Category: Taxation

1. BACKGROUND

1.1 Ms Nirmala Sitharaman, the Finance Minister, presented her second
Budget to the Parliament on 1^st
February, 2020. The Finance Bill, 2020, presented along with the Budget
with certain amendments suggested by the Finance Minister on the basis of
discussions with the stakeholders, was passed by the Parliament without any
discussion on 23^rd March, 2020. It received the assent of the
President on 27^th March, 2020. The Finance Act, 2020 was passed by
both the Houses of Parliament without any discussion in view of the recent
lockdown due to the coronavirus pandemic which has affected India and the whole
world.

1.2 Some of the
important proposals in the Budget, relating to the Direct Taxes, can be
summarised as under:

(i) In line with
the reduction in rates of Income-tax for certain domestic companies which forgo
certain deductions and tax incentives introduced last year, the Finance Act,
2020 provides for revised slabs of Income-tax rates for Individuals and HUFs
who do not claim certain deductions and tax incentives.

(ii) Dividend
Distribution Tax, hitherto payable by companies and Mutual Funds and consequent
exemption on dividend received by shareholders and unitholders, has been
discontinued effective from 1^st April, 2020. Consequently, the
exemption in respect of dividend receipt enjoyed by the shareholders and
unitholders of Mutual Funds has been withdrawn.

(iii) The
compliance burden of Charitable Trusts and Institutions has been increased.

(iv) The Finance
Minister has recognised the need for a ‘Taxpayer’s Charter’. A new section 119A
has been inserted in the Income-tax Act effective from 1^st April,
2020 to provide that CBDT shall adopt and declare the Taxpayer’s Charter. CBDT
will issue guidelines for ensuring that this Charter is honoured by the
Officers of the Tax Department.

(v) One important
measure announced by the Finance Minister this year relates to the Disputed
Income-tax Settlement Scheme. ‘The Direct Tax Vivad Se Vishwas Bill,
2020’ was introduced by her and was passed by Parliament on 13^th
March, 2020. This Scheme has been introduced with a view to reduce litigation.
It is stated that about 4,83,000 Direct Tax cases are pending before various
appellate authorities. The assessees can avail the benefit of this Scheme by
paying the disputed tax and getting waiver of penalty, interest and fee.

1.3 This Article discusses some of the important
amendments made in the Income-tax Act by the Finance Act, 2020.

2. RATES OF TAXES

2.1 The slab rates
in the case of Individuals, HUFs, AOP, etc., for A.Y. 2021-22 (F.Y. 2020-21)
are the same as in A.Y. 2020-21 (F.Y. 2019-20). Similarly, the tax rates for
firms, LLPs, co-operative societies and local authorities for A.Y. 2021-22 are
the same as in A.Y. 2020-21. In the case of a domestic company, the rate of tax
is the same for A.Y. 2021-22 as in A.Y. 2020-21. However, the rate of 25% is
applicable in A.Y. 2021-22 to a domestic company having total turnover or gross
receipts of less than Rs. 400 crores in F.Y. 2018-19. In A.Y. 2020-21, this
requirement was with reference to total turnover or gross receipts relating to
F.Y. 2017-18.

2.2 The rates for Surcharge on tax applicable in A.Y. 2020-21 will
continue in A.Y. 2021-22. It may be noted that dividend declared and received
on or after 1^st April, 2020 is now taxable in the hands of the
shareholder. Earlier, the company was required to pay Dividend Distribution Tax
(DDT) and the shareholder was not liable to pay any tax. Therefore, dividend
income for F.Y. 2020-21 (A.Y. 2021-22) will be liable to tax in the hands of
the shareholder. In order to provide relief in the rate of Surcharge to
Individual, HUF, AOP, etc. having total income exceeding Rs. 2 crores, it is
provided that the rate of Surcharge will be 15% on the Income-tax on dividend income
included in the total income.

2.3 The Health and
Education Cess of 4% of Income-tax and Surcharge shall continue as in the
earlier year.

3. REDUCTION IN TAX RATES FOR INDIVIDUALS AND HUFs

3.1 Last year, the
Income-tax Act was amended by insertion of new sections 115BAA and 115BAB to
reduce the tax rates of a domestic company to 22% if the company does not claim
certain deductions and tax incentives. In respect of newly-formed manufacturing
companies, registered on or after 1^st January, 2019, the tax rate
was reduced to 15% if certain deductions and tax incentives were not claimed.

3.2 In the Finance Act, 2020 a new section 115BAC has been inserted
in the Income-tax Act with effect from A.Y. 2021-22 (F.Y. 2020-21) to reduce
the tax rates for Individuals and HUFs if the assessee does not claim certain
deductions and tax incentives. For claiming this concession in tax rates, the
assessee will have to exercise the option in the prescribed manner. The reduced
tax rates are as under:

Surcharge and Cess
at the specified rates will be chargeable. It may be noted that there is no
separate higher threshold for senior and very senior citizens in the above
concessional tax rate scheme.

3.3 For claiming
the benefit of the above concession in tax rates, the assessee will have to
forgo the deductions under sections, (i) 10(5) – Leave Travel Concession, (ii)
10(13A) – House Rent Allowance, (iii) 10(14) – Dealing with special allowances
granted to employees other than conveyance and transport allowance under Rule
2BB(1)(a), (b), (c) and Sr. No. 11 of Table under Rule 2BB(2) as notified by
CBDT Notification dated 26^th June, 2020.

Out of the above,
some of the allowances as may be prescribed will be allowed, (iv) 10(17) –
Allowances to MPs and MLAs, (v) 10(32) – Deduction of clubbed income of minor
up to Rs. 1,500, (vi) 10AA – Deduction of income of SEZ unit, (vii) 16 –
Standard deduction of Rs. 50,000, deduction for entertainment expenses in
specified cases, deduction for professional tax, etc., available to salaried
employees, (viii) 24(b) – Interest on borrowing for self-occupied property,
(ix) 32(1)(iia) – Additional depreciation, (x) 32AD – Investment in new plant
and machinery in notified areas in certain states, (xi) 33AB – Deposits in tea,
coffee and rubber development account, (xii) 35(1)(ii), (iia), (iii) and (2AA)
– Specified deduction for donations or expenses for Scientific Research, (xiv)
35AD – Deduction of capital expenditure for specified business, (xv) 35CCC –
Weighted deduction for specified expenditure on Agricultural Extension Project,
(xvi) 57(iia) – Standard deduction for Family Pension, (xvii) Chapter VIA – All
deductions under Chapter VIA – excluding deduction u/s 80CCD(2) – Employee’s
contribution in notified Pension Scheme, section 80JJAA – Expenditure on
employment of new employees and section 80LA(1A) dealing with deduction in
respect of certain income of International Financial Services Centre.

This will mean that deductions under sections 80C (investment in PPF
A/c, LIP payments or investments in other savings instruments up to Rs. 1.50
lakhs), 80D (medical insurance), 80TTA/80TTB (deduction for interest on bank
deposits), 80G (donations to charitable trusts, etc.) cannot be claimed,
(xviii) Section 71 – Set-off of carried-forward loss from house property
against income from other heads, (ixx) Section 32 – Depreciation u/s 32 [other
than section 32(1)(iia)] shall be allowed in the prescribed manner, (xx) No
exemption or deduction for allowances or perquisites allowable under any other
law can be claimed, (xxi) provisions of Alternate Minimum Tax and credit under
sections 115JC/115JD will not be available.

3.4 As stated
above, the assessee will have to exercise the option in the prescribed manner
where an Individual or HUF has no business income, this option can be exercised
for A.Y. 2021-22 or any subsequent year along with the filing of the return of
income u/s 139(1). In other words, the option can be exercised every year in
the prescribed manner.

3.5 If the
Individual or HUF has income from business or profession, the option can be
exercised for A.Y. 2021-22 or any subsequent year before the due date for
filing the return of income for that year u/s 139(1). The option once exercised
shall apply to that year and all subsequent years. Such an assessee can
withdraw the option at any time in a subsequent year and, thereafter, it will
not be possible to exercise the option at any time so long as the said assessee
has income from business or profession.

3.6 It may be
noted that the above option for concession in tax rates will not be available
to AOP, BOI, etc. The existing slab rates will continue to apply to them.
Further, the provisions of sections 115JC and 115JD relating to Alternative
Minimum Tax and credit for such tax will not apply to the person exercising
option u/s 115BAC.

3.7 Considering
the above conditions, it is possible that very few assessees will exercise this
option for lower tax rates. If deductions for PPF contribution, LIP, etc., u/s
80C, donation u/s 80G, Mediclaim Insurance u/s 80D, Standard Deduction from
Salary income u/s 16, travel and other allowances under sections 10(5), 10(13A)
and 10(14), and similar other deductions are not to be allowed, this concession
in tax rates to Individuals and HUFs will not be attractive.

4. TAXATION OF DIVIDENDS

4.1 Up to 31^st
March, 2020, domestic companies declaring / distributing dividend to
shareholders were required to pay DDT u/s 115-O of the Income-tax Act at the
rate of 15% plus applicable Surcharge and Cess. Similarly, section 115-R
provided for payment of tax by a Mutual Fund while distributing income on its
units at varying rates. Consequently, sections 10(34) and 10(35) provided that
the shareholder receiving dividend from a domestic company or a unitholder
receiving income from an M.F. will not be required to pay any tax on such
dividend income and income received from an M.F. in respect of the units of the
M.F. However, from A.Y. 2017-18 (F.Y. 2016-17), dividend from a domestic
company received by an assessee, other than a domestic company and Public
Trusts, was made taxable u/s 115BBDA at the rate of 10% plus applicable
Surcharge and Cess if the total dividend income was more than Rs. 10 lakhs.

4.2 Now, after
about two decades, the system of levying tax on dividends has been changed
effective from 1^st April, 2020. Sections 115-O and 115-R levying DDT
on domestic companies / M.F.s are now made inoperative. Sections 10(34), 10(35)
and 115BBDA are also not operative from 1^st April, 2020.

4.3 In view of the above, any dividend declared by
a domestic company or income distributed by an M.F., on or after 1^st
April, 2020 will be taxable in the hands of the shareholder / unitholder at the
rate applicable to the assessee. In the case of a non-resident assessee it will
be possible to claim benefits of applicable tax treaties which will include
limit on tax rate for dividend income and tax credit in home country as
provided in the applicable tax treaty.

4.4 Section 57 has
been amended to provide that expenditure by way of interest paid on monies
borrowed for investment in shares and units of M.F.s will be allowed to be
deducted from Dividend Income or Income from units of M.F.s. This deduction
will be restricted to 20% of Dividend Income or Income from units of M.F.s. No
other deduction will be allowed from such income.

4.5 A new section,
80M, has been inserted in the Income-tax Act effective from A.Y. 2021-22 (F.Y.
2020-21). This section provides for deduction in the case of a domestic company
whose gross total income includes dividend from any other (i) domestic company,
(ii) foreign company, or (iii) a business trust. The deduction under this
section will be allowed to the extent of dividend distributed by such company
on or before the due date. For this purpose ‘Due Date’ means the date one month
prior to the due date for filing the return of income u/s 139(1). In other
words, if a domestic company has received dividend of Rs. 1 crore from another
domestic company, Rs. 50 lakhs from a foreign company and Rs. 25 lakhs from a
business trust during the year ending 31^st March, 2021, it will be
entitled to claim deduction from this total dividend income of Rs. 1.75 crores,
amount of dividend of say Rs. 1.60 crores declared on or before 31^st
August, 2021 if the last date for filing its return of income u/s 139(1) is 30^th
September, 2021. It may be noted that the benefit u/s 80M will not be available
in respect of income from units of M.F.s.

4.6 In order to
provide some relief to Individuals, HUFs, AOP, BOI, etc., a concession in the
rate of Surcharge has been provided in respect of dividend income. In case of
such assessees, the rate of Surcharge on income between Rs. 2 crores and Rs. 5
crores is 25% and the rate of Surcharge on income above Rs. 5 crores is 37.5%.
It is now provided that if the income of such assessee exceeds Rs. 2 crores,
the rate of Surcharge shall not exceed 15% on Income-tax computed in respect of
the Dividend Income included in the total income. From the wording of this
concession given to Dividend Income, it appears that this concession will not
apply to the income from units of M.F.s received by the assessee.

4.7 Since the
income from dividend on shares is now taxable, section 194 has been amended to
provide that tax at the rate of 10% of the dividend paid to the resident
shareholder will be deducted at source. In the case of a non-resident
shareholder, the TDS will be at the rate of 20%. Similarly, new section 194K now
provides that an M.F. shall deduct tax at source at 10% of income distributed
to a resident unitholder. In the case of a non-resident unitholder, the rate of
TDS is 20% as provided in section 196A.

4.8 It may be
noted that u/s 193 it is provided that tax is not required to be deducted at
source from interest paid by a quoted company to its debenture-holders if the
said debentures are held in demat form. This concession is not given under
sections 194 or 194K in respect of quoted shares or units of M.F.s held in
demat form. Therefore, the provisions for TDS will apply in respect of shares
or units of M.F.s held in demat form.

5. TAX DEDUCTION AND COLLECTION AT SOURCE

5.1 Sections
191 and 192: Both these sections are amended effective from A.Y. 2021-22
(F.Y. 2020-21). At present, section 17(2)(vi) of the Income-tax Act provides
for taxation of the value of any specified securities or sweat equity shares
(ESOP) allotted to any employee by the employer as a perquisite. The value of
ESOP is the fair market value on the date on which the option is exercised as
reduced by the actual payment made by the employee. When the shares are
subsequently sold, any gain on such sale is taxable as capital gain. The
employer has to deduct tax at source on such perquisite at the time of exercise
of such option u/s 192.

In order to ease
the burden of startups, the amendments in these two sections provide that a
company which is an eligible startup u/s 80IAC will have to deduct tax at
source on such income within 14 days (i) after the expiry of 48 months from the end of the relevant assessment year, or (ii) from
the date of sale of such ESOP shares by the employee, or (iii) from the date on which the employee who
received the ESOP benefit ceases to be an employee of the company, whichever is
earlier. For this purpose, the tax rates in force in the financial year in
which the said shares (ESOP) were allotted or transferred are to be considered.
By this amendment, the liability of the employee to pay tax on such perquisite
and deduction of tax on the same is deferred as stated above. Consequential
amendments are also made in sections 140A (self-assessment tax) and 156 (notice
of demand).

5.2 Sections
194, 194K and 194LBA: Sections 194 and 194LBA are amended and a new section
194K is inserted effective from 1^st April, 2020. These sections now
provide as under:

(i) Section 194
provides that if the dividend paid to a resident shareholder by a company
exceeds Rs. 5,000 in any financial year, tax at the rate of 10% shall be
deducted at source. In the case of a non-resident shareholder, the rate for TDS
is 20% as provided in section 195.

(ii) New section 194K provides that if any income is
distributed by an M.F. to a resident unitholder and such income distributed
exceeds Rs. 5,000 in a financial year, tax at the rate of 10% shall the
deducted at source by the M.F. In the case of a non-resident unitholder, the
rate of TDS is 20% u/s 196A.

(iii) Section 194LBA has been amended to provide that
in respect of income distributed by a Business Trust to a resident unitholder,
being dividend received or receivable from a Special Purpose Vehicle, the tax
shall be deducted at source at the rate of 10%. In respect of a non-resident
unitholder, the rate for TDS is 20% on dividend income.

5.3 Section 196C:
Section 196C dealing with TDS from income by way of interest or dividends in
respect of Bonds or GDRs purchased by a non-resident in foreign currency has
been amended from 1^st April, 2020. Under the amended section, TDS at
10% is now deductible from the dividend paid to the non-resident.

5.4 Section
196D: This section deals with TDS from income in respect of securities held
by an FII. Amendment of this section from 1^st April, 2020 now
provides that dividend paid to an FII or FPI will be subject to TDS at the rate
of 20%.

5.5 Section
194A: This section deals with TDS from interest income. This section is
amended effective from 1^st April, 2020. At present, a co-operative
society is not required to deduct tax at source on interest payment in the
following cases:

(i) Interest
payment by a co-operative society (other than a Co-operative Bank) to its
members.

(ii) Interest
payment by a co-operative society to any other co-operative society.

(iii) Interest
payment on deposits with a Primary Agricultural Credit Society or Primary
Credit Society or a Co-operative Land Mortgage Bank.

(iv) Interest
payment on deposits (other than time deposits) with a co-operative society
(other than societies mentioned in iii above) engaged in the business of
banking.

Under the
amendments made in section 194A effective from 1^st April, 2020, the
above exemptions have been modified and a co-operative society shall be
required to deduct tax at source in all the above cases at the rates in force,
if the following conditions are satisfied:

(a) The total
sales, gross receipts or turnover of the co-operative society exceeds Rs. 50
crores during the immediately preceding financial year, and

(b) The amount of
interest, or the aggregate of the amounts of such interest payment during the
financial year, is more than Rs. 50,000 in case the payee is a senior citizen
(aged 60 years or more) or more than Rs. 40,000 in other cases.

5.6 Section 194C: This section is amended effective from 1^st
April, 2020. At present the term ‘Work’ is defined in the section to include
manufacturing or supplying a product according to the requirement or
specification of a customer by using material purchased from such customer.
Now, this term ‘Work’ will also include material purchased from the associate
of such customer. For this purpose, the ‘associate’ means a person specified
u/s 40A(2)(b).

5.7 Section
194J: This section is amended effective from 1^st April, 2020.
The rate of TDS has been reduced to 2% from 10% in respect of TDS from fees for
technical services. The rate of TDS from professional fees will continue at 10%
of such fees.

5.8 Section
194LC: This section is amended effective from 1^st April, 2020.
The eligibility of borrowing under the loan agreement or by issue of long-term
bonds for concessional rate of TDS under this section has now been extended
from 30^th June, 2020 to 30^th June, 2023. Further, section
194LC(2) has now been amended to include interest on monies borrowed by an
Indian company from a source outside India by issue of long-term Bonds or
Rupee-Denominated Bonds between 1^st April, 2020 and 30^th
June, 2023, which are listed on a recognised stock exchange in any
International Financial Services Centre. In such a case, the rate of TDS will
be 4% (as against 5% in other cases).

5.9 Section
194LD: This section is amended effective from 1^st April, 2020.
This amendment is made to cover interest payable from 1^st June, 2013
to 30^th June, 2023 by a person to an FII or a Qualified Foreign
Investor on Rupee-Denominated Bonds of an Indian company or Government security
u/s 194LD. Further, now interest at specified rate on Municipal Debt Securities
issued between 1^st April, 2020 and 30^th June, 2023 will
also be covered under the provisions of this section. The rate for TDS is 5% in
such cases.

5.10 Section
194N: Section 194N was inserted effective from 1^st September,
2019 by the Finance (No. 2) Act, 2019. It provided that a banking company,
co-operative bank or a Post Office shall deduct tax at source at 2% in respect
of cash withdrawn by any account holder from one or more accounts with such
bank / Post Office in excess of Rs. 1 crore in a financial year. This limit of
Rs. 1 crore applied to all accounts of the person in any bank, co-operative
bank or Post Office. Hence, if a person has accounts in different branches of
the bank, total cash withdrawals in all these accounts will be considered for
this purpose. This TDS provision applied to all persons, i.e., Individuals,
HUFs, AOP, firms, LLPs, companies, etc., engaged in business or profession, as
also to all persons maintaining bank accounts for personal purposes. Under this
section there will be no TDS on cash withdrawn up to Rs. 1 crore in a financial
year. The TDS provision will apply on cash withdrawal in excess of Rs. 1 crore.

Now, the above
section has been replaced by a new section 194N effective from 1^st
July, 2020. This new section provides as under:

(i) The provision
relating to TDS at 2% on cash withdrawals exceeding Rs. 1 crore as stated above
is continued. However, w.e.f. 1^st July, 2020, if the account holder
in the bank / Post Office has not filed the returns of income for all the three
assessment years relevant to the three previous years, for which the time for
filing such return of income u/s 139(1) has expired, the rate of TDS will be as
under:

(a) 2% of cash withdrawal from all accounts with a bank or Post
Office in excess of Rs. 20 lakhs but not exceeding Rs. 1 crore in a financial
year.

(b) 5% of cash withdrawal from all accounts with a bank or Post
Office in excess of Rs. 1 crore in a financial year.

(ii) The Central
Government has been authorised to notify, in consultation with RBI, that in the
case of any account holder the above provisions may not apply or tax may be
deducted at a reduced rate if the account holder satisfies the conditions
specified in the Notification.

(iii) This section
does not apply to cash withdrawals by any Government, bank, co-operative bank, Post
Office, banking correspondent, white label ATM operators and such other persons
as may be notified by the Central Government in consultation with RBI if such
person satisfies the conditions specified in the Notification. Such
Notification may provide that the TDS rate may be at reduced rates or at Nil
rate.

(iv) This
provision is made in order to discourage cash withdrawals from banks and
promote digital economy. It may be noted that u/s 198 it is provided that the
tax deducted u/s 194N will not be treated as income of the assessee. If the
amount of this TDS is not treated as income of the assessee, credit for tax
deducted at source u/s 194N will not be available to the assessee u/s 199 read
with Rule 37BA. If such credit is not given, this will be an additional tax
burden on the assessee.

5.11 Section
194-O and 206AA: New section 194-O has been inserted effective from 1^st
April, 2020. Existing section 206AA has been amended from the same date.
Section 194-O provides that the TDS provisions will apply to E-commerce
operators. The effect of this provision is as under:

(i) The two terms
used in the section are defined to mean (a) ‘E-commerce operator’ is a person
who owns, operates or manages digital or electronic facility or platform for
electronic commerce, and (b) ‘E-commerce participant’ is a person resident in
India selling goods or providing services or both, including digital products,
through digital or electronic facility or platform for electronic commerce. For
this purpose the services will include fees for professional services and fees
for technical services.

(ii) An E-commerce
operator facilitating sale of goods or provision of services of an E-commerce
participant, through its digital electronic facility or platform, is now
required to deduct tax at source at the rate of 1% of the payment of gross
amount of sales or services or both to the E-commerce participant. Such TDS is
to be deducted from the amount paid by the purchaser of goods or recipient of
services directly to the E-commerce participant / E-commerce operator.

(iii) No tax is
required to be deducted if the payment is made to an E-commerce participant who
is an Individual or HUF if the payment during the financial year is less than
Rs. 5 lakhs and the E-commerce participant has furnished PAN or Aadhaar Card
Number.

(iv) Further, in
the case of an E-commerce operator who is required to deduct tax at source as
stated in (ii) above or in a case stated in (iii) above, there will be no
obligation to deduct tax under any provisions of Chapter XVII-B in respect of
the above transactions. However, this exemption will not apply to any amount
received by an E-commerce operator for hosting advertisements or providing any
other services which are not in connection with sale of goods or services.

(v) If the
E-commerce participant does not furnish PAN or Aadhaar Card Number, the rate
for TDS u/s 206AA will be 5% instead of 1%. This is provided in the amended
section 206AA.

(vi) It is also
provided that CBDT, with the approval of the Central Government, may issue
guidelines for the purpose of removing any difficulty that may arise in giving
effect to provisions of section 194-O.

5.12 Section 206C: This section dealing with collection of tax at
source (TCS) has been amended effective from 1^st October, 2020.
Hitherto, this provision for TCS applied in respect of specified businesses.
Under this provision a seller is required to collect tax from the buyer of
certain goods at the specified rates. The amendment of this section effective
from 1^st October, 2020 extends the net of TCS u/s 206C (1G) and (1H)
to other transactions as under:

(i) An authorised
dealer, who is authorised by RBI to deal in foreign exchange or foreign
security, receiving Rs. 7 lakhs or more from any person in a financial year for
remittance out of India under the Liberalised Remittance Scheme (LRS) of RBI,
is liable to collect TCS at 5% from the person remitting such amount. Thus, LRS
remittance up to Rs. 7 lakhs in a financial year will not be liable for this
TCS. If the remitter does not provide PAN or Aadhaar Card Number, the rate of
TCS will be 10% u/s 206CC.

(ii) In the above
case, if the remittance in excess of Rs. 7 lakhs is by a person who is
remitting the foreign exchange out of education loan obtained from a financial
institution, as defined in section 80E, the rate of TCS will be 0.5%. If the
remitter does not furnish PAN or Aadhaar Card Number, the rate of TCS will be
5% u/s 206CC.

(iii) The seller of an overseas tour programme
package, who receives any amount from a buyer of such package, is liable to
collect TCS at 5% from such buyer. It may be noted that the TCS provision will
apply in this case even if the amount is less than Rs. 7 lakhs. If the buyer
does not provide PAN or Aadhaar Card Number, the rate for TCS will be 10% u/s
206CC.

(iv) It may be
noted that the above provisions for TCS do not apply in the following cases:

(a) An amount in
respect of which the sum has been collected by the seller.

(b) If the buyer
is liable to deduct tax at source under the provisions of the Act. This will
mean that for remittance for professional fees, commission, fees for technical
services, etc. from which tax is to be deducted at source, this section will
not apply.

(c) If the
remitter is the Central Government, State Government, an Embassy, High
Commission, a Legation, a Commission, a Consulate, the Trade Representation of
a Foreign State, a Local Authority or any person in respect of whom the Central
Government has issued a Notification.

(v) Section
206C(1H) which comes into force on 1^st October, 2020 provides that a
seller of goods is liable to collect TCS at the rate of 0.1% on receipt of
consideration from the buyer of goods, other than goods covered by section
206C(1), (1F) or (1G). This TCS provision will apply only in respect of the
consideration in excess of Rs. 50 lakhs in the financial year. If the buyer
does not provide PAN or Aadhaar Card Number, the rate of TCS will be 1%. If the
buyer is liable to deduct tax at source from the seller on the goods purchased and
made such deduction, this provision for TCS will not apply.

(vi) It may be
noted that the above section 206C(1H) does not apply in the following cases:

(a) If the buyer
is the Central Government, State Government, an Embassy, a High Commission,
Legation, Commission, Consulate, the Trade Representation of a Foreign State, a
Local Authority, a person importing goods into India or any other person as the
Central Government may notify.

(b) If the seller
is a person whose sales, turnover or gross receipts from the business in the
preceding financial year does not exceed Rs. 10 crores.

(vii) The CBDT,
with the approval of the Central Government, may issue guidelines for removing
any difficulty that may arise in giving effect to the above provisions.

5.13 Obligation
to Deduct Tax at Source: Hitherto, the obligation to comply with the
provisions of sections 194A, 194C, 194H, 194-I, 194-J or 206C for TDS was on
Individuals or HUFs whose total sales or gross receipts or turnover from
business or profession exceeded the monetary limits specified in section 44AB
during the immediately preceding financial year. The above sections are now
amended, effective from 1^st April, 2020, to provide that the above
TDS provisions will apply to an individual or HUF whose total sales or gross
receipts or turnover from business or profession exceeds Rs. 1 crore in the
case of business or Rs. 50 lakhs in the case of profession. Thus, every
Individual or HUF carrying on business will have to comply with the above TDS
provisions even if he is not liable to get his accounts audited u/s 44AB.

5.14 General:

(i) From the above
amendments it is evident that the net for TDS and TCS has now been widened and
even transactions which do not result in income are now covered under these
provisions. Individuals and HUFs carrying on business and not covered by Tax
Audit u/s 44AB will now be covered by the TDS and TCS provision. In particular,
persons remitting foreign exchange exceeding Rs. 7 lakhs under LRS of RBI will
have to pay tax u/s 206C. This tax will be considered as payment of tax by the
remitter u/s 206C(4) and he can claim credit for such tax u/s 206C(4) read with
Rule 37-1.

(ii) It may be
noted that the Government has issued a Press Note on 13^th May, 2020
giving certain relief during the Covid-19 pandemic. By this Press Note it is
announced that TDS / TCS under sections 193 to 194-O and 206C will be reduced
by 25% during the period 14^th May, 2020 to 31^st March,
2021. This reduction is given only in respect of TDS / TCS from payments or receipts
from residents. This concession is not in respect of TDS from salaries or TDS
from non-residents and TDS / TCS under sections 260AA or 206CC.

6. EXEMPTIONS AND DEDUCTIONS

6.1 Section 10(23FE): This is a new clause providing for
exemption of income from dividend, interest or long-term capital gain arising
from investment made in India by a specified person during the period 1^st
April, 2020 to 31^st March, 2024. The investment may be in the form
of a debt, share capital or unit. For this purpose the specified person means a
wholly-owned subsidiary of Abu Dhabi Investment Authority which complies with
the various conditions of the Explanation given in the section. For claiming
the above exemption the specified person has to hold the investment for at least
three years. Further, the investment should be in (a) a Business Trust, (b) an
Infrastructure Company as defined in section 80-IA, (c) such other company as
may be notified by the Central Government, or (d) a Category I or Category II
Alternative Investment Fund regulated by SEBI and having 100% investment in one
or more companies as referred to in (a), (b) or (c) above.

If exemption under
this section is granted in any year, the same shall be withdrawn in any
subsequent year when the specified person violates any of the conditions of the
section in a subsequent year. It is also provided in the section that if any
difficulty arises about interpretation or implementation of this section, CBDT,
with the approval of the Central Government, may issue guidelines for removing
the difficulty.

6.2 Section
10(48C): This a new clause inserted from 1^st April, 2020. It
provides for exemption in respect of any income of Indian Strategic Petroleum
Reserves Ltd., as a result of arrangement for replenishment of crude oil stored
in its storage facility in pursuance of directions of the Central Government.

6.3 Section
80EEA: This section was added by the Finance (No. 2) Act, 2019 to provide
for deduction of interest payable up to Rs. 1,50,000 on loan taken by an
Individual from a Financial Institution for acquiring a residential house. One
of the conditions in the section is that the loan should be sanctioned during
the period 1^st April, 2019 to 31^st March, 2020. This
period is now extended to 31^st March, 2021.

6.4 Section
80GGA: This section deals with certain donations for Scientific Research or
Rural Development. Till now, this deduction was allowed even if amounts up to
Rs. 10,000 were paid in cash. Now this section is amended, effective from 1^st
June, 2020 and the above limit of Rs. 10,000 is reduced to Rs. 2,000.

6.5 Section
80-IAC: This section deals with deduction in case of startup entities
engaged in specified businesses. The section is amended from A.Y. 2021-22 (F.Y.
2020-21). At present, the deduction under this section can be claimed for three
consecutive assessment years out of seven years from the year of incorporation.
By amendment of this section, the outer limit of seven years has been increased
to ten years.

In the Explanation
defining ‘Eligible Startup’, at present it is provided that the total turnover
of the business of the startup claiming deduction under this section should not
exceed Rs. 25 crores. This limit is now increased to Rs. 100 crores.

6.6 Section
80-IBA: This section deals with deduction in respect of income from
specified housing projects. At present, for claiming deduction under this
section one of the conditions is that the housing project should be approved by
the Competent Authority during the period from 1^st June, 2016 to 31^st
March, 2020. This period is now extended up to 31^st March, 2021.

6.7 Filing Tax
Audit Report: At present sections 80-IA, 80-IB and 80JJAA provide that for
claiming deduction under these sections the assessee has to file the Tax Audit
Report u/s 44AB along with the return of income. These sections are now
amended, effective from 1^st April, 2020 to provide that the Tax
Audit Report shall be filed one month before the due date for filing return of
income u/s 139(1). This will mean that in all such cases the Tax Audit Report
will have to be finalised one month before the due date for filing the return
of income u/s 139(1).

7. CHARITABLE TRUSTS

At present, a
University, Educational Institution, Hospital or other Medical Institution
claiming exemption u/s 10(23C) of the Income-tax Act is required to get
approval from the designated authority (Principal Commissioner or a
Commissioner of Income-tax). The procedure for this is provided in section
10(23C). The approval once granted is operative until cancelled by the
designated authority. For other Charitable Trusts the procedure for
registration is provided in section 12AA. Registration, once granted, continues
until it is cancelled by the designated authority. The Charitable Trusts and
other Institutions are entitled to get approval u/s 80G from the designated
authority. This approval is valid until cancelled by the Designated Authority.
On the strength of this certificate u/s 80G the donor to the Charitable Trust
or other Institutions can claim deduction in the computation of his income for
the whole or 50% of the donations as provided in section 80G. The Finance Act,
2020 has amended sections 10(23C), 11, 12A, 12AA and 80G and inserted section
12AB to completely change the procedure for registration of Trusts. These
provisions are discussed below.

7.1. New
procedure for registration:

(i) A new section
12AB is inserted effective from 1^st October, 2020 which specifies
the new procedure for registration of Charitable Trusts. Similarly, section
10(23C) is also amended and a similar procedure, as stated in section 12AB, has
been provided. All the existing Charitable Trusts and other Institutions
registered under sections 10(23C) and 12AA will have to apply for fresh
registration under the new provisions of section 10(23C)/12AB within three
months, i.e., on or before 31st December, 2020. The fresh registration will be
granted for a period of five years. Therefore, all Trusts / Institutions
claiming exemption under sections 10(23C)/11 will have to apply for renewal of
registration every five years.

(ii) Existing
Charitable Trusts, Educational Institutions, Hospitals, etc., will have to
apply for fresh registration u/s 12AB or 10(23C) within three months, i.e. ,on
or before 31^st December, 2020. The designated authority will grant
registration under section 12AB or 10(23C) for a period of five years. This
order shall be passed within three months from the end of the month in which
the application is made. Six months before the expiry of the above period of five
years, the Trusts / Institutions will have to again apply to the designated
authority for renewal of registration which will be granted for a period of
five years. This order has to be passed by the designated authority within six
months from the end of the month when the application for renewal is made.

(iii) For new
Charitable Trusts, Educational Institutions, Hospitals, etc., the following
procedure is to be followed:

(a) The
application for registration in the prescribed form should be made to the designated
authority at least one month prior to the commencement of the previous year
relevant to the assessment year for which the registration is sought.

(b) In such a
case, the designated authority will grant provisional registration for a period
of three assessment years. The order for provisional registration is to be
passed by the designated authority within one month from the last date of the
month in which the application for registration is made.

(c) Where such
provisional registration is granted for three years, the Trust / Institutions
will have to apply for renewal of registration at least six months prior to
expiry of the period of the provisional registration or within six months of
commencement of its activities, whichever is earlier. In this case, the
designated authority has to pass the order within six months from the end of
the month in which the application is made. In such a case, renewal of
registration will be granted for five years.

(iv) Section 11(7)
is amended to provide that the registration of the Trust u/s 12A/12AA will
become inoperative from the date on which the Trust is approved u/s
10(23C)/10(46), or on 1^st October, 2020, whichever is later. In such
a case the Trust can apply for registration u/s 12AB. For this purpose the application
for registration u/s 12AB will have to be made at least six months prior to the
commencement of the assessment year for which the registration is sought. The
designated authority will have to pass the order within six months from the end
of the month in which the application is made.

(v) Where a Trust
or Institution has made modifications in its objects and such modifications do
not conform with the conditions of registration, application should be made to
the designated authority within 30 days from the date of such modifications.

(vi) Where the
application for registration, renewal of registration is made as stated above,
the designated authority has power to call for such documents or information
from the Trust / Institutions or make such inquiry in order to satisfy itself
about (a) the genuineness of the Trust / Institutions, and (b) the compliance
with requirements of any other applicable law for achieving the objects of the
Trust or Institution. After satisfying himself, the designated authority will
grant registration for five years or reject the application for registration
after giving a hearing to the trustees. If the application is rejected, the
Trust or Institutions can file an appeal before the ITA Tribunal within 60
days. The designated authority also has power to cancel the registration of any
Trust or Institutions u/s 12AB on the same lines as provided in the existing
section 12AA. All applications for registration pending before the designated
authority as on 1^st October, 2020 will be considered as applications
made under the new provisions of section 10(23C)/12AB.

7.2. Corpus
donation:

(i) Hitherto, a
corpus donation given by an Educational Institution, Hospital, etc. claiming
exemption u/s 10(23C) to a similar institution claiming exemption under that
section, was not considered as application of income under that section. By
amendment of section 10(23C), effective from 1^st April, 2020, a
corpus donation given by such an Institution to a Charitable Trust registered
u/s 12AA also will not be considered as application of income u/s 10(23C).
Similarly, section 11 at present provides that a corpus donation given by a
Charitable Trust to another Charitable Trust registered u/s 12AA is not
application of income. This section is also amended, effective from 1^st April,
2020, to provide that a corpus donation given by a Charitable Trust to a
Charitable Trust registered u/s 12AA and to Educational Institutions or a
Hospital registered u/s 10(23C) will not be considered as application of income.

(ii) Section 10(23C) is amended, effective from 1^st
April, 2020, to provide that any corpus donation received by an Educational
Institution or a Hospital claiming exemption under that section will not be
considered as its income. At present, this provision exists in section 12 and
Charitable Trusts claiming exemption u/s 11 are getting benefit of this
provision.

7.3. Section
80G(5)(vi):

A proviso
to section 80G(5)(vi) is added from 1^st October, 2020. At present, a
certificate granted u/s 80G is valid until it is cancelled. Now, this provision
is deleted and a new procedure is introduced. Briefly stated, this procedure is
as under:

(i) Where the
Trust / Institution holds a certificate u/s 80G it will have to make a fresh
application in the prescribed form for a new certificate under that section
within three months, i.e. on or before 31^st December, 2020. In such
a case the designated authority will give a fresh certificate which will be
valid for five years. The designated authority has to pass the order within
three months from the last date of the month in which the application is made.

(ii) For renewal
of the above certificate, an application will have to be made at least six
months before the date of expiry of the said certificate. The designated authority
has to pass the order within six months from the last date of the month in
which the application is made.

(iii) In a new
case, the application for certificate u/s 80G will be required to be filed at
least one month prior to the commencement of the previous year relevant to the
assessment year for which the approval is sought. In such a case, the
designated authority will give provisional approval for three years. The
designated authority has to pass the order within one month from the last date
of the month in which the application is made.

(iv) In a case
where provisional approval is given, application for renewal will have to be
made at least six months prior to the expiry of the period of provisional
approval, or within six months of the commencement of the activities by the
Trust / Institution, whichever is earlier. In this case the designated
authority has to pass the order within six months from the last date of the
month in which the application is made.

In cases of
renewal of approval as stated in (ii) and (iv) above, the designated authority
shall call for such documents or information or make such inquiries as he
thinks necessary in order to satisfy himself that the activities of the Trust /
Institution are genuine and that all conditions specified at the time of grant
of registration earlier have been complied with. After it is satisfied it shall
renew the certificate u/s 80G. If it is not so satisfied, it can reject the
application after giving a hearing to the Trustees. The Trust / Institution can
file an appeal to the ITAT within 60 days if the approval u/s 80G is rejected.

7.4. Sections
80G(5)(viii) and (ix): Clauses (viii) and (ix) are added in section 80G(5)
from 1^st October, 2020 to provide that every Trust / Institution
holding a section 80G certificate will be required to file with the prescribed
Income-tax Authority particulars of all donors in the prescribed form within
the prescribed time. The Trust / Institution has also to issue a certificate in
the prescribed form to the donor about the donations received by it. The donor
will get deduction u/s 80G only if the Trust / Institution has filed the
required statement with the Income-tax Authority and issued the above
certificate to the donor. In the event of failure to file the above statement
or issue the above certificate to the donor within the prescribed time, the
Trust / Institution will be liable to pay a fee of Rs. 200 per day for the
period of delay under the new section 234G. This fee shall not exceed the
amount in respect of which the failure has occurred. Further, a penalty of Rs.
10,000 (minimum) which may extend to Rs. 1 lakh (maximum) may also be levied
for the failure to file details of donors or issue certificate to donors under
the new section 271K.

It may be noted
that the above provisions for filing particulars of donors and issue of
certificate to donors will apply to donations for Scientific Research to an
association or company u/s 35(1)(ii)(iia) or (iii). These sections are also
amended. Provisions for levy of fee or penalty for failure to comply with these
provisions will also apply to the donee company or association which received
donations u/s 35. As stated earlier, the donor will not get deduction for
donations as provided in section 80GG if the donee company or association has
not filed the particulars of donors or not issued the certificate for donation.

Further, there is
no provision for filing appeal before the CIT(A) or ITATl against the levy of
fee u/s 234G.

7.5. Filing of
Audit Report: Sections 12A and 10(23C) are amended, effective from 1^st
April, 2020 to provide that the audit reports in Forms 10B and 10BB for A.Y.
2020-21 (F.Y. 2019-20) and subsequent years shall be filed with the tax
authorities one month before the due date for filing the return of income.

7.6 General:
The existing provisions relating to Charitable Trusts and Institutions are
complex. By the above amendments they are made more complex. The effect of
these amendments will be that there will be no ease of doing charities. In
particular, smaller Charitable Trusts will find it difficult to comply with
these procedural requirements. The compliance burden for them will increase. If
the Trusts are not able to comply with the requirement of filing details of
donors with the Tax Authorities or giving certificates to donors, they will
have to pay late filing fees as well as penalty. Again, the requirement of
getting fresh registration for all Trusts and Institutions and renewing the
same every five years under sections 10(23C), 12AB and 80G will be a
time-consuming process. Those dealing with Trust matters know how difficult it
is to get any such certificate or registration from the Income-tax Department.
In order to reduce the compliance burden, the requirements of filing details
about donors should have been confined to information relating to donations
exceeding Rs. 50,000 received from a donor during the year. Trustees of the
Charitable Trusts are rendering honorary service. To put such an onerous
responsibility on such persons is not at all justified. Under the new
provisions the donors will not get deduction for the donations made by them if
the trustees of the Trust do not file the prescribed particulars relating to
donors every year. Therefore, smaller Trusts will find it difficult to get
donations as donors will have apprehension that the donee trust may not file
the required details with the Income-tax Department in time.

8. RESIDENTIAL STATUS

The provisions
relating to residential status of an assessee are contained in section 6 of the
Income-tax Act. Significant changes are made by amendments in section 6 so far
as the residential status of an individual is concerned. In brief, these
amendments are as under:

(i) An individual
is resident in India in an accounting year if, (a) his stay in India is for 182
days or more in that year, or (b) his stay in India is for 365 days or more in
four years preceding that year and he is in India for a period of 60 days or
more in the accounting year.

(ii) At present,
in the case of a citizen of India or a Person of Indian Origin who is outside
India and comes on a visit to India in the accounting year, the threshold of 60
days stated in (i) above is relaxed to 182 days. By amendment of this provision
from A.Y. 2021-22 (F.Y. 2020-21), it is provided that in the case of a citizen
of India or a Person of Indian Origin who is outside India having total income
other than the specified foreign income, exceeding Rs. 15 lakhs during the
relevant accounting year, comes on a visit to India for 120 days or more in the
accounting year, will be considered as a resident in India.

(iii) It may be noted that the existing provision
applicable to a citizen of India who leaves India in any accounting year as a
member of the crew of an Indian ship or for the purpose of employment outside
India remains unchanged.

(iv) New sub-section (1A) is added in section 6 to
provide that if a citizen of India, having total income other than the
specified foreign income in the accounting year exceeding Rs. 15 lakhs, shall
be deemed to be a resident for that year, if he is not liable to tax in any
other country or territory by reason of his domicile or residence or any other
criterion of similar nature.

(v) Section 6(6) defines a person who is deemed to
be a ‘Resident but not Ordinary Resident’ (‘R but not OR’). By amendment of
this section, it is provided that the following persons shall also be
considered as ‘R but not OR’.

(a) A citizen of India, or a Person of Indian Origin, having total
income other than specified Foreign income exceeding Rs.15 lakhs during the
accounting year and who has been in India for a period of 120 days or more but
less than 182 days in that year.

(b) A citizen of India, who is deemed to be a resident in India, as
stated in (iv) above, will be considered as ‘R but not OR’.

(vi) For the above purpose the ‘specified foreign
income’ is defined to mean income which accrues or arises outside India, except
income derived from a business controlled in India or a profession set up in
India.

(vii) It may be
noted that under the Income-tax Act, an ‘R and OR’ is liable to pay tax on his
world income and a non-resident or an ‘R but not OR’ has to pay tax on income
accruing, arising or received in India. Therefore, individuals who are citizens
of India or Persons of Indian Origin will have to be careful about their stay
in India and abroad and determine their residential status on the basis of this
amended law.

9. SALARY INCOME

(i) At present, the contribution by an employer (a)
to the account of an employee in a recognised Provident Fund exceeding 12% of
the salary, (b) Contribution to superannuation fund in excess of Rs. 1,50,000,
and (c) contribution in National Pension Scheme is fully taxable in the hands
of an employee. However, deduction provided in section 80CCD(2) can be claimed
by the employee. There is no combined upper limit for the purpose of deduction
of amount of contribution made by the employer.

(ii) Section 17(2) has been amended, effective from
A.Y. 2021-22 (F.Y. 2020-21), to provide that the aggregate contribution made by
the employer to the account of the employee by way of PF, superannuation fund,
NPS exceeding Rs. 7,50,000 in an accounting year will be taxable as perquisite
in the hands of the employee. Further, any annual accretion by way of interest,
dividend or any other amount of similar nature during the year to the balance
at the credit of the fund or scheme, will be treated as perquisite to the
extent it relates to the employer’s taxable contribution. The amount of such
perquisite will be calculated in such manner as may be prescribed by the Rules.

10. BUSINESS INCOME

10.1 Section
35: Expenditure on scientific research

Section 35(1)
provides for weighted deduction for expenditure on Scientific Research by a
Research Association, University, College or other Institution or a Specified
Company (herein referred to as Research Bodies). The existing section provides
that these Research Bodies have to obtain approval of the prescribed authority.
Now this section is amended, effective from 1^st October, 2020, to
provide as under:

(i) The approval
granted to such Research Bodies on or before 1^st October, 2020 shall
stand withdrawn unless a fresh application for approval in the prescribed form
is made to the prescribed authority within three months, i.e., on or before 31^st
December, 2020. The notification issued by the prescribed authority shall be
valid for five consecutive assessment years beginning from A.Y. 2021-22.

(ii) It is also
stated that the Notification issued by the Central Government in respect of the
Research Bodies after 31^st December, 2020 shall, at any one time,
have effect for such assessment years not exceeding five assessment years as
may be specified in the Notification.

(iii) The
amendment in the section also provides that the above Research Bodies shall be
entitled to the deduction under the section only if the following conditions
are satisfied:

(a) They have to
prepare such statement about donations for such period as may be prescribed and
deliver these to the specified Income-tax Authority.

(b) They should
furnish to the donor a certificate specifying the amount of the donation in the
prescribed form.

(iv) It may be noted that if the statement in the
prescribed form is not filed in time or the certificate to the donor is not
given in time as stated above, the Research Body will be liable to pay a fine
of Rs. 200 per day of default u/s 234G. Further, penalty of Rs. 10,000
(minimum) which may extend to Rs. 1 lakh (maximum) may also be levied u/s 271K.

(v) The donor will not get deduction for the
donation if the above statement is not filed and the certificate in the
prescribed form is not issued by the Research Body.

10.2 Section
35AD: At present, section 35AD(1) provides for 100% deduction of Capital
Expenditure (other than expenditure on Land, Goodwill and Financial Assets)
incurred by any specified business. Further, section 35AD(4) provides that no
deduction is allowable under any other section in respect of which 100%
deduction is allowed u/s 35AD(1).

The section is now
amended, effective from A.Y. 2020-21 (F.Y. 2019-20), giving option to the
assessee either to claim deduction under the section or not do so. If such
option is exercised and the assessee has not claimed deduction u/s 35AD(1),
deductions u/s 32 can be claimed.

10.3 Section
43CA: This section provides that if the consideration for transfer of land
/ building, which is held as stock-in-trade, is less than 105% of the stamp
duty valuation, the stamp duty valuation (SDV) will be deemed to be the
consideration. This provision is now amended, effective from A.Y. 2021-22 (F.Y.
2020-21), to provide that if the consideration is less than 110% of the SDV,
then the SDV shall be deemed to be the consideration. Thus, further concession
of 5% is given in this transaction.

10.4 Section
72AA: At present, this section deals with carry-forward and set-off of
accumulated losses and unabsorbed depreciation on amalgamation of Banks. This
section is amended, effective from A.Y. 2020-21 (F.Y. 2019-20). By this
amendment, the benefit of carry-forward and set-off losses and unabsorbed
losses which was given on amalgamation of Banks has been extended to the
following entities.

(a) Amalgamation of one or more Banks with another
Bank under a scheme framed by the Central Government under the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970 or the similar
Act of 1980.

(b) Amalgamation of one or more Government
companies with another Government company under a scheme sanctioned by the
Central Government under the General Insurance Business (Nationalisation) Act,
1972.

11. CAPITAL GAINS

11.1 Sections
49 and 2(42A): Section 49 provides for cost of acquisition for capital
assets which became the property of the assessee under specified circumstances.
Further, section 2(42A) provides for the period of holding of a capital asset
by an assessee for being considered as a short-term capital asset. These two
sections are amended, effective from A.Y. 2020-21 (F.Y. 2019-20). Briefly
stated, these amendments are as under:

(a) In the event
of downgrade in credit rating of debt and money market instruments in M.F.
schemes, SEBI has permitted the Asset Management Companies an option to
segregate the portfolio of such Schemes. In the event of such segregation, all
existing investors are allotted equal number of units in the segregated
portfolio held in the main portfolio. It is now provided that in determining
the period of holding of such segregated portfolio, the period for which the
original units in the main portfolio were held will be included.

(b) Further, the
cost of acquisition of such units in the segregated folio shall be the cost of
acquisition of the units held by the assessee in the total portfolio in
proportion to the NAV of the asset transferred to the segregated portfolio out
of the NAV of the total portfolio before the date of segregation. The cost of
acquisition of the original units in the main portfolio will be suitably
reduced by the amount derived as cost of units in the segregated portfolio.
These provisions are similar to those applicable for allocation of cost of
shares on demerger of a company.

11.2 Sections
50C and 56(2)(X): Section 50C provides that if the consideration for
transfer of a capital asset (land or building or both) is less than 105% of the
Stamp Duty Valuation (SDV), the SDV will be deemed to be the consideration.
This provision is now amended, effective from A.Y. 2021-22 (F.Y. 2020-21) to
provide that if the consideration is less than 110% of the SDV, the SDV will be
deemed to be the consideration. Thus, further concession of 5% is given for
such transactions.

On the same basis,
section 56(2)(X) is also amended. Under this section if land / building is
received by an assessee from a non-relative for a consideration which is less
than 105% of the SDV, the difference between the SDV and consideration is
treated as income from other sources. This section is also amended on the same
line as section 50C and further concession of 5% is given for such a
transaction.

11.3 Section
55: At present, this section provides that if the capital asset became the
property of the assessee before 1^st April, 2001, the assessee has
the option to adopt the fair market value of the asset transferred as on 1^st
April, 2001 for its cost of acquisition. This section is now amended, effective
from A.Y. 2021-22 (F.Y. 2020-21), to provide that if the capital asset is land
/ building, the fair market value on 1^st April, 2001 which the
assessee wants to adopt, shall not be more than the SDV on 1^st
April, 2001.

12. FILING OF RETURN OF INCOME

12.1 Section
139(1): At present, a person (including a company) who is required to get
his accounts audited is required to file his return of income on or before 30^th
September every year. By amendment of this section from A.Y. 2020-21 (F.Y.
2019-20), such a person will have to file his return of income on or before 31^st
October of the year. Further, at present a working partner of a firm or LLP
which is required to get its accounts audited is covered by this provision.
Now, any partner, including a working partner of a firm or LLP which is
required to get its accounts audited can file his return of income on or before
31^st October of that year. It may be noted that for A.Y. 2020-21,
the due date for filing return of income is extended up to 30^th
November, 2020 under CBDT Notification No. 35/2020 dated 24^th June,
2020.

12.2 Ordinance
dated 31^st March, 2020: By Taxation and Other Laws (Relaxation
of certain Provisions) Ordinance dated 31^st March, 2020 and CBDT
order u/s 119 dated 31^st March, 2020 and CBDT Notification dated 24^th
June, 2020 extends the time limit for filing return of income for A.Y. 2019-20
(F.Y. 2018-19) u/s 139(4) and revised return u/s 139(5), has been extended up
to 30^th September, 2020. This concession is due to Covid-19 and
consequential lockdown from 25^th March, 2020 onwards in the country.

12.3 Section
140: Under this section, at present the return of income has to be signed
in the case of a company by a Managing Director or Director and in the case of
an LLP by a Designated Partner or Partner. By amendment of this section from
A.Y. 2020-21 (F.Y. 2019-20), it is provided that in such cases the return of
income can be signed by such person as may be prescribed by the Rules.

13. TAX AUDIT REPORTS

13.1 Section 44AB: By amendment of this section, effective from
A.Y. 2020-21 (F.Y. 2019-20), it is provided that in the case of a person
carrying on business if the aggregate of all amounts received including for
sales, turnover or gross receipts and the aggregate amount of all payments
(including expenditure incurred) in cash during the accounting year does not
exceed 5% of the sales, turnover or gross receipts and 5% of the total
payments, Tax Audit u/s 44AB will be required only if the sales, turnover or
gross receipts exceed Rs. 5 crores in that accounting year. It may be noted
that this provision will apply to a company, firm, LLP, individual, AOP, HUF,
etc.

In other cases,
the existing turnover limit of Rs. 1 crore will apply. The above concession is
not applicable in the case of a person carrying on profession where the limit
with reference to gross receipts is Rs. 50 lakhs.

13.2 From the
wording of the amendment in section 44AB it appears that the limit of 5% of
cash receipts and payments applies with reference to all receipts from sales,
turnover or gross receipts, receipts from debtors, receipts from capital
account transactions, receipts of interest on loans and deposits, etc., and to
all payments for expenses for business or other purposes, payments to
creditors, payments of taxes, repayment of loans, payments for capital account
transactions, payments relating to transactions other than business, etc. In
other words, the above concession is not applicable if 5% or more of total
receipts as well as 5% or more of total payments are in cash.

13.3 At present,
the Tax Audit Report u/s 44AB is required to be filed along with the return of
income. This provision is now amended from the A.Y. 2020-21 (F.Y. 2019-20) to
provide that the Tax Audit Report should be filed with the tax authorities one
month before the due date for filing the return of income. Therefore, if the
due date for filing the return of income is 31^st October, then the
Tax Audit Report should be filed on or before 30^th September of that
year. In the case where Transfer Pricing Audit Report is to be obtained, the
due date for filing the return of income remains 30^th November. In
such cases, the Audit Report u/s 92F will have to be filed on or before 31^st
October.

13.4 It may be
noted that there are other sections under the Income-tax Act which require
different types of audit reports in the prescribed forms to be filed with the
return of income. These sections relate to charitable trusts, transfer pricing,
book profits, etc. Therefore, sections 10(23C), 10A, 12A, 32AB, 33AB, 33ABA,
35D, 35E, 44DA, 50B, 80-IA, 80-IB, 80JJAA, 92F, 115JB, 115JC and 155VW are
suitably amended from A.Y. 2020-21 (F.Y. 2019-20). In all these cases, the Tax
Audit Report will be required to be filed one month before the due date for
filing the Income-tax return of income.

13.5 In the
Memorandum explaining the provisions of the Finance Bill, 2020, it is stated
that to enable pre-filing of returns in case of the assessee having income from
business or profession, it is required that the Tax Audit Report may be
furnished by the said assessee at least one month prior to the date of filing
of the return of income. All the above sections are amended for this purpose
from A.Y. 2020-21.

14. APPEALS

14.1 Section
250: At present, an appeal before the CIT(A) is to be filed through
electronic mode. Thereafter, the assessee or his counsel has to attend before
the CIT(A) and argue the matter. In order to reduce human interface from the
system, section 250 has been amended from 1^st April, 2020 to provide
for a new E-appeal Scheme on lines similar to the E-assessment Scheme. This amendment
is as under:

(i) The Central
Government is given power to notify an E-appeal Scheme for disposal of appeal
so as to impart greater efficiency, transparency and accountability.

(ii) Interface
between CIT(A) and the appellant in the course of appellate proceedings will be
eliminated to the extent technologically feasible.

(iii) Utilisation
of resources through economies of scale and functional specialisation will be
optimised.

(iv) An appellate system with dynamic jurisdiction
in which an appeal shall be disposed of by one or more CIT(A)s will be
introduced.

Further, the
Central Government may direct for exception, modification and adaptation as may
be specified in the Notification. The above directions are to be issued before
31^st March, 2022.

14.2 Section
254: Under this section, the ITAT has been given power to grant stay of
disputed demand on an application filed by the assessee. At present, the
Tribunal is not required to impose any condition for deposit of any amount out
of the disputed demand while granting such stay.

This section is
amended from 1^st April, 2020 to provide that the ITAT can pass a
stay order subject to the condition that the assessee shall deposit at least
20% of the disputed tax, interest, fee, penalty, etc., or furnish security of
equal amount of such disputed tax.

Further, ITAT can
grant extension of stay only if the assessee has complied with the condition of
depositing the amount of disputed tax or furnishing of security for the amount
as stated above. The ITAT has to decide the appeal, where stay of demand is
granted, within 365 days of granting of the stay. Thus, the stay of demand
granted by the Tribunal cannot exceed 365 days.

15. PENALTIES

15.1 Section
271AAD: This is a new section inserted in the Act which will have
far-reaching implications. This section will take effect from 1^st
April, 2020. It provides that if, during any proceedings under the Act, either
a false entry or an omission of an entry, which is relevant for computation of
total income of such person is found in the books of accounts maintained by any
person with a view to evade tax liability, the A.O. can levy penalty of 100% of
the aggregate amount of such entry or omission of entry. Since this is a penal
provision, it is possible to take the view that this provision will apply to
any false entry or omission of entry found in the books for the accounting year
2020-21 and onwards.

The term ’false
entry’ for this purpose is defined in the Explanation to the section. It
includes use or intention to use:

(i)  Forged or falsified documents such as false
invoice or, in general, a false piece of documentary evidence, or

(ii) Invoice in respect of supply or receipt of goods
or services or both issued by the person or any other person without actual
supply or receipt of such goods or services or both, or

(iii) Invoice in respect of supply or receipt of
goods or services or both to or from a person who does not exist.

15.2 Section
271K: This is a new section which comes into force on 1^st June,
2020. Under this section the A.O. is given power to levy penalty of Rs. 10,000
(minimum) which may extend to Rs. 1 lakh (maximum) for non-compliance of
requirements to (i) file required statements in time, or (ii) furnish
certificate to the donors as required under sections 35(1)(ii)(iia), or (iii),
35(1A)(ii), 80G(5)(viii) or (ix).

15.3 Section
274: This section has been amended from 1^st April, 2020 to
provide for a scheme for conducting penalty proceedings on lines similar to the
E-assessment Scheme. By this amendment, the Central Government is authorised to
notify a scheme for the purpose of imposing penalty so as to impart greater
efficiency, transparency and accountability. This scheme will provide for:

(i) Elimination of
interface between the A.O. and the assessee in the course of proceedings to the
extent technologically feasible,

(ii) Optimisation
of utilisation of resources through economies of scale and functional
specialisation,

(iii) Introduction
of mechanism of imposing penalty with dynamic jurisdiction in which penalty
shall be imposed by one or more Income-tax authorities.

Further, the
Central Government is also empowered to issue Notification directing that any
of the provisions of the Act relating to jurisdiction and procedure for
imposing penalty shall not apply or shall apply with such exceptions,
modifications or adaptations as may be specified in the Notification. Such
Notification can be issued on or before 31^st March, 2022.

16. OTHER AMENDMENTS

16.1 Section
115UA: This section deals with taxation of income of unit holders of
Business Trust. Section 115UA(3) is amended from A.Y. 2021-22 (F.Y. 2020-21) to
provide that the distributed income in the nature of interest, dividends and
rent shall be deemed to be income of the unit holder and shall be charged to
tax. Consequential amendments are made in section 194LBA to provide for
deduction of tax at source on such distributed income.

16.2 Section
133A: At present, the power to survey u/s 133A(1) can be exercised with the
approval of Joint Commissioner or Joint Director. This section is amended from
1^st April, 2020 and it is provided as under:

(i) Where the
information is received from the authority to be prescribed by the Rules, the
survey shall not be undertaken by Assistant Director, Deputy Director,
Assessing Officer, T.R.O. or an Inspector without obtaining approval of the
Joint Commissioner or Joint Director.

(ii) In any other
case, no survey can be conducted by the Joint Director, Joint Commissioner,
Assistant Director, Deputy Director, Assessing Officer, T.R.O. or Inspector
without the approval of the Director or Commissioner of Income-tax.

16.3 Section
143: Sections 143(3A) and (3B) deal with the E-Assessment Scheme for
assessment u/s 143(3). By amendment of this section from 1^st April,
2020 it is now provided that the E-Assessment Scheme shall also apply to ex
parte assessment u/s 144. Further, the time limit for issue of any
notification giving direction that any of the provisions of the Income-tax Act
relating to assessment of total income or loss shall not apply or shall apply
with such exceptions, modifications or adaptations as may be specified, has
been extended from 31^st March, 2020 to 31^st March, 2022.

16.4 Section
144C: This section deals with the Dispute Resolution Panel (DRP). At
present, the provision for sending draft assessment order by the A.O. to the
assessee applied only if the A.O. proposed variation in the income or loss
returned by the assessee. By amendment of this provision from 1^st
April, 2020 it is now provided that the A.O. will have to send the draft
assessment order to the assessee even if the A.O. proposes to make any
variation which is prejudicial to the interest of the assessee. Further, at
present the provisions of this section apply in the case of (i) an assessee in
whose case transfer pricing adjustments are proposed by an order passed by
T.P.O. and (ii) a foreign company. With effect from 1^st April, 2020,
this section will also apply in cases of all non-residents.

16.5 Section
234G: This is a new section inserted in the Income-tax Act from 1^st
June, 2020. It provides for levy of a fee for failure under sections (a)
35(1)(ii), (iia) or (iii), (b) 35(1A)(ii), (c) 80G(5)(viii), and (d) 80G(5)(ix)
to file statements or issue certificates to donors under these sections. This
fee is Rs. 200 per day during which the failure continues. However, such fine
shall not exceed the amount in respect of which the above failure has occurred.
This fee is payable before filing the statement or issuing the certificate
required under the above sections after the due date. As stated earlier, these
statements relate to particulars of donors to be filed with the tax authorities
and the certificates to be issued to donors. It may be noted that no appeal is
provided against the levy of this fee if the delay in filing statements or
issue of certificates is for reasonable cause.

16.6 Sections
203AA and 285BB: Section 203AA required the Income-tax authority to prepare
and deliver to the assessee a statement in Form 26AS giving details of TDS, TCS
and taxes paid. This section is deleted from 1^st June, 2020 and a
new section 285BB is inserted in the Act from the said date. This new section
provides that the prescribed Income-tax authority shall upload in the
registered account of the assessee an Annual Information Statement in the
prescribed form and within the prescribed time. This statement will include
information about taxes paid, TDS, TCS, sale / purchase transactions of
immovable properties, share transactions, etc., which are reported to the tax
authorities under various provisions.

16.7 Section
288: This section gives a list of persons who can appear before the
Income-tax authorities and Appellate Authorities as authorised representatives.
This section is amended from 1^st April, 2020 to authorise CBDT to
prescribe, by Rules, any other person who can appear as an authorised
representative.

17. TAXPAYER’S CHARTER

At present there is no provision under the Income-tax Act providing for
declaration of a Taxpayer’s Charter. A new section 119A has been inserted in
the Act from 1^st April, 2020 which provides that CBDT shall adopt
and declare a Taxpayer’s Charter and issue such orders, instructions, directions
and guidelines to the Income-tax Authorities for administration of such
Charter. This Charter may explain the Rights and Duties of taxpayers. Let us
hope that the Income-tax Authorities respect the rights of taxpayers in the
true spirit in which the Charter is to be issued by CBDT.

18. ‘VIVAD SE VISHWAS’ SCHEME

Parliament passed
‘The Direct Tax Vivad Se Vishwas Act, 2020’ in March, 2020. Certain
amendments are made in the Act by ‘The Taxation and Other Laws (Relaxation of
Certain Provisions) Ordinance, 2020’ promulgated by the President on 31^st
March, 2020. This Scheme has been introduced with a view to reduce litigation
in Direct Tax cases pending before various appellate authorities. The assessees
can avail the benefit of this Scheme by paying the disputed tax and getting
waiver of penalty, interest and late filing fee.

19. TO SUM UP

(i) From the above
analysis of the provisions of the Finance Act, 2020, the existing complex
Income-tax Act has been made more complex. Many provisions are added in the Act
which have increased the compliance burden of the taxpayers. The assessees and
their tax advisers will have to be more vigilant to ensure compliance with
these provisions and to meet the time limits provided for their compliance.

(ii) In last year’s
Budget, rates of Income-tax for certain domestic companies were reduced on the
condition that they forgo certain deductions and tax incentives. The scope of
deductions to be forgone has been widened and such companies will not be able
to claim deductions under all sections of chapter VIA, excluding sections
80JJAA and 80M. Similar benefit is now given to Individuals, HUFs and
Co-operative Societies who will pay lower tax if they opt to forgo various
deductions and tax incentives. Considering the list of deductions and
incentives to be forgone, it is possible that very few assessees will exercise
the option for lower rate of tax.

(iii) Dividend
Distribution Tax, hitherto levied on companies for over two decades, has now
been removed. Now, dividend on shares and income distribution on units of
Mutual Funds will be taxed in the hands of the share / unit holders. This is
one of the major steps taken in this Budget. This change will bring many
persons within the tax net as the exemption enjoyed by them so far has been
withdrawn.

(iv) By several
amendments made in the provisions relating to exemption granted to Charitable
Trusts, Educational Institutions and Hospitals, the compliance burden of such
institutions will increase. These amendments made in the Income-tax Act are
unfair.
When the Government is propagating for ease of doing business and ease of
living, it has made the life of Trustees of such Trusts more difficult. With
these new provisions, there will no ease of doing charities. In particular,
these provisions will make the life of Trustees of small trusts difficult. The
provisions for renewing registration of trusts every five years, renewing
section 80G
certificates every five years, filing particulars of donors every year and
issuing certificates to donors are time-consuming. Further, any delay in
compliance with these provisions will invite late filing fees and penalty. If
the Government wanted to keep track of the activities of such trusts, these
provisions could have been made applicable to Trusts having net worth exceeding
Rs. 5 crores or those who receive donations of more than Rs. 1 crore every
year.

(v) Several
amendments are made in the provisions relating to Tax Deduction and Tax
Collection at Source. Now, tax is required to be collected from persons
remitting foreign exchange under the LRS Scheme. The scope of the provisions
for TDS / TCS is now widened and, in some cases, tax will be collected at
source even on items which do not constitute income of the deductee.

(vi) Amendments
relating to residential status will bring some of the persons who could avoid
tax by planning their visits to India every year under the tax net. Now, many
persons will find it difficult to avoid tax liability in India.

(vii) The new
section 271AAD providing for 100% penalty for an alleged false entry or
omission of any entry is a harsh provision. This will raise many issues of
interpretation. This will create hardship to the assessees where arbitrary
addition is made by the tax authorities and penalties are levied under this
section. An incidental question arises whether this provision is retrospective
or applies to accounting entries relating to transactions entered into on or
after 1^st April, 2020.

(viii) One welcome feature of this year’s Budget is statutory
recognition of a ‘Taxpayer’s Charter”. CBDT has to prescribe the Rules for this
Charter which will declare the rights and duties of a taxpayer. Let us hope
that CBDT provides a comprehensive document when this Chapter is announced and
that the Income-tax Authorities respect the rights of taxpayers in the letter
and spirit of this document.

(ix) Another
welcome feature of this year’s Budget is the enactment of the Direct Tax Vivad
Se Vishwas Act. The objective of this Act is to reduce Direct Tax
litigation pending before the Appellate Authorities. Considering the liberal
provisions of this Act, it is possible that many assessees will avail the
benefit of this scheme for settlement of many pending tax disputes.

(x) This year’s
Finance Bill was introduced in both the Houses of Parliament on 1^st
February, 2020. The various provisions of the Bill were not discussed in Parliament.
More than 125 amendments to the original Bill were moved by the Finance
Minister on 23^rd March, 2020 and the Bill with the amendments was
passed by both Houses of the Parliament without any
discussion due to Covid-2019 which affected India and the entire world. Some of
the harsh provisions in the Finance Act, 2020, as pointed out above, have not
undergone legislative scrutiny. It is possible that these harsh provisions are
removed or suitably modified in the days to come.

(Like many
committed authors of the BCA Journal, Shri P.N. Shah has been authoring
an article on the Finance Act for as long as I can remember. This year due to
Covid-19 and non-availability of staff, we have received it much later than we
would have liked. The article summarises key direct tax provisions [except
co-operative societies, rate reduction of specified companies, taxation of
non-residents and provisions relating to DTAA and transfer pricing which we
couldn’t carry due to space constraints] and serves as a summary analysis of
the key changes – Editor)

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