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The Finance Bill 2020 has been passed by both the house of Parliament on 23.03.2020. Now, only presidential assent is pending for the bill to convert it in to the Act.
The bill was moved fast as the house was set to be adjourned in view of the covid 2020 which has resulted in almost lock down across the country. It’s the finance bill, which enables the Government to raise new taxes and change the tax structures as proposed in the Budget. The same is true even for Government
There are few changes in the original proposal as was presented on 1st Feb 2020 in the parliament. Let us have a look at major proposal of Finance Bill 2020 as passed by the parliament lower house:
1. There is no change in the optional new tax rate structure options provided without any exemptions and deduction.
2. Similarly, Abolition of Dividend Distribution Tax and taxation of Dividend in the hands of shareholders is also passed as it is. However, it has been clarified that in respect of transition which is effective from 1st April, 2020, there will be no tax liability in respect of Dividend Income received by a shareholder after 1st April, 2020 if such dividend has been distributed by the company before 1st April, 2020 and DDT has been paid by the company while distributing such dividend. It is a clarificatory nature of change done in the bill. One more key change is done in the provision with regard to TDS rate on payment of dividend to non-resident and foreign company. It has been prescribed now at 20%. Earlier, Finance Bill has not provided any specific rate of TDS in respect of payment of dividend to non-residents and foreign companies with the result such dividend would have been subject to a TDS rate of 40%. After new changes, the TDS to non-resident would be @ 20% and not 40%. It may be noted that the TDS rate of 10% on dividend for resident was already there in the original Finance Bill which has remained unchanged.
3. The period of stay in India for taxation of non-residents has been reduced from 180 days to 120 days as was proposed earlier. Further, an extension in a period of resident but not ordinary resident to 7 out of 10 preceding years has been confirmed as against earlier period of 9 out of 10 preceding years. However, deemed resident status for stateless Indian Citizen conditions has been waived off.
Considering the fact that the proposed amendment on the status of non-resident was going to affect all non-residents, such proposal is being withdrawn by the FM while moving the bill for consideration and approval. The objective of such amendment as stated in the press note issued by CBDT immediately after the budget was to tax that income of business or profession which accrues or arises from the business controlled in or a profession set up in India. Accordingly, the scope of amendment has been restricted to only Indian non-residents which have income from Business controlled in or from a profession set up in India and that too when such income exceeds beyond a threshold of Rs. 15 Lakhs. Even in such cases, it will only be this income earned from business controlled in or a profession set up in India that will be taxable in India and not the entire global income as was proposed in the Finance Bill.
In short, such Indians non- residents who are not paying tax in any country by reason of domicile or residence or any other criteria, such Indian non-resident will be deemed to be resident but not ordinary resident. In such cases, there will be no liability to pay tax on foreign income. The liability to pay tax on such deemed resident will be only in respect of business controlled in India or profession set up in India and that too when such income exceeds the threshold of say Rs. 15 lakhs.
4. The trust would be required to undergo compulsory pain of renewal of registration of charitable trust and institution every 5 years. The concept of provision registarttion as well as renewal as was proposed in the original bill has remained unchanged. There was lot of concerns about the volume and nature of work that will be involved. However, nothing has been done to remove the compliance burden of the trust who are otherwise working with No profit moto.
5. The proposal of widening of scope of TDS and TCS will continue to be there. Even the proposal to levy TCS on sale of goods by seller with turnover exceeding Rs. 10 Cr will be continued. It was expected that the TCS on sale of goods u/s 206C(1H) would be abolished but no such action is taken by the FM for its scrapping. Industry believes that the proposal to levy TCS on sale of goods would add to huge paperwork and compliance obligations on the seller. Only slight relief in the form of exemption on Export Sales and to sellers in respect of Import has been provided. Little relaxation has been provided as to the date of applicability i.e, TCS on foreign remittance & on sale of goods will be applicable from 1st October, 2020 as against 1st April 2020 proposed earlier.
6. One more change is proposed with regard to the widening of the equalistion levy @ 6%. It may be noted that equalization levy of 6% was introduced by Finance Act, 2016 in respect of payment to a non resident service provider exceeding Rs. 1 Lakh for online advertisements or digital advertising space or facilities. It has been widened so as to include payment for services for e commerce trade and services as well.
7. One small amendment is proposed in the TDS provision on cash withdraws from the bank account by the customers. Presently, TDS @ @2% on withdrawal of cash from Bank, Co-opt Bank and Post Officer exceeding Rs. 1 crore in aggregate during the year is required. It has been amended to provide that in case of a person who has not filed the returns for preceding 3 years then tax will be deducted @ 2% on withdrawal exceeding Rs 20 lakhs (and not Rs. 1 Crore limit for others) and @ 5% on withdrawal exceeding Rs 1.00 crore (as against 2% for others). This new changes has been made applicable from1st July, 2020.