MEMORANDUM FINANCE BILL, 2020

PROVISIONS RELATING TO DIRECT TAXES

Introduction

The provisions of Finance Bill, 2020 (hereafter referred to as “the Bill”), relating to direct taxes seek to amend the Income-tax Act, 1961 (hereafter referred to as ‘the Act’), Prohibition of Benami Property Transactions Act, 1988 (hereafter referred to as “PBPT Act”), and Finance Act, 2013, to continue to provide momentum to the buoyancy indirect taxes through tax-incentives, reducing tax rates for co-operative society, individual and Hindu undivided family (HUF), deepening and widening of the tax base, removing difficulties faced by taxpayers, curbing tax abuse and enhancing the effectiveness, transparency, and accountability of the tax administration.

With a view to achieving the above, the various proposals for amendments are organized under the following heads:—

(A) Rates of income-tax;

(B) Tax incentives;

(C) Removing difficulties faced by taxpayers;

(D) Measures to provide tax certainty;

(E) Widening and deepening of the tax base;

(F) Revenue mobilization measures;

(G) Improving the effectiveness of tax administration;

(H) Preventing tax abuse; and

(I) Rationalization of provisions of the Act.

DIRECT TAXES

A. RATES OF INCOME-TAX

I. Rates of income-tax in respect of income liable to tax for the assessment year 2020-21.

In respect of income of all categories of assessees liable to tax for the assessment year 2020-21, the rates of income-tax have either been specified in specific sections (like section 115BAA or section 115BAB for domestic companies) or have been specified in Part I of the First Schedule to the Bill. These are the same as those laid down in Part III of the First Schedule to the Finance (No 2) Act, 2019, as amended by Taxation Law Amendment Act, 2019 (TLAA) for the purposes of computation of “advance tax”, deduction of tax at source from “Salaries” and charging of tax payable in certain cases.

(1) Surcharge on income-tax

The amount of income-tax shall be increased by a surcharge for the purposes of the Union,—

(a) in the case of every individual or HUF or association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Act, not having any income under section 115AD of the Act,—

(i) having a total income (including the income under the provisions of section 111A and 112A of the Act) exceeding fifty lakh rupees but not exceeding one crore rupees, at the rate of ten percent. of such income-tax; and

(ii) having a total income (including the income under the provisions of section 111A and 112A of the Act) exceeding one crore rupees but not exceeding two crore rupees, at the rate of fifteen percent. of such income-tax;

(iii) having a total income (excluding the income under the provisions of section 111A and 112A of the Act) exceeding two crore rupees but not exceeding five crore rupees, at the rate of twenty-five percent. of such income-tax;

(iv) having a total income (excluding the income under the provisions of section 111A and 112A of the Act) exceeding five crore rupees, at the rate of thirty-seven percent. of such income-tax;

(v) having a total income (including the income under the provisions of section 111A and 112A of the Act) exceeding two crore rupees, but is not covered under clause (iii) or (iv) above, at the rate of fifteen percent of such income-tax:

Provided that in the case where the total income includes any income chargeable under section 111A and 112A of the Act, the rate of surcharge on the amount of income-tax computed in respect of that part of the income shall not exceed fifteen percent;

(aa) in the case of individual or every association of person or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act having income under section 115AD of the Act,-

(i) having a total income exceeding fifty lakh rupees but not exceeding one crore rupees, at the rate of ten percent. of such income-tax; and

(ii) having a total income exceeding one crore rupees but not exceeding two crore rupees, at the rate of fifteen percent. of such income-tax;

(iii) having a total income [excluding the income of nature referred to in clause (b) of sub-section (1) of section 115AD of the Act] exceeding two crore rupees but not exceeding five crore rupees, at the rate of twenty-five percent. of such income-tax;

(iv) having a total income [excluding the income of nature referred to in clause (b) of sub-section (1) of section 115AD of the Act] exceeding five crore rupees, at the rate of thirty-seven percent. of such income-tax;

(v) having a total income [including the income of nature referred to in clause (b) of sub-section (1) of section 115AD of the Act] exceeding two crore rupees but is not covered in sub-clauses (iii) and (iv), at the rate of fifteen percent. of such income-tax:

Provided that in the case where the total income includes any income chargeable under clause (b) of sub-section (1) of section 115AD of the Act, the rate of surcharge on the income-tax calculated on that part of the income shall not exceed fifteen percent;

(b) in the case of every co-operative society or firm or local authority, at the rate of twelve percent. of such income-tax, where the total income exceeds one crore rupees;

(c) in the case of every domestic company except such domestic company whose income is chargeable to tax under section 115BAA or section 115BAB of the Act,—

(i) at the rate of seven percent. of such income-tax, where the total income exceeds one crore rupees but does not exceed ten crore rupees;

(ii) at the rate of twelve percent. of such income-tax, where the total income exceeds ten crore rupees;

(d) in the case of a domestic company whose income is chargeable to tax under section 115BAA or 115BAB of the Act, at the rate of ten percent; (e) in the case of every company, other than a domestic company,—

(i) at the rate of two percent. of such income-tax, where the total income exceeds one crore rupees but does not exceed ten crore rupees;

(ii) at the rate of five percent. of such income-tax, where the total income exceeds ten crore rupees;

(f) In other cases (including sections 92CE, 115-O, 115QA, 115R, 115TA or 115TD), the surcharge shall be levied at the rate of twelve percent.

(2) Marginal Relief—

Marginal relief has also been provided in all cases where a surcharge is proposed to be imposed.

(3) Education Cess—

For the assessment year 2020-21, “Health and Education Cess” is to be levied at the rate of four percent. on the amount of income tax so computed, inclusive of surcharge wherever applicable, in all cases. No marginal relief shall be available in respect of such cess.

II. Rates for deduction of income-tax at source during the financial year (FY) 2020-21 from certain incomes other than “Salaries”.

The rates for deduction of income-tax at source during the FY 2020-21 from certain incomes other than “Salaries” have been specified in Part II of the First Schedule to the Bill. The rates for all the categories of persons will remain the same as those specified in Part II of the First Schedule to the Finance (No 2) Act, 2019, for the purposes of deduction of income-tax at source during the FY 2019-20. For sections specifying the rate of deduction of tax at source, the tax shall continue to be deducted as per the provisions of these sections. Two new sections 194K and 194-O have been inserted specifying the rates within the sections. The rate of section 194 has been modified from the rate in force to ten percent.

(1) Surcharge—

The amount of tax so deducted, in the case of a non-resident person (other than a company), shall be increased by a surcharge,—

(a) in the case of every individual or HUF or association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Act, being a non-resident, calculated,—

(i) at the rate of ten percent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds fifty lakh rupees but does not exceed one crore rupees;

(ii) at the rate of fifteen percent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees but does not exceed two crore rupees;

(iii) at the rate of twenty-five percent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds two crore rupees but does not exceed five crore rupees;

(iv) at the rate of thirty-seven percent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds five crore rupees;

(b) in the case of every co-operative society or firm, being a non-resident, calculated at the rate of twelve percent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees;

(c) in the case of every company, other than a domestic company, calculated,—

(i) at the rate of two percent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees but does not exceed ten crore rupees;

(ii) at the rate of five percent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds ten crore rupees.

No surcharge will be levied on deductions in other cases.

(2) Education Cess—

“Health and Education Cess” shall continue to be levied at the rate of four percent. of income tax including surcharge wherever applicable, in the cases of persons not resident in India including company other than a domestic company.

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