By Aditya Modani
1. Introduction of new Personal Income Taxation (‘PIT’) regime
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Union Budget 2020 India: The FM introduced a simplified PIT regime, wherein taxpayers can avail lower tax rates by foregoing almost all of generally claimed exemptions and deductions. New taxable income slabs and tax rates were introduced with an objective of reducing the compliance burden of taxpayer as well as administrative burden of tax authorities. A comparison of old and new tax rates is depicted in the table below:
While opting for the new PIT regime, only employer contribution to National Pension System (‘NPS’)
is allowed as a deduction and the following exemptions and deductions, amongst others, cannot be
claimed:
- Housing, leave travel & certain allowance which are incurred wholly for the purpose of
business, meal vouchers, etc - Standard deduction of INR 50,000 and professional tax
- Interest paid on loan taken for self-occupied house property
- Section 80C deduction of INR 150,000 for investment in LIC, public provident fund, ELSS,
employee provident fund, principal repayment of home loan, etc - Section 80D deduction of INR 25,000 for medical insurance premium
- Other deductions under Chapter VIA, which includes interest for educational loan repayment
(80E), donations (80G), additional interest on housing loan (80EEA), interest on savings
account (80TTA), etc
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The FM has mentioned that over time exemptions and deductions shall be removed from the tax laws. However, till the time they are available, taxpayers shall evaluate whether the new regime of PIT is beneficial compared to the old regime. On a quick comparison of taxpayers having gross salary of INR 12,00,000 and INR 20,00,000 with generally availed exemptions and deductions, it appears that the old regime may be more beneficial.
For a taxpayer not opting for the new PTI regime, there shall be no change in income tax slabs or rates.
The above option can be exercised on year on year basis for taxpayers earning income other than business income. However, for taxpayers having business income, such option can be changed only once in subsequent years.
2. Taxation of dividend income
Dividends received by individual taxpayers were subject to Dividend Distribution Tax (‘DDT’) at a rate of 20.56%, which was paid by the company. Dividend received in excess of INR 10,00,000 was only taxable at a rate of 10% plus surcharge and cess.
The Budget proposes to abolish DDT and thereby the dividend income shall now be taxable in the hands of the taxpayer at applicable slab rates, which may result in higher tax outflow depending upon the tax slab of the individual tax payer. For example, Mr A (who falls under 20% tax slab) who received dividend of INR 500,000 in FY 2019-20 is not taxable as it does not exceed INR 10,00,000. However, for FY 2020-21, Mr A shall pay INR 104,000. Alternatively, take the case of Mr B, a super-rich taxpayer, whose tax rate in 42.744%, receives INR 50,00,000 as dividend. In FY 2019-20, Mr B paid INR 569,920, where in FY 2020-21, Mr B shall pay 21,37,200 as taxes.
3. Employer contributions to retirement funds
The FM has proposed that, if aggregate contributions made by employers towards Provident, Superannuation and National Pension Scheme exceeds INR 750,000 in a FY, the excess shall be taxed in the hands of the individual taxpayer as a perquisite. Further, it has been proposed that any yearly accretion on account of such excess contribution shall also be taxable as perquisite.
4. Changes in residency criteria
Indian citizens who are not liable to pay taxes in overseas countries due to their domicile or residency in such countries shall now be deemed to be Indian tax residents and pay taxes on their global income in India.
Further, it is proposed to reduce the extended period allowed to Indian citizens and persons of India origin who visit India from 182 days to 120 days in a FY to qualify as a resident. However, the Budget also proposes to relax the requirement for qualifying as Resident and Ordinary Resident, by stating that taxpayers who qualify as residents in 4 FY (from existing 2 FY) in the preceding 10 FY.
5. Deferral of tax payable on Employee Stock Options (‘ESOP’)
Eligible start-ups offering ESOP to its employees have something to cheer for in the Budget. The FM has proposed that while the tax trigger and the tax rate applicable shall be the FY of allotment of shares by the employer under ESOP to employees, the tax could be deferred and payable within 14 days of either employee leaving the company, or 60 months from the end of the FY in which the shares are allotted, or on sale of shares by the employee, whichever is earlier.
6. Tax Collection at Source (‘TCS’) on foreign remittances
In order to widen and deepen the tax net, the FM has proposed to increase the ambit of existing TCS provisions to include TCS on overseas remittances and on sale of overseas tour packages. As per the proposal, if a taxpayer is remitting an aggregate amount of INR 700,000 or more in a FY overseas under the Liberalised Remittance Scheme (‘LRS’) of Reserve Bank of India, he shall be subject to 5% (10% if PAN or Aadhaar is not provided) TCS on amount exceeding INR 700,000. Further, for overseas tour packages, the taxpayer shall be subject to 5% (10% in case no PAN or Aadhaar provided) TCS.
7. Vivad Se Vishwas
Inspired by the success of the dispute resolution scheme in indirect taxes, the FM has proposed to introduce a similar scheme for direct tax resolution – Vivad Se Vishwas. It is pertinent to note that around 483,000 cases are pending under dispute. While, the fine print of the scheme is awaited, as per the FM, taxpayer can pay the taxes under dispute before 31 March 2020 and interest and penalties shall be waived. The scheme is open until 30 June 2020 and if availed post 31 March 2020, taxpayer is required to pay taxes and an additional amount (to be notified later) to settle the disputes.
8. Technology enablers
In continuance of the tax administrations policy of providing transparency, efficiency and accountability, it is proposed to introduce an e-appeal scheme for the first appellate authority – Commissioner of Income tax (Appeals). It is expected that the e-appeal process may be similar to the e-assessment process, wherein an appellate system with dynamic jurisdiction shall be established with one or more officer adjudicating the appeal with no personal contact with the taxpayer.
Further, it is proposed to introduce a form, which shall be capable of reporting annual financial details like sale/ purchase of immovable property, share transactions etc, along with tax paid/collected and deducted details, which can be used by the taxpayer to file tax returns.
The FM proposes to standardise and obtain details of donations made by taxpayer through prescribed forms from the donee, so as to match the deductions availed by the doner taxpayer in the tax return form.
9. Capital gains
In the previous Budget it was proposed that assets acquired prior to 1 April 2001, the Fair Market Value (‘FMV’) as on 1 April 2001 may be substituted as cost of acquisition for computing capital gains. In the Budget 2020, the FM has proposed that if the stamp value of such property as on 1 April 2001 is available, the same shall be the cost of acquisition, if it exceeds the FMV.
10. Tax exemption extension for affordable housing
In the Budget of 2019, the FM had introduced a new section to provide tax benefit to taxpayers availing loan to acquire first house, subject to conditions, including availing a loan prior to 31 March 2020. It is proposed to extend the period of availing a loan to 31 March 2021, with other conditions remaining same.
While there are many challenges, the FM has navigated through the Budget 2020 with clear themes and continuing with the broad framework of reducing tax rates but taking away exemptions and deductions. This is a move in the right direction, but much needs to still achieved.
The author is Tax Director – People Advisory Services, EY India (with inputs from Abhishek Daga, senior tax professional, EY India)
(Views expressed are personal)
Source: Financial Express
