Union Budget 2020 India: The Budget is centralised around the soft themes of improving the ease of doing business, simplifying the tax structure, reduction in tax litigation, and stimulating growth in India.
By Gokul Chaudhri
Budget 2020 India: Continuing with the government’s reform agenda, the Finance Minister (FM) Ms Nirmala Sitharaman delivered her second Budget on 1 February in a period of 8 months. Union Budget 2020 lived up to some of the pre-Budget expectations on ramping up capital and spending and offering tax schemes to the common man, although with a caveat. The Budget is centralised around the soft themes of improving the ease of doing business, simplifying the tax structure, reduction in tax litigation, and stimulating growth in India. Based on this theme, following are the ten things which define Union Budget 2020:
Stimulating growth in India
- Aimed at making India a more attractive investment destination, dividend distribution tax – a tax paid by domestic companies on dividends in addition to income-tax – has been proposed to be abolished with effect from 1 April 2020. The tax liability will be shifted to shareholders. Credit of such tax paid by non-resident shareholders will now be eligible to be availed in country of residence of shareholders.
- To boost investment in the power sector, benefit of headline corporate tax rate of 15 percent has been proposed to be extended to new domestic companies engaged in electricity generation.
- In her maiden Budget last year, the FM had emphasised on the importance of start-ups in India. In order to give a further boost, period of tax holiday has been proposed to be increased from 7 years to 10 years. Further, taxability of ESOPs in the hands of employees employed with a start-up is proposed to be deferred – instead of taxing ESOPs at the time of allotment of shares, it is now proposed to tax ESOPs after the expiry of 60 months from the end of the financial year, employee exiting the start-up or employee selling the shares, whichever is earlier.
Watch Video: What is Union Budget of India?
Simplifying the tax structure
- To simplify the personal taxes and to boost demand in the economy, the new optional personal tax rate regime has been introduced. The new regime provides for reduced tax rates for slabs of income if an individual does not avail deductions and exemptions. The new tax regime is touted to entail a revenue foregone of INR 40,000 crores per year, a benefit which is proposed to be passed on to the taxpayers.
- Tax rate for cooperative societies has been proposed to be reduced from base rate of 30 percent to 22 percent. This is in line with the reduction in tax rates for Indian companies announced last year. Similar to companies, cooperatives opting for such reduced base tax rate will not be able to avail any exemption or deduction and will be exempt from applicability of Alternate Minimum Tax.
- Scheme for Reversion of duties and taxes on exported products has been announced. All duties and taxes, such as electricity duties and VAT on fuel used for transportation, which are not exempted or refunded under any other existing mechanism, will be digitally refunded to exporters.
- To reduce the burden on compliances, the threshold for tax audit has been increased from INR 1 crore to INR 5 crores for small businesses, small retailers, traders, shopkeepers etc. In line with the government’s focus on creating a cashless economy, the increased threshold applies only if cash receipts and cash payments do not exceed 5 percent of all receipts and payments.
- The government has accepted another long standing demand of the industry and removed the need for filing tax return where income of the non-resident consists of royalty /technical services fee and appropriate Indian taxes have been withheld by the payer.
Reduction of litigation
- Emphasising that wealth creators would be respected and there is no need for them to be concerned about harassment, it has been announced that Taxpayer’s Charter would be incorporated in the statute itself.
- Yet another peace buying scheme has been introduced in the form of ‘Vivad Se Vishwas’ scheme. Aimed at reducing pending litigations and providing an opportunity for relief from lengthy and often fruitless litigation, the scheme requires taxpayers to deposit the disputed tax demand in case of pending appeals. The benefit of the scheme is available till 30 June 2020. If a taxpayer pays the demand on or before 31 March 2020, interest and penalty on such tax demand is completely waived off; however, if paid on or before 30 June 2020, an additional amount is required to be paid.
- Continuing on the lines of the scheme of faceless assessments introduced in the previous Budget, the FM has announced the scheme of faceless appeals to ensure transparency in litigation.
This is certainly a Budget that keeps the interests of the taxpayers in its proposals by providing for tax simplification and encouraging investors.
(The author is Partner and Amit Bablani, Director, Deloitte India. Views expressed are personal.)