By Rakesh Nangia and Sandeep Jhunjhunwala
Budget 2020 India: The new budget for the new decade is here. Budget for fiscal 2020-21 woven around 3 prominent themes: Aspirational India, Economic Development and Caring Society was tabled by the Finance Minister, being her first full-time budget presentation in the Parliament. Two cross-cutting developments ie the proliferation of technologies and favourable demographics of the working population were in the backdrop.
The sound of Christmas bells could be heard in February by the corporates when the Finance Minister, in her budget speech, proposed to eliminate the Dividend Distribution Tax and moving to the classical system of taxing dividends in the hands of shareholders. This would certainly benefit the non-resident investors as now they would be eligible to claim credit for tax paid in India on such dividends. However, high-income earners would suffer higher taxes on account of this transition. The domestic companies opting for new tax rejig (introduced in September 2019) can now claim deduction under 80JJA or 80M as proposed in the budget. Further, a new rate of taxation at 15 per cent has been extended to companies engaged in generation in electricity. The threshold limit for a tax audit, ie turnover of Rs 1 crore in case of a person carrying on business is proposed to be increased to Rs 5 crores. This is particularly aimed to reduce the compliance burden on MSMEs. However, the cash transactions should not be 5 per cent of the aggregate receipts or payments respectively.
Watch quick evaluation of Budget 2020 by Rakesh Nangia
The budget has proposed to reduce the rate for TDS under Section 194J in the case of technical services to 2 per cent from the existing 10 per cent rate to keep in line with Section 194C and reduce the area of ambiguities between these two sections. It also proposed to extend the period of concessional rate of withholding tax under Sections 194LC and 194LD till July 1, 2023. Also, the insertion of new Sections 194K and 194-O are proposed thereby, widening the base of TDS provisions. Section 194K provides for TDS deduction on purchase of units of mutual funds or of specified companies from a resident, in excess of Rs 5,000 at the rate of 10 per cent, increasing compliance burden on the transactions and Section 194-O provides for TDS at the rate of 1 per cent by the e-commerce operator on gross sums exceeding Rs 5 lakhs, paid to the e-commerce participant.
On the face of the proposed Finance Bill, the Finance Minister surely seemed to be making progressive changes favourable to all. Hopefully, the Budget will prepare India to become a $5 trillion economy.
Following the suit of corporate taxation rejig, the Budget has proposed to provide an option to individuals and HUFs by inserting a new Section 115BAC in the Income-tax Act, 1961 and relax the complications of various exemptions and deductions available. Keeping the tax relief on income below Rs 5 lakhs intact (relief through Section 87A), this section states that individuals and HUFs can opt to pay tax as per new slab rates which would benefit the taxpayers by a nominal tax amount of Rs 37,500 for income below Rs 10 lakhs and further by Rs 37,500 for total income below Rs 15 lakhs. Nevertheless, the taxpayer would have to forgo various benefits of exemptions and deductions (including Sections to 80C to 80U other than Sections 80CCD (2) and 80JJAA). This would require an in-depth analysis before opting to the new personal taxation rejig.
The taxation of perquisites of the employees of eligible start-ups exercising ESOPs has been deferred and this would definitely assist in unlocking the cash flows for such employees. It is also proposed to provide an upper limit of Rs 7,50,000 in respect of the employer's contribution in a year to NPS, superannuation fund and recognized PF of the employee. Any amount in excess of this limit would be taxable as perquisite. Consequently, any annual accretion by way of interest, dividend, etc on the excess contribution would also be taxable as perquisite.
Provisions related to tax collection at source at the rate of 5 per cent has been proposed on overseas remittance under Liberalised Remittance Scheme and on sale of the overseas tour program package. A higher tax of 10 per cent would be collected in non-PAN/ Aadhar cases. Residency provisions for the purpose of taxation have been tightened, specifically for stateless persons, who are not liable to tax in any country or jurisdiction. This could impact non-resident Indians staying in countries such as UAE, Oman, Bahrain, Saudi Arabia, Kuwait, etc which does not impose income tax on individuals under local tax laws.
Rakesh Nangia is Chairman, and Sandeep Jhunjhunwala is Director, Nangia Andersen. Views are the author’s own.