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The Union Budget presented by Finance Minister Nirmala Sitharaman has proposed major changes in Income Tax rates.
A new Section 115 BAC is being introduced whereby an individual and HUF can opt to pay tax as per the new tax rates in case they forego all exemptions and deductions which include deduction under Section 80C of PF, LIC etc, standard deduction, LTC, house rent allowance, minor income exemption under Section 10(32), interest deduction on home loan under Section 24(b) in respect of self-occupied house, deduction under Section 57 (iia) of 1/3rd of family pension and also other deductions available under the act.
This option has to be exercised while filing return in case one does not have business income. For others, the option is required while filing return for assessment year 2021-22, and once exercised, it will be irreversible.
Dividend Distribution Tax is being abolished w.e.f. April 1, 2020. Dividend income will now be taxed as normal income in the hands of the shareholder.
Benefits of Section 80M will be available to a company in respect of dividend income received by it during the previous year and distributed by it, one month before the due date of filing return. No deduction of expenditure against dividend income will be allowed under Section 57, except interest which will not exceed 20 per cent of dividend income.
All Indian citizens will be deemed residents of India if they are not resident of any other country. Accordingly, if any Indian is holding Indian passport, he needs to establish residential status in another country if he claims to be a non-resident. Such Indian citizens shall be required to pay tax on global income.
Further, for the purpose of determining residential status, the number of days for stay in India will be 120 days as against 182 days.
For resident but not ordinary resident, the test now for being non-resident will be 7 out of 10 preceding years as against the present condition of 9 out of 10 preceding years.
TCS (tax collected at source) at the rate of 0.1 per cent will be applicable on sale of goods if total sales to one person is more than Rs 50 lakh by a person having turnover of more than Rs 10 crore.
TCS in foreign remittance under LRS exceeding Rs 7 lakh will be at the rate of 5 per cent. A similar rate will apply on an overseas tour package.
The TDS on e-commerce payment to e-commerce participant will be at the rate of 1 per cent, and TDS on FTS has been reduced under section 194J to 2 per cent.
Charitable trust registration and under Section 80G exemption will be for 5 years and all existing trusts will have to apply again.
An Section 80G exemption holder will have to submit an annual statement of donations received. Failure to submit such statement will mean fee of Rs 200 per day for each day of default under Section 271G and penalty of Rs 10,000 to Rs 1 lakh under new Section 271J.
Penalty for false entry of invoice or omitted invoice will be 100 per cent of such transactions under new Section 271AAD.
A 'Vivaad se Vishwas Scheme' to reduce litigation has been proposed. Under this, only tax amount will have to be paid and there will be a full waiver of interest and penalty. In case of penalty and interest dispute which is not related to income, only 25 per cent of such interest and penalty will have to be paid.
In case, payment is made after March 31, 2020, the amount to be paid is 110 per cent of tax in dispute and 30 per cent in case of penalty.
This will help all taxpayers having issues on penny stock, share capital etc. to pay just the tax and get out of the dispute. The scheme has not been out in public domain but in the annexure to the budget speech, some clarity is coming out. Apparently there is no rider and no exclusion. It should be applicable to all type of defaults and additions.
The DRP forum not to be limited to TP issues only but to be allowed to non residents for all disputes.
Circle rate value adjustment for computing capital gain, sale proceeds and income in the hands of buyer has been allowed up to 10 per cent of amount paid as against 5 per cent at present.
Fair market value of immovable property under section 55 as on April 1, 2001 for computing cost of acquisition not to exceed circle rate value.
Tax audit thresholds have been increased from Rs 1 crore to Rs 5 crore with a rider that total receipts and total payments in cash should not exceed 5 per cent of such total receipts and total payments made during the year.
Overall ceiling of exemption in respect of employers contribution to PF, Superannuation fund and National Pension Scheme has been restricted to Rs 7.50 lakh.
Furthermore, survey under section 133A now only with the approval of CIT or DIT, and there will be e-appeals system for appeal before CIT (A), and a e-penalty system before the AO.
Electricity generation has been included as eligible for lower corporate tax rate of 15 per cent under Section 115BAB.
The due date of filing of tax audit report has been delinked from filing of return. Tax Audit filing has to be done by September 30 and the return filing by October 31.
(The writer is a prominent CA)