Relevant Budget Highlights FY 2020-21

The Union Minister for Finance and Corporate Affairs Smt. Nirmala Sitharaman made her Budget Speech today and presented the Union Budget 2020-21 before the Parliament. The key highlights of Union Budget 2020 are as follows:

A) Tax Slabs -

First and foremost, the tax slabs have NOT been revised this year. Instead, the government has cleverly provided another option to the Individual taxpayers wherein if the taxpayers neither take benefit of any deduction nor claim any exemption they can avail the benefit of newly proposed tax slabs as follows -

Slab

Income Tax Rate

0 - 2.5 Lakhs

Nil

2.5 – 5 Lakhs

5%

5 - 7.5 Lakhs

10%

7.5 - 10 Lakhs

15%

10 - 12.5 Lakhs

20%

12.5 - 15 Lakhs

25%

Above 15 Lakhs

30%

Notes:

- Individuals carrying business activities once opting for the new slabs will have to continue with the new slabs forever. If they switch back to the old slabs in any of the subsequent years, they will not be able to take benefit of the new slabs ever again.

- Individuals not carrying business activities may, however , switch between the new and old slabs every year as they wish.

- It is to be noted that when new slabs are opted for, you have to say goodbye to even the most popular deductions such as Investment in Life Insurance Policies, Investment in Medical Insurances, Investment in PF, Interest on Housing Loans, Investment in Tax Saver Mutual Funds, Standard Deduction from Salary, etc. Moreover, you cannot set off losses brought forward from the previous years.

Our Comment: The benefits of this measure will vary on case to case basis. The right approach to this would be working out your tax liability under both options every year and choose the beneficial one. So, this measure is farthest from simplification of income tax returns.

 

B) Removal of Dividend Distribution Tax -

Dividend Distribution Tax on companies is removed and is to be taxed in the hands of the recipient. It is being abolished with effect from 1st April 2020. Dividend income will now be taxed as normal income in the hands of shareholder. Remember, as of now Dividend Income from domestic companies was exempt from taxation in the hands of the shareholder, as it was already being taxed before its distribution. Also, the dividend amount would be subject to TDS @ 10% if it crosses Rs. 5000 in a financial year.

Our Comment: Dividend income was anyhow being taxed at an effective rate of 20.56%. Now, depending upon your income dividend will be taxed at the applicable tax slab you belong to.

 

C) Tax Audit threshold increased -

Tax Audit threshold is increased from Rs. 1 Crore to Rs. 5 Crores with a rider that total receipts AND total payments in cash during a financial year should not exceed 5% of total receipts and total payments made during the financial year.

 

D) Tax Residency Criteria Changed -

All Indian Citizens are to be deemed resident of India if they are not resident of any other country. Accordingly, if any Indian person is holding Indian Passport, he/she needs to establish residential status of another country if he claims to be a non-resident. If not, such Indian Citizen shall be required to pay tax on his global income during the financial year.

Our Comment: The criteria to decide whether you were a resident or non-resident was absolute before and was dependent solely on the basis of number of days spent in India. However, this provision has fairly complicated things for the non-residents.

 

E) Pre-filling of Income Tax Returns -

Income Tax Returns are proposed to be pre-filled by the government to the maximum extent possible. The data filled in the return is expected to be procured from various sources such as Banks, Employers, Investment Houses, Public Revenue Authorities, etc.

Our Comment: This is more of a bane than a boon, as the data procured from various authorities and institutions is subject to errors. This may hamper the taxpayers by imposing unnecessary tax burden upon them. However, if the data sourced is correct the process would become quite simpler for the taxpayer.

 

F) TDS & TCS related Provisions :

- TDS u/s 194J on Field & Technical Services is reduced to 2% from earlier 10%. However, TDS u/s 194J on professional services stays unchanged at 10%

- TDS u/s 194 O is introduced on payments by e-commerce platform to e-commerce participant at the rate of 1%.

- TCS u/s 206C for foreign remittance exceeding Rs. 7 lakh in a financial year at the rate of 5%.

- TCS u/s 206C at the rate of 0.1% will be applicable on sale of goods if total sales to one person is more than Rs. 50 lakhs by a person having turnover of more than Rs. 10 Crores.

 

G) Miscellaneous Measures :

- Co-operative societies will be provided an option to be taxed at 22 % without claiming deductions or exemptions.

- Charitable Trust Registration and 80 G exemption is to be valid only for five years. All existing trust will have to apply again. Also, 80 G exemption holder entities are required to submit an annual statement of donation received. Failure to submit such statement shall attract a fee of Rs. 200 per day for each day of default under section271G and a penalty of Rs.10000 to Rs. 1 lakh under new section 271J.

- Procedure to allot PAN is to be simplified by allotting it instantly on the basis of Aadhar card.

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