Good and Bad of Union Budget 2020 : Detail summary

Finance Minister laid down the Union Budget 20-21 in the parliament on 1st February 2020. This brought many changes on the Direct and indirect Taxation. People found some good as well as some bad in the budget. This article deals with all the changes and the views expressed by the experts in relation to direct taxation.

Individual Tax slab rate

Finance Minister Nirmala Sitharaman announced a new tax regime for individuals for fiscal year 2020–21. However, its an optional scheme, the people can continue with the old rates as well. To opt this scheme, taxpayers would have to let go the exemptions and deductions available to them. Although they can change their scheme every year.

Under the new regime, the rate structure is as follows-

Taxable Income Slab (Rs.) Current tax rates New tax rates
0-2.5 Lakh Exempt Exempt
2.5-5 Lakh 5% 5%
5-7.5 Lakh 20% 10%
7.5-10 Lakh 20% 15%
10-12.5 Lakh 30% 20%
12.5-15 Lakh 30% 25%
Above 15 Lakh 30% 30%

Steps will be initiated to pre-fill the income tax return so that a person who opts for the new tax regime gets its income tax return pre-filled and would need no professional assistance in paying income tax. Income below Rs 2.5 lakh will remain exempt while income between Rs 2.5-5 lakh will continue to get a rebate.

February Tax Calendar

Views: The new scheme is good for those who does not do any tax saving investment. The salaried class of taxpayers may not get relief from this new sheme. As they are habitual to do the investment for saving their tax. Eventually, it is increasing complexity and reducing benefits with detrimental impact on Savings and Housing sector.

Corporate Tax:

 Current   New Views
The income tax law provides for a deduction of 100 percent of an eligible income of startup from the year of incorporation for three out of seven years. This period has been increased to 10 years by Budget 2020. The deduction will be available for 3 years consecutive assessment years out of 10 years. This will give ways for tax planning to the new startups.  
Until now, startups with a total turnover up to Rs 25 crore can benefit from this deduction. The limit has now been raised to Rs 100 crore. It will cover a wide number of eligible entities as startups.  
Employee Stock Ownership Plans or ESOPs are taxed at the time when an employee signs up for it and at the time of selling. Now, tax on ESOPs shall be taxed earlier of – after the expiry of five years from the year in which the employee signed up for it, at the time of sale or when the employee leaves the company.   Employees will receive an additional benefit.
No such provision before. Under the new corporate tax regime, new power generation companies will have to pay only 15 per cent tax. The move will help to set up new power generation companies to meet India’s growing energy needs.  

Dividend Distribution Tax (DDT)

  • In Budget 2020, Finance Minister Nirmala Sitharaman announced for abolishment of the Dividend Distribution tax (DDT). Dividend income will be now taxed in the hands of investors according to the tax rate applicable to them. Previously mutual funds used to deduct DDT on dividends declared by equity mutual funds at a rate of 11.64 per cent. The DDT was taxed at 29.12 per cent for the bond funds.
  • In addition, the Union Budget proposed Tax deduction at source (TDS) at the rate of 10% on dividends paid by mutual funds on the amount above Rs 5,000.

GST Collection of January 2020 crosses 1.1 lakh crores

Views: Removal of DDT will benefit tax-investors. Nonetheless, TDS on the dividend declared for payouts above Rs 5,000 is stuck in the mud state. This will leave less cash in the investors ‘ pockets but only when they earn higher dividend payouts. 

Boost to cash- less economy

The audit turnover threshold limit is proposed to increased to Rs. 5 crore from Rs. 1 crore for businesses where-

  1. the aggregate of all cash receipts in the previous year does not exceed 5% of total cash receipt; and
  2. the aggregate of all cash payments in the previous year does not exceed 5% of total cash payment.

That means the limit will be applicable for those businesses having turnover upto 5 crores and cash transactions of less than 5 percent. These changes will take effect from 1 April 2020 and will therefore apply from assessment year 2020-21.

GSTR-9 and 9C : Simplifications and Technical Solutions

Views: The problem is that through this the people will get ways to create shell companies for routing money out of India. A proper mechanism in this regards is must so that people don’t take advantage of any loopholes.

Also, the budget brought Change in Due dates of Audit and Income Tax Return Filing:

Due date of Income Tax Audit 30th September
Due date of Income Tax Return for Audited Tax Payers (Section 44AB, 44ADA, 115JB etc) One month after the due date of Income Tax Audit i.e  31st October

Cooperative Society

This budget brought a parity between cooperatives and the corporate sector. A new optional scheme for cooperative societies for levy of tax at the rate of 22 percent along with 10 percent surcharge and 4 percent cess without exemption / deductions. Also, Budget 2020 raised the deposit cover insurance to Rs 5 lakh from Rs 1 lakh. Unique registration number (URN) will be issued to all new and existing charity institution. For three years, provisional registration for new charity institutions will be allowed.

Cooperative societies exempt from Alternate Minimum Tax (AMT) the same as companies are exempt from the Minimum Alternate Tax (MAT). At present they are taxed at the rate of 30 percent.

GSTR-3B Returns will be filed in a staggered manner : Press Release

Views: The government has fulfilled the cooperative societies’ demands and satisfied their needs. This budget supported the cooperative and business sector. The cooperative sector welcomed the moves.

Affordable Housing Projects Scheme

In presenting the 2020-21 budget, FM also announced that the extension of the date of approval of affordable housing projects by one year to allow developers to take advantage of tax holidays on income. She also declared that additional Rs 1.5 lakh tax benefit would be available till March 2021 on interest paid on affordable housing loans.

Views: It will give benefit immensely to the first-time homebuyers who will avail interest discount benefits under the CLSS program and other tax benefits. The extension of the dateline will also help to achieve the Government’s goal of housing for all. On the other hand, Real estate developers disappointed with the budget as no major steps taken to help out the sector facing the brunt of the liquidity crisis that has ravaged the financial sector for the past 18 months.

10 Important Changes in GST from January 2020

Moreover, according to several developers and property analysts, such announcements are unlikely to help to revive the real estate market where several projects have been delayed due to lack of funding.

Tax concession for foreign investments:

100% tax exemption from interest, dividend and capital gains received by the Sovereign Wealth Fund of Foreign Governments on investments made in infrastructure and priority sectors before 31 March 2024 with a minimum lock-in duration of 3 years.

The income tax law allows an Indian citizen or a person of Indian origin to visit the country without becoming resident of India for a certain period. These individuals can spend 182 days in India, perform business and economic activities and not disclose their global income to the Indian tax authorities. The provision is being misused, Finance Minister Nirmala Sitharaman said. In this regards, she announced the reduction in the period of stay to 120 days.

Tax Discussion Forum

In addition, the government also agreed with the recommendation of Direct Tax Code Task Force to bring stateless persons into the tax net. An Indian citizen who is not liable to tax in any other country or territory shall be deemed a resident of India and shall be required to disclose global income in India.

Views: The intention is to tax all those high net worth individuals who plan to live in tax heavens or avoid taxes elsewhere in the world. But this has also created confusion among ordinary Indian people who work in tax-free countries such as the Middle East nations. The government should provide required clarifications to mitigate the concerns of salaried Indian emigrants working abroad and not liable to tax according to the laws of those countries, and not through any tax avoidance scheme.

Vivad se Vishwas”

Sitharaman further claimed that the Income Tax Act will be amended to permit faceless appeals against tax orders on faceless assessment. She also introduced a scheme—’ Vivad se Vishwas’ (no dispute but trust) — to bring down litigation in the direct tax system saying that 4.83 lakh direct cases are pending in various appeal forums.

The scheme provides waivers of penalty and interest if the payments at dispute are paid by March 31, 2020. Under the proposed ‘Vivad Se Vishwas ‘ scheme, a taxpayer would be required to pay only the amount of the taxes in dispute and receive full waiver of interest and penalty, if the disputed tax settled by March 31, 2020.

GST Interest Calculator

For cases where litigation is over interest and penalty, the dispute could be settled by paying 25 percent of the total till March 31 and 30 percent after the cut-off date. This scheme will be opened till June 30,2020.

Views: Experts said the scheme’s effectiveness depends on the facts which the Central Board of Direct Taxes (CBDT) will soon notify. Introduction of the” Vivaad se Vishwas” scheme, in line with the “Sabka Vishwas” system, is a positive step for direct tax dispute resolution. Many saw the proposed scheme appealing as a one-time measure.

Taxpayers ‘ Charter

CBDT will adopt taxpayer’s Charter. In order to ensure taxpayers’ rights and to establish trust between the taxpayer and the tax administrator, the taxpayer charter will be incorporated into the Income-Tax Act itself.

Views: It is even more welcome to have a taxpayers ‘ charter, and to have it written into Act. It will somewhere help in reduction of harassment of the Taxpayers.

GST Input Tax Credit Calculator

Some other Measures

  1. To ease PAN allotment, FM introduced new process of instantly allocating the PAN through Aadhaar.
  2. On valuing old property on 1.4.2001, the fair value is to be limited to the stamp value.
  3. E-commerce operators will be required to deduct TDS at the rate of  1% on payments made to sellers through e-commerce platforms.
  4.  TCS (tax collected at source) on overseas remittances and packages tours abroad will now be levied at the rate of five per cent.
  5.  26AS shall be available to tax assessee disclosing not just TDS but other transactions as well on the e-filing portal.
  6. CIT will now give survey authorisation except in cases where information is received from prescribed authorities, in which case JCIT will grant approval.
  7. Amendments proposed to the Income-Tax Act to ensure that unabsorbed losses and depreciation of the amalgamating entities benefit the entities.

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Views: Govt did not brought anything new for pensioners which brought unhappiness for them. Many good steps taken to attract the foreign investors. It’s mainly needed for foreign investors and very well required. Foreign investors would otherwise not prefer to invest in India. This budget gave various options to individuals, companies and cooperative societies for paying their Taxes. Although the budget is not appealing to the taxman but it is not a bad budget too.

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The author of above article is Riya Thawani. 

Disclaimer:The article or blog or post (by whatever name) in this website is based on the writer’s personal views and interpretation of Act. The writer does not accept any liabilities for any loss or damage of any kind arising out of information and for any actions taken in reliance thereon.  It is prepared based on understanding of provisions as stood applicable as on date.
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