5 Lakhs to 7.5 Lakhs 20 10 10
Above 10 Lakhs to 12.5 Lakhs 30 20 10
Above 15 Lakhs 30 30 0
Proposed Simplified Tax Regime - Optional

The deductions and exemptions that had to be forgone for availing new tax regime are as follows:
Tax Deducted at Source
Section Short-Title
10(5) LTC
10(13A) HRA
10(14) Other Allowances
10(17) For MPs & MLAs
10(32) Clubbed Income
10AA SEZ
16 Standard Deduction
24(b) Interest on self occupied
property
32(1)(iia) Additional Depreciation
Section Short-Title
32AD Investment in P&M in
backward areas
33AB Tea, Coffee & Rubber
Development
33ABA Site Restoration Fund
35(2AA)(1)(
ii) or (iia)
or (iii) or
35(2AA)
Exependiture on Scientific
Research
35AD Specified Business
important for economy
35CCC Agricultural Extension
Project
57(iia) Family Pension
Chapter
VIA
All deduction except
80CCD(2) and 80JJAA
Proposed Simplified Tax Regime - Optional

 A person having business income can opt for new tax scheme only once in his lifetime;
 A salaried taxpayer has the option to opt for this regime for every assessment year;
 Broadly, the proposed scheme shall only be beneficial for persons who are not able to invest in
eligible funds or are not claiming the specified exemptions and their aggregate deductions/
exemptions are lower than 2,50,000 in a year.
 Under new tax regime, no set off of brought forward losses and depreciation on account of
blocked exemptions and deductions shall be allowed;
 The scheme is applicable/ available w.e.f. AY 2021-22.
Important Points
Residential Status
 A citizen of India or a Person of India Origin, who comes on a visit to India and stays in India for a
cumulative period of at least 120 days in that financial year shall be treated as a Resident, if he has
also stayed in India for a cumulative period of at least 365 days in four years immediately preceding
that financial year. Earlier, this threshold was 182 days;
 Also, definition of ‘Resident but not ordinarily resident (RNOR)’ has been amended to include only
those individuals who have been non-residents in seven out of ten financial years immediately
preceding that financial year (earlier the requirement was nine out of ten financial years)
 Further, a deeming fiction has been created where a citizen of India shall be deemed to be a
resident of India, if he is not liable to tax in any other country or territory by reason of his
domicile, residence or any other similar criteria;
 These proposals shall be effective from assessment year 2021-2022.

of 37Private & Confidential
Corporate Tax
 Concessional Tax Regime had already been enacted in the Previous Year, therefore, no new tax
sops in terms of rebates or exemptions have been added;
 Dividend Distribution Tax (DDT) has been abolished; Therefore companies distributing dividends
are no longer required to pay DDT and consequently, dividend shall be taxable in the hands of the
shareholders at their respective tax rates;
 The Company shall be liable to deduct TDS on dividend distributed to Indian as well as Foreign
Shareholders. For this purpose, appropriate amendments have been made in section 194 and 195;
 Under section 57, deduction of interest allowable from Dividend income and income from units
has been restricted up to 20% of Dividend Income or income from units;
 Section 80M has been introduced to remove the cascading effect and allowing deduction of
dividend received by one domestic company from another domestic company up to the amount of
dividend distributed by the first mentioned company where such dividend has been distributed by
one month prior to the due date of filing of return of income;
 These clauses shall be applicable on dividends declared, distributed or paid on or after 1 April,
2020.
 The due date for filing of Income Tax return has been delinked from the due date of filing of Tax
audit report. The due date for filing of return of income has been extended to 31st October of the
relevant AY whereas the due date for submission of tax audit report and TP report shall be 30th
September of the relevant AY.

CROSS BORDER TAXATION
 After abolition of DDT, dividend received by foreign investors shall be taxable at the rate of 20% or
rate prescribed by respective DTAA whichever is beneficial to assessee;
 Scope of Safe Harbour Rule and APA is proposed to be enhanced:
Determination of attribution of income / profits to PE is proposed to be covered within the scope
of Safe Harbour Rules under Section 92CB and APA (for APA entered into on/after 1st April 2020)
under Section 92CC. Detailed rules will be notified by CBDT in this regard;
 Exempting Non-Resident from filing of ITR:
 Under the current tax regime, provisions of section 115A of the Act provide relief to non-residents
from filing of return of income where the income is on account of dividend or interest and tax has
been deducted at source and no tax is to be paid, the same relief has now been extended in
respect of income from Royalty or fee for technical services (FTS).
 It is pertinent to mention that the where the withholding tax (TDS) has been deducted under
respective DTAA from non-resident, then such non-resident will not get any exemption from filing
return.

Business Connection
 Provisions of ‘Significant Economic Presence (SEP)’ of non-resident in India through which Business
Connection can be established has been deferred to AY 2022-23;
 Clarification has been introduced to include following incomes under the term “such part of the
income as is reasonably attributable to the operations carried out in India” in Explanation 1 of
section 9(1)(i):
 These provisions shall be applicable w.e.f. AY 2021-22.
 Advertisement which targets a customer who resides in India or a customer who accesses the
advertisement through internet protocol address located in India;
 Sale of data collected from a person who resides in India or from a person who uses internet
protocol address located in India; and
 Sale of goods or services using data collected from a person who resides in India or from a
person who uses internet protocol address located in India
Royalty
 Definition of Royalty has been amended to include consideration from sale, distribution or
exhibition in relation of cinematographic films within the definition of Royalty.
Due Date of Compliance
 The due date for filing of accountants’ report in Form 3CEB shall be 31 October of the relevant
assessment year.

Sovereign Wealth Funds
 It is proposed that any income in the nature of interest, dividend or long-term capital gains will be
exempted from taxation u/s 10(23FE) for Sovereign Wealth Funds making investments in debt &
equity instruments of an enterprise engaged in the business of developing or operating and
maintaining or developing, operating and maintaining any infrastructure facility as defined under
section 80-IA of Income Tax Act;
 Pre-conditions for the above exemption are:
 The proposed changes shall apply from 1st April 2020;
 This exemption will apply to following specified persons:
 such investment has been made on or before 31 March 2024; and
 held for at least three years.
 A wholly owned subsidiary of Abu Dhabi Investment Authority; and
 A Sovereign Wealth Fund of foreign government duly notified by the Central Government
Thin Capitalization Provisions
 Provisions of Thin Capitalization covered u/s 94B have been relaxed to not include debt issued by
a Permanent Establishment of a Non-Resident engaged in the business of banking in India;
 This shall be effective from 1 April 2020.

WITHHOLDING TAX
Section 194-O: TDS on payments by E-Commerce Operators
Section 194LC: TDS on Interest payable to Non-Residents
 In order to widen the tax base, section 194-O has been introduced wherein an e-commerce
operator is required to deduct TDS @ 1% on gross payments made to resident e-commerce
participant (including the payments directly made by the end consumers to such participant);
 If PAN or Aadhar is not provided by the service participant, then TDS shall be deducted @ 5% as
per section 206AA;
 The threshold limit for non-deduction of TDS, in case of Individual or HUF who furnishes their PAN
or Aadhar, shall be gross amount of goods or services of Rs. 5 Lakh in a FY;
 Provisions of section 194-O shall not be applicable on payments received by the Ecommerce
operator for hosting advertisements or for providing any services (which are not connected to the
facilitation to the participant);
 Instead of 5%, new TDS rate of 4% has been prescribed on interest in respect of moneys borrowed
through bonds from a source outside India, which is listed on IFSC after 1 April 2020 but before 1st
July 2023;
 In other cases also, the time limit for availing concessional TDS rate of 5% on other borrowings
has also been extended to 30 June 2023.

Section 194LD: TDS on Interest payable to Non-Residents on certain bonds
 The time limit for availing concessional TDS rate of 5% on borrowings through rupee denominated
bonds has also been extended to 30 June 2023.
Section 194J: TDS on Professional or Technical Services Fees
 In order to reduce litigation, it is proposed to reduce rate for TDS in section 194J in case of fees
for technical services (other than professional services) to 2% from existing 10%.
 The TDS rate in other cases under section 194J would remain same at 10%;
 This amendment will take effect from 1 April 2020.
Section 194K: TDS on income from Mutual Funds:
 Mutual funds prescribed u/s 10(23D) will deduct tax @ 10% on the payments towards income from
units;
 Such tax will be deducted, if the amount credited or aggregate of amount credited or likely to be
credited or paid during FY by the person responsible for making payment exceeds Rs. 5000

Section 192: TDS on salaries
 Consequential amendments have been made u/s 192 wherein provisions relating to deduction of
TDS on ESOPS as perquisites in the hands of employees of eligible start-ups have been inserted;
 TDS shall be deducted or paid within 14 days from the earlier of the following at rates in force in
respect of ESOP:
 after the expiry of 48 months from the end of the relevant AY;
 from the date of the sale; or
 from the date of ceasing to be the employee of that eligible employer.
Section 194C: TDS on Payment to Contractors
 It is proposed to widen the scope of definition of “work” in section 194C to include material
purchased from the associate of a customer in a contract manufacturing arrangement. The
definition of associate is same as per the provisions of section 40A(2)(b).

Section 206C(1G): TCS on remittances and overseas tour packages
 An Authorized Dealer to collect TCS @ 5% from the remitter of amount of more than INR 7 lakhs
in a FY under Liberalized Remittance Scheme of Reserve bank of India;
 A seller of an overseas tour package will collect TCS @ 5% from the buyer of that package;
 If PAN or Aadhar is not provided by the buyer, then the rate shall be 10% in the above cases.
Section 206C(1H): TCS on sale of goods
 A seller of goods (whose total sales, gross receipts or turnover from the business carried on by it
exceed ten crore rupees during the financial year immediately preceding the financial year) is
liable to collect TCS at the rate of 0.1 % on consideration received from a buyer in a previous
year in excess of Rs. 50 Lakhs;
 In non-PAN/ Aadhaar cases the rate shall be one percent;
This amendment shall be effective from 1 April 2020.

TAXATION OF NGO
 Currently, long term registrations / approvals granted to the trusts, institutions, funds, university
referred under sub clauses of clause (23C) of Section 10, u/s 12AA, u/s 80G and there is a lack of
mechanism for continuous monitoring of such institutions to ensure that they are complying with
the approval conditions;
 The Government wishes to lay down reporting obligations on such entities of donations received
that can be matched with certificates of donations issued to the respective donors and the claims
made by them in their ITRs. It would be like matching of TDS claimed from Form 26AS;
 Deduction to donors u/s 80G shall be allowed only on the basis of the statement filed by the
donee institution, post-verification;
 Fees and penalty on donee for non-filing of prescribed statements shall be applicable at the rate
of Rs. 200 per day;
 By introduction of Section 12AB, the period of approvals granted have been limited to 5 years to
ensure that the conditions of the approval are complied with;
 These provisions shall be effective from 1 June 2020;

Existing status of trust Time Limit for making the
application
Period for which approval
will be granted
Period for which approval
will be applicable
Already Approved Upto 31-08-2020 5 years From the AY approval was
granted
Already approved & period
of such approval is due to
expire
At least 6 months prior to
the expiry of said period
5 years AY following the FY in which
application was made
Provisionally approved At least 6 months prior to
the expiry of provisional
approval or within 6 months
of commencement of
activities, whichever is
earlier
5 years From the first day of AY for
which it was provisionally
approved
Any other case At least one month prior to
the commencement of the
previous year from which the
approval is sought
Provisional approval of 3
years from the AY from
which registration is sought
AY following the FY in which
application was made
Tabular representation of the proposes changes:

EASE OF TAX COMPLIANCES
Increase in the turnover limit for Tax Audit
 In order to reduce compliance burden, it has been proposed to increase the threshold limit for a
person carrying on business from Rs. 1 crore to Rs. 5 crore;
 Pre-Conditions for the same are as follows:
 For a person carrying on profession, the threshold limit shall remain at a gross receipts of Rs. 50
Lakhs;
 These provisions shall be effective from AY 2021-22;
 Aggregate of all receipts in cash during the previous year does not exceed 5% of such receipt;
and
 Aggregate of all payments in cash during the previous year does not exceed 5% of such
payment.

New Tax Compliance Calendar
 The due dates for filing of return of Income have been enhance to 31st October of the relevant
assessment year;
 Further, it has been proposed that tax audit report and other certificates/report certified by CA
as defined under Income Tax Act needs to be submitted one month before the due date of return
as specified u/s 139 of Income Tax Act;
 Therefore, the due dates for filing of Tax Audit and other reports shall be 30th September of the
relevant assessment year.
Expansion in Scope of E-Assessment
 Best Judgement Assessment u/s 144 has been included within the scope of faceless assessments.
E-Appeal & E-Penalty
 Central government empowered to introduce e-appeal and e-penalty scheme to eliminate
interface between the taxpayer and income-tax authorities;

 Tax on perquisites on exercise of ESOP has been deferred to earlier of the following:
 Turnover criteria for eligible startups to qualify for tax holiday increased to INR 100 crore (from the
existing INR 25 crore);
 Flexibility provided to eligible startups to claim tax holiday for three consecutive years out of ten
years from incorporation (from exiting seven years);
 The proposed changes shall apply w.e.f. AY 2021-22.
 after the expiry of 48 months from the end of the relevant AY;
 from the date of the sale; or
 from the date of ceasing to be the employee of that eligible employer.
Start-Ups: Taxation of ESOPs

LITIGATION MANAGEMENT
Vivad se Vishwas – Direct Tax Amnesty Scheme
 Similar to GST’s Sabka Vishwas scheme, it is proposed to bring a scheme for reducing tax
litigation;
 To avail scheme prior to 31 March 2020 – Pay taxes under dispute with complete waiver of interest
and penalty;
 To avail scheme prior to 30 June 2020 – Pay taxes under dispute and certain additional amount, as
would be notified.
Pre-Deposit in case of appeal before ITAT
 Taxpayer to deposit at least 20% of the demand or furnish security of equivalent amount in order
to seek stay proceedings before the Income-tax Appellate Tribunal;
 Similar provision already existed in case of appeal before CIT(Appeals).
Dispute Resolution Panel (DRP)
 Now, DRP can be approached by any Non-Resident on those matters also that do not involve
variation of income or loss;
 Earlier, DRP could be approached only by Foreign Companies.

Other Changes
Business Trust
 It has been proposed to remove the condition of listing of units for both REIT and InvIT we.f. a
April 2021.
COA of Segregated Portfolio u/s 49(2AF)
 Section 49(2AF) has been proposed wherein it is prescribed that the Cost of Acquisition of the
units in segregated portfolio would be computed basis the proportion of Net Asset Value of Asset
transferred to Net Asset Value of Total Portfolio before segregation.
Affordable Housing
 The approval date of a housing project for availing deduction of 100% u/s 80-IBA has been
extended by one year i.e. the approval date shall be up to 31 March 2021;
 Under section 80EEA, in order to continue promoting purchase of affordable housing, the period
of sanctioning of loan by the financial institution is proposed to be extended to 31st March 2021.
Under this section eligible taxpayer can claim deduction Rs.150,000/-on interest on borrowing for
purchase of house property.

Cost of Acquisition u/s 55
 Currently, for calculating the capital gain on the assets acquired on or before 01 April 2001,
assessee has the option to take the cost of acquisition as Actual Cost or FMV as on 01 April 2001.
 Now, it is clarified that the FMV shall not exceed the stamp duty value as on 01 April 2001(w.e.f
01 April 2021)
 It is proposed that exemption towards aggregated contribution by the employer to PF, NPS and
superannuation fund will be limited to Rs. 750,000/- in a year; Any excess contribution will liable
to tax in the hand of employee;
 Any annual accretion by way of interest, dividend etc. on such excess of employer’s contribution
will be treated as perquisite and liable to tax accordingly.
Limit of perquisite u/s 17(2)
 It is proposed to empower CBDT to adopt and declare a Tax Payer’s Charter and administer it.
Insertion of Taxpayer’s Charter

 For sale or purchase transactions relating to land and building, the stamp duty valuation is
considered as sale consideration in the hand of seller, where the sale and purchase consideration
is less than the stamp duty valuation as adopted by stamp duty valuation authority;
 Further, the differential value so computed is also taxable in the hand of buyer as other income;
 At present, the relaxation is available if such difference is limited to 5%; Now it is proposed to
enhance the limit up to 10%;
 Thus, this amendment will reduce the tax burden on both buyer and seller of land and building to
some extent.
Increase in safe harbor limit of 5% to 10% in case of sale and purchase of land and
building with in the meaning of section 43CA, 50C and 56 of the Act
 It is proposed that where any false entry or omitted entry is found in the books of accounts, then
penalty of a sum equal to the aggregate amount of such false or omitted entry may be imposed.
 It is proposed that equal amount of penalty may also be levied on the person, who causes the
assessee to make a false or omitted entry.
Penalty for fake invoice

Locations
Delhi
Email : snr@snr.company Website : www.snr.company
A-15, Second Floor, Hauz Khas,
New Delhi- 110016
Tel. +91 11 26856421, 41655801, 26855884
Fax: +91 11 26567540
No. 5A, Second Floor, 6th Main, KHB
Colony, Basaveshwaranagar,
Bangalore - 560079
Tel. +91 80 42064178
Bangalore
Pune
Office No. 5,Kalashree Apartment,
Opposite Bank of Maharashtra,
Karve Road,
Pune 411004
Ph: +91 20 25435788
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