Key Tax Proposals- Union Budget 2020-2021

Direct Tax

Simplified and New Income Tax Regime as an option to the old regime the old regime.

• In the new tax regime, substantial tax benefit will accrue to a taxpayer depending upon exemptions and deductions claimed by him. He would still be the gainer in the new regime even if he was taking deduction of INR 1.5 Lakh under various sections of Chapter- VI-A of the Income Tax Act under the old regime.
• Dividend Distribution Tax removed and classical system of dividend taxation adopted.
• Concessional corporate tax rate of 15 per cent to new domestic companies in manufacturing and power sector.
• Tax concession for sovereign wealth fund of foreign governments and other foreign investments. 100% tax exemption to their interest, dividend and capital gains income in respect of investment made in infrastructure and other notified sectors before 31st March, 2024 and with a minimum lock- in period of 3 years.
• Concessional withholding rate of 5% under section 194LC for interest payment to non-residents in respect of moneys borrowed and bonds issued up to 30th June, 2023.
• Extension to the period up to 30th June, 2023 for lower rate of withholding of 5% under section 194LD for interest payment to Foreign Portfolio Investors (FPIs) and Qualified Foreign Investors (QFIs) in respect of bonds issued by Indian companies and government securities
• Concessional rate of withholding of 5% under section 194LD to the interest payment made on the Municipal Bonds.
  Reduction in the withholding rate from 5% to 4% on interest payment on the bonds listed on its exchange.
• Eligible Start-up having turnover up to 100 crores is allowed deduction of 100% of its the profits for three consecutive assessment years out of ten years if the total turnover does not exceed 25 crore rupees
• Option to cooperative societies to be taxed at 22% plus 10% surcharge and 4% cess with no exemption/deductions. Exemption to these co-operative societies from Alternative Minimum Tax (AMT) just like companies under the new tax regime are exempted from the Minimum Alternate Tax (MAT).
• Turnover threshold for audit from the existing INR 1 crore to INR 5 crore. [increased limit shall apply only to those businesses which carry out less than 5% of their business transactions in cash]
• Additional deduction of up to one lakh fifty thousand rupees for interest paid on loans taken for purchase of an affordable house. The deduction is now allowed on housing loans sanctioned on or before 31st March, 2021.
• Tax holiday is provided on the profits earned by developers of affordable housing project approved by 31st March, 2021.
• Taxing income from capital gains, business profits and other sources in respect of transactions in real estate, if the consideration value is less than circle rate by more than 10 percent, the difference is counted as income both in the hands of the purchaser and seller.
• The income of charitable institutions is fully exempt from taxation. Further, donation made to these institutions is also allowed as deduction in computing the taxable income of the donor. To claim the tax exemption, the charity institutions have to be registered with the Income Tax Department.
• In order to ease the process of claiming deduction for donation, pre-fill the donee’s information in taxpayer’s return on the basis of information of donations furnished by the donee.
• In order to simplify the compliance for the new and existing charity institutions, process of registration completely electronic under which a unique registration number (URN) shall be issued to all new and existing charity institutions. Further, to facilitate the registration of the new charity institution which is yet to start their charitable activities, allow them provisional registration for three years.
• Amendment to the Income Tax Act so as to enable Faceless appeal on the lines of Faceless assessment.
• Under the proposed ‘Vivad Se Vishwas’ scheme, a taxpayer would be required to pay only the amount of the disputed taxes and will get complete waiver of interest and penalty provided he pays by 31st March, 2020. Those who avail this scheme after 31st March, 2020 will have to pay some additional amount. The scheme will remain open till 30th June, 2020. [Taxpayers in whose cases appeals are pending at any level can benefit from this scheme]
• Amendment to the provisions of the Income Tax Act to mandate the Central Board of Direct Taxes
• (CBDT) to adopt a Taxpayers’ Charter. The details of the contents of the charter shall be notified soon.
• In order to further ease the process of allotment of PAN, soon a system under which PAN shall be instantly allotted online on the basis of Aadhaar without any requirement for filling up of detailed application form.

Indirect Tax

• Simplified GST return shall be implemented from 1st April 2020. Refund process to be fully automated
• Electronic invoice is another innovation wherein critical information shall be captured electronically in a centralized system. It will be implemented in a phased manner starting from this month itself on optional basis. It will facilitate compliance and return filing.
• Dynamic QR-code is proposed for consumer invoices. GST parameters will be captured when payment for purchases is made through the QR-code. A system of cash reward is envisaged to incentivise customers to seek invoice.
• Reduction in basic customs duty on imports of news print and light-weight coated paper from 10% to 5%.
• Anti-dumping duty on PTA is being abolished.
• Excise duty, by way of National Calamity Contingent Duty on Cigarettes and other tobacco products

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