01/02/2020
Budget Proposals and Impact presented by NJSS & Associates & Global Taxation
1. Proposal: The Finance Budget 2020 proposes a new regime of taxation for individuals and HUF wherein these assesses can avail of lower tax slab rates. The proposed slab rates are below:
Tax Slab
(in Rs) Proposed Rates Existing Rates
0 – 2.5 lakhs 0% 0%
2.5 - 5 lakhs 5% 5%
5 – 7.5 lakhs 10% 20%
7.5 – 10 lakhs 15% 20%
10 – 12.5 lakhs 20% 30%
12.5 – 15 lakhs 25% 30%
Above 15 lakhs 30% 30%
Impact: Although the revised rates of taxation seems very attractive, however the same comes with a caveat that the taxpayer has to forego almost all exemptions and deductions, so much that a salaried individual cannot claim the benefit for HRA exemption, LTA exemption, exemption on account of clubbing of income of minor child nor can he claim the benefit for interest paid on self occupied house property. Furthermore, he would not be able to claim almost all deduction like 80C (LIC, investments in tax saving instruments, ect), 80D (medical insurance premium), 80G Donations, etc. Therefore, considering the holistic picture the benefit from the revised scheme of taxation seems very remote. It is pertinent to mention that the taxpayers are free to choose between the existing tax rates and the revised scheme of personal taxation.
2. Proposal: The Finance Budget 2020 proposes to withdraw the Dividend Distribution Tax (DDT)
Impact: The same is a welcome move by the government. DDT had resulted in the same income being taxed thrice in some cases. Now as per the proposal, a company would not be required to pay any DDT at the time of distribution of profits to its shareholders as dividends, however, the shareholders receiving dividends would need to pay taxes on the same as per the applicable tax rates. Accordingly, consequential changes in section 10(34) and 10(35) of the Act has been made.
3. Proposal: The Finance Budget 2020 proposes to amend the Residency rules
Impact: The Finance Bill proposes to make few changes to the way residency is determined. There are total of 3 changes which are proposed. The first one being for citizens of India who normally resides outside India and comes on a visit to India, in the current scenario where these individuals who are normally residing outside India and come on a visit to India and if there stay in India is less than 182 days, they qualify as a Non Resident of India. However, the budget proposes to reduce the threshold from 182 days to 120 days.
The second proposal seems a very scary provisions wherein it is proposed to treat a citizen of India as a deemed resident of India if he is not liable to be taxed in any other country. This may have serious implications on individuals who qualify as Non Residents of all tax jurisdictions and therefore may not be subjected to tax and thereby they may be deemed to be resident of India and there global income may also be subjected to tax. Furthermore, if such a provision is invoked then the Income Tax Department may also contend that the same be applicable on individuals who although qualify as a resident of foreign jurisdictions but do not pay any taxes there by virtue of tax laws of that country, For e.g. a citizen of India working in UAE is not required to pay any tax in UAE as there is no personal taxation in UAE.
Lastly it is proposed to modify the definition of Resident but not ordinary resident and make it simpler.
4. Proposal: The Finance Bill proposes to make changes to section 90 and 90A of the Act which deals to tax relief in case of double taxations
Impact: The Finance Bill proposes to eliminate treaty shopping and eliminate opportunities of non-taxation and/ or reduced taxation.
5. Proposal: The Budget 2020 has introduced the scheme for resolution of past disputes by paying just the tax amount and getting waived for any interest and penalty if the dispute is settled and payment is made by 31 March 2020. It is also proposed that the scheme would be valid till 30 June 2020 but there would be some charges (some interest and/ or penalty) along with the tax if the dispute is settled and payment is made after 31 March 2020 but by 30 June 2020.
Impact: The said scheme is in lines with the dispute resolution scheme introduced in the last budget for Indirect taxes. Taxpayers may choose to settle their past disputes by paying up the taxes and getting exemption from any interest and penalty. The details of the scheme is awaited, however, it provides opportunities to settle old disputes where the interest and penalty may even outweigh the tax demand.
6. Proposal: The Finance Budget 2020 proposes to make application process for exemption of trust fully online
Impact: The same is a welcome move and in lines with the government objective of reduction in interface between the taxpayer the Income Tax official.
7. Proposal: It is proposed to issue PAN immediately if the same is based on Aadhar verification
Impact: The same would be a welcome move and would fast track the issuance process and reduce scenarios of unavailability of PAN.
8. Proposal: It is proposed to introduce a framework for faceless appeal in lines with the existing methodology of conducting scrutiny proceedings.
Impact: The same is in lines with the government objective of reducing interface between the tax payer and the Revenue Authorities. However, it needs to be seen how effective the same would be considering huge paper work involved and the technical complexities involved in the cases.
9. Proposal: The Finance budget 2020 proposes to defer taxation of ESOP’s granted by a startup in the hands of employee by 5 years or till the date of sale of such securities or till the date the employee ceases to be the employee of the company from the existing provision of taxation which is at the point of exercise of ESOP’s.
Impact: The same would ensure that the employees do not face liquidity issue as the current provision of taxing ESOP’s in the hands of individual at the point of exercise creates liquidity concern as the employees need to pay taxes at the point of exercise without even receiving any actual monetary benefit.
10. Proposal: The Finance Budget 2020 proposes to increase the Insurance cover for bank deposits to 5 lakhs from the existing cover of 1 lakhs
Impact: The same will boost the depositor’s sentiment, however, the same would also increase the cost of banking service and therefore indirectly the increase cost of insurance cover would be passed on to the customers.
11. Proposal: It is proposed to extent the beneficial tax rate of 15% to new power generating companies
Impact: The proposal is likely to give impetus to the power sector which is a backbone for the growth story of the country.
The above are the major proposal in the Finance Budget 2020. Besides the above there are various other proposal which have not been discussed here. The Budget theme of Sabka Saath, Sabka Vikas and Sabka Viswas does not totally resonate with the proposals, however, with muted tax collections the Budget seems a fair adjustment of street expectations.
The views expressed are personal views.
For any clarifications, please contact :
CA Navin Jain
Managing Partner at NJSS AND ASSOCIATES
Business Partner at Global Taxation
Mobile – 9830375894
[email protected]
