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S&A Knowledge Series - Finance Act 2020

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Page | 1 - Synopsis of key amendments in Finance Act 2020
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Amendments to Income Tax ...
Page | 2 - Synopsis of key amendments in Finance Act 2020
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BUDGET FOR CHALLENGING TIME...
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Summary of the key amendmen...
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S&A Knowledge Series - Finance Act 2020

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We are excited to share our annual Clients Circular on the amendments by Finance Act 2020.

The writeup covers important amendments that impact you directly and consciously we have avoided to mention the amendments which are procedural in nature. This writeup we believe would help you in complying with the law during the new financial year now underway.

Do get back to us if you have any questions and we would be delighted to help you out.

We are excited to share our annual Clients Circular on the amendments by Finance Act 2020.

The writeup covers important amendments that impact you directly and consciously we have avoided to mention the amendments which are procedural in nature. This writeup we believe would help you in complying with the law during the new financial year now underway.

Do get back to us if you have any questions and we would be delighted to help you out.

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S&A Knowledge Series - Finance Act 2020

  1. 1. Page | 1 - Synopsis of key amendments in Finance Act 2020 www.sethspro.com | info@sethspro.com ` Amendments to Income Tax Act vide Finance Act 2020 <<<<<< S&A Knowledge Series Prepared by CA Nikhil Shukla Ayushi Chandel Manager (Internal Audits & Retainers) Assistant Manager (Audit & Direct Tax) Vetted by CA Ashok Seth CA Aswani Kumar Sr. Partner (Statutory audits and Direct Tax) Partner (Statutory audits and Direct Tax) www.sethspro.com info@sethspro.com New Delhi | Lucknow | Coimbatore
  2. 2. Page | 2 - Synopsis of key amendments in Finance Act 2020 www.sethspro.com | info@sethspro.com BUDGET FOR CHALLENGING TIMES The Hon’ble Finance Minister of India Nirmala Sitharaman rose to present the Union Budget 2020 with a backdrop of a struggling economy which was never witnessed earlier. She faced innumerable challenges while creating this budget document and with the new pandemic fear gripping the world her job is only going to be tough. We are happy to roll out our yearly client circular of the budget fine print for your reading. This would cover the aspects which we believe have the maximum impact on the business community for compliance or availment. Very consciously we have strived to avoid sharing amendments which have no direct impact on you. Hence, there may be more sections amended but we don’t believe they would have any impact directly on your business hence they have not been covered in this writeup. Contents Executive Summary 03 Personal Taxation 05 Business Taxation 10 Trusts and Institutions 13
  3. 3. Page | 3 - Synopsis of key amendments in Finance Act 2020 www.sethspro.com | info@sethspro.com Summary of the key amendments Personal Tax • Alternate tax rate can be adopted by the assessee. They would have the option to choose the new one (without exemptions) or continue with the previous one. • Any contribution in excess of ₹ 7.50 lacs to PF/NPS fund be added to the value of perquisite of the employee. • Definition of nonresident has been tweaked. • FMV of assets as determined by a valuer as on 1st April 2001 for capital gains purpose cannot exceed the stamp value as prevailing on that date, • Permissible limit for difference between Stamp valuation and actual transaction price can be now 10% as against 5% allowed earlier. • Housing loan deduction enhanced incase the value is below ₹45 lacs. • Tax on dividend to be at the recipients end as against the earlier at company’s end. Applicable in case dividend exceeds ₹5,000. Business Tax • Tax audit provisions tweaked and applicable beyond ₹5 crore IF cash receipts of turnover doesn't exceed 5% of such amt and cash payment of expenditure does not exceed 5% of such payment. • Date of filing of return extended to 31st October from 30th September. • TDS on foreign remittance enhanced at 5% for certain transactions. • A seller, whose turnover from business exceeds ₹ 10 Crore during the immediately preceding financial year, shall be liable to collect TCS at the rate of 0.1% on consideration received from a buyer for sale of goods in excess of ₹ 50 Lacs. • TDS on technical fees reduced to 2% (professional TDS to continue at 10%). • Special TDS provisions of E-Commerce platforms for goods being sold through their platform. • To deal with the issue of fake and fraudulent invoices under GST regime a new section is inserted to provide for a levy of penalty equal to the aggregate amount of false entries or omitted entry on a person. Trusts and Institutions • The time limit to apply for registration under section 12A/ 10(23C) of the Act has been amended. • Trust/institution/fund will now have to furnish a prescribed statement providing prescribed particulars of donors under section 80G • Income-tax deduction under section 80G shall be allowed to the donor only based on information furnished by the recipient of the donation.
  4. 4. Page | 4 - Synopsis of key amendments in Finance Act 2020 www.sethspro.com | info@sethspro.com
  5. 5. Page | 5 - Synopsis of key amendments in Finance Act 2020 www.sethspro.com | info@sethspro.com Alternate Income Tax Computation Scheme (Section 115BAC) From Assessment Yr. 2021-22 (Year Ending 31-3-2021) An individual/HUF assessee can opt for simplified one-time optional regime with lower tax rates. The optional tax slab rates are as follows: Existing Slab Rate Optional Scheme Tax Rate Up to ₹ 2,50,000 Exempt ₹ 2,50,001 to 5,00,000 5% ₹ 5,00,001 to 7,50,000 10% ₹ 7,50,001 to 10,00,000 15% ₹ 10,00,001 to 12,50,000 20% ₹ 12,50,001 to 15,00,000 25% Above ₹ 15,00,001 30% In case assessee opts for the new regime, he will not be eligible for certain deductions / exemptions such as: • Chapter VIA e.g. deductions for LIP, PPF Tuition Fees, Tax saving investments etc. (other than employers’ contribution to NPS under section 80CCD (2) and deduction for employment of new employees under section 80JJAA) • Section 10 such as LTA, HRA, income of minor child, and certain exemptions provided under section 10(14), etc • Standard deduction, professional tax • Interest paid on housing loan on self-occupied house property • Standard deductions for family pension under section 57(iia) • Set-off of loss from house property with any other heads of income • Certain eligible deduction against business income • Such taxpayer will also not be subject to alternative minimum tax Changes in the employer contribution to PF / NPS Employer contributions to retirals in excess of specified limits now liable to tax [Section 17(2)] Currently, employer contribution to following retirals are liable to tax only if: •Provident Fund contribution is in excess of 12 percent of the salary •NPS contribution is in excess of 14 percent of salary for the Central Government employees and 10 percent of salary in any other case •Superannuation Fund contribution is in excess of ₹ 150,000 (Accruals on such contributions Not Taxable) •An aggregate monetary limit of ₹ 7,50,000 in respect of employer contribution to above schemes has been introduced. Any contribution in excess of ₹ 7,50,000 will be taxable as perquisite. •Annual accretion on these contributions (in excess of monetary limits) will be treated as a perquisite.
  6. 6. Page | 6 - Synopsis of key amendments in Finance Act 2020 www.sethspro.com | info@sethspro.com Changes in definition of resident as per Income Tax Change in residency rules [Section 6] till Asstt Yr 2020-21 Asstt Yr 2021-22 •An Indian citizen/person of Indian origin is resident in India if: −He has been in India for an overall period 365 days or more within 4 years preceding that year; and −He is in India for overall period of 182 days or more in that year •This provision is now tightened by reducing the Indian citizen / person of Indian origin’s stay in India to an overall period of 120 days or more (instead of 182 days). •For “Not Ordinarily Resident’ earlier the dual conditions were to be fulfilled – −He has been a non-resident in India in 9 out of 10 previous year, or −He has been in India for 729 days or less in 7 previous years •This provision is now changed, the assessee needs to be a non- resident in India in 7 out of 10 previous years •Indian citizens not liable to tax in any other jurisdiction (by reason of his domicile or residence) shall be deemed to be resident in India. FMV for assets acquired before 1st of April 2001 (from Asstt Year 2021-22 i.e. FY 2020-21) Currently, (under section 55(2)(b)(i) and (ii) of the Act), an assessee can opt to take the “cost of acquisition” of a capital asset (acquired before 1 April 2001) at either its actual cost of acquisition or “fair market value” as on 1 April 2001. Where the capital asset is land or building, it is now capped at lower of the FMV of the capital asset as determined by the valuer OR its “stamp duty value” as on 1st April 2001. Permissible difference between Stamp and transaction value Till previous year in case of sale of immovable property if the difference between the actual transaction price and the stamp value adopted for duty payment was more than 5% then such difference was deemed to be the capital gain of the seller. WEF 1st April, 2020 this permissible difference has been enhanced to 10% in Sec 50C. Tax Relief for affordable housing [Section 80EEA] Home buyers (not owning any other property at the time of sanction of loan) can claim deduction for interest on home loan sanctioned during period from 1st April, 2019 to 31st March, 2020 up to ₹ 150,000, provided the stamp duty value of the purchased residential house property does not exceed ₹ 45 Lac. This deduction is now extended for one year in the case of loans up to 31st March, 2021.
  7. 7. Page | 7 - Synopsis of key amendments in Finance Act 2020 www.sethspro.com | info@sethspro.com Deferment of tax on stock benefits of start-ups Currently, specified security and sweat equity shares are taxable as perquisite at the time of exercise. To ease the tax burden of employees of ‘eligible start-ups’ as defined under section 80IAC, the start-ups will be liable to deduct tax on such income within 14days, of the earliest of the following: −Expiry of 48 months from end of the relevant assessment year or −Sale of shares by employee or −Employee’s resignation Rationalization of provisions relating to provision of tax- related information to assessee (Section 285BB) Currently, (under section 203AA), income tax authorities provide tax-related information (including details of tax deducted at source or tax collected at source) to an assessee electronically through Form 26AS. A new mechanism will be introduced under which an annual statement of tax-related information will be uploaded to a registered account of the assessee, also other financial information such as sale or purchase of immovable property and shares in possession of the income-tax authority. This change will be effective from 1st June, 2020. Taxation of Dividend In order to promote investments in India, the burden of tax on income distributed by the domestic companies. Further the dividend income made taxable in the hands of the recipient which was earlier exempt from tax under section10. Therefore, the following key amendments: • Section 115-O: Tax on distributed profits of domestic companies shall be applicable up to 31st March 2020 only. • Section 115-R: Tax on distributed income to unit holders shall be applicable up to 31st March 2020 only. • Section 10(34): Dividend in excess of ₹ 5,000 shall be taxable in the hands of shareholders from 1st April 2020. • Section 10(35): Income from units of mutual funds in excess of ₹ 5,000 shall be taxable in the hands of the unit holder from 1st April 2020. • Section 10(23FC): Dividend received or receivable by business trust from special purpose vehicle is exempt. • Section 10(23FD): Exclude dividend income received by a unit holder from business trust from the exemption so that the dividend income is taxable in the hand of unit holder of the business trust. • Deduction for interest expense under section 57 of the Act shall be maximum 20% of the dividend or income from units.
  8. 8. Page | 8 - Synopsis of key amendments in Finance Act 2020 www.sethspro.com | info@sethspro.com Income Tax Slabs & Rates for Individual Taxpayers & HUF (Less Than 60 Years) for FY 2020-21 (to choose either of the two mentioned below) NEW SCHEME without exemptions Other option Income Tax Slabs & Rates for Individual Taxpayers & HUF (Above 60 years but less Than 80 Years Old) for FY 2020-21 - (can opt for New Scheme also) Income Bracket (In ₹) New Tax Rate 3,00,000 Nil 3,00,000-5,00,000 5% 5,00,000-10,00,000 20% Above 10,00,000 30% Income Tax Slabs & Rates for Individual Taxpayers & HUF (Above 80 years) for FY 2020-21 - (can opt for New Scheme also) Income Bracket (In ₹) New Tax Rate 5,00,000 Nil 5,00,000-10,00,000 20% Above 10,00,000 30% Surcharge on Income Tax for Individuals/HUFs/AoP’s/BOI’s If income (In ₹) Rate of Tax 50,00,000<Income<1,00,00,000 10% 1,00,00,000 < Income< 2,00,00,000 15% 2,00,00,000<Income<5,00,00,000 25% Income>5,00,00,000 37% Income Bracket Tax Rate <2,50,001 Nil 2,50,001 to 5,00,000 5% 5,00,001-7,50,000 10% 7,50,000-10,00,000 15% 10,00,000-12,50,000 20% 12,50,000-15,00,000 25% >15,00,000 30% Income Bracket Tax Rate Up to ₹2,50,000 Nil ₹2,50,001 to ₹5,00,000 5% ₹5,00,001 to ₹10,00,000 ₹12,500 + 20% of total income exceeding ₹5,00,000 Above ₹10,00,000 ₹1,12,500 + 30% of total income exceeding ₹10,00,000
  9. 9. Page | 9 - Synopsis of key amendments in Finance Act 2020 www.sethspro.com | info@sethspro.com
  10. 10. Page | 10 - Synopsis of key amendments in Finance Act 2020 www.sethspro.com | info@sethspro.com Rationalization of provisions relating to tax audit Currently, every person carrying on business, if his/her total sales, turnover, or gross receipts in business exceeds ₹ 1 Crore is required to get his/her accounts audited by an accountant and furnish that by the due date for furnishing the return of income. To reduce compliance burden for MSMEs, the threshold limit for getting the accounts audited under section 44AB of the Act has been enhanced from a turnover of ₹ 1 Crore to a turnover of ₹ 5 Crore for a person carrying on business. Important condition is that cash receipts of turnover doesn't exceed 5% of such amt and cash payment of expenditure does not exceed 5% of such payment. The Audit Report is required to be filed one month before the due date of filling return. Applicable for FY 19-20 also. Changes in due date for filing of return of income Currently, in case of a firm that is liable to tax audit, the due date for filing of return of income for its working partners is 30th September and other partners is 31st July. The due date for filing the return of income of the firm’s partners (which is liable to tax audit) will be 31st October. The due date for filing income tax return for companies and other assessee (whose accounts are required to be audited under the Act) is extended from 30th September to 31st October. Permissible difference between Stamp and transaction value Till previous year in case of sale of immovable property if the difference between the actual transaction price and the stamp value adopted for duty payment was more than 5% then such difference was deemed to be the business income of the seller. W.e.f. 1st April, 2020 this permissible difference has been enhanced to 10% in Sec 43CA. TDS on Foreign Remittance Authorized dealer (dealing in foreign exchange) receiving an amount of ₹ 7 Lacs or more in FY for remittance under LRS of RBI, shall be liable to collect TCS at the rate of 5% on sum received from a buyer remitting such amount out of India. A seller of an overseas tour package shall be liable to collect TCS at the rate of 5% on any amount received from buyer of such package. ‘Overseas tour program package’ is defined to mean any tour package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expense of similar nature or in relation thereto. In both the above cases, if the buyer does not have PAN/Aadhar, the rate of applicable TCS shall be 10 percent. Section 206C to levy TCS on sale of goods above specified limit A seller, whose turnover from business exceeds ₹ 10 Crore during the immediately preceding financial year, shall be liable to collect TCS at the rate of 0.1% on consideration received from a buyer for sale of goods in excess of ₹ 50 Lacs. In non-PAN/Aadhar cases, the rate shall be 1%. The above TCS provision shall not be applicable on certain buyers, such as government authorities and other buyers notified by the Government. The above amendment will take effect from 1st October 2020.
  11. 11. Page | 11 - Synopsis of key amendments in Finance Act 2020 www.sethspro.com | info@sethspro.com Withholding tax rate reduced to 2% on fees for technical services paid to residents (Section 194J) Currently, the withholding tax rate applicable to fees for technical services payable to residents (except residents who are engaged only in the business of operating a call center) is 10%. It is now reduced to 2% for fees for technical services (excluding fees for professional services). Widening the applicability of tax deducted at source (TDS) TDS on e-commerce transactions i.e., payment by e-commerce operator to e-commerce participant for sale of goods or provision of services facilitated by it, has been introduced (New section –194-O). The main features of this section are as follows: • E-commerce operator would deduct TDS @1% on gross amount of sales or services or both made by e-commerce participant (who sells goods or provides services through electronic facility). • TDS needs to be deducted at the time of credit or payment (whichever is earlier) of such amount to the account of e-commerce participant. This would also be the case where payment is made directly by the purchaser to the e-commerce participant. • Exemption from TD - if the gross amount of sales or services or both made during the year by an e-commerce participant (being individual or HUF) does not exceed ₹ 5 Lakhs and such participant provides his PAN or Aadhaar to the e-commerce operator. • Transaction would not be subject to TDS under any other provision of Chapter XVII- B of the Act if: a. TDS has already been deducted by e-commerce operator under this section; or b. No TDS needs to be deducted by virtue of above exemption. This exemption will not apply to any amount received by an e-commerce operator for hosting advertisements or providing other services which are not in connection with the sale of goods or services. Definition of Section 194C widened in case of contract manufacturing Currently, the definition of “work” under existing section 194C does not include manufacturing or supply of goods where (raw) materials are not supplied by custome₹ Post enactment if material is supplied by an associate of the customer to a contract manufacturer, that will qualify as “work” and hence, liable to TDS under section 194C.
  12. 12. Page | 12 - Synopsis of key amendments in Finance Act 2020 www.sethspro.com | info@sethspro.com New Penalty section 271AAD To deal with the issue of fake and fraudulent invoices under GST regime a new section is inserted to provide for a levy of penalty equal to the aggregate amount of false entries or omitted entry on a person. If it is found during any proceeding under the Act that in the books of accounts maintained by him there is a: 1. False entry or 2. Any entry relevant for computation of total income of such person has been omitted to evade tax liability. It is also provided that a person who causes to make or cause to make a false entry or omits or causes to omit any entry, shall also pay by way of penalty a sum, which is equal to the aggregate amounts of such false entries or omitted entry. The false entries to include use or intention to use – a) forged or falsified documents, such as a false invoice or, in general, a false piece of documentary evidence; or 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 do not exist. This amendment will take effect from 1st April, 2020. Provision for e-penalty under Section 274 (2A) The e-penalty scheme will be launched on the lines of the E-assessment Scheme-2019. Under the section 274 (2A), the Central Government may notify an e-scheme for the purpose of imposing penalty to impart greater efficiency, transparency, and accountability by: a) eliminating the interface between the Assessing Officer and the assessee during proceedings to the extent technologically feasible. b) optimizing utilization of the resources through economies of scale and functional specialization. c)introducing a mechanism for imposing of penalty with dynamic jurisdiction in which penalty shall be imposed by one or more income-tax authorities. This amendment will take effect from 1st April, 2020.
  13. 13. Page | 13 - Synopsis of key amendments in Finance Act 2020 www.sethspro.com | info@sethspro.com Trusts & Institutions Registration of trusts, institutions, and funds for tax exemption [Section 10(23C)] The power of granting approval for registration of trusts, institutions, and funds was earlier with the commissioner of income tax (exemptions). This has now been extended to include principal commissioner or commissioner of income tax. The time limit to apply for registration under section 12A/ 10(23C) of the Act has been amended as under: Trusts and institutions Time limit for the application Already registered Within three months from 1st June, 2020 Registration period is due to expire At least six months prior to expiry of the registration period Provisionally registered (for the first time) At least six months prior to expiry of the registration period or within six months of commencement of its activities, whichever is earlier Registered under section 12A/12AA, which becomes inoperative due to the first proviso to section 11(7) At least six months prior to commencement of the assessment year from which said registration is sought to begin operation Seeking adoption or modification of the objective, which do not conform to the conditions of registration under section 12AB Within 30 days from the date of said adoption or modification Any other case (including first timers) At least one month prior to the commencement of the previous year for which registration is sought The amendment will be effective from 1st June, 2020. Approval of trusts, institutions, and funds (Section 80G) • The power of granting approval for registration of trusts, institutions, and funds has been extended to principal commissioner or commissioner. • Trust/institution/fund (i.e. donee) will now have to furnish a prescribed statement providing prescribed particulars of donors under section 80G. • The donee will also furnish a certificate specifying particulars of the donation (within the prescribed time), to the donor. • Income-tax deduction under section 80G shall be allowed to the donor only based on above information furnished by the donee.
  14. 14. Page | 14 - Synopsis of key amendments in Finance Act 2020 www.sethspro.com | info@sethspro.com Our Offices www.sethspro.com | contact@sethspro.com Seth & Associates was established in 1975 and since then it has been providing unparalleled value addition to its client. We are a firm with diverse and rich exposure in various fields. All our partners are full time active working partners looking into specific sector domains such as Corporate Law, Direct Tax, Indirect Taxes, Raising Capital (Bank and Equity), Business Advisory solutions, Forensic and Information Technology audit and many other core sectors relevant to overall growth of the clients. The information herein contained is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endevour to provide accurate and timely information, there can be no gurantee that such information is very accurate and considers the latest amendment in laws which are very frequent. The above is purely for academic reading and general awareness of the law. No one should act on this information without appropriate professional guidance which requires a thorough exemation of a particular situation. This content is owned by Seth & Associates, Chartered Accountants and is not be reproduced without our explicit permission. www.sethspro.com | info@sethspro.com New Delhi | Lucknow | Coimbatore Lucknow HO 90, Pirpur Square, Narahi Lucknow Corporate: Ground Floor, 54Y AI Apartments, Prag Narain Road New Delhi C6, Basement, Shivalik, Malviya Nagar - 110017 Coimbatore: 109 West Periaswamy road, 3B Shresht apartment, RS Puram 641002

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