union Budget 2020

direct tax and gst proposals




Individual and HUF:

A new provision has been proposed to be inserted i.e. section 115BAC under the Income Tax Act, 1961 to provide that an Individual and HUF shall have an option to pay taxes as per the below table. The option can be exercised subject to fulfilment of some conditions. Incase such conditions are not fulfilled then the provision of section 115BAC shall be invalid and other provisions will become effective for that assessment year.

Rate of tax (%)*
0 to 2.50 Lakhs
2.51 Lakhs to 5.00 Lakhs
5.01 Lakhs to 7.50 Lakhs
7.51 Lakhs to 10.00 Lakhs
10.01 Lakhs to 12.50 Lakhs
12.51 Lakhs to 15.00 Lakhs
15.01 and above


-          No exemption shall be allowed under section 10(13A) for HRA, LTA under section 10(5) etc;
-          No deductionunder section 80C, 80CCD(1), 80D, 80E, 80G and other chapter VIA deductions;
-          No setoff of interest on repayment of Housing loan under section 24(b);
-          No set off of losses or depreciation;

The new tax slabs are not an enjoyment apparently rather a person has to analyse first before exercising the option at the beginning of the year. The person shall also be required to intimate to the employer for opting the option so that TDS shall be deducted accordingly;

Tax rates for co-operative societies

The tax rate of 22% has been extended to co-operative societies. The tax shall be computed on total income which shall be computed as per the method prescribed. (i.e. setoff of losses shall not be allowed, deduction under chapter VI A shall not be allowed, etc.). A new section 115BAD has been proposed to be inserted to give effect.
Further, provisions of Alternate Minimum Tax (AMT) i.e. section 115JC shall also not be applicable on Cooperative societies.

Concessional tax rate of 15% u/s 115BAB

This provision is currently applicable to new companies incorporated for business of manufacturing or production which is proposed to be extended to new electricity generation companies.

Changes in provisions related to Residential Status:

A change has been proposed to reduce the no. of days stay in India from 182 days from 120 days to determine whether a person is resident in India or not for India Citizen or a person of Indian Origin residing outside India.
This needs to be analysed very carefully because as per this provision if a person residing in India for more than 120 days in a financial year then the Global income of such person may be taxed in case he become Ordinarily Resident in India.

Furthermore, a new clause (1A) to section 6 has been inserted to provide that if an Indian citizen is not liable to tax in any other country or jurisdiction due to his domicile/residence or any other reason, then such person shall be DEEMED TO BE RESIDENT IN INDIA. If this provision is read as it is then, it can be interpreted that if a person being an Indian citizen, is not staying in India and living outside India to a place where he/she is not paying any tax then such person shall be treated as resident in India and the Global income shall be taxed in India. However, on 02-02-2020, CBDT has clarified through a press release that income of such person arises from business or profession derived from India shall be taxable.
An Indian citizen shall be deemed to be a resident in India if such person is not liable to be taxed in any other country due to domicile, residence or any other reason. This means, the global income of such person shall be taxed in India.

However, CBDT through a circular immediately next day of budget has clarified that the provision has been introduced not to tax entire income earned outside India. The provision has been inserted only to tax income which is derived from an Indian business or profession.


It is also proposed to abolish the provisions of section 115-O i.e. the responsibility of the company declaring the company to pay dividend distribution tax (DDT). This is to be noted that the individual recipient shall be required to report such dividends into the income tax return and pay the taxes accordingly on such dividend incomes.

Tax on Dividend and Income from mutual funds:

Dividend income shall be taxable in the hands of the shareholders from 01 April 2020. Necessary amendments are proposed in section 115-O, section 10(34). Individuals shall pay the tax as per the applicable slab rates and Domestic companies, LLPs, etc. shall be liable to pay tax at the applicable rates. Necessary amendment is also proposed under section 57 to allow the benefit of interest expense to adjust against dividend income from domestic company to the extent of 20% of dividend received. Further, no deduction shall be allowed on dividend received from foreign companies.

Income from mutual fund is also made taxable in the hands of unit holder. Necessary amendments are proposed under section 10(35) which provides that clause (35) of section 10 to provide that the provision of this clause shall not apply to any income, in respectof units, received on or after 1April 2020.

Taxation of NPS, RPF and SAF:

It is proposed to provide the maximum cap of Rs. 7,50,000 on employer contribution in National pension scheme, recognised provident fund and superannuation fund. Necessary amendments are proposed in section 10(10A) and 80CCD(2).

Incentives for Startups:

The profit linked 100% deduction under section 80IAC was applicable to Startups whose turnover is not exceeding Rs. 25 Crores. The said limit is proposed to be increased to Rs. 100 Crores. Further, it is proposed that a Startup can claim the deduction upto 3 years in a block of 10 years as against the current provision of 7 years.

Also, for Startups a relaxation in taxability of ESOP perquisite in hands of employees deferred by 4 years from end of relevant AY or when the employee leaves job or transfers such ESOP shares (whichever is earlier) as against taxation on exercise of stock option at present.

Enhancement in Safe Harbour Limit from 5% to 10%:

For section 50C, 43CA and 56(2)(x), where the transfer is below the stamp duty value/circle rate, the safe harbour limit is extended to 10% from existing limit of 5%.

Due dates for return filing, tax audits, transfer pricing report compliance:

Currently, as per section 44AB, an assessee is required to get audited from a chartered accountant under Income Tax Act, if the total turnover is exceeding Rs. 1 Crores in a financial year. To provide an ease to MSME sector, it is proposed to increase the said limit to Rs. 5 Crores. However, this relaxation shall be available if the cash transaction in receipts sale and payments is not exceeding 5% (Revenue + Capital).

Further, the due dates of filing income tax return and tax audit report under section 139(1) has also been modified to 30 September and 31 October of the assessment year respectively.The dates for transfer pricing cases is one month more.

Current due date
Proposed due date
30 September
31 October
(TP Cases:30 November)
Form 3CA, 3CB, 3CD
30 September
30 September
Form 3CEB
30 November
31 October

Exemption from filing of Return of Income to Non-Residents (Section 115A):

It is proposed to exempt a class of non-residents from filing of return of income who earns interest, dividend, royalty or fees for technical services and taxes are deducted by the payer under section 115A of Income Tax Act, 1961 at flat rates.

Please note that if the non-resident avails benefit of DTAA then return of income is required to be filed in India.

TDS and TCS provisions:

Section 194LC –Itis proposed to extend the period of said concessional rate of TDS of 5% to 1st July, 2023 from 1st July, 2020 and the rate of TDS shall be 4% on the interest payable to a non-resident, in respect of monies borrowed in foreign currency from a source outside India, by way of issue of any long term bond or RDB on or after 1st April, 2020 but before 1st July, 2023 and which is listed only on a recognised stock exchange located in any IFSC.

Section 194C –The definition of works has been modified to provide that in a contract manufacturing, the raw material provided by the assessee or its associate shall fall within the purview of the works under section 194C and accordingly tax shall be withheld on such amount as well.

Section 194LD – It is proposed to extend the period of rate of TDS of 5% to 1st July, 2023 from the existing 1st July, 2020 and the concessional rate of TDS of 5% shall also apply on the interestpayable, on or after 1st April, 2020 but before 1st July, 2023, to a FII or QFI in respect of the investment made inmunicipal debt security.

Section 194AIn order to extend the scope of this section to interest paid by large co-operative society, it is proposed to amend sub-section (3) and insert proviso to provide that a co-operative society referred to in clause (v) or clause (viia) of said sub-section (3) shall be liable to deduct income-tax in accordance with the provisions of sub-section (1), if-
(a) the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees during the financialyear immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid;
(b) the amount of interest, or the aggregate of the amount of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than fifty thousand rupees in case of payee being a senior citizen and forty thousand rupees, in any other case.

Section 194JTo avoid ongoing litigation of applicability of section 194C or 194J on a class of transaction, it is proposed to reduce rate for TDS in section 194J in case of fees for technical services (other than professional services) to 2% from existing 10%. The TDS rate in other cases (professional services) under section 194J would remain same at 10%.

It is important to note that the definition of professional is provided under the provisions and the deductor must make sure before deducting tax at 2% that the deductee should not be covered under professional services.

Section 194KA new section is proposed to be inserted which provides that any person responsible for paying to a resident any income in respect ofunits of a Mutual Fund specified under clause (23D) of section 10 or units from the administrator of the specifiedundertaking or units from the specified company shall, deduct income-tax at 10%. The threshold limit of Rs 5,000 is provided.

Section 194– Itis also proposed to amend section 194. The domestic company declaring dividend shall be liable to withhold tax at the rate of 10%. The threshold is proposed to be increased from Rs. 2,500 to Rs. 5,000.

Section 194O – It is proposed that the e-commerce operator shall withhold tax at 1% on sale of goods or services through the e-commerce portal of seller.

However, an exemption has also been proposed for individual or HUF seller of Rs. 5 Lakhs.

Incase of non-PAN/ Aadhar of e-commerce participants or seller, the tax shall be withheld at 5%. Necessary amendments are also proposed in section 206AA. It is also provided that the tax withheld under this section shall not be withheld under any other provisions of Income Tax Act, 1961.

Section 206C – TCS provisions has been proposed to be extended on Liberalized Remittance Scheme (LRS), Sale of Goods above a specified amount and Tour operators.

Who shall collect
Nature of Transaction
Rate of TCS
Banks (Authorized Dealer)
Remittance under liberalized remittance scheme over and above Rs. 7,00,000 in a FY
5% (10% if No PAN/ Aadhar)
Seller of goods (Whose turnover exceeds Rs. 10 Crores)
Incase of sale of goods amounting to more than Rs. 50 Lakhs to one person
0.10% (1% if No PAN/ Aadhar)
Tour operator for overseas trips
Overseas tour program packages
5% (10% if No PAN/ Aadhar)

FMV of land and building shall not exceed stamp duty value as on 01 April 2001

It is proposed to amend section 55 calculating capital gain in respect of the assets acquired before 01 April 2001.

Cost of Acquisition shall be either of the following
·         Fair Market value as on 01/04/2001.
·         Actual Cost of the assets

Provided that the cost of acquisition shall not exceed Stamp Duty value of the assets as on 01 April 2001, wherever available.

Filing of statement by done to cross check claim of donation by donor.

Exempt entities receiving donations/ sum may be made to furnish a statement in respect thereof, and to issue a certificate to the donor and claim for donation to the donor may be allowed on that basis only. This amendment is effective from 1 June 2020.

E- Appeal

Insertion of New Sub Section 6A in Section 250 of the Act which provides the following
·         Notify e appeal scheme for disposal of appeal.
·         Eliminate the interface between the Commissioner (A) and the assessee.
·         Optimizing utilization of resources
·         Dynamic Jurisdiction , Appeal shall be disposed of by one or more Commissioner (A)

Stay by the Income Tax Appellate Tribunal (ITAT)The following shall be amended in the Sub section 2A of Section 254 of the Income Tax Act, 1961

Proviso of the Subsection 2A
ITAT may grant Stay on the conditions that Assessee deposit not less than 20% of the amount of Tax, interest, fees, penalty or any other sum under the Act.
Further grant shall be provided, if the delay in not disposing of the appeal is not attributable to the assessee and the assessee has disposed the amount of 20% as stated in First proviso
The total stay granted by ITAT cannot exceed 365 days in any circumstances

Deduction under section 80EEA (Affordable Housing – Rs 1.5 Lacs):

It is proposed to extend the benefit of section 80EEAfor another one year i.e. upto 31 March 2021.

Penalty for Fake Invoices/ False Entries (Section 271AAD)
A)    the false entries is proposed to include use or intention to use-

·         Forged or falsified documents such as false invoice or in general a false piece of documentary evidence.
·         Invoice in respect of supply or receipts of goods or services or both issued by the person or any other person without actual supply or receipts of such goods or services or both.
·         Invoice in respect of supply or receipts of goods or services or both to or from a person who do no exist.

B)     any entry relevant for computation of total income of such person which has been omitted to evade tax liability.

Further any other person, who causes in any manner a person 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 equal to the aggregate amounts of such false entries or omitted entry.

Then, a penalty amounting to the aggregate of false entries or omitted entry shall be levied.

Rationalization in provisions w.r.t. Form 26AS

Necessary amendments are proposed under income tax act and the section 203AA has been proposed to be deleted and a new section 285BB has been proposed to be inserted to enhance the information flow to the tax payers. The income tax authority shall on timely basis upload the such information as available in the registered account of the Assessee in such form and manner as may be prescribed. It will work as Annual information report for a tax payer.

Indirect Taxation:

·         It is proposed to further simplify the GST returns.
·         New return forms shall be applicable for smooth flow of input tax credit.
·         E-invoicing shall be applicable on all taxpayers gradually. This is to be noted that taxpayer having aggregate turnover of more than Rs. 100 Crores shall issue invoice with IRN from 01 April 2020.
·         The powers for issuing removal of difficulties order has been extended to 5 years i.e. uptoJune, 2022.


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