I can remember while starting Part B of her speech our Finance Minister said “ the tax proposals in this budget will introduce further reforms to stimulate growth, simplify the tax structure, bring ease of compliance, and reduce litigation but when the budget speech was complete everyone was left with some more confusion, questions, and complications related to tax.
In the coming article, we will try to make things simpler for you so that you can understand things, analyze things and take your decisions.
First of all, let me give some clarification about the applicability of the budget of 2020.
Budget 2020 will be applicable from Financial Year 2020-21 i.e from 01st of April 2020.
It’s tax provisions will be applicable from Assessment Year 2021-22 i.e from 01st of April 2021.
So all of us should not bother much about budget 2020 at present. We need to focus on the completion of the current financial year 2019-20 and file Income Tax Return for the same by the due date. All planning and decision making for budget 2020 are required for FY 2020-21 i.e from April 2020.
Now we will discuss the direct tax amendments/changes brought in by Budget 2020:
Alternative tax slabs for individuals
Budget 2020 has introduced reduced tax rates for Individuals and HUF but on the condition leaving the option of claiming various exemptions or deductions provided otherwise under the Act. This means you can enjoy reduced tax rates only if you will not claim various exemption and deductions provided under the act.
Following is the reduced tax rates made applicable for Individuals & HUF u/s 115BAC.
|Total Income||Tax Liability|
|Upto Rs 2,50,000||Nil|
|Rs 2,50,000 – Rs 5,00,000||5% of (Total Income-250000)|
|Rs 5,00,000 – Rs 7,50,000||10% of (Total Income-500000) +12500|
|Rs 7,50,000- Rs 10,00,000||15% of (Total Income-750000) +37500|
|Rs 10,00,000- Rs 12,50,000||20% of (Total Income-1000000) +75000|
|Rs 12,50,000- Rs 15,00,000||25% of (Total Income-1250000) +125000|
|Above Rs 15,00,000||30% of (Total Income – 1500000) + 187500|
Note 1: Above calculated tax liability will further increase by Surcharge and Heath & Education cess.
Note 2: Rebate of up to Rs 12500 is available for individuals having total income Rs 500000. This means if your total income does not exceed Rs 500000 you will get the rebate of up to Rs 12500 from your Tax Liability and your final tax liability will come to NIL.
Exemptions not allowed if any individual or HUF opt for reduced tax slab rate :
- Deduction of interest up to Rs.2,00,000/- allowable under Section 24(b) in respect of the self-occupied property.
- All deductions allowed under Chapter VI-A except the deduction under Section 80 CCD(2) [Deduction in respect of Employer contribution towards NPS] and Section 80 JJAA [ Deduction in respect of employment of new employees].
- Standard deduction of Rs.50,000 allowed from Salary Income u/s 16(ia).
- Leave Travel Allowance under Section 10(5)
- House Rent Allowance under Section 10(13A)
- Deduction of 1/3rd of family pension allowable under Section 57(iia)
- Allowance for Minor Child Income allowable under Section 10(32) on clubbing of minor income.
In addition to the above following exemptions/deductions, not available for computing business & professional income.
- Exemption u/s 10AA for SEZ.
- Additional initial depreciation in respect of plant and machinery under Section 32(1)(iia)
- Investment allowance in respect of new plant and machinery in notified backward areas under Section 32AD
- Tea/Coffee/Rubber development benefit under Section 33AB
- Site restoration benefit under Section 33ABA
- Various deductions for donation for expenditure on scientific research or social sciences
- research under section 35(1)(ii), section 35(1)(iia), section 35(1)(iiia) or under section 34(2AA)
- Accelerated capital deduction for specified businesses under Section 35AD
- Expenditure on agricultural extension project under Section 35CCC
Note: Which tax regime you should opt for completely depends upon your income and your available deductions.To see the analysis kindly refer our article
“NEW TAX REGIME v/s OLDV TAX REGIME. Which one should we choose?”
OTHER DIRECT TAX PROVISIONS
1.Tax rate of 22 percent for Cooperative Societies
- The tax rate on co-operative societies has been reduced to 22% from earlier 30%. However, a 10 percent surcharge and 4 percent cess will be charged over and above applicable tax.
- The applicability of alternative minimum tax rate has also been removed from the Cooperative Societies
2. Concessional rate of 15% extended to electricity generating companies
- Companies that are incorporated on or after 1st October 2019 and engaged in the manufacturing or production of any article the applicable corporate tax rate is 15 percent.
- Electricity companies are also included in this list by budget 2020 and now the company incorporated on or after 1st October 2019and engaged in the generation of electricity will be charged tax @ 15%.
- This amendment is being made retrospectively and accordingly shall be applicable from assessment year 2020-21 i.e FY 2019-20.
3. Dividend income to be taxed in the hands of the Shareholders – Dividend Distribution Tax being abolished
- At present, a company is required to pay dividend distribution tax under Section 115-O at the rate of 15 percent and the dividend is exempt to the extent of Rs 10 lakhs in the hands of shareholder u/s 115BB
- Budget 2020 has abolished the provision of dividend distribution tax under Section 115-O. Form FY 2020-21 dividend received by any shareholder will be considered as its ordinary income and will be taxable at the rate applicable to such person and no exemption shall be allowed in respect of such dividend income
Question: What about dividends received by a domestic company from another company and later on the same is distributed to its shareholder?
Ans. Dividend income received by a domestic company from any other domestic company to the extent such dividend income is distributed by such company on or before one month prior to the date of furnishing of return of income shall be allowed as deduction while computing its income. For example, ABC ltd received a dividend from XYZ ltd Rs 10 lakhs and out of these dividends Rs 6 lakhs dividends were distributed by ABC to his shareholder before furnishing return of income. In this case, ABC Ltd is liable to pay tax only on Rs 4 lakhs.
4. Re-registration of all existing trust :
- Any trust or institution is registered under Section 12A or under Section 12AA, it shall be required to make an application in the prescribed form to the Principal Commissioner or Commissioner for re-registration of trust within three months from 1st June 2020 and such trust or institution should obtain re-registration under section 12AB. Thus, all existing trusts or institutions which are registered under Section 12A or Section 12AA will mandatorily be required for re-registration within a period of three months starting from 1st June 2020 i.e. upto 31st August 2020 and obtain registration under Section 12AB
- If a trust makes an application as required In the above clause, registration shall be granted by the Principal Commissioner or the Commissioner by passing an order within a period of three months from the end of the month in which the application was received and such registration shall be valid for a period of 5 years
Question: What if the trust does not apply for re-registration of trust.
Ans. in case such application is not made, then, by implications, the registration shall stand canceled on the expiry of three months i.e. 31st August 2020, with the result that such trust or institution shall not be eligible for claiming exemption in respect of its income under section 11 of the Act.
Question: What after the expiry of 5 years from re-registration.
Ans. The trust shall apply for re-registration at least six months prior to the expiry of the period of registration i.e. 5 years.
Question: Whether approval under section 10(23C) and 80G to be obtained again.
Ans. All such trusts or institutions shall be required to apply for approval again within a period of three months from 1st June 2020 i.e. by 31st August 2020 and the approval so given shall be for a period of five years.
5. Statement of donations to be filed by the trust.
- Trust or institution approved under section 80G to file a statement of donation received and also to issue the certificate to the donor. It has been further stated that deduction on account of the donation under section 80G shall be allowed to the donor only on the basis of the statement filed by the donee trust or institution. The statement has to be filed in the prescribed form and within such time as may be prescribed by the Rules. In case of delay in filing such a statement, a late fee of Rs.200 per day shall be applicable under newly inserted section 234G of the Act. Further, a penalty under Section 271K, which shall not be less than Rs.10,000/- and which may extend up to Rs.1.0 lakh shall be leviable if the trust or institution fails to file such statement
- If the trust fails to submit such a statement then no deduction u/s 80g will be available to Donee.
6. TDS on e-commerce operator
- In order to trace the income of e-commerce participants (any small seller who sales their product through e-commerce) budget 2020 has put the liability on e-commerce operator (Amazon/Flipkart) to deduct TDS @ 1% (5% for non-PAN case) either at the time of credit of the amount of sale or services or both to the account of an e-commerce participant OR at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier.
- E-commerce operators are not required to deduct TDS in the following scenario:
i. The amount to be paid by e-commerce operator doesn’t exceed 5 lakhs provided e-commerce participants has furnished Aadhaar & PAN to e-commerce operator.
ii. When participants are non-resident.
7. Reduced rate of TDS for technical services
- Budget 2020 has reduced the TDS rate in case of fees for technical services under Section 194J of the Income Tax Act 1961 to two percent from the existing 10 percent.
- The above amendment will be applicable from 01st April 2020.
- There is no change in the TDS rate applicable to individual u/s 194J.
We hope that we are able to give you a glimpse of the budget 2020 from the article. You can ask any questions in the comment section.