The Finance Act 2020 has introduced several amendments to the Income Tax that were applicable for the Fiscal Year (FY) 2020-21. The new Amendment’s main goal is to reduce the tax compliance burden during the ongoing COVID-19 pandemic. According to ITR filing experts, there has been positive amendments in past 3 years for salaried person as well as for start-ups as one of the amendments made in the Finance Act of 2020 allowed for the waiver of taxation on Employee Stock Options (ESOPs) granted by eligible start-ups. Some of the major amendments and new sections inserted by the Finance Act 2020 are as follows. Start-ups incorporated between April 1, 2016, and March 31, 2021 in India currently enjoy a full tax exemption on profits for any three consecutive years out of their first seven years. Another important consideration is that their annual revenue not exceed INR 250 million. With amendment, the waiver is now applicable to any three years of the start-first up’s ten years under the new law. The turnover threshold has also been raised from INR 250 million to INR 1 billion. Previously, companies that paid dividends to shareholders had to pay a 15% dividend distribution tax on those dividends and it was tax- free in the hands of the shareholders who received it. Dividend income will now be taxable.

in the hands of the recipients, at a rate of 10% for dividends paid to Indian shareholders and 20% for dividends paid to foreign investors. The Bill’s proposed amendments eliminate such double taxation and is a welcome move by various famous tax consultants in Delhi and other parts of India. Previously, a 5% variation in the value of consideration received or accruing as a result of the transfer of an asset (other than a capital asset) that was land, a building, or both was permitted. This variation rate has now been increased to 10%. It means that if the value adopted, assessed, or assessable by the authority for the purpose of stamp duty fee does not exceed 100% of the consideration received or accruing as a result of the transfer, the consideration received or accruing as a result of the transfer shall be deemed to be the full value of the consideration. The benefit of interest on loan deduction offered under this section for interest paid on specified housing loans was limited to loans obtained on or before 31.03.2020. However, as a result of this amendment, this benefit is now extended to loans sanctioned prior to April 1, 2021. During the amendments Bill deliberations, it was proposed that the condition of 729 days stay in India in the seven preceding fiscal years be removed.

The amended Bill now states that an Indian Citizen is deemed to be a resident of India if she is not liable to tax in any other country or territory due to residency or domicile in that country, and her total income, excluding income from foreign sources, exceeds INR 1.5 million in the relevant fiscal year. To encourage investments in India’s infrastructure sector by Sovereign Wealth Funds (SWF) and Pension Funds (PF), the Finance Act,2020, added clause (23FE) to Section 10 to provide an exemption from income in the form of dividends, interest, or long-term capital gains arising from an investment made in India. The Finance Bill of 2021 proposed amending various sections to make the reconstruction or division of a public sector company into separate companies a tax-neutral transaction. The Finance Bill, 2021 also proposes that such splitting up or reconstruction be treated as demerger under Section 2(19AA) if certain conditions are met.

The majority of the amendments proposed have been in the nature of clarification or removal of any difficulties in implementing the Finance Bill, 2020. The Equalisation Levy is the main addition made by the amendment. Online Tax consultants and professionals are expected to conduct additional research and discussions in order to better understand the past years amendments and their implications. ITR filing experts have reviewed the new section as a relief for middle class people as new Section 80EEA is introduced to provide for a tax rebate of up to Rs. 1.50 lakhs for interest on a loan taken from any financial institution for the acquisition of a residential house property with a stamp duty value of less than Rs. 45 lakhs.

Workload of ITR filing expert have been adjusted, if a person has not been assigned a PAN, an income-tax return can be filed using their Aadhaar number. If a person has linked his Aadhaar number to his PAN, he may use his Aadhaar number instead of his PAN in his income-tax return. Section 194N demands the payer to deduct TDS at a rate of 2% on cash payments/withdrawals of more than Rs 1 crore in a fiscal year. If a taxpayer fails to file an income-tax return, prosecution is initiated under Section 276CC if the tax payable is Rs. 3,000 or more. This limit has now been raised to Rs. 10,000. ITR filing expert considers this move as negative motivation for filing ITR before due date. A taxpayer may withdraw up to 60% of the total amount from the NPS tax-free. Before, the exemption was limited to 40% of the total corpus amount. Section 80CCD allowed a deduction of up to 10% of salary for contributions made by an employer to an NPS. In the case of Central Government employees, the limit has been proposed to be raised to 14 percent of salary. The standard deduction has been increased to Rs. 50,000/- (from Rs. 40,000/- the previous year). Salary and pensioners will be able to take advantage of the increased standard deduction. Sec. 23 has been amended to allow taxpayers to choose two houses as self-occupied dwellings (previously, only one house was allowed). Under Sec. 24, the taxpayer can now claim interest on both houses. The aggregate monetary limit for the deduction, however, would remain the same, i.e., Rs. 2,00,000/-.

There is an amendment u/s 54 where any capital gain arising on sale of long- term residential house and capital gain does not exceed Rs. 2 crore, tax payer is allowed to invest in two residential houses in India (previously it was only allowed in one house) and capital gain is taxed accordingly. This option is available to taxpayers only once in their lifetime. Tax consultant in Delhi views reduction of limit in positive way towards tax burden perspective as in the case of domestic companies, the threshold limit for a reduced tax rate of 25% has been raised from Rs. 250 crores to Rs. 400 crores. Thus, a domestic company whose total turnover or gross receipt in the previous fiscal year 2017-2018 does not exceed Rs. 400 crores are subject to 25% taxation. A company can choose to opt for the new tax rates in the financial year 2019-20 (i.e., assessment year 2020-21) or in any other financial year in the future. Once a company exercises this option, the chosen provision will apply for all subsequent years. To encourage India’s start-up culture, the Act states that start-ups and their investors who file required declarations and provide information in their tax returns will be exempt from any tax scrutiny in respect of funds raised and share premium valuations. Furthermore, special administrative arrangements will be made for pending start-up assessments and the resolution of their grievances. This will provide significant relief to well-known start-ups that have been penalised for raising capital at premium rates. The amendment proposed establishing a Social Stock Exchange on an electronic fundraising platform. The goal of this Exchange would be to list social enterprises and volunteer organisations that work with a social welfare goal in order for them to raise capital. To encourage foreign investment in India, the government has proposed the following measures like removing the 24 percent foreign portfolio investment ceiling and increasing Foreign Portfolio Investment (FPI) to sectoral limits (i.e., the maximum amount that can be invested in Indian Companies by the foreign investors). Combining the Non- Resident Indian Investor (NRI) portfolio investment route with the Foreign Portfolio

Investor (FPI) route and Allowing 100% foreign investment for insurance intermediaries, as against the current 49% cap. The majority of the amendments proposed in 2019 have been in the nature of improving self-reliant India. Regarding an amendment to Section 4 of the Payment of Gratuity Act, which increased the maximum gratuity limit from 10 lakh to 20 lakhs, the Finance Act 2018 amends the Income Tax Act, increasing the maximum tax exemption for gratuity payments to 20 lakhs. Other small major amendment that affects daily life is the cash payment limit for expenses (both capital and revenue expenditure), which has been reduced from RS. 20,000 to RS. 10,000 per day in aggregate per person. ITR filing expert workload got relieved as Individuals with taxable income of up to Rs. 5 lakhs will be given a simple one-page tax return form (excluding Business Income) and those who will be filing their first returns in this category will generally not be scrutinised. Due to increased awareness of income tax return filing, various tax consultant in Delhi and overall, India workload have increased to provide advice and information to their clients regarding amendments which can benefit them at individual level.

– Gaurav Sharma

Finance Team

AnBac Advisors