Direct Tax provisions – Budget 2020

Income Tax

The new Direct Tax regime proposed by our finance minister Smt. Nirmal Sitaraman is an optional scheme. However, a few taxpayers may not be able to switch back to the existing tax slab once they opt to follow the new one.

As per the insertion of new section 115BBA; Individual or HUF opting for new taxation regime shall not be entitled to these following exemption and deductions: –

• Salaried person who is considering new tax regime would not be entitled to standard deduction of Rs. 50000/- Entertainment allowance and employment/professional tax u/s 16.
• Leave Travel concessions which can be availed twice in block of four years.
• House rent allowance along with loss which can be claimed for interest on home loan and loss under head of house property form rented house with other income head; would have to carry forward over the next year to the extent as prescribed by the act.
• Individual/HUF having business/professional income would have to forego additional depreciation u/s 32, 32AD, 33AB, 33ABA.
• As per previous rules 1/3rd of family pension was exempt from the taxation and deduction under chapter VIA. All deductions under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc) will not be claimable by those opting for the new tax regime.
• Exemption and deductions which are still available for new tax regime similar to previous ones are employer contribution on account of employee in notified pension scheme—mostly NPS and for new employment.

Amendments in TDS provisions

• TDS u/s 194K: Resident whose income exceeds Rs. 5000/- form capital gain from mutual funds and dividends, payer must deduct TDS @ 10% at the time of credit or payment whichever is earlier.
  Any person responsible for paying to a resident any income in respect of:
  1. units of Mutual Fund specified under (23D) of section 10; or
  2. units from the Administrator of the specified undertaking; or
  3. units from the specified company, shall at the time of credit of such income to the account of payee or at the time of payment by any mode, whichever is earlier, deduct tax at source @ 10%.
• TDS u/s 194J: Presently TDS rates for technical services and professional services are 2% and 10% respectively. In order to minimize the litigation where the taxpayers deduct tax at 2% in the case of technical service, the Finance Bill, 2020 proposes an amendment. Thus, where any sum is paid by way of fee for technical services (not being a professional service) tax is deductible at source @ 2% instead of 10%.
• TDS u/s 194C: The Finance Bill 2020 proposed to amend the definition of “work” under section 194C. Raw material provided by the assesses or its associate shall also fall within the purview of “work” under section 194C.
• TDS u/s 194A: Now the society required to deduct TDS on interest paid if the turnover of the society exceeds Rs 50 Crores in previous Financial Year and where the interest amount exceed Rs. 50000 for Senior Citizens and Rs. 40,000 in any other case.
• Dividend Distribution: DDT has been abolished. Now any amount of dividend credited to the shareholders or the investors, the dividend will be taxable in their hands not in the hands of the Companies.
• Tax Audit limit has been increased from Rs 1 crore to 5 crores provided the taxpayer has received all the amounts including amount received for sales, turnover or gross receipts in cash which does not exceed 5% of the total amount and all payments including payments incurred for expenditure in cash does not exceed 5% of the total amount.