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Budget 2020 Key Highlights : Direct Tax

 

  • 1. New Optional Tax Regime Introduced : As per New Optional Tax Payers Regime a taxpayer can now choose to opt for the new tax slab for FY 2020-21 (AY 2021-22).
    Income Tax Slab for New FY 2020-21 New Tax Rate Existing Tax Rate
    Upto Rs 2.5 Lakhs Exempt Exempt
    Rs 2.5- Rs 5 Lakhs 5% 5%
    Rs 5- Rs 7.5 Lakhs 10% 20%
    Rs 7.5 -Rs 10 Lakhs 15% 20%
    Rs 10 - Rs 12.5 Lakhs 20% 30%
    Rs 12.5 - Rs 15 Lakhs 25% 30%
    Above Rs 15 Lakhs 30% 30%
    • There are more than 100 deductions and exemptions available to taxpayers under the Income Tax Act. Under the new tax regime, 70 have already been rolled out and remaining are still under the process of streamlining. None of the chapter VI-A deduction allowed except for 80CCD(2) and 80JJAA if you opt for new and reduced income tax rates.

    • If you go by new slab rates as announced in today's Budget then, you will not be eligible to claim the following tax benefits:

      1. Leave travel concession as contained in clause (5) of section 10;
      2. House rent allowance as contained in clause (13A) of section 10;
      3. Some of the allowance as contained in clause (14) of section 10;
      4. Standard deduction of Rs. 50,000 u/s 16;
      5. Employment/professional tax deduction as contained in section 16;
      6. 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);
      7. Any deduction under chapter VI-A ; [except 80CCD(2) - NPS Contribution by the employer and 80JJAA]
      8. Others as prescribed.
    • The option shall be exercised for every previous year where the individual or the HUF has no business income, and in other cases the option once exercised for a previous year shall be valid for that previous year and all subsequent years.
  • 2. DDT Scrapped : No Dividend Distribution Tax (DDT) to be paid by Companies from FY 2020-21. Hence the dividend income will become taxable in the hands of taxpayers irrespective of the amount received at applicable income tax slab rates.
  • 3. Section 80G Changes : Presently complete details of donee (the person to whom the donation is made) are required to be entered manually by the taxpayer. To make the process hassle-free it is proposed that donee’s information will be prefilled in the ITR form. Also, the registration process for new charitable institutions will be made completely online.
  • 4. Increased Audit Limit for MSME : Budget 2020 increased the tax audit limit to Rs 5 cr. For availing the benefit aggregate cash transactions (receipts / payments) in the year shall not exceed 5%.
  • 5. Section 80EEA Change: Budget 2020 extended tax benefit for one more year. Now benefit can also be claimed on loan sanctioned till 31st March 2021 (earlier the deadline was 31st March 2020). If you opt for a new tax regime then the benefit of interest on home loan under section 24 on self occupied property, section 80C, section 80EE, and section 80EEA cannot be claimed.
  • 6. Vivvad Se Vikas Scheme introduced : No interest & penalty would be levied if tax payments are done by 31st March 2020. In case payments are done by 30th June some additional amount shall levy.
  • 7. Form 26AS : It contains the details of tax deducted or collected, self assessment tax and advance tax etc during the relevant year. With changes proposed by Budget 2020, Form 26AS will now have details pertaining to sale or purchase of property details and other specified transactions.
  • 8. Section 194 J : Budget 2020 proposes to reduce TDS rate in case of fees for technical services (other than professional services) to 2% from the existing 10%. TDS rates in other cases will remain unchanged.
  • 9. Section 80GGA Change : No deduction for cash donations exceeding Rs 2,000 shall be allowed. If you want to claim tax benefit u/s 80GGA etc then you should opt for the old tax regime.
  • 10. Section 194 C : Definition of “work” under section 194C will be modified to provide that in a contract manufacturing, the raw material provided by the assessee or its associate will fall within the purview of the ‘work’ under section 194C. The word Associate is proposed to be defined to mean a person who is placed similarly in relation to the customer as is the person placed in relation to the assessee under the provisions contained in clause (b) of sub-section (2) of section 40A of the Act.
  • 11. Residential Status Change :
    1. As per the Budget, a citizen of India would be deemed to be a resident in India in any financial year, if he/she is not liable to tax in any other country.
    2. Number of days reduced in the existing basic condition of residential status to 120 days or more from existing 182 days or more in case a person of Indian Origin comes to India on visit.
    3. Further, Conditions to be replaced for not ordinarily resident. Now, an Indian resident would be considered as not ordinarily resident if he has been a non-resident in India in 7 out of 10 preceding financial years.
  • 12. Benefits to Startups : Following reliefs are allowed to the Startups:
    1. Now ESOP tax payment can be deferred for 5 years by the startups subject to certain conditions.
    2. Deduction on profits increased from 7 years to 10 years time period.
    3. Turnover limit for the exemption for Start-Ups now increased to Rs. 100 Cr.
  • 13. Reduced taxes for cooperative societies: Cooperative Societies to have a reduced tax rate of 22% + 10% surcharge + 4% cess. Deductions will not be available to the cooperative societies in this case as specified in the law. There will also be no applicability of AMT.
  • 14. Faceless Appeals introduced, like faceless assessments.
  • 15. Budget 2020 pronounced instant PAN allotment on the basis of Aadhar. No forms to be filled.
  • 16. Concessional rate of tax @15% proposed for the power generation sector undertakings.
  • 17. Tax-payer charter to be made part of statues.

Frequently Asked Questions

Q- For which period Finance Act 2020 shall apply?

Finance Act 2020 shall apply for all the financial transactions incurred between 1st April 2020 to 31st March 2021 i.e. for the financial year (FY) 2020-21 and assessment year (AY) 2021-22.


Q- What is the Union Budget?

Union or annual budget of India is the estimated representation of sources of government revenues and expenditures. It includes the various plans on which the government would be working on in the upcoming fiscal year and the fund allocation to each of them.


Q- At what time the budget is announced?

The budget presentation in the parliament of India starts at 11 am. Until 1999 the budget was used to be presented in the evening at 5pm.


Q- On which date Budget is presented?

The budget is usually presented on the 1st day of the month of February, except in the case of interim budgets. This tradition was changed in the year 2017. Prior to which the budget was presented on the last day of February.


Q- How to check URN status on call?

For quick updates, the government has also provided the option of checking your URN Aadhaar Update Status on telephonic calls. Upon dialling the UIDAI’S toll free number 1947, you will be directed to an Interactive Voice Response mechanism which shall update you with your status. This method is viable because it can also help you track your status if you have forgotten your URN. This service is available in several languages and thus you can choose to communicate in comfort. The service has several options that enable you to check whether or not you have enrolled with Aadhaar and to track the status of your Aadhaar by choosing to dial the number that the operator suggests you depending upon your request.


CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.