Finance Act 2020 notified by Finance Ministry
Amidst the COVID-19 outbreak and lockdown in various states, the Finance Bill 2020 introduced vide Union Budget 2020-21 was passed by both Houses of Parliament, with certain amendments including relaxation of ‘deemed residency’ rule for Indian citizens not liable to tax in any other country, enlargement in the scope of Equalization levy to include e-commerce supply or services, etc. Finance Act 2020 has been notified by Finance Ministry. Here are the key amendments of this Act:
1. Tax Rates:
A. TAX RATES APPLICABLE TO INDIVIDUAL AND HINDU UNDIVIDED FAMILY (HUF)
a) Option – I (OLD SCHEME)
| Income (Rs.) |
Proposed rate of tax (AY 2021-22) |
| Upto 2,50,000* |
Nil |
| 2,50,001-5,00,000 |
5% |
| 5,00,001-10,00,000 |
20% |
| 10,00,001 and above |
30% |
* For Senior Citizen Exemption Limit is Rs.3,00,000 and for Super Senior Citizen (80 years and above) Exemption Limit is Rs. 5,00,000
b) Option – II (NEW SCHEME)
| Income (Rs.) |
Proposed rate of tax (AY 2021-22) |
| Up to Rs 2.5 lakh |
Nil |
| From 2,50,001 to Rs 5 lakh |
5 per cent. |
| From 5,00,001 to Rs 7.5 lakh |
10 per cent. |
| From 7,50,001 to Rs 10 lakh |
15 per cent. |
| From 10,00,001 to Rs 12.5 lakh |
20 per cent. |
| From 12,50,001 to Rs 15 lakh |
25 per cent. |
| Above Rs 15 lakh |
30 per cent. |
*NOTE –
i. Refer Para 2 for other terms & conditions of new scheme.
ii. Cess @ 4% is leviable on the amount of income tax and surcharge, if any.
iii. Rebate under Section 87A continues for a resident individual whose total income does not exceed 5,00,000. The amount of rebate is 100% of income tax calculated before cess or 12,500 whichever is less (There is no mention of amendment of Section 87 A in Finance Bill; Accordingly it appears that deduction under the said section will still be available).
c) Surcharge to be added
| Income (Rs.) |
(AY 2021-22) |
| Upto 50 Lakhs |
Nil |
| 50 Lakhs – 1 Crore |
10% |
| 1 Crore – 2 Crores |
15% |
| 2 Crore – 5 Crores |
25% |
| Above 5 Crores |
37% |
B. CORPORATE TAX RATES
| Turnover Particulars |
Tax Rate |
| Gross turnover upto 400 Cr. in the FY 2017-18 |
25% |
| Gross turnover exceeding 400 Cr. in the FY 2017-18 |
30% |
| Where the company opted for Section 115BA |
25% |
| Where the company opted for Section 115BAA |
22% |
| Where the company opted for Section 115BAB |
15% |
In addition cess and surcharge is levied as follows:
Cess: 4% of corporate tax
Surcharge applicable:
| Income Limit |
Surcharge Rate on the amount of income tax |
| Net income exceeds Rs.1 Crore but doesn’t exceed Rs.10 Crore |
7% |
| Net income exceeds Rs.10 Crore |
12% |
However, the rate of surcharge in case of a company opting for taxability under Section 115BAA or Section 115BAB shall be 10% irrespective of amount of total income.
C. FIRMS
Flat tax rate of 30% and surcharge @ 12% of income tax if income exceeds Rs. 1 Cr. ; Further cess @4% will be levied.
2. Exemptions removed under new tax regime
Individual or HUF opting for taxation under the newly inserted section 115BAC of the Act shall not be entitled to the following exemptions / deductions :
(i) Leave travel concession as contained in clause (5) of section 10;
(ii) House rent allowance as contained in clause (13A) of section 10;
(iii) Some of the allowance as contained in clause (14) of section 10;
(iv) Allowances to MPs/MLAs as contained in clause (17) of section 10;
(v) Allowance for income of minor as contained in clause (32) of section 10;
(vi) Exemption for SEZ unit contained in section 10AA;
(vii) Standard deduction, deduction for entertainment allowance and employment / professional tax as contained in section 16;
(viii) Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23. (Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law);
List of Exemptions/Deductions available under new tax regime – Budget 2020
(ix) Additional deprecation under clause (iia) of sub-section (1) of section 32;
(x) Deductions under section 32AD, 33AB, 33ABA;
(xi) Various deduction for donation for or expenditure on scientific research contained in sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35;
(xii) Deduction under section 35AD or section 35CCC;
(xiii) Deduction from family pension under clause (iia) of section 57;
(xiv) Any deduction 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). However, deduction under sub-section (2) of section 80CCD (employer contribution on account of employee in notified pension scheme) and section 80JJAA (for new employment) can be claimed.
Following allowances shall be allowed as notified under section 10(14) of the Act to the Individual or HUF exercising option under the proposed section :
a) Transport Allowance granted to a divyang employee to meet expenditure for the purpose of commuting between place of residence and place of duty
b) Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office;
c) Any Allowance granted to meet the cost of travel on tour or on transfer;
d) Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.
3. Finance Act 2020 abolished Dividend Distribution Tax (DDT) on dividends. Instead, it made dividends taxable in the hands of investors at their slab rate.
4. Tax Audit Threshold increased.
In wake of ease of doing business, Tax Audit threshold has been increased to 5 crores from existing 1 crore by Finance Act 2020.
5. Changes in provision determining Residential Status of any individual
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