Finance Bill, 2020

On March 23, 2020, Finance Minister Nirmala Sitaraman introduced the Finance Bill, 2020. The bill was introduced and passed in Lok Sabha without any discussion and was passed by voice vote.

Key Features of the Bill

The bill provides the financial proposals of the fiscal year 2020-21. With the bill being passes, the proposals made under the Union Budget 2020-21 has come into effect. The GOI proposed to spend Rs 30,42,230 crores of rupees in the financial year 2020-21. This is 12.7% more than the revised estimate of 2019-20.

The government has assumed a nominal Gross Domestic Product (GDP) growth rate of 10% in 2020-21, versus the nominal growth estimate at 12% for 2019-20. It expects that receipts will increase by 16.3% to Rs 22,45,893 crore, owing to higher estimated revenue from divestment.

Here are the key changes made in the Bill :

  • There is no change in the optional new tax rate structure options provided without any exemptions and deduction.
  • Similarly, Abolition of Dividend Distribution Tax and taxation of Dividend in the hands of shareholders is also passed as it is.However, it has been clarified that in respect of transition which is effective from 1st April, 2020, there will be no tax liability in respect of Dividend Income received by a shareholder after 1st April, 2020 if such dividend has been distributed by the company before 1st April, 2020 and DDT has been paid by the company while distributing such dividend. It is a clarificatory nature of change done in the bill.
  • One more key change is done in the provision with regard to TDS rate on payment of dividend to non-resident and foreign company. It has been prescribed now at 20%.It may be noted that the TDS rate of 10% on dividend for resident was already there in the original Finance Bill which has remained unchanged.
  • The dividend income earned by non-resident individuals will be subject to a maximum
    surcharge of 15%. The higher surcharge rates of 25% and 37% will not be applicable to
    dividend income earned by non-resident individuals.
  • The proposed section 194-O, which requires withholding of tax by an E-Commerce
    Operator on the amount paid to a resident e-commerce participant, shall come into effect
    from October 1, 2020.
  • It is now proposed that the rate for TCS on remittance overseas under LRS exceeding
    INR 700,000 will be reduced from 5% to 0.5%, if the remittance is out of a loan obtained
    from a financial institution (as defined in section 80E of the Act) for the purpose of
    pursuing any education. The section is now purported to be effective from October 1, 2020.
  • As per the provisions of section 194J of the Act, any person responsible for paying any
    fees for professional services or technical services (including payment for royalty) is
    required to withhold taxes at the rate of 10%. The Bill had proposed an amendment to provide for concessional rate of 2%
  • The period of stay in India for taxation of non-residents has been reduced from 180 days to 120 days as was proposed earlier.Non-resident Indians will be taxed on India-controlled income above Rs 15 lakh.
  • Tax exemption to Sovereign Wealth Fund extended to Pension Funds for infra investment.
  • No 2% tax on withdrawal of over Rs 1 crore cash from banks, co-operative banks, PO.
  • Tax on cash withdrawal of over Rs 20 lakh at the rate of 2% if tax return not filed for three years with effect from July 1, 2020.
  • Tax on cash withdrawal of over Rs 1 crore at 5% if tax return not filed for three years with effect from July 1, 2020.
  • One more change is proposed with regard to the widening of the equalistion levy @ 6%. It may be noted that equalization levy of 6% was introduced by Finance Act, 2016 in respect of payment to a non resident service provider exceeding Rs. 1 Lakh for online advertisements or digital advertising space or facilities. It has been widened so as to include payment for services for e-commerce trade and services as well.
  • The levy would be charged at 2% of the amount of consideration received by the e-commerce operator for supply or services rendered or facilitation of supply or services unless they have Permanent Establishment in India.The levy of 2% shall also not be applicable to online advertisements and provision of digital advertising space which are covered separately.