The Union Budget of India for 2020–2021 was presented by the Finance Minister, Smt. Nirmala Sitharaman on the 1st of February 2020, as her second budget. This is the first Union Budget of the third decade of 21st century.
The Key Highlights of Union Budget 2020-21 are as follows:
SECTION 80IAC OF THE INCOME TAX ACT - STARTUPS
a. 100% profit-linked deduction is eligible for start-ups for income earned from the eligible business. The deduction is available at the option for accompanies which incorporated on or after 1 April 2016 and before 1 April 2021.
b. With effect from the assessment year 2021-22, an eligible start-up can claim a deduction for any 3 consecutive assessment years out of 10 years (previously 7 year) from the date of its incorporation provided that its total turnover from the eligible business in the year of deduction does not exceed INR100 crore (previously INR25 crore).
SECTION 80-IBA OF THE INCOME TAX ACT - EXTENSION OF TIME LIMIT FOR APPROVAL OF AFFORDABLE HOUSING PROJECT FOR AVAILING DEDUCTION
The existing provisions of section 80-IBA of the Act, inter alia, provide that where the gross total income of an assessee includes any profits and gains derived from the business of developing and building affordable housing projects, there shall, subject to certain conditions specified therein, be allowed a deduction of an amount equal to one hundred per cent of the profits and gains derived from such business. The conditions contained in the section, inter alia, prescribe that the project is approved by the competent authority during the period from 1st June, 2016 to 31st March, 2020.
In order to incentivise building affordable housing to boost the supply of such houses, the period of approval of the project by the competent authority is proposed to be extended to 31st March, 2021.
DEDUCTION IN RESPECT OF INTEREST ON LOAN TAKEN FOR RESIDENTIAL HOUSE:
An additional deduction up to INR1.5 lakh will be continued to be provided for purchase of first residential house property, if the loan has been sanctioned between 01 April 2019 and 31 March 2021.
The time limit for loan sanction has been extended from 31 March 2020 to 31 March 2021.
MODIFICATION IN CONDITIONS FOR OFFSHORE FUNDS' EXEMPTION FROM “BUSINESS CONNECTION”
The Act provides that in respect of an eligible investment fund wherein the fund management activity, if carried out through an eligible fund manager located in India and acting on behalf of such fund, shall not constitute a business connection in India (Section 9A). Further, an eligible investment fund shall not be said to be resident in India merely because the eligible fund manager undertaking fund management activities on its behalf is located in India. The benefit criteria under section 9A are linked to residence of fund, corpus, size, investor broad basing, investment diversification and payment of remuneration to fund manager at arm's length.
The following changes will now be made to the prescribed conditions:
a. for the purpose of calculation of the aggregate participation or investment in the fund, directly or indirectly, by Indian resident, contribution of the eligible fund manager during first 3 years up to twenty-five crore rupees shall not be accounted for; and
b. The cut-off date to satisfy the “monthly average of corpus of fund” condition (i.e., INR 100 crore) for the funds established during the financial year shall be 12 months from the last day of the month of its establishment or incorporation.
INCREASE IN SAFE HARBOUR LIMIT IN CASE OF IMMOVABLE PROPERTIES FROM 5% TO 10% - SECTION 43CA, 50C & 56 OF THE ACT
As per the provision of the Income Tax Act, if consideration from transfer of land or building or both, is less than the stamp duty value and the difference between the two is less than 5% of actual consideration, then the actual sale consideration is deemed to be full value of consideration for the purposes of computation of capital gains and business income. Further, the buyer or recipient of such property is also taxed on the difference amount if the difference is more than 5%
Thus, the present provisions of section 43CA, 50C and 56 of the Act provide for safe harbour of five per cent.
The above safe harbour of difference in stamp duty value and actual consideration is increased to 10% in the hands of both transferor and transferee
This amendment will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-22 and subsequent assessment years.
TDS ON E-COMMERCE TRANSACTIONS [SECTION 194-O]
It is proposed to insert a new section 194-O so as to provide for a levy of TDS at the rate of 1% to be deducted by an e-commerce operator on the gross amount of sales or services of an ecommerce participant with the following key points:
The TDS is to be paid by e-commerce operator for sale of goods or provision of service facilitated by it through its digital or electronic facility or platform.
E-commerce operator is required to deduct tax at the time of credit of amount of sale or service or both to the account of e-commerce participant or at the time of payment thereof to such participant by any mode, whichever is earlier.
1% TDS is required to be deducted on the gross amount of such sales or service or both.
Any payment made by a purchaser of goods or recipient of services directly to an ecommerce participant shall be deemed to be amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sales or services for the purpose of deduction of income-tax.
An e-commerce participant being an individual or Hindu Undivided Family is exempt from TDS, if the following conditions are cumulatively satisfied. The exemption is only for sale of goods or services and not for other transaction
Where the gross amount of sales or services or both does not exceed 50 lakhs
• Upon furnishing of Permanent Account Number (PAN) or Aadhaar number to the ecommerce operator.
• If no PAN or Aadhar is furnished by e-commerce participant then TDS @5%will be applicable
• This amendment will take effect from 1st April, 2020.