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Key Changes in Income Tax Law: 8 Things You Should Know

Key Changes in Income Tax Law: 8 Things You Should Know


CA Ajmal Muhajir, M.Com, ACA
Head Consultant: Taxation & Assurance

Key  Changes in Income Tax Law: 8 Things You Should Know

Here are some key changes you must know in income tax rules that has come into effect from 1st April, 2020, as announced in the Union Budget 2020.

01. NRI status and taxability

  • Till end of FY 2019-20, NRIs (covers Indian citizens and Persons of Indian Origin) included those individuals who visited India for less than 182 days in a financial year. In February 2020, the Budget 2020 proposed to reduce this period to 120 days for all NRIs.
  • As a console to the NRIs at the stage of passing of the Finance Bill, the amendments originally proposed in the criteria determining 'residential status' in India of a person in the Finance Bill 2020 were relaxed. The reduced period of 120 days shall apply, only in cases where the total Indian income (i.e., income accruing in India) of such visiting individuals during the financial year is more than Rs. 15 lakh.
  • Besides monitoring the number of days present in India, the visiting Indian is also required to keep tab of his Indian taxable income. once income taxable in India or taxable Indian income exceeds Rs 15 lakh, then provisions related to stay exceeding 120 days, as mentioned above will be applicable.
  • Individual whose taxable income exceeds Rs 15 lakh and stays in India for 120 days or more (but less than 182 days) and is treated as a resident individual will still be treated as "Resident but Not Ordinarily Resident (RNOR)".
  • In case of RNOR individuals, the foreign income (i.e., income accrued outside India) shall not be taxable in India. Foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).

02. Option to choose new tax slabs

  • While there is no change in the existing Income-tax slab rates for individuals, a new tax regime has been proposed under which individuals foregoing exemptions and deductions would be taxed at reduced tax rates. The exemptions and deductions that would need to be foregone includes inter alia exemptions and deductions claimed widely by individuals including House Rent Allowance (HRA), Leave Travel Concession (LTA), standard deduction, deductions under Section 80C, deduction in relation to self-occupied house property, set-off of loss from house property against any other source of income etc.
  • The Income-tax slab rates applicable under the new tax regime would be: Zero tax for income up to ₹2.5 lakh; 5% for income between ₹2.5 lakh and up to ₹5 lakh; 10% for income between ₹5 lakh and up to ₹7.5 lakh; 15% for income between ₹7.5 lakh and up to ₹10 lakh; 20% for income between ₹10 lakh and up to ₹12.5 lakh; 25% for income between ₹12.5 lakh and up to ₹15 lakh; 30% for income above ₹15 lakh. Surcharge and education cess would apply as per existing rates. The new tax regime is optional. Individuals who opt to claim available exemptions/ deductions would be taxed as per the existing rates.


03. Contribution to employer to an employee be taxed as perquisite

Contributions exceeding INR 7,50,000 made by employer to an employee’s account in a recognized provident fund, notified pension scheme or approved superannuation fund would be taxable perquisite in the hands of the employees. The annual accretions to such contributions exceeding INR 7,50,000 would also be considered as taxable perquisite.

 

04. Taxation of dividend from domestic companies and mutual funds

As per the existing provisions of the Income-tax, domestic companies that declare, distribute or pay dividend are required to pay a dividend distribution tax. Such dividend was exempt in the hands of the recipients up to INR 10,00,000. It is proposed to remove the dividend distribution tax payable by companies and tax the dividend from such companies and mutual funds in the hands of the recipients at the tax rates applicable to the respective recipients (i.e. applicable slab rates for individuals.)


05. TDS/TCS Rates

  • Under section 194J- fees for technical services, TDS has been reduced to 2% from 10%.
  • Section 194: Dividend paid by Indian companies, to a shareholder, who is resident in India, TDS @ 10% if the dividend amount exceeds 5000 during the FY.
  • Section 194K: Dividend paid by MF to a resident TDS 10% will be deducted only if the dividend amount exceeds Rs. 5000 during the FY
  • Section 194-O: Any payment made by e-commerce operator to the participant, the operator will have to deduct 1% TDS only if the annual amount paid or credited exceeds Rs 5 lakh.

To increase liquidity in the hands of the common man and battle covid-induced financial distress, the government announced a reduction in the tax deducted at source (TDS) and tax collected at source (TCS) rates by 25 per cent on non-salaried payments.

 

06. New Tax Audit Limit

Tax audit threshold has been increased from Rs 1 crore to Rs 5 crore provided turnover/ gross receipts in cash does not exceed 5% during the previous year. Also, payment made in the previous year in cash does not exceed 5%. For such taxpayers, the due date for tax audit has been extended to the 31st of October from the 30th of September.

 

07. Startups – Changes

In the case of startups, employees possessing Employee Stock Option Plans (ESOPs) may defer paying taxes up to five years from the time of exercise, till the time they leave the startup, or until they sell their shares, whichever is earlier.

Eligible startups with a turnover of up to Rs 25 crore is permitted to deduct 100% of its profits for three continuous assessment years of seven years if the overall turnover is under Rs 25 crore. This limit is now increased to Rs 100 crore. Furthermore, the eligibility period to deduct is increased to 10 years from 7 years.

 

08. Other Changes

  • Section 206AA: in relation to 194O has been amended to 5% instead of 20% in case of not furnishing the PAN.
  • Under Section 80EEA, the additional deduction of Rs.1.5 lakh for interest paid on home loans will now be allowed for the loans sanctioned till the 31st of March 2021.
  • Section 234G (insertion of new section) relating to payment of fee of Rs 200 per day for default in furnishing statement or certificate under section 35 by research association, university, college, company or any other institution.
  • Section 43CA, if value adopted for the purpose of stamp duty does not exceed 110% of the actual consideration received, then consideration so received shall be deemed to be the full value of the consideration for computing profits and gains on transfer of such asset other than capital assets. Before the amendment it was 105% instead of 110%.
  • Section 50C, in case of transfer of capital asset being land or building or both, if value adopted for the purpose of stamp duty does not exceed 110% of the actual consideration received, then consideration so received shall be deemed to be the full value of consideration for computing capital gains on transfer of such capital assets. Before the amendment it was 105% instead of 110%.