S&A Knowledge Series - Finance Act 2020

Page | 1 - Synopsis of key amendments in Finance Act 2020
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Amendments to Income Tax Act
vide Finance Act 2020
<<<<<<
S&A Knowledge Series
Prepared by
CA Nikhil Shukla
Ayushi Chandel
Manager (Internal Audits & Retainers)
Assistant Manager (Audit & Direct Tax)
Vetted by CA Ashok Seth
CA Aswani Kumar
Sr. Partner (Statutory audits and Direct Tax)
Partner (Statutory audits and Direct Tax)
www.sethspro.com info@sethspro.com New Delhi | Lucknow | Coimbatore

BUDGET FOR CHALLENGING TIMES
The Hon’ble Finance Minister of
India Nirmala Sitharaman rose to
present the Union Budget 2020
with a backdrop of a struggling
economy which was never
witnessed earlier.
She faced innumerable challenges
while creating this budget
document and with the new
pandemic fear gripping the world
her job is only going to be tough.
We are happy to roll out our
yearly client circular of the budget
fine print for your reading.
This would cover the aspects
which we believe have the
maximum impact on the
business community for
compliance or availment.
Very consciously we have
strived to avoid sharing
amendments which have no
direct impact on you. Hence,
there may be more sections
amended but we don’t believe
they would have any impact
directly on your business hence
they have not been covered in
this writeup.
Contents
Executive Summary 03
Personal Taxation 05
Business Taxation 10
Trusts and Institutions 13

Summary of the key amendments
Personal Tax
• Alternate tax rate can be adopted by the assessee. They would have the option to
choose the new one (without exemptions) or continue with the previous one.
• Any contribution in excess of ₹ 7.50 lacs to PF/NPS fund be added to the value of
perquisite of the employee.
• Definition of nonresident has been tweaked.
• FMV of assets as determined by a valuer as on 1st April 2001 for capital gains purpose
cannot exceed the stamp value as prevailing on that date,
• Permissible limit for difference between Stamp valuation and actual transaction price
can be now 10% as against 5% allowed earlier.
• Housing loan deduction enhanced incase the value is below ₹45 lacs.
• Tax on dividend to be at the recipients end as against the earlier at company’s end.
Applicable in case dividend exceeds ₹5,000.
Business Tax
• Tax audit provisions tweaked and applicable beyond ₹5 crore IF cash receipts of
turnover doesn't exceed 5% of such amt and cash payment of expenditure does not
exceed 5% of such payment.
• Date of filing of return extended to 31st October from 30th September.
• TDS on foreign remittance enhanced at 5% for certain transactions.
• A seller, whose turnover from business exceeds ₹ 10 Crore during the immediately
preceding financial year, shall be liable to collect TCS at the rate of 0.1% on
consideration received from a buyer for sale of goods in excess of ₹ 50 Lacs.
• TDS on technical fees reduced to 2% (professional TDS to continue at 10%).
• Special TDS provisions of E-Commerce platforms for goods being sold through their
platform.
• To deal with the issue of fake and fraudulent invoices under GST regime a new section
is inserted to provide for a levy of penalty equal to the aggregate amount of false
entries or omitted entry on a person.
Trusts and Institutions
• The time limit to apply for registration under section 12A/ 10(23C) of the Act has
been amended.
• Trust/institution/fund will now have to furnish a prescribed statement providing
prescribed particulars of donors under section 80G
• Income-tax deduction under section 80G shall be allowed to the donor only based on
information furnished by the recipient of the donation.

Alternate Income Tax Computation Scheme (Section 115BAC)
From Assessment Yr. 2021-22 (Year Ending 31-3-2021)
An individual/HUF assessee can opt for simplified one-time optional regime with lower
tax rates. The optional tax slab rates are as follows:
Existing Slab Rate Optional Scheme Tax Rate
Up to ₹ 2,50,000 Exempt
₹ 2,50,001 to 5,00,000 5%
₹ 5,00,001 to 7,50,000 10%
₹ 7,50,001 to 10,00,000 15%
₹ 10,00,001 to 12,50,000 20%
₹ 12,50,001 to 15,00,000 25%
Above ₹ 15,00,001 30%
In case assessee opts for the new regime, he will not be eligible for certain deductions /
exemptions such as:
• Chapter VIA e.g. deductions for LIP, PPF Tuition Fees, Tax saving investments etc.
(other than employers’ contribution to NPS under section 80CCD (2) and deduction
for employment of new employees under section 80JJAA)
• Section 10 such as LTA, HRA, income of minor child, and certain exemptions provided
under section 10(14), etc
• Standard deduction, professional tax
• Interest paid on housing loan on self-occupied house property
• Standard deductions for family pension under section 57(iia)
• Set-off of loss from house property with any other heads of income
• Certain eligible deduction against business income
• Such taxpayer will also not be subject to alternative minimum tax
Changes in the employer contribution to PF / NPS
Employer
contributions
to retirals in
excess of
specified
limits now
liable to tax
[Section
17(2)]
Currently, employer contribution to
following retirals are liable to tax
only if:
•Provident Fund contribution is in
excess of 12 percent of the salary
•NPS contribution is in excess of 14
percent of salary for the Central
Government employees and 10
percent of salary in any other case
•Superannuation Fund contribution
is in excess of ₹ 150,000
(Accruals on such contributions Not
Taxable)
•An aggregate monetary limit of
₹ 7,50,000 in respect of employer
contribution to above schemes
has been introduced. Any
contribution in excess of ₹
7,50,000 will be taxable as
perquisite.
•Annual accretion on these
contributions (in excess of
monetary limits) will be treated
as a perquisite.

Changes in definition of resident as per Income Tax
Change in
residency
rules
[Section 6]
till Asstt Yr 2020-21 Asstt Yr 2021-22
•An Indian citizen/person of Indian
origin is resident in India if:
−He has been in India for an overall
period 365 days or more within 4
years preceding that year; and
−He is in India for overall period of
182 days or more in that year
•This provision is now tightened
by reducing the Indian citizen /
person of Indian origin’s stay in
India to an overall period of 120
days or more (instead of 182
days).
•For “Not Ordinarily Resident’
earlier the dual conditions were to
be fulfilled –
−He has been a non-resident in India
in 9 out of 10 previous year, or
−He has been in India for 729 days
or less in 7 previous years
•This provision is now changed,
the assessee needs to be a non-
resident in India in 7 out of 10
previous years
•Indian citizens not liable to tax
in any other jurisdiction (by
reason of his domicile or
residence) shall be deemed to be
resident in India.
FMV for assets acquired before 1st of April 2001
(from Asstt Year 2021-22 i.e. FY 2020-21)
Currently, (under section 55(2)(b)(i) and (ii) of the Act), an assessee can opt to take the
“cost of acquisition” of a capital asset (acquired before 1 April 2001) at either its actual
cost of acquisition or “fair market value” as on 1 April 2001. Where the capital asset is
land or building, it is now capped at lower of the FMV of the capital asset as determined
by the valuer OR its “stamp duty value” as on 1st April 2001.
Permissible difference between Stamp and transaction value
Till previous year in case of sale of immovable property if the difference between the
actual transaction price and the stamp value adopted for duty payment was more than
5% then such difference was deemed to be the capital gain of the seller. WEF 1st April,
2020 this permissible difference has been enhanced to 10% in Sec 50C.
Tax Relief for affordable housing [Section 80EEA]
Home buyers (not owning any other property at the time of sanction of loan) can claim
deduction for interest on home loan sanctioned during period from 1st April, 2019 to 31st
March, 2020 up to ₹ 150,000, provided the stamp duty value of the purchased residential
house property does not exceed ₹ 45 Lac.
This deduction is now extended for one year in the case of loans up to 31st March, 2021.

Deferment of tax on stock benefits of start-ups
Currently, specified security and sweat equity shares are taxable as perquisite at the time
of exercise. To ease the tax burden of employees of ‘eligible start-ups’ as defined under
section 80IAC, the start-ups will be liable to deduct tax on such income within 14days, of
the earliest of the following:
−Expiry of 48 months from end of the relevant assessment year or
−Sale of shares by employee or
−Employee’s resignation
Rationalization of provisions relating to provision of tax-
related information to assessee (Section 285BB)
Currently, (under section 203AA), income tax authorities provide tax-related information
(including details of tax deducted at source or tax collected at source) to an assessee
electronically through Form 26AS. A new mechanism will be introduced under which an
annual statement of tax-related information will be uploaded to a registered account of
the assessee, also other financial information such as sale or purchase of immovable
property and shares in possession of the income-tax authority. This change will be
effective from 1st June, 2020.
Taxation of Dividend
In order to promote investments in India, the burden of tax on income distributed by the
domestic companies. Further the dividend income made taxable in the hands of the
recipient which was earlier exempt from tax under section10. Therefore, the following
key amendments:
• Section 115-O: Tax on distributed profits of domestic companies shall be applicable
up to 31st March 2020 only.
• Section 115-R: Tax on distributed income to unit holders shall be applicable up to 31st
March 2020 only.
• Section 10(34): Dividend in excess of ₹ 5,000 shall be taxable in the hands of
shareholders from 1st April 2020.
• Section 10(35): Income from units of mutual funds in excess of ₹ 5,000 shall be
taxable in the hands of the unit holder from 1st April 2020.
• Section 10(23FC): Dividend received or receivable by business trust from special
purpose vehicle is exempt.
• Section 10(23FD): Exclude dividend income received by a unit holder from business
trust from the exemption so that the dividend income is taxable in the hand of unit
holder of the business trust.
• Deduction for interest expense under section 57 of the Act shall be maximum 20% of
the dividend or income from units.

Income Tax Slabs & Rates for Individual Taxpayers & HUF (Less Than 60 Years)
for FY 2020-21 (to choose either of the two mentioned below)
NEW SCHEME without exemptions Other option
Income Tax Slabs & Rates for Individual Taxpayers & HUF (Above 60 years but
less Than 80 Years Old) for FY 2020-21 - (can opt for New Scheme also)
Income Bracket (In ₹) New Tax Rate
3,00,000 Nil
3,00,000-5,00,000 5%
5,00,000-10,00,000 20%
Above 10,00,000 30%
Income Tax Slabs & Rates for Individual Taxpayers & HUF (Above 80 years) for FY
2020-21 - (can opt for New Scheme also)
Income Bracket (In ₹) New Tax Rate
5,00,000 Nil
5,00,000-10,00,000 20%
Above 10,00,000 30%
Surcharge on Income Tax for Individuals/HUFs/AoP’s/BOI’s
If income (In ₹) Rate of Tax
50,00,000<Income<1,00,00,000 10%
1,00,00,000 < Income< 2,00,00,000 15%
2,00,00,000<Income<5,00,00,000 25%
Income>5,00,00,000 37%
Income Bracket Tax Rate
<2,50,001 Nil
2,50,001 to 5,00,000 5%
5,00,001-7,50,000 10%
7,50,000-10,00,000 15%
10,00,000-12,50,000 20%
12,50,000-15,00,000 25%
>15,00,000 30%
Income Bracket Tax Rate
Up to ₹2,50,000 Nil
₹2,50,001 to
₹5,00,000
5%
₹5,00,001 to
₹10,00,000
₹12,500 + 20% of total
income exceeding ₹5,00,000
Above
₹10,00,000
₹1,12,500 + 30% of total
income exceeding
₹10,00,000

Rationalization of provisions relating to tax audit
Currently, every person carrying on business, if his/her total sales, turnover, or gross
receipts in business exceeds ₹ 1 Crore is required to get his/her accounts audited by an
accountant and furnish that by the due date for furnishing the return of income. To reduce
compliance burden for MSMEs, the threshold limit for getting the accounts audited under
section 44AB of the Act has been enhanced from a turnover of ₹ 1 Crore to a turnover of
₹ 5 Crore for a person carrying on business. Important condition is that cash receipts
of turnover doesn't exceed 5% of such amt and cash payment of expenditure does
not exceed 5% of such payment. The Audit Report is required to be filed one month
before the due date of filling return. Applicable for FY 19-20 also.
Changes in due date for filing of return of income
Currently, in case of a firm that is liable to tax audit, the due date for filing of return of
income for its working partners is 30th September and other partners is 31st July. The due
date for filing the return of income of the firm’s partners (which is liable to tax audit) will
be 31st October. The due date for filing income tax return for companies and other
assessee (whose accounts are required to be audited under the Act) is extended
from 30th September to 31st October.
Permissible difference between Stamp and transaction value
Till previous year in case of sale of immovable property if the difference between the
actual transaction price and the stamp value adopted for duty payment was more than
5% then such difference was deemed to be the business income of the seller. W.e.f. 1st
April, 2020 this permissible difference has been enhanced to 10% in Sec 43CA.
TDS on Foreign Remittance
Authorized dealer (dealing in foreign exchange) receiving an amount of ₹ 7 Lacs or more
in FY for remittance under LRS of RBI, shall be liable to collect TCS at the rate of 5% on
sum received from a buyer remitting such amount out of India.
A seller of an overseas tour package shall be liable to collect TCS at the rate of 5% on any
amount received from buyer of such package. ‘Overseas tour program package’ is defined
to mean any tour package which offers visit to a country or countries or territory or
territories outside India and includes expenses for travel or hotel stay or boarding or
lodging or any other expense of similar nature or in relation thereto. In both the above
cases, if the buyer does not have PAN/Aadhar, the rate of applicable TCS shall be 10
percent.
Section 206C to levy TCS on sale of goods above specified limit
A seller, whose turnover from business exceeds ₹ 10 Crore during the immediately
preceding financial year, shall be liable to collect TCS at the rate of 0.1% on consideration
received from a buyer for sale of goods in excess of ₹ 50 Lacs. In non-PAN/Aadhar cases,
the rate shall be 1%. The above TCS provision shall not be applicable on certain buyers,
such as government authorities and other buyers notified by the Government.
The above amendment will take effect from 1st October 2020.

Withholding tax rate reduced to 2% on fees for technical
services paid to residents (Section 194J)
Currently, the withholding tax rate applicable to fees for technical services payable to
residents (except residents who are engaged only in the business of operating a call
center) is 10%. It is now reduced to 2% for fees for technical services (excluding fees
for professional services).
Widening the applicability of tax deducted at source (TDS)
TDS on e-commerce transactions i.e., payment by e-commerce operator to e-commerce
participant for sale of goods or provision of services facilitated by it, has been introduced
(New section –194-O). The main features of this section are as follows:
• E-commerce operator would deduct TDS @1% on gross amount of sales or services
or both made by e-commerce participant (who sells goods or provides services
through electronic facility).
• TDS needs to be deducted at the time of credit or payment (whichever is earlier) of
such amount to the account of e-commerce participant. This would also be the case
where payment is made directly by the purchaser to the e-commerce participant.
• Exemption from TD - if the gross amount of sales or services or both made during the
year by an e-commerce participant (being individual or HUF) does not exceed ₹ 5
Lakhs and such participant provides his PAN or Aadhaar to the e-commerce operator.
• Transaction would not be subject to TDS under any other provision of Chapter XVII-
B of the Act if:
a. TDS has already been deducted by e-commerce operator under this section;
or
b. No TDS needs to be deducted by virtue of above exemption.
This exemption will not apply to any amount received by an e-commerce operator for
hosting advertisements or providing other services which are not in connection with the
sale of goods or services.
Definition of Section 194C widened in case of contract
manufacturing
Currently, the definition of “work” under existing section 194C does not include
manufacturing or supply of goods where (raw) materials are not supplied by custome₹
Post enactment if material is supplied by an associate of the customer to a contract
manufacturer, that will qualify as “work” and hence, liable to TDS under section 194C.

New Penalty section 271AAD
To deal with the issue of fake and fraudulent invoices under GST regime a new section is
inserted to provide for a levy of penalty equal to the aggregate amount of false entries or
omitted entry on a person. If it is found during any proceeding under the Act that in the
books of accounts maintained by him there is a:
1. False entry
or
2. Any entry relevant for computation of total income of such person has been omitted
to evade tax liability.
It is also provided that a person who causes to make or cause to make a false entry or
omits or causes to omit any entry, shall also pay by way of penalty a sum, which is equal
to the aggregate amounts of such false entries or omitted entry. The false entries to
include use or intention to use –
a) forged or falsified documents, such as a false invoice or, in general, a false piece of
documentary evidence; or
b) invoice in respect of supply or receipt of goods or services or both issued by the
person or any other person without actual supply or receipt of such goods or services
or both; or
c) invoice in respect of supply or receipt of goods or services or both to or from a person
who do not exist.
This amendment will take effect from 1st April, 2020.
Provision for e-penalty under Section 274 (2A)
The e-penalty scheme will be launched on the lines of the E-assessment Scheme-2019.
Under the section 274 (2A), the Central Government may notify an e-scheme for the
purpose of imposing penalty to impart greater efficiency, transparency, and
accountability by:
a) eliminating the interface between the Assessing Officer and the assessee during
proceedings to the extent technologically feasible.
b) optimizing utilization of the resources through economies of scale and functional
specialization.
c)introducing a mechanism for imposing of penalty with dynamic jurisdiction in which
penalty shall be imposed by one or more income-tax authorities.
This amendment will take effect from 1st April, 2020.

Trusts & Institutions
Registration of trusts, institutions, and funds for tax
exemption [Section 10(23C)]
The power of granting approval for registration of trusts, institutions, and funds was
earlier with the commissioner of income tax (exemptions). This has now been extended
to include principal commissioner or commissioner of income tax.
The time limit to apply for registration under section 12A/ 10(23C) of the Act has been
amended as under:
Trusts and institutions Time limit for the application
Already registered Within three months from 1st June, 2020
Registration period is due to expire At least six months prior to expiry of the
registration period
Provisionally registered (for the first
time)
At least six months prior to expiry of the
registration period or within six months of
commencement of its activities, whichever is
earlier
Registered under section 12A/12AA,
which becomes inoperative due to
the first proviso to section 11(7)
At least six months prior to commencement of
the assessment year from which said
registration is sought to begin operation
Seeking adoption or modification of
the objective, which do not conform
to the conditions of registration
under section 12AB
Within 30 days from the date of said adoption
or modification
Any other case (including first
timers)
At least one month prior to the commencement
of the previous year for which registration is
sought
The amendment will be effective from 1st June, 2020.
Approval of trusts, institutions, and funds (Section 80G)
• The power of granting approval for registration of trusts, institutions, and funds has
been extended to principal commissioner or commissioner.
• Trust/institution/fund (i.e. donee) will now have to furnish a prescribed statement
providing prescribed particulars of donors under section 80G.
• The donee will also furnish a certificate specifying particulars of the donation (within
the prescribed time), to the donor.
• Income-tax deduction under section 80G shall be allowed to the donor only based on
above information furnished by the donee.

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The information herein contained is of a general nature and is not intended to address
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provide accurate and timely information, there can be no gurantee that such
information is very accurate and considers the latest amendment in laws which are
very frequent. The above is purely for academic reading and general awareness of the
law. No one should act on this information without appropriate professional guidance
which requires a thorough exemation of a particular situation.
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