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Finance Bill 2020 Passed by Lok Sabha: Checklist of Key Amendments

The Budget session was adjourned on 23rd March 2020 in wake of virtual lockdown amidst the outbreak of Covid-19, after passing the Finance Bill 2020 by Lok Sabha. The Finance Bill was passed by a voice vote without any debate or reply by the Union Finance Minister Nirmala Sitharaman. Lok Sabha speaker Om Birla and Rajya Sabha chairman M. Venkaiah Naidu met the political leaders on the first half on Monday to discuss that the finance bill was passed before the adjournment of Parliament. The opposition created ruckus in the house seeking a fiscal stimulus package or coronavirus outbreak.

In Budget 2020-2021, the Government proposed to spend Rs 30,42,230 crore in the next financial year, which is 12.7% higher than the revised estimate of 2019-20. The nominal GDP or Gross Domestic Product growth rate is assumed to be 10% in 2020-21, versus the nominal growth estimate at 12% for 2019-2020. Receipts will increase by 16.3% to Rs. 22,45,893 crore owing to higher calculated revenue from divestment.

A complete analysis of the amendments to the finance bill 2020 or finance act, 2020 is discussed in this article.

What are the Key Changes made in Finance Bill 2020?

Some of the Key Changes made in the Bill are as follows:

• Non-resident Indians or NRI will be taxed on India-controlled income above Rs 15 lakh.
• Under the new corporate regime, DDT or Dividend Distribution Tax exemption will be provided to REITs and InvITs.
• Tax exemption to Sovereign Wealth Fund extended to Pension Funds for infra investment.
• TDS rate on payment of the dividend to a non-resident, a foreign company at 20 percent with effect from October 1, 2020.
• No 2 per cent tax will be charged on withdrawal of over Rs 1 crore cash from banks, co-operative banks or  Post  Offices.
• Tax on cash withdrawal over Rs 20 lakh at the rate of 2 per cent will be charged if tax return not filed for three years with effect from July 1, 2020.
• Tax on cash withdrawal of over Rs 1 crore at will be charged at 5 per cent if the tax return is not filed for three years with effect from July 1, 2020.
• Equalisation tax of 2 per cent on non-resident e-commerce unless he has a PE in India.
• The new system of optional income tax slabs for individual taxpayers, where deductions and exemptions cannot be claimed was also passed in the Parliament.
• Corpus Donations of institutions not to be considered as income for the purpose of taxation.
• The Government has also raised the excise duty on petrol and diesel by as much as Rs.8 each to take advantage of the low oil price regime and relaxed controversial tax residence proposals in the Finance Bill 2020 in a modified form.

What are the Basic Amendments Made in Finance Bill 2020?

The amendments made in finance bill 2020, which was passed in Lok Sabha in 23-Mar-2020 are discussed below:

Changes Made in the Residential Status

The concession period for a stay in India for an Indian citizen and a person of Indian origin shall be reduced from 182 days to 120 days as prescribed in Section 6 of the Income Tax Act.

• The bill also provides that the lower 120-day rule will not apply if the Indian-sourced income of such persons is less than Rs.15 lakh in the relevant financial years.
• Section 6(1A) was reintroduced in Parliament. According to this new provision, Indian citizen shall be deemed to be a resident in India only in case his total income other than income from foreign sources exceeds Rs. 1 lakhs during the previous year.

• Such individuals shall be deemed to be an Indian resident under the new provision only when he is not liable to be taxed in any country or jurisdiction by reason of his domicile or residence or any other criteria of similar nature.

E-Commerce Operators are Liable to Pay Equalisation Levy

• Section 165A(2) of the Finance Act, 2016 explains provisions relating to equalization levy.
• The finance bill extended the scope of equalisation levy to cover within its scope, the consideration received or receivable for supply or services made for e-commerce supply or services which is facilitated by an e-commerce operator.
• The two transactions in which equalisation levy will be charged with effect from 1^st April 2020 are as follows:

(I) Sum received or receivable by a non-resident Indian for online advertisement services rendered to specified persons.

(ii) Sum received or receivable by an e-commerce operator from e-commerce supply of goods or services to specified persons.

• The equalisation levy shall be charged at the rate of 2%.
• Equalisation levy shall not be charged if the e-commerce operator has a PE in India and the service is well connected with such PE.
• With effect from 1^st April 2020, there will be two transactions in respect of which equalisation levy shall be charged. They are as follows:

(i) Sum received or receivable by a non-resident for services rendered online advertisement to specified persons.

(ii) Sum received or receivable by an e-commerce operator from the supply of goods or services to specified persons.

Scope of Section 194N Expanded

• As per the newly added section 194N, a banking company or a co-operative bank or a post office which is responsible for paying any sum, being the amount or the aggregate of amounts, in cash exceeding Rs. 1 crore during the previous year, to any person from one or more account, shall at time of payment of such sum, deduct 2% of such sum as the income-tax amount.
• The threshold limit for deduction of tax from Rs. 20 lakh to Rs. 1 crore if the person, has not filed return of income (ITR) for three previous years immediately preceding the previous year in which cash is withdrawn, and the due date for filing Tax Returns under section 139(1) has expired. The deduction of tax under this situation shall be :

(i) 2% from the amount withdrawn in cash if the amount in withdrawal exceeds Rs.20 lakhs during the previous year.

(ii) 5% will be charged in case the withdrawal amount exceeds Rs. 1 crore during the last year.

Amendment in Provisions in TCS to Remove Certain Ambiguities

• A new provision Section 206 C(1H) has been inserted for the collection of tax from the sale of goods other than those already covered under TCS provision.
• As per this new subsection no tax shall be collected with respect to export or import of goods.
• sub-section (1G) to provides that an authorised dealer shall collect tax from the buyer of overseas tour program package irrespective of the amount to be sent out of India for the specified purpose. Hence the authorised dealer shall collect tax even if the amount or aggregate amount being sent by the buyer for the overseas tour package in the financial year is less than Rs. 7 lakh.

Central Government Empowered to Lower Rate of TDS under Section 194A

• In the Finance Bill, 2020  clause (iii) of sub-section (3) of section 194A has been amended to provide that the Central Government shall issue no notification in respect of the said clause after 01-04-2020.
• As per the new sun section, 5-the central Government has been vested with absolute powers whereby the Government shall have the powers to decrease the tax rate in certain cases.

Rate of TDS on Dividend Distributed To A Non-Resident or Foreign Company

• Taxing dividends in the hands of shareholders by abolishing the dividend distribution tax (DDT) was also passed in the bill.
•  The new rule will be effective from April 1, 2020.
• The Government has stated that the shareholders will have no tax liability if the company issuing the dividend has paid the DDT before April 1.
• As per this newly introduced rule dividend shall be taxable in the hands of shareholders and the domestic companies must also deduct the tax while distributing the dividend income to shareholders.
• The rate of deduction of tax from the dividend income, which is distributed to a foreign company, NRI or non-resident person shall be charged at the rate of 20%.
• However, where dividend income of a non-resident person is chargeable to tax at the reduced rate as per the provision of Double Taxation Avoidance Agreement or DTAA then the tax shall be deducted at a rate mentioned under the DTAA.

Scope of Deduction under Section 80M for Inter-corporate Dividend Expanded

With effect from 1^st April 2020, the Dividend Distribution Tax or DDT is proposed to be abolished and will be required to be moved under the traditional system of taxation wherein companies are not required to do DDT on dividend, and the shareholders are liable to pay tax on such income at the applicable tax rate.

Unit-Holders of Business Trust shall Be Exempt From Paying Tax On Dividend if SPV Opts For Section 115BAA

• The finance bill 2020 also amends section 10(23FD)  which provides that no exemption will available to a unitholder of business trust in respect of a dividend received from SPV in case such SPV has not exercised the option of section 115BAA of the Income-tax Act.
• Section 115BAA has been inserted in the bill, to simplify the tax structure and to reduce the litigations arising due to various tax exemptions and deductions. The new corporate tax regime reduces the tax rates to 22%, but in return, the companies have to forego certain exclusions and deductions.

Takeaway

Around forty amendments were passed in the finance bill,2020. Against the backdrop of the coronavirus outbreak situation, the Minister of State for Parliamentary Affairs Arjun Ram Meghwal said it as an extraordinary situation and that the decision to pass the bill without any discussion was taken at an all-party meeting. Later in the evening of 23^rd March 2020 Rajya Sabha returned the bill which will now go to the President for his assent and then will become a law.