Here are a few predictions that did rounds before the presentation of the Union Budget 2020. We examine how these predictions have turned into actual facts.
|Enhancement of section 80C of the Income Tax Act limit |
The overall exemption limit under section 80C should at least be enhanced to Rs. 3 lakh, from the current Rs. 1.5 lakh. Similarly, while increasing the limits under 80C, concurrently the limit of investment under PPF may also be increased.
|No such enhancement or alteration to Section 80C of the Income Tax Act|
|Tweaks in long-term capital gains tax on equity |
To encourage small taxpayers to invest in the stock market, the government may consider increasing the limit of Rs 1 lakh for taxing the long-term capital gains from the transfer of such equity shares and units of equity-oriented funds. Further, the government may also consider specifying a holding period (say 5 years) and if such shares or units are transferred after the specified holding period, the long-term capital gains may be considered as exempt.
|No tweaks or changes in Long-term capital gains tax on equity|
|Removal of dividend distribution tax (DDT)|
The other big change expected in the Budget 2020 is the removal of dividend distribution tax. At present, any dividend distributed by companies attracts an effective tax rate of 20.56 percent. Further, shareholders receiving dividends above Rs 10 lakh a year are required to pay an additional 10 percent tax.
|Dividend distribution tax (DDT) to be taxed in the hands of the recipients alone. |
Companies no longer need to pay dividend distribution tax.
|Income tax legacy disputes amnesty scheme|
A new amnesty scheme for the resolution of legacy disputes in Income Tax is in the works and with which the cash-starved government expects will mop up at least Rs 2 lakh crore. The new scheme could be unveiled in Union Budget 2020 on Saturday as the government looks for ways and means to shore up dwindling revenue numbers. This amnesty scheme could mirror the Sabka Vishwas scheme which was targeted at customs and excise dispute resolution amnesty scheme,
|‘Vivad Se Vishwas’ scheme, with a deadline of 30th June 2020, to reduce litigations indirect taxes: |
· Waiver of interest and penalty – only disputed taxes to be paid for payments till 31st March 2020.
· Additional amount to be paid if availed after 31st March 2020.
· Benefits to taxpayers in whose cases appeals are pending at any level.
Speaking on Budget 2020 with Taxscan, Abhishek A Rastogi, Partner, Khaitan & Co. said that, “The announcements around tax are simple but interesting. It appears very clear that the government has learned the benefits of the Amnesty scheme introduced for the indirect tax regime and has now proposed it even for the direct tax regime. It is expected that the scheme will resolve a lot of pending litigation, resulting in benefits to the taxpayers and the government exchequer. The interesting and innovative announcements related to the inclusion of the tax charter and cash rewards need to be closely monitored. The finance minister did not shy away from making announcements to show that the focus will remain on better tax compliance and hence appropriately commented with respect to returns, refunds, electronic invoices, Aadhaar-based verification, credit mismatch, and deep data analytics. The other important issues announced were the rate rationalization and removal of the problem of inverted duty structure. The government is keen to pragmatically address these issues apart from addressing the problem of foreign trade agreements. It is a fact that various imports under foreign trade agreements are made based on the rules of Origin. The government is clear that various checks would be put to examine these rules including those provisions where the tax leakages may happen in Customs and GST”.
He also said that “While the budget speech clearly aims to reduce the tax terrorism, the amendments proposed for GST arrest provisions may end up in increasing the hardship for taxpayers who may be subject to financial fraud investigations”.
“The deviation of 0.5% on account of unanticipated fiscal implications looks reasonable and the finance minister looks committed to attaining fiscal consolidation by gradually reducing the fiscal deficit. The task will be easy in case there is an improvement in tax buoyancy and the FM has announced various measures such as improvement in compliances, amnesty scheme for direct taxes and harsh provisions for tax frauds”, also added.
Speaking to Taxscan, Mr. Rahul Garg, Partner, PwC said that, “On the tax front, multiple changes have been introduced. The government has announced measures for abolishing the dividend distribution tax, relaxation from the filing of tax returns by foreign companies, extending the sunset clauses for some beneficial withholding tax rates and introducing a simplified personal taxation regime without any tax deductions. In addition, steps have been taken to check tax evasion through fake GST invoices, the introduction of TCS provisions on LRS remittances and foreign tour packages to widen the taxpayer base.”
Mr. Gaurav Pingle, Practicing Company Secretary said that “With respect to the removal of DDT and dividend being taxable in the hands of investors, closely-held private companies will now consider the different tax-efficient ways in rewarding the shareholders. The companies/promoters may consider buy-back of shares also”.
“On the Budget announcement with respect to the decriminalizing the Companies Act, 2013, the Government already released the Report of the Companies Law Committee in November 2019. In addition to decriminalizing the Companies Act, 2013, there are several other provisions which will be amended e.g. clarity of definition of ‘listed company’, setting up of NCLAT benches, remuneration to non-executive directors of public companies, in case of losses or inadequate profits, reducing the timelines for the rights issue, etc. However, there would be another round of amendments required for streamlining the provisions of the Companies Act, 2013”, he also added.
Adv Sherry Samuel Oommen, Head – Tax and Corporate Laws, “The reactions to the Union Budget 2020 have been primarily mixed with no clear sign of unalloyed happiness. On the personal tax front, while one did expect a change in tax slabs coupled with an enhancement in limits for investments under section 80C, the Government has proposed an option of reduced tax rate subject to non-claiming of any incentive/deduction. One would argue that the change was brought about with the objective of increasing spending instead of investment, whilst keeping the option of investment still alive. To me, the change appears to rather “thoughtless” without any clear intent on the part of the Government, especially since “Aspiration India” and “Economic Development” were among the prominent themes in the Budget.
He also added that, The move to eliminate Dividend Distribution Tax would definitely help Corporate India, whilst shifting the burden of tax back to the recipient. This move of eliminating DDT would definitely augur foreign investment into the country, as relief from taxation could also be availed under the respective tax treaties. On the amnesty front, one did expect a scheme on the lines of “Sabka Vishwas Scheme”, providing for a relief even on the principal amount as well, which was indeed a grand success. In my view, the “Vivad Se Vishwas” Scheme may not have many takers like the “Sabka Vishwas Scheme”, as the former scheme does not offer any reduction in the principal amount. I would augur well if the Government could recalibrate the Scheme in line with the “Sabka Vishwas Scheme”.Subscribe Taxscan Premium to view the Judgment