The Union Budget for the year 2020 came out on 1st Feb 2020. The new budget has some important amendments that need to be considered to plan your finances effectively for the upcoming Financial Year 2020-2021. So, presenting here some of the important aspects:

1. Rates of income-tax for Individuals and HUF

The Union Budget for the year 2020 came out on 1st Feb 2020. The new budget has some important amendments that need to be considered to plan your finances effectively for the upcoming Financial Year 2020-2021.

So, here are some of the important aspects:

Income range (in ₹) Rate of tax (New regime) Rate of tax (Old regime)
0- 2,50,000 NIL NIL
2,50,001- 5,00,000 5% 5%
5,00,001- 7,50,000 10% 20%
7,50,001- 10,00,000 15% 20%
10,00,001- 12,50,000 20% 30%
12,50,001- 15,00,000 25% 30%
Above 15,00,000 30% 30%

Surcharge (if applicable) and Health and Education Cess @4%, is in addition to the above rates.

So, in the first instance, you can see that the tax rates have been reduced as compared to the old slab rates, but the following important points need to be noted to plan your budget finances.

  • The new tax regime is optional. These tax rates are applicable to all age groups as against the age groups defined under the old tax regime. Taxpayers may opt for the old rates as per their wish.
  • The reduced rates in the new tax regime will be applicable without any exemptions or deductions, i.e., taxpayers opting for the new tax regime will not get the benefit of exemptions or deductions like House Rent Allowance (HRA), Standard deduction, deductions under Sec. 80C of the Income Tax Act, 1961 (LIC Premium, PPF, etc.), Home loan deduction, etc.
  • Taxpayers opting for the old tax regime will get the benefit of exemptions and deductions, as they are getting now.

Tip- Take the help of experts or professionals for assessing tax liabilities as per the old tax regime and a new tax regime. Obviously, as a taxpayer, you would like to opt for that scheme which can help you save your tax.

2. Provisions for Non-Residents (NRI) and Resident but not ordinarily resident (R-NOR), for preventing tax abuse;

  1. Indian citizens who are non- residents in India and are living in any other country, but are not paying any taxes in that country, shall be required to pay taxes in India on their global income. They shall be considered as Residents in India for this purpose.
    • This change has been made to bring into tax net those individuals who plan their stay in a manner so as to avoid tax payment in any of the countries for that year.
  2. The period for checking the residential status of an Individual has been reduced from a stay of 182 days in a year to 120 days.
  3. The period for checking the residential status of R-NOR (Individual or manager of HUF) shall be 7 years as Non-resident in India out of total 10 years preceding that year, as compared to 9 years earlier.
  4. Non-Residents shall not be required to file income tax return if their income consists of the following incomes only:
    • Dividend or interest income and TDS has been deducted on such income; or
    • Royalty or Fees for technical services (received from the Government or Indian concern in pursuance of an agreement) and TDS has been deducted on such income.

Earlier, return filing was exempted only in case of a dividend or interest income.

Tip- Plan your stay in India taking into consideration the above-mentioned provisions.

3. Tax on Dividend

  • The Dividend Distribution Tax (DDT) that the domestic companies were liable to pay earlier, has been abolished.
  • Now, the burden of tax on dividend income shall be on the shareholder. i.e., the person receiving the dividend income. The dividend shall be taxed at normal slab rates applicable.
  • Interest expense on dividend income shall now be allowed only to the extent of 20%

4. Provisions for Start-ups

  • Tax holiday period for Start-ups has been increased by 3 years. Now, the start-ups incorporated on or after 1st April 2016 can avail 100% deduction of profits and gains from the eligible business under Sec. 80-IAC of the Income Tax Act, 1961, for 3 consecutive years out of 10 years beginning from the year of incorporation. Earlier, the period was 7 years instead of 10 years.
  • The turnover limit of such start-ups has been increased from ₹25 crores to ₹100 crores. Now, start-ups having turnover of up to ₹100 crores each year are eligible for the above tax holiday period.
  • There is a tax deferment for ESOP (Employee Stock Option Plan) of start-ups. Now, tax can be paid within 14 days of the occurrence of any of these events, whichever is earlier –
    • After 5 years from the end of the financial year in which shares are allotted, or
    • From the date of sale of shares, or
    • From the date of leaving employment.
Budget 2020
Checkout Budget 2020 Highlights!

5. Tax audit

For small and medium enterprises, the threshold limit for the audit of accounts has been increased from ₹1 crores to ₹5 crores in the case of below-mentioned conditions:

  • Total cash receipts during the year are only up to 5% of such receipts, and;
  • Total cash payments during the year are only up to 5% of such payments.

This change aims at increasing digital transactions and reducing cash transactions.

6. Penalty for Fake Invoice under GST

Till now, the suppliers registered under GST, sometimes take fake Input Tax Credit (ITC) on the basis of fake invoices. But now, they need to be alert as now they shall be penalized for such fake invoices and fake entries in the books of accounts. Also, the penalty shall be levied on entries that have been omitted from the books of accounts for evading tax.

The false entries shall include use or intention to use the following-

  • Forged or false documents like false invoices; or
  • Invoice issued for supply or receipt of goods or services or both without any actual supply or receipt; or
  • Fake invoices from a non-existing person.

The penalty shall be 100% of the number of false entries or omitted entries. Also, any person who helps in such tax evasion shall be liable to pay a penalty of 100% of the number of false entries or omitted entries.

Tip- Neither involve in such tax evasion activities in case of your business through fake invoices and entries nor help someone evade tax. Otherwise, you will have to pay a penalty along with tax evaded.

7. House loan deduction

Additional deduction up to ₹1.5 lakhs for interest paid on Housing Loans taken from any financial institutions for an affordable house has been extended up to 31st March 2021. Now, first-time buyers can plan budget finances and invest in a residential house having stamp duty value up to ₹45 lakhs by taking a loan from financial institutions and claim interest deduction of ₹1.5 lakhs.

Conclusion

The above-mentioned points shall be important considerations to efficiently manage and plan budget-based finances for the upcoming year.