For Individuals
- The introduction of a new personal income tax regime: New income tax slabs and lower rates for individuals have been introduced. The new rates are optional and are available to those who are willing to forego some exemptions and deductions.
The Finance Minister has removed around 70 exemptions and deductions (e.g. deductions under Chapter VI-A of Income Tax Act – which includes deduction for LIC, Investment in Equity Linked Saving Scheme (ELSS), Medical insurance premium etc.,) with a view to simplifying the tax regime.
| Existing Rates (For Financial year 2019-20) | Proposed rates in Union Budget 2020-21**(For Financial year 2020-21) |
|---|
| Annual Taxable Income (in INR) | Tax rate | Annual Taxable Income (in INR) | Tax rate |
|---|---|---|---|
| 0 to 250,000 | 0% | 0 to 500,000 | 0% |
| 250,001 to 500,000 * | 5% | 500,001 to 750,000 | 10% |
| 500,001 to 1,000,000 | 20% | 750,001 to 1,000,000 | 15% |
| 1,000,001 and above | 30% | 1,000,001 to 1,250,000 | 20% |
| 1,250,001 to 1,500,000 | 25% | ||
| 1,500,001 and above | 30% |
* Individual taxpayers having annual taxable income up to INR 500,000 get a full tax rebate and are not required to pay income tax. Please note that if taxable income exceeds INR 500,000 the rebate does not apply and hence individuals have to pay income tax on their full taxable income.** As the new tax regime will be optional for taxpayers, an individual who is currently using deductions/exemptions under the Income Tax Act may choose to forgo them and pay tax per the new regime. Some of the common deductions that would be lost in this case include (but are not limited to) – House rent allowance, Leave travel allowance, Standard deductions, Interest on property, Investment related deductions under 80C, 80D, 80DD etc.
Note – surcharge and cess will continue to apply at existing rates, depending on the level of individual’s income.
For employers Employers will need to obtain confirmation from the employees as to whether they wish to shift to the new tax regime and calculate the withholding taxes accordingly. The salary structures may need tweaking in such cases. Also, this will be an annual option, so the confirmation will need to be obtained every year.
- Dividend Distribution Tax shifted to individuals instead of companies. Dividend to be taxed only in the hands of recipients, at the applicable rates.
- PAN (Permanent Account Number) will shortly be instantly allotted online based on Aadhaar without any requirement for filling up of detailed application form.
- An upper limit of INR 7,50,000 has been set for an employer’s contribution in a year to the national pension scheme, superannuation fund and recognized provident fund and any excess contribution is to be taxable.
- The maximum number of days that a person can stay in India and not be a resident for tax purposes has been reduced from 183 days to 120 days.
- The budget has a new anti-avoidance provision in that any Indian citizen who is not liable to tax in any other country or territory will now be deemed to be tax resident in India. However, the government has clarified that – “the new provision is not intended to include in the tax net those Indian citizens who are bonafide workers in other countries. In some section of the media the new provision is being interpreted to create an impression that those Indians who are bonafide workers in other countries, including in Middle East, and who are not liable to tax in these countries will be taxed in India on the income that they have earned there. This interpretation is not correct.”
For Companies
- Companies would not be required to pay Dividend Distribution Tax. Hence, the setting up a company instead of limited liability partnership (LLP) may become even more advantageous for many foreign companies. The Corporate Income Tax Rate is already 22% (excluding Cess and surcharge) as compared to LLP rate of 30% (excluding Cess and surcharge).
- Currently under the Companies Act, criminal liabilities are imposed for acts that are civil in nature. The Budget proposes certain amendments to be made under Companies Act to correct this.
- For Start-ups, the taxation point for an Employee Stock Option Plan (ESOP) in the hands of employees has been deferred from “at the time of exercise” to “tax payment by fifth year or until employee leaves the company or when employee sells their shares, whichever is the earlier”.
- Increase in the turnover threshold for audit of small and medium enterprises from INR 10 million to INR 50 million, provided that the cash receipts and payments are less than 5% of total receipts and payments respectively.
- Introduction of ‘Vivad Se Vishwas’ scheme, which proposes payment of only the disputed amount of taxes to the government. The interest and penalty will be completely waived provided the tax amount is paid by 31 March 2020. Those who avail of this scheme after March 31, 2020 will have to pay some additional amount. The scheme will remain open until June 30, 2020. Taxpayers whose cases are pending at any level of appeal can benefit from this scheme.
Goods and Service Tax (GST)
- From April 1, 2020, a simplified GST return shall be implemented. It will make the filing of returns simpler with features like SMS based filing for nil returns, return pre-filling, improved input tax credit flow and overall simplification which is badly needed.
- The refund process has been simplified and has been made fully automated with no human interface.
- Electronic invoicing will be implemented in a phased manner starting from this month on an optional basis. It will facilitate compliance and return filing.
Overall a set of proposals which will ease somewhat the burden on businesses, encourage inward investment and encourage this to be done through subsidiary companies rather than LLPs.
Once these proposals are passed by the Parliament, these changes will become effective for the year commencing 1st April 2020 and ending 31st March 2021.