Finance Act 2020 notified by Finance Ministry

Amidst the COVID-19 outbreak and lockdown in various states, the Finance Bill 2020 introduced vide Union Budget 2020-21 was passed by both Houses of Parliament, with certain amendments including relaxation of ‘deemed residency’ rule for Indian citizens not liable to tax in any other country, enlargement in the scope of Equalization levy to include e-commerce supply or services, etc. Finance Act 2020 has been notified by Finance Ministry. Here are the key amendments of this Act:

Finance Act 2020 notified by Finance Ministry

1. Tax Rates:

A. TAX RATES APPLICABLE TO INDIVIDUAL AND HINDU UNDIVIDED FAMILY (HUF)

a) Option – I (OLD SCHEME)

* For Senior Citizen Exemption Limit is Rs.3,00,000 and for Super Senior Citizen (80 years and above) Exemption Limit is Rs. 5,00,000

b) Option – II (NEW SCHEME)

*NOTE –

i. Refer Para 2 for other terms & conditions of new scheme.

ii. Cess @ 4% is leviable on the amount of income tax and surcharge, if any.

iii. Rebate under Section 87A continues for a resident individual whose total income does not exceed 5,00,000. The amount of rebate is 100% of income tax calculated before cess or 12,500 whichever is less (There is no mention of amendment of Section 87 A in Finance Bill; Accordingly it appears that deduction under the said section will still be available).

c) Surcharge to be added 

B. CORPORATE TAX RATES

In addition cess and surcharge is levied as follows:

Cess: 4% of corporate tax

Surcharge applicable:

However, the rate of surcharge in case of a company opting for taxability under Section 115BAA or Section 115BAB shall be 10% irrespective of amount of total income.

C. FIRMS

Flat tax rate of 30% and surcharge @ 12% of income tax if income exceeds Rs. 1 Cr. ; Further cess @4% will be levied.

2. Exemptions removed under new tax regime

Individual or HUF opting for taxation under the newly inserted section 115BAC of the Act shall not be entitled to the following exemptions / deductions :

(i) Leave travel concession as contained in clause (5) of section 10;

(ii) House rent allowance as contained in clause (13A) of section 10;

(iii) Some of the allowance as contained in clause (14) of section 10;

(iv) Allowances to MPs/MLAs as contained in clause (17) of section 10;

(v) Allowance for income of minor as contained in clause (32) of section 10;

(vi) Exemption for SEZ unit contained in section 10AA;

(vii) Standard deduction, deduction for entertainment allowance and employment / professional tax as contained in section 16;

(viii) Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23. (Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law);

List of Exemptions/Deductions available under new tax regime – Budget 2020

(ix) Additional deprecation under clause (iia) of sub-section (1) of section 32;

(x) Deductions under section 32AD, 33AB, 33ABA;

(xi) Various deduction for donation for or expenditure on scientific research contained in sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35;

(xii) Deduction under section 35AD or section 35CCC;

(xiii) Deduction from family pension under clause (iia) of section 57;

(xiv) Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc). However, deduction under sub-section (2) of section 80CCD (employer contribution on account of employee in notified pension scheme) and section 80JJAA (for new employment) can be claimed.

Following allowances shall be allowed as notified under section 10(14) of the Act to the Individual or HUF exercising option under the proposed section :

a) Transport Allowance granted to a divyang employee to meet expenditure for the purpose of commuting between place of residence and place of duty

b) Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office;

c) Any Allowance granted to meet the cost of travel on tour or on transfer;

d) Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.

3. Finance Act 2020 abolished Dividend Distribution Tax (DDT) on dividends. Instead, it made dividends taxable in the hands of investors at their slab rate.

4. Tax Audit Threshold increased.

In wake of ease of doing business, Tax Audit threshold has been increased to 5 crores from existing 1 crore by Finance Act 2020.

5. Changes in provision determining Residential Status of any individual

6. Time limit for approval of affordable housing project extended : In order to incentivise building affordable housing to boost the supply of such houses, the period of approval of the project by the competent authority to be extended by one more year i.e., from 31st March 2020 to 31st March, 2021 for availing deduction under section 80-IBA.

7. Tax Deduction at Source & Tax Collection at Source

A. Tax to be deducted at source by co-operative society on interest paid under section 194A

The scope of section 194A is proposed to be expanded by requiring tax to be deducted at source by a co-operative society whose –

(a) the total sales, gross receipts or turnover exceeds Rs.50 crores during the financial year immediately preceding the financial year in which the interest is credited or paid; and

(b) the amount of interest credited or paid during the financial year is more than

(i) Rs. 50,000 in case of payee being a senior citizen and

(ii) Rs. 40,000, in any other case.

Such co-operative society is required to deduct tax under section 194A on interest credited or paid by it –

– to its member or to any other co-operative society; or

– in respect of deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank or

– in respect of deposits with a co-operative bank other than a co-operative society or bank engaged in carrying on the business of banking

B. Definition of “Work” under section 194C expanded

The scope of definition of “work” for the purpose of tax deduction under section 194C to be expanded to include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer or its associate. “Associate” means a person related to the customer in such manner as defined under section 40A(2)(b), as if the customer is an assessee for the purpose of that section.

C. TDS on E-commerce transactions : New section 194-O to be inserted to provide that E-commerce operator is required to deduct tax at source at the time of credit of amount of sale or service or both to the account of e-commerce participant or at the time of payment to such participant, whichever is earlier. Tax is required to be deducted @1%. However, where PAN/Aadhar is not furnished, tax @5% is required to be deducted at source.

Moreover, no tax would be deducted at source in case of an e-commerce participant (being an individual or HUF) whose gross amount of sales or services or both does not exceed Rs. 5 lakh and furnishes PAN/ Aadhaar.

D. Reduced rate of TDS on fees for technical services : Rate of TDS under section 194J in case of fees for technical services other than professional services is proposed to be reduced from 10% to 2%.

E. TCS on overseas remittance, sale of overseas tour package and on sale of goods above certain limit:

• Section 206C to be amended to require an authorised dealer to collect tax at source @5% on the amount or aggregate of amounts received by him under the Liberalised Remittance Scheme of the RBI for overseas remittance from a buyer, being a person remitting such amount out of India, if such amount or aggregate of amounts is Rs. 7,00,000 or more during the financial year. However, where PAN/Aadhar is not furnished, tax @10% is required to be collected at source.

• The seller of an overseas tour package is also required to collect tax at source@5% on the amount received from the buyer who purchases the package. In case PAN/Aadhar is not furnished, tax @10% is required to be collected at source.

Note – In both such cases, covered under sub-section (1G) of section 206C, tax is required to be collected at the time of debiting the amount payable by the buyer or at the time of receipt of such amount, whichever is earlier.

• TCS is also proposed to be levied on sale of goods [not covered under sub-sections (1)/(1F)/(1G)] in excess of Rs.50 lakhs in a year by a seller whose turnover is more than Rs.10 crore during the financial year immediately preceding such financial year in which sale has taken place. Tax is to be collected at source @0.1% of the sale consideration exceeding Rs.50 lakhs, at the time of receipt. In case of non-furnishing of PAN/Aadhar, tax @1% is required to be collected at source.