- A new income tax regime has been proposed. A taxpayer can opt for it by forgoing 70 tax exemptions.
- A taxpayer has an option to choose between the existing tax regime and a new tax regime.
- Budget 2020 has proposed amendments in the definition of income tax residency in India.
Determination of residential status for certain categories of individuals
The budget proposes to introduce the following amendments in determining residential status for certain categories of individuals.
As per the existing provisions, an Indian Citizen or Person of Indian Origin, who is outside India, comes on a visit to India in any financial year, would be considered as a resident in India, if such individual stays in India for 182 days or more. The amendment proposed by the budget provides for such an individual to be resident in India in either of the two scenarios – (i) the individual’s stay in India during the financial year is 182 days or more; or (ii) the individual’s stay in India is 120 days or more in the current financial year and 365 days or more in the preceding 4 financial years.
A resident in India would be considered as not ordinarily resident if the individual has been a non-resident in India in 7 out of 10 preceding financial years.
Individuals should take note of the proposed amendments in relation to residential status since the taxability of income depends on the residential status. While non-residents and not ordinarily residents are taxed on India sourced income, ordinarily residents are taxed on their worldwide income in India.
The optional new tax regime
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 include inter alia exemptions and deductions claimed widely by individuals including House Rent Allowance, Leave Travel Concession, 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 new tax regime is optional. Individuals who opt to claim available exemptions/ deductions would be taxed as per the existing rates.
Individuals who earn taxable income up to INR 5,00,000 continue to be exempt from tax liability under the existing and new tax regimes.
Contributions exceeding INR 7,50,000 made by the employer to an employee’s account in a recognized provident fund, notified pension scheme or approved superannuation fund would be the 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.
Taxation of benefits under Employee Stock Benefit Plans
Securities issued under Employee Stock Benefit Plans by employers are taxable in the hands of the employees at the time of their exercise (i.e. allotment). In case of eligible start-ups, the payment of tax on such benefit is proposed to be deferred to within 14 days after (i) 5 years from the end of financial year in which options are exercised, or (ii) date of sale of such security by the employee or (iii)the date of the employee ceasing employment with the company, whichever is earliest.
As per the existing provisions of the Income-tax, domestic companies that declare, distribute or pay a dividend are required to pay a dividend distribution tax. Such a dividend was exempt in the hands of the recipients up to INR 10,00,000.
An additional deduction of INR 1,50,000 was made available in the Finance Act 2019 in relation to interest on loan taken for acquisition of house property for which the stamp duty value does not exceed INR 45,00,000. Such deduction was available subject to satisfaction of specified conditions including that the loan is required to be sanctioned between 1 April 2019 to 31 March 2020. The present budget proposes to extend the timeline for the sanction of such a loan to 31 March 2021.
Efficient tax administration
The FM stressed the need for efficiency of tax administration and proposed the incorporation of a “Taxpayer’s Charter” in the statute with the objective of ending taxpayer harassment. The contents of the charter would be notified soon.
A system to allot Permanent Account Number (PAN) based on Aadhaar would be introduced by which PAN would be instantly allotted online without the requirement to fill up the detailed application form.
In line with the faceless assessment process that has been introduced, the budget proposed to introduce a faceless appeal process.
It has been proposed to bring a scheme “Vivad se Vishwas” for reducing litigations. Under the scheme, a taxpayer would be required to pay only the amount of the disputed taxes and will get a complete waiver of interest and penalty provided the taxes are paid by 31 March 2020. Those who avail the scheme after 31 March 2020 will have to pay some additional amount. The scheme will remain open till 30 June 2020.