The Finance Bill, 2020
This was the toughest budget of the decade since presented amidst various demands and representations from tax payers in different sectors, especially in the backdrop of a low GDP growth rate and a sluggish economy. Smt. Nirmala Sitharaman, FM created history by delivering the longest budget speech of 165 minutes. It has three basic themes of (i) Aspirational India, (ii) economic development, and (iii) Caring society – with special emphasis on agriculture, health care, solar, education, infrastructure sector, etc.
On personal tax front aiming the middle class, given an option to opt for lower tax rates for income between ₹ 5,00,001 to ₹ 15,00,000 for individuals and HUF on the condition that no deduction or exemption shall be allowed, such as claims under chapter VI-A (LIC, mediclaim, PPF) and of interest on housing loan, depreciation, etc. Similar option given to resident co-operative societies for slashed tax rate at 22% on similar condition that other deductions / exemptions shall not be allowed.
However a very careful evaluation of the option given is advisable since the tax cost may vary from person-to-person. In this process the government has created three more slabs which may make calculations more complicated, than simplification, for individuals/HUF.
The long pending expectation of abolition of dividend distribution tax (DDT) has been fulfilled since this was purely an arbitrary exercise by way of triple taxation. It will leave more money in the hands of companies to distribute to shareholders and at the same time paving the way for FDIs to claim credit for such tax on dividends in their home countries. This will boost FDIs since India now becoming one of the most attractive investment destinations in the world. However the burden of taxation has shifted to shareholders and it could be detrimental to the high income shareholders.
‘Vivad Se Vishwas’ scheme introduced where tax payers can pay only the core tax to settle the liability of outstanding demand and shall be allowed complete waiver from any interest on such core tax or penalty thereupon. It is a very good and welcome scheme hopefully to be used widely in the country. However, the scheme is only available to those making payments till 31-03-2020 and with some additional amounts till 30-06-2020. Before availing the scheme, a very careful evaluation is advisable of the complexity of issues and of the amounts involved in litigations as well as the merits of the tax demand raised and the strength and weaknesses of succeeding in regular appeals.
It has fallen short of the scheme called “amnesty” but is surely oxygen for several tax payers, who are ready to purchase peace by saving the interests and penalties on disputed tax. It would have been better if a similar scheme as for indirect tax, should have been proposed where the requirement would have been kept at payment of only 30% – 60% of the disputed tax amount rather than 100%.
Tax Audit turnover requirement under Sec. 44AB(a) has been liberalized from ₹ 1 crore to ₹ 5 crore for business but again with a rider that the cash component of total receipts / payments are not more than 5% and Tax Audit Report is to filed one month prior to the due date of filing return of income.
It is proposed that in case an Indian citizen who is not liable to tax in any part of the world, would be now deemed to be a tax resident in India. However, it is clarified that in case of an Indian citizen who becomes deemed resident of India under this provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession.
In case of transfer of land or building, if there is a difference up to 10% in the value of consideration and the stamp duty valuation as per ready reckoner (as against 5% earlier), the provisions of Sections 43CA, 50C and 56 shall not apply.
Provisions for taxation of ESOP in start-ups rationalized and deferred to the earliest of 60 months from end of relevant F.Y. or sale of such security or when the employee leaves the organization.
In order to fight corruption and widen transparency, faceless proceedings have been initiated before CIT(A) also and further e-penalty and e-best judgment assessments initiated.
It is a very positive step to include the taxpayer’s charter in the statute which definitely is a confidence building measure.
A simplified GST return has been introduced w.e.f. April 01, 2020. The refund process has also been simplified and fully automated with no human interface. Aadhaar based verification of tax payers introduced to weed out dummy units. In the last two years more than 60 lakh new tax payers have been added.
The power generating companies, start-ups, make in India and consumption issues along with growth have been given special emphasis.
Customs duty reduced on certain inputs and raw materials while it is being revised upward on certain goods which are being manufactured domestically. Duty on cigarettes and other tobacco products increased.
Three major drivers of economic growth are foreign direct investment (FDI), public and private consumption, and exports. There wasn’t any serious effort on the part of Finance Minister’s Budget to boost any one of these.
The Finance Minister indicated that she is betting on growing inflows of net FDI, an all-time high accumulation of foreign exchange reserves (which stood at $457.5 billion in December), and improvement in World Bank’s Ease of Doing Business, which now stands at 63.
The Budget did offer some sops to foreign portfolio investors, such as tax exemptions to sovereign wealth funds that invest in infrastructure and other critical areas. But it is not nearly enough.
While India remains one of the largest recipients of FDI, foreign investments in sectors such as infrastructure are very modest. A primary reason that foreign investors are reluctant to pump in top dollars in infrastructure development in India’s cumbersome land acquisition laws. As long as there is no change in the status quo in that area, FDI in the sector will continue to lag.
Export is another area where the right policies could make India one of the international leaders. Right now, India stands behind even small nations such as Hong Kong and Singapore in this area. For that to change, India’s manufacturing capabilities will have to be upgraded substantially.
The Budget did not outline clear plans to revive troubled sectors such as real estate, financial and automobile manufacturing, which have been adversely affecting the economy. For India to turn the corner these sectors have to perform better and do so fast. Their enhanced performance would help stimulate public and private sector consumption.
Although there were large expectations, such as a sharp cut on personal taxation rates, total abolition of capital gains tax on sale of shares, introduction of an attractive amnesty scheme, promising proposals in mining, manufacturing and real estate / construction sectors, etc. responsible for creating numerous jobs, etc., the task to meet everybody’s expectations was not only difficult but almost impossible. The FM deserves cheers for doing a commendable balancing act in retaining the fiscal deficit to only 3.5% and still targeting the GDP growth at 10% in FY 2020-21 besides affording opportunities of investments in rural and urban sectors, infrastructure and educational / skill development areas and a digital revolution, which appears to be a step forward towards the USD 5 trillion economy by 2025. The introduction of dispute resolution scheme for direct taxes is a win-win situation for both – the tax payer as well as the government; since many times a litigation takes as many as 5 to 10 years or more to conclude.
It appears that under the current stressful economic situation in the country, there cannot be a better effort than the Budget 2020, for which the FM deserves praises.
H. N. Motiwalla