Key highlights of proposals enumerated in Finance Bill, 2020 are as follows:
1. Direct Tax
Simplified Personal Tax Regime
- The Government proposes a new simplified personal income tax regime which isoptional, and the taxpayers need to forgo exemptions and deductions.
- Tax rate proposed under new simplified personal tax regime (effective from AY 2021-22 onwards) are as follows:
Total income (INR)
|Up to 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%|
- Conditions to be satisfied for availing new simplified tax regime are:
- No deduction or exemptions allowed (such as Standard deduction, LTA, HRA, PPF, insurance premium, mediclaim premium)
- No deduction of interest and principal repayment in respect of self-occupied property
- No set off of carried forward losses and depreciation attributable to deductions or incentives
- Deduction for employer’s contribution to pension scheme and incentive for employment generation is available
- Depreciation allowed as per prescribed rate
- Threshold of residency for individuals visiting India reduced from 182 days to 120 days
- Any Indian citizen who is not liable to tax in any other country due to his domicile, residence or any other criteria of similar nature shall be deemed to be resident of India
- Definition of ‘Not ordinary resident’ has been modified:
- Individual – who is non resident in 7 out of 10 preceding years
- HUF – Manager has been non resident in 7 out of 10 preceding years
- The Government proposes to abolish DDT @ 20.56% payable by company and dividend payment to residents will be subject to withholding tax at 10%.
- To remove cascading effect, set off will be available in case of holding-subsidiary domestic companies.
- However, no such relief of cascading tax on dividend received from foreign companies.
- Dividend would be taxed in the hands of shareholders at normal applicable rates.
- It is proposed to further relax the safe harbour rules for fund management:
- Minimum corpus to be INR 100 crores now within 12 months from incorporation or establishment
- Resident participation cap of 5%not to include fund manager contributions up to INR 25 crores for a period of 3 years
- It is proposed to defer SEP test
- Applicability of Significant Economic Presence (‘SEP’) provisions deferred to AY 2022-23 since OECD is expected to finalize the BEPS 2.0 report by the end of 2020.
- It is proposed to expand the scope of income attributable to Indian operations to include:
- Income from advertisements targeting Indian customers
- Income from sale of data collection from India
- Income from sale of goods and services using data collected from India
- The Government proposed to exempt non-residents from filing ITR if his total income consists of only dividend or interest income or royalty or FTS income and the TDS on such income has been deducted at the rates which are not lower than the prescribed rates. It is effective from April 1, 2020.
- It is proposed to reduce TDS rate u/s 194J in case of fees for technical services (other than professional services) to 2% from the existing 10%.
- It is proposed to extend concessional corporate tax of 15% to companies in electricity generation (power generation companies).
- It is proposed to provide necessary amendment to enable taking benefit of unabsorbed losses in amalgamation of PSBs.
- It is proposed to extend the incentives for Start-ups:
- The deduction of an amount equal to 100% profits is available for a period of 3 consecutive years out of 10 years
- The total turnover limit u/s 80-IAC has been increased from INR 25 crores to INR 100 crores for the purpose of availing exemption
- Defers ESOP taxation to 5 years or when the employee leaves job or when sale of such specified security is made (whichever is earlier) as against present taxation at perquisite level.
- It is proposed to provide option to co-operative societies for tax at 22% plus surcharge without exemptions. Also, it is proposed to exempt co-operative societies from Alternate Minimum Tax.
- It is proposed to increase the turnover threshold for audit u/s 44AB from INR 1 crore to INR 5 crore.
- Safe harbour limit for sale of immovable property increased from 5% to 10%.
- It is proposed to provide additional incentives under affordable housing scheme:
- Tax holiday on profit on affordable housing project waved for one more year
- For additional deduction for interest paid on housing loans – loan sanction date extended to March 2021
- Extends tax holiday by one year for affordable housing projects developer.
TDS on E-commerce
- It is proposed to levy TDS @ 1% to bring participants of E-commerce within tax net.
- E-commerce operator required to deduct TDS @1% at the time of payment/ credit
- Exemption for individual or HUF recording gross amount of sale/ services less than equal to INR 5 lakhs and furnishes PAN or Aadhar.
- It is proposed to levy TCS on overseas remittance through LRS and for sale of overseas tour packages.
- Authorized Dealer to collect tax at 5% on remittance exceeding INR 7 lakhs made under LRS scheme
Tax compliance and dispute resolution:
- Proposes amendments in Income-tax Act to enable faceless appeals after faceless assessments.
- The Government proposes amendment to IT Act for mandating CBDT to adopt taxpayers charter. Also, CBDT to notify contents of the charter.
- Faceless e-assessment will apply even to best judgement assessment
- Central government empowered to introduce e-appeal and e-penalty scheme to eliminate interface between the tax payer and income tax authorities.
- It is proposed to introduce Direct Tax dispute resolution scheme ‘Vivaad se Vishwaas’ similar to IDT Sabka Vishwas in order to reduce litigation.
- Also, it is proposed to provide waiver of interest & penalty provided the disputed tax amount paid by March 2020.
- The scheme to remain open up to June 2020 and the additional amount would have to paid after March 2020.
2. Indirect Tax
Simplification of GST returns
- A simplified GST return is proposed to be implemented from April 1, 2020.
- It will make GST return filing simple with features like SMS based filing for nil return, return pre-filling, improved input tax credit flow.
- A system of cash reward is envisaged to incentivize customers to seek invoice.
- Deep data analytics and AI tools are being used for crackdown on GST input tax credit, refund, and other.
Changes in rates
- It is proposed to raise custom duty to footwear to 35% from 25% and on furniture goods to 25% from 20%, in order to provide incentive to labour intensive sectors like MSMEs which are critical for employment generation.
- Excise duty is proposed to be imposed by way of National Calamity Contingent Duty on cigarettes and other tobacco products.
- It is proposed to revise customs duty rates on electric vehicles and parts of mobiles.
- It is proposed to impose 5% health cess on the imports of medical devices, except those which are exempt from BCD.
- It is proposed to lower customs duty on certain inputs and raw materials like fuse, chemicals, and plastics.
- The Government proposed that steps would be taken to enable sourcing external commercial borrowings and foreign direct investments in the education sector so as to able to deliver higher quality education.
- The Government proposed to set up an Investment Clearance Cell that will provide “end to end” facilitation and support, including pre-investment advisory, information related to land banks and facilitate clearances at Centre and State level. This would function through a portal.
- To facilitate ease of doing in manufacturing sector and attract large investments in the electronics value chain, the Government proposed a scheme focused on encouraging manufacture of mobile phones, electronic equipment and semi-conductor packaging, the details of which would be announced later. With suitable modifications, the said scheme could be adapted for manufacture of medical devices as well.
- The Government e-Marketplace (GeM) launched by the government provides a Unified Procurement System for providing a single platform for procurement of goods, services and works, and was recognized as a great opportunity for Medium, Small and micro Enterprises (“MSMEs”).
- The Government proposed to make necessary amendments to the Factoring Regulation Act, 2011 which would enable NBFCs to extend invoice financing to the MSMEs through Trade Receiving Discounting System (“TReDS”), thereby enhancing their economic and financial sustainability.
- Subordinate debt for entrepreneurs of MSMEs will be provided and be treated as quasi-equity. It would be fully guaranteed through the Credit Guarantee Trust for Medium and Small Entrepreneurs (“CGTMSE”). Government has also asked RBI to consider extending window of debt structuring by one year to March 2021 for this purpose.
- A new scheme ‘NIRVIK’ will be offered to exporters to achieve higher export credit disbursements. This will have higher insurance cover, lower premiums and a faster claims settlement.
- The limit for foreign portfolio investor (“FPI”) in corporate bonds, currently at 9% of outstanding stock, will be increased to 15% of the outstanding stock of corporate bonds.
- To improve investors’ confidence and to expand the scope of credit default swaps, the Government intends to formulate and introduce a new legislation for laying down a mechanism for netting of financial contracts.
- The government recognized that the new economy is based on innovations that disrupt established business models including Artificial intelligence, Internet-of-Things (IoT), 3D printing, drones, DNA data storage, quantum computing, etc. Accordingly, the government proposed to bring out soon a policy to enable private sector to build Data Centre parks throughout the country.
- Intellectual Property – A digital platform would be promoted that would facilitate seamless application and capture of intellectual property rights. Also, in an Institute of Excellence, a Centre would be established that would work on the complexity and innovation in the field of intellectual property.
Companies Act, 2013
- Recognizing that there has been a debate about building into statutes, criminal liability for acts that are civil in nature, the Government indicated intentions to propose amendments to the Companies Act, 2013. The exact nature of these amendments would be introduced by the Government in the future.
- For speedy disposal of commercial and other disputes, the Government stated that it had constituted various tribunals and specialized bodies and further proposed to evolve a robust mechanism for appointment including direct recruitment to these bodies to attract best talents and professional experts.
Indian Contract Act, 1872
- The Government proposed strengthening of the said act. The exact nature of these amendments may be introduced by the government in the future.
Banking and NBFC
- The Government intends to propose amendments to Bank Regulation Act, 1949 for increasing professionalism, enabling access to capital and improving governance and oversight for sound banking through the RBI. The exact nature of these amendments may be introduced by the government in the future.
- Non-banking financial companies (“NBFCs”) and cooperatives are active in agriculture lending and therefore, NABARD refinance scheme will be expanded. Agri credit target has been proposed at INR 15 lakh crore for the year 2020-21.
- The limit for NBFCs to be eligible for debt recovery under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (“SARFAESI”) is proposed to be reduced from asset size of INR 500 crore to INR 100 crore and for loan size from existing INR 1 crore to INR 50 lakhs.
- Partial Credit Guarantee scheme has been formulated for the NBFCs to assist NBFCs against the liquidity constraints. To further this support of providing liquidity, Government will offer support by guaranteeing securities so floated.
- The government proposes to provide early life funding, including a seed fund to support ideation and development of early stage Start-ups.
Indian Stamp Act, 1899
- Under Section 9A(2), a proviso has been introduced vide the Finance Bill, 2020 which exempts the duty on the instruments being transacted through stock exchanges and depositories established in any International Financial Services Centre set up u/s 18 of the Special Economic Zones Act, 2005
- After Section 73A, a new Section 73B has been inserted to provide rights to Central Government to (a) issue directions in relation to such matters and conditions as it deems necessary; and (b) provide in writing, authorize the Securities and Exchange Board of India or the Reserve Bank of India to issue instructions, circulars or guidelines, for carrying out the provisions of Part AA of Chapter II and the rules made thereunder.
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