Public Lecture on Analysis of Union Budget - 2020

Udupi Branch of Southern India Regional Council (The Institute of Chartered Accountants of India) in association with Poornaprajna Institute of Management, Udupi will organise a public lecture on the topic, "Analysis of Union Budget - 2020". Inauguration and blessings by His Holiness Sri Sri Vishwapriya Theertha Swamiji, President, Admar Mutt Education Council. CA Vishnumoorthi H,  Partner, Vishnu Daya & Company, LLP, Bangalore will be the resource person. All are cordially invited

Udupi Branch of Southern IndiaRegional Council (The Institute of Chartered Accountants of India) in association with Poornaprajna Institute of Management, Udupi organised a public lecture on the topic, "Analysis of Union Budget - 2020" at Prajna Hall of Poornaprajna Institute of Management. His Holiness Sri Sri Vishwapriya Theertha Swamiji, President, Admar Mutt Education Council inaugurated the programme and gave his blessings. CA Vishnumoorthi H,  Partner, Vishnu Daya & Company, LLP, Bangalore was the resource person. C A Narasimha Nayak, President of Udupi Branch of Southern India Regional Council welcomed the guests.  Mr. Abhaya Nayak of II Year MBA introduced CA Vishnumoorthi H. Miss Canis Second Year MBA student of Poornaprajna Institute of Management compered the programme. Dr. Bharath V, Director of the Institute proposed a vote of thanks. Dr. Bharathi Karanth, Associate Professor coordinated the programme. CA Kavitha M Pai T, Secretary of Udupi Branch of Southern India Regional Council was present on the stage during the function. Miss Abja and her team rendered prayer.  All the students and faculty of Poornaprajna Institute of Management and students from other colleges, members of the public and chartered accountants affiliated to Udupi Branch of Southern India Regional Council were present on this occasion.

Inaugural Address and Blessings by His Holiness Sri Sri Vishwapriya Theertha Swamiji

Report on “Analysis of Union Budget -2020” by Mr CA Vishnumoorthy                                 Prepared by Shubhanga of 2^nd Year MBA

We are grateful to our esteemed organization to host such a relevant program in the current scenario to study upon the “ANNUAL BUDGET-2020”. On behalf of my friends I also like to thank SIRC UDUPI Chairman CA NARASIMHA NAYAK to share their valuable knowledge in the field of finance.CA Vishnumoorthy had presented key aspects relating to BUDGET-2020. It has been divided into the following parts:

v  Incorporation of new personal taxation regime of reduced tax rates with no deductions in case of individuals and HUF

An individual/HUF taxpayer can opt for a simplified regime with lower tax rates. If the taxpayer has opted for this simplified tax regime such taxpayer will not be eligible for 80C deductions, HRA exemption, standard deduction, interest on housing loan, etc.

These are the detailed list of deductions to be foregone for availing new optional tax rates are;

·         Sec10(5) -         Leave Travel Concession

·         Sec10(13A)-     House Rent Allowance

·         Sec10(32)-       Allowance for the income of a minor

·         Sec10AA-         Exemption for SEZ

·         Section 16-      Standard deduction, Professional tax, etc.

Allowances prescribed u/s 10(14) (i) [Rule2BB (1)] are Travelling allowance, Daily allowance, Conveyance allowance, Helper allowance, Research allowance, Uniform allowance, Special compensatory allowance, Remote area allowance, Children education allowance, etc.

Under the new tax option for individual and HUF u/s 115BAC while computing total income following provisions to be made:

§  Loss/depreciations relating to deductions will not be deducted.

§  House property loss will not be set off against any other heads of income.

§  The option shall be exercised for every previous year where the individual or the HUF has no business income and in other cases, the option once exercised for a previous year shall be valid for that previous year and all subsequent years.

U/s 115 BAD- Co-operative societies for tax at 22%+ surcharge without exemptions are available. The provision also exempts Alternate Minimum Tax (AMT). Option to be exercised before filing ITR and cannot be withdrawn for that year or subsequent years.

SUMMARY OF TAX RATES FOR FY 2020-21

Tax rates for domestic companies:

Particulars	Tax rates
Total turnover or gross receipts during the previous year 2017-18 doesn’t exceed Rs. 250 Crore	25%
Other domestic companies	30%

If the company opted for Section 115BAA without MAT the tax rate applicable will be 22%. The provision is also made u/s 115BAB for new manufacturing and electricity generation companies at 15%. For book profits, the tax rate applicable will be 15%.

v  Dividend Distribution Tax

   In the Finance Bill 2020 major decision has been made in the case of exemption of dividend income from domestic companies as well as mutual funds in 10(34) and 10(35). It is also proposed u/s 57 that the deduction shall be a maximum of 20% of the dividend. It is worthwhile to buy back shares instead of paying a dividend that the budget continued with the tax on the buyback shares.

There will be no special tax rate on dividends, and it is decided based on the slab. The NRIs and foreign companies can pay tax at a concessional rate as per the treaty. If any domestic company has received a dividend from other companies then the deduction will be available u/s 80M to the extent of dividend declared before filing ITR to remove cascading effect.

v  Deferring of ESOP taxation

            The main component of compensation for startups employees is ESOP, where they are taxed as perquisites u/s17 (2) of the IT Act. In the present budget to ease the burden of payment of taxes following amendments were made:

Ø  ESOP -prerequisite upon the exercise by the employees of the eligible start-up would be taxed (TDS to be done) within 14 days of earlier of the following at the rate in force of the financial year in which the said specified security is allotted or transferred:

§  after 48 months from the end of relevant AY

§  from the date of sale of such stock

§  From the date, the assessee ceases to be the employee of the said Company.

v  Instant PAN through Aadhaar

There is a proposal to launch a system under which PAN shall quickly allot online by using Aadhaar as the main source of the document to fill the application form.

v  Due date of filing ITR

From the Assessment year, 2020-21 whether the firm having a tax audit it had derived salary or not the due date for filing ITR will be 31^st October(Before it is 30^th September).

v  Provisions relating to Trust, Institution and Funds

In the case of existing charitable institutions, proposed to grant the registration for a limited period. Now, these registered charitable institutions need to re-apply under the new regime within the proposed amendments by 31^st August 2020. The provisional registration has also been proposed for new charitable institutions who do not have started their activities registration will be valid for 3 years. Such charitable institutions are required to apply for 5 years registration within 6 months of commencement of activities or at least 6 months before the expiry of 3 years. According to sir’s viewpoint, the tax authorities should require to seek minimum documents or inquiry at the time of granting provisional registration to the new institutions under the new regime.

Under Sec10 (23C) it is also made mandatory to the educational institutions, university, any other medical institutions to follow the new provisions made under the IT Act.

v  Start-ups

The government has been giving a lot of importance to the start-ups where individuals try to stand on their own. The provisions relating to start-ups had rationalized in the Finance Bill 2020. Some of them are:-

§  Section 80-IAC shall be available to eligible start-up for a consecutive 3 years out of 10 years beginning from which it is incorporated. But the deduction shall be available to those businesses whose total turnover doesn’t exceed 100 crore rupees.

§  If an entity has been working towards innovation, development or improvement of products or services which generates wealth and employment creation will be considered as start-ups.

v  80G Donation

In the Budget- 2020 the government had made a major move in the area of charitable donations to filing the periodic return of donation and issue of the certificate of donation to donors which is very much similar to TDS returns and TDS certificates. The main agenda behind this amendment is to ease the process of claiming the deduction of donation by the donors. If the donor does not furnish any statement of return, then he will be subject to fee and penalty on the charitable institutions.

v  Scope of TDS on E-commerce transactions through the insertion of a new section

New Section194-O had been inserted in the IT Act to provide a new levy of TDS for E-commerce operators. The tax is deducted at 1% on the gross amount of such sales or service or both, if PAN is not provided then it will be 5% as per Sec206AA.

v  Tax Collected at Source on sale of goods over a limit

If the seller of goods whose total sales, gross receipts or turnover from the business exceed Rs.10 crores during an immediately preceding financial year is liable to collect TCS at 0.1% in consideration from the buyer in the PY over Rs.50 lakhs.

  An authorized dealer receiving an amount or aggregate of amounts of Rs.7 lakhs or more in a financial year for transfer outside India under Liberalized Remittance Scheme of RBI shall be liable to collect TCS if he receives sums over said amount from a buyer being a person remitting such amount out of India at the rate of 5%. But this provision may not apply if the buyer is liable to deduct TDS under any other provisions and deducted.

v  Taxing of Employer’s contributions to Recognized Funds

   If an employer has contributed more than Rs. 750000 in a year to RPF, SAF, NPS then such excess contribution will be liable to tax in the hands of the employee. Earlier this rule applied to only Superannuation Fund but now it had extended to all the other funds also. But in the context, contribution to gratuity fund cannot come into the picture under the rule. U/s 17(2) {viia} if any interest, return or dividend earned from those contributions also taxable in the hands of employees as a prerequisite.

v  Housing Project u/s 80 EEA

The deduction provides up to Rs.1.5 lakh in respect of interest on loan taken from any financial institution for the acquisition of a residential house property only when it is sanctioned between the periods from 1^st April 2019 to 31^st March 2020.

v  Approval of affordable Housing Project for availing deduction u/s 80IBA

There involves a 100% deduction for assesses engaged in the business of developing and building housing projects. The time limit for the approval of affordable housing project for availing deduction u/s 80IBA of the Act till 31-3-2021.

v  Residential Status

The IT Act 1961 specifies various conditions for determining the residential status of an Indian citizen or a person of Indian origin. A person will be considered a resident, i.e. their global income is taxable in India if they are in India for more than 182 days.  This has been reduced to 120 days.  Also, any Indian citizen who is not liable to tax in any other country or territory because of domicile or residence shall be deemed to be a resident of India.

v  Rate of TDS on fees for Technical services, other than Professional Services

The rate of TDS u/s 194 in case of fees for technical services to 2% from the existing 10%. But the TDS rate continued with 10% for other than technical services.

v  Concessional TDS rate on interest on Specified Offshore Loans u/s 194LC

Currently, the concessional withholding tax rate of 5% applies to borrowings made by an Indian company or a business trust until 30^th June 2020 from a source outside India by way of foreign currency loans or rupee-denominated bonds now proposed to extend the above period until 30^th June 2023.

v  Concessional TDS rate on interest on certain Bonds and Government Securities u/s 194LD

Currently, the concessional withholding tax rate of 5% applies to interest on government securities and rupee-denominated bonds of an Indian company payable until 30^th June 2020. But this period has been further extended to 30^th June 2023 and proposed that this tax rate will also apply to interest on municipal debt securities payable on or after 1^st April 2020 until 30^th June 2023 to FIIs and QFIs.

v  Section 94B: Interest paid to Permanent Establishment of a Non-Resident Bank to be excluded from Interest disallowance

It is proposed to amend Section 94B to provide that the provisions of deemed Artificial Establishment (AE) and the disallowance of interest deduction will not apply in a situation where:

ü  The borrower is an Indian Company/ Indian Permanent Establishment of a Non-Resident Company

ü  The lender is the Indian Permanent Establishment of a Non-Resident engaged in the business of banking.

v  Exemption to Non-Residents from filing Return of Income

Section 115A of the Act provides special rates of taxation for income like dividend, interest, royalty, and FTS earned by a Nonresident is exempted from the requirement of filing return of income in India if total income consists only of specified interests or dividend income and appropriate taxes have been withheld at source on such income.

v  Option for not availing deduction for specified businesses

Section 35AD of the Act provides for a 100% deduction of capital expenditure (other than expenditure of land, goodwill, and financial assets) incurred in certain businesses. This deduction is allowable during the PY in which such expenditure has been incurred. Further in this respect, no deduction is allowed under any other provision. It is proposed to amend the provision to make the deduction optional and the limitation of no deduction under any provision shall only apply if the assessee has exercised the option to avail the deduction under this section.

v  Applicability of SEP deferred, and definition revised

A new definition is proposed for Significant Economic Presence which includes.

v  transactions in respect of any goods, services, or property carried out by an NR with any person in India that includes the provision of download of data or software in the country provided the revenue therefrom exceeds the monetary threshold as may be prescribed

                                      OR

v  systematic and continuous soliciting of business activities or engaging in interaction with users (exceeding the number as may be prescribed) in India.

These transactions or activities will make SEP irrespective of whether:

·         If the agreement for such had been entered in India.

·         The non-resident has a place of business or residence in India.

·         Non-resident renders some services in India.

In the circumstances, it is proposed to defer the applicability of SEP to starting from the assessment year 2022-23.

v  Source Rule Amendment (Sec 9)

There is a proposal to extend the source rule for non- resident taxpayers by adding a new explanation 3A to the Section 9(1) (i) to provide that income attributable to the operations carried out in India will include such advertisement that targets a customer who resides in India or a customer who accesses the advertisement through internet protocol address located in India.

v  Penalty on falsification of books of account, forgery, and omission of book entry

If there any false or omission of entry or fake invoices leading to willful tax evasion those who assist in tax evasion also possess a 100% penalty equivalent to transaction value on any assessee.

v  Capital Gains

SEBI now permits the creation of segregated portfolios within the debt and money market mutual fund schemes. For taxation purposes, the period of holding of the units in the segregated portfolio will include the earlier period of holding of the units in the main scheme. The cost of acquisition of the units in the main scheme will be pro-rated in the ratio of the NAV of the assets transferred to the segregated portfolio. An assessment can opt to take the cost of acquisition of a capital asset (acquired before 1^st April 2001) at either its actual cost of acquisition or fair market value as on April 2001. When the capital assets in consideration, especially land & building now proposed to cap the fair market value at its stamp duty value as on 1^st April 2001.

v  Proposed Amendment in the provision of Section 254

Income Tax Appellate Tribunal (ITAT) to grant a stay of demand is proposed to be amended as under:

Ø  For an initial stay of 180 days – Upon deposit by the assesses of an amount not less than 20% of the amount of tax, interest, fee, penalty, or any other sum payable, or furnish security of equal amount in respect thereof.

Ø  For the period before 180 days not exceeding 365 days – ITAT on being satisfied that the assesses has deposited aforesaid amount not less than 20 per cent and the delay is not attributable to the assessee.

v  Insertion of Taxpayer’s charter in the Act

To build trust between the taxpayers and the tax administration, it is proposed to insert a new section 119A in the Act to strengthen the Central Board of Direct Taxation to;-

ü  Adopt and declare a taxpayer’s charter

ü  Issue such orders, instructions, directions or guidelines to other income-tax authorities, as it may deem fit for the administration of the charter.

A taxpayer charter refers to a set of taxpayer services to be provided by the tax administration in a certain and efficient manner.

v  Vivad Se Vishwas Bill-2020

Currently, there are 483000 direct tax cases are pending in various appellate forums. During the last budget, the government had come up with the new scheme “Sabka Vishwas” which is mainly launched to reduce the litigation of indirect taxes which led to settling 189000 cases. Now the Government also planned to bring the similar scheme to reduce the litigations related to direct taxes, where it is called by the name “Vivad Se Vishwas Scheme” where the taxpayer is required to pay only the amount of disputed taxes and get a complete waiver of interest and penalty provided if he/she pays on/before 31^st March 2020. This scheme will remain open until 30^th June 2020.

v  BUDGET HIGHLIGHTS 2020

Presenting the first Union Budget of the third decade of the 21st century, Finance Minister Smt. Nirmala Sitharaman, today unveiled a series of far-reaching reforms, aimed at energizing the Indian economy through a combination of short-term, medium-term, and long-term measures.

   The three prominent themes of Budget 2020 were as follows: -

·         Aspirational India - better standards of living with access to health, education and better jobs for all sections of the society.

·         Economic Development for all - “Sabka Saath, Sabka Vikas, Sabka Vishwas”.

·         Caring Society - both humane and compassionate; Antyodaya as an article of faith.

v  AGRICULTURE

Agriculture has been under stress for years despite the successive governments committing to reviving the sector that supports the livelihood of the major chunk of India’s population. To boost the agriculture sector Finance Minister proposed a 16 point formula along with the other allied activities to double the income of farmers in the next 2 years.

   The Centre will encourage states to take up modern agriculture laws including the Land Leasing Act 2016. The other 2 laws are Model Agricultural Produce & Livestock Marketing Act 2017, Model Agricultural Produce & Livestock Contract Farming and Services Act 2018.

v  GOODS AND SERVICES TAX

The Finance Minister coined GST as a historic structural reform in India. The various benefits that highlighted in her speech include:-

Ø  Reduction in turnaround time of trucks due to abolition of check posts

Ø  10 per cent reduction in overall tax incidence with an average of 4 per cent household savings.

Ø  Increase in tax base with the addition of 6 million taxpayers after certain teething issues in the initial two years.

v  Sabka Saath, Sabka Vikas, Sabka Vishwas

Ø  Preventive Healthcare: Provision of sanitation and water

Ø  Healthcare: Ayushman Bharat

Ø  Clean energy: Ujwala and Solar Power

Ø  Financial Inclusion Credit support and Pension Financial Inclusion, Credit support and Pension

Ø  Affordable Housing

Ø  Digital penetration

v  Budget at a Glance

The Union Budget 2020-21 has been presented amid an economic slowdown, coupled with rising food inflation. Economic activity has been losing momentum for the past five quarters, with questions on whether the current economic headwinds have bottomed out or will stay longer.

v  Revenue Expenditure and Capital Expenditure

As per the chart, it is shown that when in consideration to the Revenue expenditure during 2018-19 is Rs. 2007399 crores but for the budgeted estimates of 2019-20 it had gone up to Rs.2447780 crores. Now the budgeted estimates as on 2020-21 it had gone up to Rs.2630145 crores. The capital expenditure had been increasing gradually from Rs.307714 crores to Rs.348907 crores for the revised estimates of 2019-20. There has been a huge increase in the budgeted estimates for FY2020-21 to Rs.412085 crores.

  

v  Revenue Receipts and Capital Receipts

In this chart, we tend to know how revenue and capital receipts had an impact on the economy over the years. When we focus on revenue receipts, during 2018-19 it is Rs.1552916 crores. This had been gradually increased to Rs.1962761 crores during 2019-20. Due to the slowdown of the economy, there have been greater expectations on the present budget that how it will boost the economy to a higher level. At this time as per the revised estimates of 2019-20 budget shown Rs.1850101 crores.

Capital receipts had shown a growing trend over the years where it is Rs.762197 crores during 2018-19. As per the budgeted estimates of 2020-21, the flow of capital receipts is Rs.1021304 crores as against Rs.848851 crores during 2019-20.

Finance Minister’s budget announcements appear to be aimed at balancing growth aspirations and fiscal pragmatism. Considering the scale and sweep of challenges faced by the Government, the Finance Minister has done a commendable act in keeping the fiscal deficit at 3.8% in FY20 and projecting it at 3.5% for FY21, considering the expenditure expectations on the infrastructure and the social sectors. Though the impact of the proposals and announcements would be better understood as the fine print is deciphered, directionally, they are likely to aid consumption and job creation.

Thank you, sir, for sharing your valuable knowledge in the field of “FINANCE” to make sure that how the budget 2020 had impacted the economy in a way has been presented so nicely and reached effectively in an understandable language. We would expect these types of sessions in the future also.

-Shubhanga -2nd MBA - February 2020
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