The key amendments and changes in the Finance Bill, 2020 (as passed by the Lok Sabha) compared to the Finance Bill, 2020 (as presented in the Lok Sabha) are presented in this article.
On February 1, 2020, Finance Minister Nirmala Sitaraman presented the Union Budget 2020 and the Finance Bill, 2020. The original Finance Bill, 2020 proposed mammoth 100 plus amendments in the Income Tax Act, 1961. Some of the amendments are substantial provision while some are procedural in nature. Some of the clauses of amendments have been removed. When the first round of study of the Finance Bill, 2020 is progressing, the Lok Sabha passed the Finance Bill, 2020 with 40 plus amendments on income tax matters.
The list of amendments in the Finance Bill, 2020 as passed by the Lok Sabha compared to the Finance Bill, 2020 resembles a separate bill in itself.
Earlier there were hardly any major or substantial amendments introduced in the Finance Bill so passed by the Parliament as compared to the introduced Bill.
A second round of study of the Finance Bill, 2020 is imperative. The Finance Bill, 2020 as passed by the Lok Sabha on 23.03.2020 is not passed in its original shape as introduced on February 1, 2020.
The major amendments and changes provided in the Finance Bill, 2020 as passed by the Parliament are as follows:
Changes in Residential Status of an NRI being a citizen of India
NRI having total income more than Rs. 15 lakh who comes on a visit to India can stay up to 119 days. For NRIs having a total income up to Rs. 15 lakh, the earlier period of 182 days shall continue. In computing the total income, income from foreign sources shall be excluded.
NRI shall be deemed to be resident of India if he does not liable to pay tax in any foreign country. This was as per the proposal in the Finance Bill, 2020. It has been modified to some extent in the Finance Act, 2020. Now, this condition shall apply only to an NRI whose total income is more than Rs. 15 lakh from Indian sources. While computing the total income, income from foreign sources shall be excluded.
The proposed changes to conditions of becoming a Resident but Not Ordinary Resident (NOR) is negatived and the old provisions restored. However, two new conditions added in addition to existing conditions-
(i) NRI who comes on a visit in India and stays for 120 days to 181 days and his total income (excluding foreign source income) is more than Rs. 15 lakh, he will be a NOR. Thus if such an NRI stays for 182 days or more, he will become a resident directly.
(ii) NRI who is deemed to be resident in India shall become a NOR. (ITR disclosures requirements exclusively for Residents in respect of foreign assets shall not apply).
The expression “income from foreign sources” means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).
However, the controversial expression 'not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature' which sparked panic among NRIs is still prevailing the provision.
This provision shall apply from Assessment Year 2021-22.
Changes in Section 80M for Deduction for Inter Corporate Dividend
Deduction of section 80M shall be available for receipt of dividend from a domestic company, a foreign company and a business trust. Earlier, only dividend income from a domestic company was covered. The scope is now expanded.
Changes in Section 115BAA and Section 115BAB restricting Deduction under Chapter VI-A
Deduction for section 80M is available from AY 2021-22 to a domestic company opting new tax regime under section 115BAA. Earlier, it was made effective from AY 2020-21 when in fact section 80M is itself applicable from AY 2021-22.
Deduction under chapter VI-A except for Part-C of Chapter VI-A shall continue to be available in AY 2020-21. Thus, deduction for donation under section 80G is available for AY 2020-21. This is as per the provision introduced by the Taxation Laws (Amendment) Act, 2019.
The restriction of deduction under Chapter VI-A shall now apply from AY 2021-22 except deduction under section 80JJA and section 80M.
Changes in Section 115BAC restricting exercise of the option for a person having income from profession
As per the proposed amendment in the Finance Bill, 2020, the option for the new tax regime under section 115BAC can be opted by a person having business income only once and cannot be withdrawn. This provision was only applicable for a person having business income and not professional income. Now it is amended to include professional income also. Hence a person having income from business or profession, he can opt for the new tax regime under section 115BAC only once and once opted cannot be withdrawn except for one time as provided earlier.
Changes in TDS provisions under section 194J
Prior to the amendment proposed in the Finance Bill, 2020 there was only one rate of TDS of 10 per cent. Finance Bill, 2020 has introduced one more rate of two per cent for fees for technical services. Now one more payment has been brought under two per cent of TDS under section 194J and it is on royalty where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic films.
Changes in TDS provisions under section 194K on Income from units
Finance Bill, 2020 has introduced a new section 194K to provide for TDS on income from mutual fund units. IT was apprehended that the income includes dividend as well as capital gains on redemption of units of mutual funds. It was later clarified by the CBDT that there is no intention to levy TDS on the redemption amount or capital gains. In the line of the clarification, section 194K is suitably amended to exclude income in the nature of capital gains.
Changes in TDS provisions under section 194N - TDS on Cash Withdrawals
Section 194N which provides for TDS on cash withdrawals has been rewritten in entirety. Section 194N was introduced by the Finance Act, 2019. The existing provisions will continue to apply i.e. TDS of 2 per cent on cash withdrawal of Rs. 1 crore or more in a financial year. In addition, it is provided that in case of a person who has not filed his income tax return for last three assessment years and the time limit to file the return of income u/s 139(1) is expired, then the threshold limit of Rs. 1 crore is reduced to Rs. 20 Lakh and rate of TDS shall be-
(a) 2 per cent from Rs. 20 Lakh to Rs. 1 crore, and
(b) 5 per cent above Rs. 1 crore.
In other cases, the threshold limit of Rs. 1 crore and the rate of TDS shall be 2 per cent above Rs. crore cash withdrawal shall continue.
Changes in TDS provisions under section 194-O - TDS by e-commerce operators
A new section 194-O is introduced to provide for TDS on payment of certain sums by e-commerce operator to e-commerce participants. In this section, “e-commerce operator” was defined to mean a person who owns, operates or manages digital or electronic facility or platform for electronic commerce and is responsible for paying to e-commerce participant. [Refer clause (b) to the Explanation to section 194-O].
The definition is modified and it is now defined as “e-commerce operator” means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce.
Changes in TCS provisions
The new proposed changes in TCS provisions shall come into effect from 1st October 2020, instead of earlier 1st April 2020.
According to the amendments, It is provided for tax collection at source (TCS) on remittance under Liberalised Remittance Scheme of Reserve Bank of India exceeding seven lakh rupees in a year and the rate of TCS is 5 per cent.
It is now expressly provided that no TCS shall be required on Rs. 7 Lakh.
In case the remittance is for a loan obtained from any financial institution as defined in section 80E shall be 0.5 per cent.
TCS shall also apply on sale of the overseas tour package without any threshold limit and the rate of TCS is five per cent.
The Finance Bill, 2020 (as passed by the Lok Sabha) has amended sub-section (1H) to provide that no tax shall be collected in respect of export or import of goods.
This provision shall apply from 01-10-2020.
Suggested Readings on
Finance Bill, 2020:
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