Amendment by the Finance Act – 2020: Key Changes
CA Naresh Jakhotia
Around 104 amendments were made by the Finance Act 2020. Of course, majority of the changes are consequential in nature. It appears that the Direct Tax Code may not see the light of the day Let me cover the major amendment done by the Finance Act – 2020.
- Change in the Residential status:
An amendment is done in Section 6 whereby an Individual is said to be Resident if he is in India for 182 days or more in a year. The period of stay has been amended and now if an Individual is in India for 120 days or more in a year then he will be treated as Resident. This will reduce the period of stay in India by the NRI to be reckoned as NRI.
- Relief from Notional Taxation provisions:
There is a section 43CA which is a special provision for full value of consideration for transfer of assets other than capital assets in certain cases i.e., when a flat / shop / office block which are held as stock in trade is sold at a value less than its stamp duty valuation. Earlier, there was a deviation to the tune of 5% in the value of consideration received or accruing as a result of transfer of an asset. By the FA -2020, this deviation is now enhanced to 10% which means that now if the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed 110% of the actual consideration received or accruing as a result of the transfer then nothing would be chargeable to tax u/s 43CA.
- Change in the provision related to tax audit under Section 44AB:
The tax audit limit is enhanced to Rs. 5 Crore in case of a person whose-
i. aggregate of all amounts received including amount received for sales, turnover or gross receipts during previous year in cash does not exceed 5% of the said amount; and
ii. Aggregate of the all the payments made including amount incurred for expenditure in cash during the previous year does not exceed 5% of the said payment, then turnover limit for applicability of audit would be Rs. 5 Crores instead of existing limit of Rs. 1 Crore.In short, if assessee cash receipts and cash payments is not exceeding 5% of the total receipts and total payments and the turnover is less than Rs. 5 Crores then no audit shall be required u/s 44AB. The objective is obviously to encourage cash less the transactions.
- Date Extension of Assessee covered by Tax Audit Provisions:
The concept of “pre-filled income tax returns form” is high on the Government Agenda. And with this concept in mind, the due date for furnishing of audit reports u/s 44AB has been changed by mentioning it as “the date one month prior to the due date for furnishing the return of income under sub-section (1) of section 139”. It means that the due date for furnishing return of income U/s 139(1) is made as 31st October of relevant assessment year, the due date for submission of audit report under this section will be 30th September of relevant of assessment year. The data received by the Audit report is going to be used by the CPC in generating the pre-filled income tax return form.
- Relief on the provision related to Notioan taxation u/s 50C.Similar to section 43CA, relief is proposed in section 50C. Section 50C provides that if the property is sold below its stamp duty valuation then the capital gain tax liability would arise on the basis of stamp duty valuation and not actual sale price. Earlier, 5% deviation in the value of consideration received or accruing as a result of transfer of capital asset, being land or building or both, was allowed. After FA-2020, this deviation rate is increased to 10%. It means, if the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed 110% of the consideration received or accruing as a result of the transfer then the consideration so received or accruing as a result of the transfer shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration. It is going to benefit the taxpayer if the property sold is for a price below its stamp duty valuation.
- Clarification as to the meaning of “adjusted”, “cost of improvement” and “cost of acquisition” under section 55:
The taxpayer have an option to adopt the fair market value as on 01.04.2001 in place of actual cost if the assets is acquired prior to 1st April 2001. It is now provided that In case of capital assets being land or building or both, the fair market value [FMV] of such asset as on the 1st day of April, 2001 shall not exceed the stamp duty value, wherever available, of such asset as on 1st day of April, 2001. It means that the FMV can not exceed the stamp duty valuation as on 01.04.2001. Earlier, taxpayers used to refer the valuation to the valuation officer and used to adopt the valuation done by the Valuer as FMV as on 01.04.2001.
- Taxation of Dividend:
Dividend Distribution Tax has been finally abolished and it is made taxable in the hands of recipient. It deduction against dividend income has been restricted a provio which provides that no expenses are allowed as deduction except the interest expenses incurred to earn the income in the nature of Dividend or income in respect of units of MF specified under clause (23D) of section 10 or income in respect of units from a specified company defined in the explanation to clause(35) of section 10. It is further provided that and such deduction shall not exceed 20% of the dividend income, or income in respect of such units included in the total income for that year.
- Deduction in respect of interest on loan taken for certain house property under section 80EEA:
Presently, deduction given u/s 88EEA related to the interest paid on the some specified housing loans was allowed only on loan availed up to 31.03.2020. The Government has set a target of “Housing for all” and with this aim, this benefit is now extended to the loans sanctioned before 01.04.2021.
- Deduction in respect of certain donations for scientific research or rural development u/s 80GGA:Donation to scientific research institutes or rual development organisaton is eligible for deduction u/s 80GGA subject to the conditions that donation paid by cash is not exceeding Rs. 10000/-. Now, the cash limit is reduced to Rs. 2,000/-. Any donations referred to in Section 80GGA paid by cash exceeding Rs. 2000/- will not be admissible as deduction.
- Deduction in respect of certain inter-corporate dividends underSection 80M:
Where the gross total income of a domestic company in any previous year includes any income by way of dividends from any other domestic company, there shall in accordance with and subject to the provisions of this section, be allowed in computing the total income of such domestic company, a deduction of an amount equal to so much of income by way of dividends received from such other domestic company as does not exceed the amount of dividend distributed by the first mentioned domestic company on or before the due date.
- Tax on income of certain domestic companies under section 115BAA:Section 115BAA provides for concessional tax rate of 22% to companies. It is now amended so as to provide that deduction U/s 80M as referred above shall be available for companies opting for concessional rate of 22%. It means, now the companies opting to pay tax under this section can claim deduction U/s.80M.
- Tax on income of new manufacturing domestic companies under section 115BAB:
Section 115BAB is presently providing for a tax rate of 15% for some manufacturing companies.Same as above, this section is also amended so as to provide deduction U/s 80M to such companies opting for concessional tax rate of 15%. Deduction in respect of certain inter-corporate dividends to the domestic Companies opting to pay tax @ 15%, shall be available to such companies also. In short, the companies opting to pay tax under this section can claim deduction U/s.80M.
- New Tax Regime i.e., Alternative Tax Rates Slab for Individuals and HUF under section 115BAC:An easy tax paying option is provided in section 115BAC. If any individual and HUF exercises an option of not claiming any exemptions or deductions provided otherwise under the Income Tax Act then the applicable slabs and tax rates shall be as under
|Slab||Total Income (Rs.)||Rate of Tax|
|1||Up to 2,50,000||Nil|
|2||From 2,50,001 to 5,00,000||5 %|
|3||From 5,00,001 to 7,50,000||10%|
|4||From 7,50,001 to 10,00,000||15%|
|5||From 10,00,001 to 12,50,000||20%|
|6||From 12,50,001 to 15,00,000||25%|
It may be noted that any individual or HUF who exercises such option shall not be eligible to claim various exemptions or deductions available under the Act including the following:-
(i) Standard deduction of Rs.50,000
(ii) Leave Travel Allowance under Section 10(5)
(iii) House Rent Allowance under Section 10(13A)
(iv) Certain allowances under Section 10(14) as will be prescribed
(v) Deduction of interest up to Rs.2,00,000/- allowable under Section 24(b) in respect of self occupied property.
(vi) Deduction of 1/3rd of family pension allowable under Section 57(iia)
(vii) All deductions allowed under Chapter VI-A (except the deduction under Section 80 CCD(2) and Section 80 JJAA ) including of Rs. 1,50,000/- under Section 80C in respect of contribution to provident fund, life insurance premium and deduction of Rs.50,000/- as contribution to NPS under Section 80CCD (1B).
(viii) Allowance for Minor Child Income allowable under Section 10(32) on clubbing of minor income
In addition to the above, the following deductions/exemptions allowed while computing income of business or profession shall also not be available.
(ix) Exemption for SEZ Unit under Section 10AA
(x) Additional initial depreciation in respect of plant and machinery under Section 32(1)(iia)
(xi) Investment allowance in respect of new plant and machinery in notified backward areas under Section 32AD
(xii) Tea/Coffee/Rubber development benefit under Section 33AB
(xiii) Site restoration benefit under Section 33ABA
(xiv) Various deductions for donation for expenditure on scientific research or social sciences research under section 35(1)(ii), section 35(1)(iia), section 35(1)(iiia) or under section 34(2AA)
(xv) Accelerated capital deduction for specified businesses under Section 35AD
(xvi) Expenditure on agricultural extension project under Section 35CCC
> Further, such individual or HUF who exercises such option- Shall not be allowed to set off any loss or depreciation carried forward from an earlier assessment year if such loss or depreciation is attributable to any other deductions referred hereinabove.
> No set off of any loss under the head “Income from House Property” shall be allowed against income under any other head.
> Carried forward loss or depreciation shall be deemed to have given full effect to and no further adjustment in respect of such carried forward loss or depreciation shall be available meaning thereby that such loss or depreciation carried forward shall lapse.
> If the option to pay tax under section 115BAC is exercised in respect of assessment year 2021-2022, then the written down value of the block of asset shall be increased by the amount of depreciation carried forward which is not available for set-off due to the restrictions contained in the proposed newly inserted section 115BAC.
> To claim benefit by paying the tax at the applicable rates under this section, assessee having business income has to opt on or before the due date U/s 139(1) for furnishing return of income for any previous year relevant to assessment year on or after 01.04.2021 and such option once exercised shall apply to subsequent assessment years.
> To claim benefit by paying the tax at the applicable rates under this section, assessee not having business income has to opt along with the return of income to be furnished U/s 139(1) for a previous year relevant to assessment year.
> However if an assessee having business income exercises this option in a previous year and subsequently he can withdraw only once for a previous year other that the year in which it was exercised and thereafter, the person shall never be eligible to exercise option under this section except where such person ceases to have any business income in which case, he can opt the benefit available to person not having business income.
- Concessional Tax Rate for certain resident co-operative societiesUnder section 115BAD:
If co-operative society resident in India exercises an option of not claiming any exemptions and deductions otherwise available under the I.T. Act, then such person can pay tax at the rate of 22%. For claiming benefit of paying the tax at the applicable rates under this section, such society has to opt on or before the due date specified U/s 139(1) for furnishing return of income for any previous year relevant to assessment year on or after 01.04.2021 and such option once exercised shall apply to subsequent assessment years. Option once exercised for any previous year, it cannot be subsequently withdrawn for the same of any other previous years. The income of the person shall be computed without giving effect of any of the following deductions/ exemptions – Sec 10AA, clause (iia) of sub-section (1) of section 32 or section 32AD or section 33AB or section 33ABA of sub-clause (ii) of sub-clause (iia) of sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCC or under any of the provisions of Chapter VI-A other than the provisions of Section 80JJAA. Further, such assessee society Shall not be allowed to set off any loss or depreciation carried forward from an earlier assessment year if such loss or depreciation is attributable to any other deductions referred hereinabove. Also, Carried forward loss or depreciation shall be deemed to have given full effect to and no further adjustment in respect of such carried forward loss or depreciation shall be available meaning thereby that such loss or depreciation carried forward shall lapse. If the option to pay tax under section 115BAD is exercised in respect of assessment year 2021-2022, then the written down value of the block of asset shall be increased by the amount of depreciation carried forward which is not available for set-off due to the restrictions contained in the proposed newly inserted section 115BAD.
- Tax on certain dividends received from domestic companiesunder section 115BBDA:As taxpayers may recall, in last financial year, dividend over Rs. 10 Lakh was made taxable u/s 115BBDA in the hands of the recipient. Now, after abolition of DDT, dividend is fully made taxable in the hands of recipient without any limit. The section 115BBDA has been made inoperative from AY 2021-22.
- Special provisions for payment of tax by certain persons other than a company [Alternate Minimum Tax i.e., AMT]under section 115JC:
Another relief has been given by FA 2020 to AMT assessee. It is provided that if an assessee opts to tax under Sec.115BAC or Sec.115BAD, then Alternate Minimum Tax (MAT) is not applicable to such assessee.
- Tax credit for alternate minimum tax (AMT)under section 115JD:
Similar to above, it is provided that If any assessee opts to pay tax under Sec.115BAC or Sec.115BAD and if any brought forward Alternate Minimum Tax [AMT] credit exists, such credit will lapse as it is not allowed to carry forward further.
- Abolition of Dividend Distribution Taxunder section 115-O:
DDT is finally removed fully from AY 2021-22. It means, the companies are not required to pay tax on the dividend distributed by them. To compensate it, it is provided that It will be taxed in the hands of recipient i.e., Shareholders.
- Tax on income distributed to unit holdersunder section 115-R:
Similar to DDT, Tax on distributed income to unit holders is removed from AY 2021-22. As a result, specified company/mutual fund is not required to pay tax on the income distributed by them. It will be taxed in the hands of recipient i.e., Unit holders. The concept is similar to abolition of DDT.
- Amendment regarding Due date for filing of ITR under section 139:
Now, the Date of filing Audit Report delinked from date of filing return. Audit report is required to be uploaded a months before filing the due date of ITR. For audit cases due date is changed as 31stOct of relevant Assessment Year.
Further, the due date for filing ITR of only the Working partner was that of same as that of firm if it is covered by audit provisions u/s 44AB.It means that non working partner were required to file the return by 31st July even if he is a partner in a firm which is covered by tax audit provision. But now, Section 139 is amended so as to provide that the due date for filing of ITR of all the partners i.e., both sleeping as well as working partner shall be that of audit cases (i.e. 31st Oct of relevant Assessment year).
- TDS on Dividendsunder section 194:
Since the Dividend is now made taxable, TDS is also provided on dividend income. The Company distributing dividend has to deduct TDS on dividend distributed in any Mode i.e., either in cash or cheque, etc. if such dividend paid is more than Rs.5000/- (earlier it was 2500/-). The rate of TDS is 10%
- TDS on interest other than interest on securities underSection 194A:
Another clarificatory amendment is done in few sections of TDS. It is provided that if an Individual or HUF is having business turnover more than Rs. 1,00,00,000/- in the financial year immediately preceding the financial year in which such amount liable for TDS is paid or credited & If an Individual or HUF is having professional receipts more than Rs. 50,00,000/- in the financial year immediately preceding the financial year in which such amount liable for tds is paid or credited, is required to comply with the TDS provisions. The scope of section 194A to deduct tax at source in respect of payment of interest is being widened in respect of the Cooperative Societies. It is provided that if the total sales, gross receipt or turnover of the Cooperative Society exceeds Rs. 50 crore during the financial year immediately preceding the financial year and the amount of interest to be credited or paid during the financial year is more than Rs. 40,000 in the case of such cooperative society, the cooperative society shall be required to deduct tax at the rate of 10% in case the amount of interest credited or paid or likely to be credited or paid during the financial year.However, in the case of the senior citizen, the tax shall be required to be deducted at source in case this amount is more than Rs. 50,000/-. With above amendment, only big size credit co-operative societies will be impacted.
- TDS U/s 194C, 194H, 194I, 194J:
Similar to what is discussed above, clarificatory amendment has been made in other TDS section 194C, 194H, 194I & 194J. It is provided that if an Individual or HUF is having business turnover more than Rs. 1,00,00,000/- in the financial year immediately preceding the financial year in which such amount liable for TDS is paid or credited & i an Individual or HUF is having professional receipts more than Rs. 50,00,000/- in the financial year immediately preceding the financial year in which such amount liable for TDS is paid or credited, then such person would be required to comply with the TDS provision.
- TDS in respect of units under section 194K:
Like TDS on dividend, there is a TDS on mutual funds as well.Any person responsible for paying to a resident any income in respect of Units shall be liable to deduct tax at source (TDS) at the rate of 10% iIf any sum paid is more than Rs. 5000/-
- Payment of certain sums by e-commerce operator to the e-commerce participant underSection 194-O:
E-commerce operator and business is under the scanner of IT Department all over the Globe. Now, in India, an E-commerce operator shall be required to deduct TDS at the rate of 1% at the time of credit of amount of sale or service or both to the account of the E-commerce participant or at the time of payment thereof to such participant by any mode, whichever is earlier. The TDS rate is 1%. The amount shall include the payment directly made by the purchaser of the goods or services to the E-commerce participant. However, this provision shall not be applicable for E-commerce participant if the E-commerce participant happens to be an individual or HUF and the gross amount of sales or services or both of such individual or HUF through such E-commerce operator during the year does not exceed Rs.5 lakhs and such E-commerce participant furnishes a PAN or aadhar Number. In case the E-commerce participant does not furnish PAN or Aadhar Number to the e-commerce operator, TDS shall be deducted at the rate of 5% under section 206AA of the Act
- Eligibility to obtain lower deduction certificate for deduction u/s 194-O – Section 197 widened:
It is provided that,lower deduction certificate can be obtained by the assessee For TDS under 194-O. Similar provision is already there for other provisions of TDS chapter..
- Penalty for false or omitted entries found in books of accounts under section 271AAD:
The most critical amendment is there by way of new section 271AAD in the Income Tax Act. It is provided that if it is found during any proceeding under the Act that in the books of accounts maintained by any person, there is a (i) false entry or (ii) any entry relevant for computation of total income of such person has been omitted to evade tax liability, then such person shall be liable to pay by way of penalty, a sum which is equal to the aggregate amounts of such false entries or omitted entry. Further, penalty will be levied of the aggregate amounts of such false entries or omitted entry on any other person who causes the assessee in making the false entry or omits or causes to omit an entry.
“False entry” has been defined in an inclusive manner to include use or intention to use:
(a) Forged or falsified documents such as a false invoice, or a false piece of documentary evidence, or
(b) invoice for supply or receipt of goods or services or both issued by or received by the assessee in respect of which no actual goods or services have been provided or received; or
(c) Invoice issued for supply of goods or services or both issued by or received from a non-existent person.
Above section 271AAD will have multiplying effect as penalty for one offence can be imposed on multiple persons.
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