This comment has been co-authored by Ajay Rotti, Partner, Dhruva Advisors LLP

"The Union Budget 2020 from a direct tax point of view proposed a few big-ticket amendments.

A reduced personal income tax regime, devoid of exemptions and deductions is proposed. The reduced corporate tax regime is extended to new power generation companies.

In order to boost market sentiment, DDT in the hands of the company is proposed to be abolished. Dividends will now be taxed in the hands of the shareholders. Provisions for start-ups are proposed to be rationalised with respect to the manner of taxation of ESOPs, threshold criteria to qualify as a start-up. 

From a digital tax perspective, significant economic presence provisions are proposed to be deferred, in line with a consensus based approach of the OECD proposed to be agreed by end 2020. Further, withholding taxes on e-commerce companies for sale of goods/ services is proposed at 1%. 

Further from a BEPS perspective, amendments are proposed to be made to bring in the text of Multilateral Instruments. The definition of ‘resident’ for individuals is also proposed to be amended to ensure avenues for double non-taxation are closed.  

A settlement scheme is also proposed wherein taxpayers can settle litigation on payment of disputedtaxes by March 31, 2020 and an additional amount by June 30, 2020.  The law is proposed to be amendment to require the CBDT to declare and adopt a Tax Charter.  Which is another welcome move."   

Multiple changes aggregating to a wholesome tax overhaul

"FM Sitaraman started her Budget speech with an objective to further aspirations of Indians and also contribute to economic development, a paradigm shift in governance. The proposals, in general, may individually appear to be selective/specifically targeted measures, however, a deeper reading reveals that the collective effect on the economy is poised and promising. The stress upon the simplification of tax policy and administration was clearly visible.

The optional alternative tax slab system is certainly attractive, to the substantial benefit of the salaried class. Several proposals such as increase in turnover threshold for audits, pre-filled ITR, tax deferment on ESOPs for startups, extension of tax holiday on affordable housing are projected to cheer low/medium-earning taxpayers (including small businesses). Startups and MSMEs are big gainers with numerous minor changes which would certainly stimulate growth. Particularly, extension of the lower Corporate Tax rates to new power companies and co-operative societies is a seeding attraction. Abolition of DDT will increase attractiveness for furthering investments, particularly FDI. However, this could be detrimental to the high-income shareholders.

Toughening anti-evasion avenues has received great consideration. The dispute resolution scheme, which certainly falls short of being termed as an ‘amnesty’, is a breather for those majority taxpayers to wriggle out of unexpected interest and penal consequences. Overall, it is a liberal budget from a tax perspective, with few misses and an impressive inclusive mandate benefiting most deserving sectors."

The writer is managing partner, BMR Legal assisted by Shankey Agrawal and Joseph K Anthony. 

"The budget was presented amidst radical expectations ranging from a steep cut on the personal tax front, abolition of capital gains upon the sale of shares, and introduction of an attractive amnesty scheme that sought to put an end to impending litigation. Whilst the expectations were very tall, the Finance Minister has introduced tax measures that is reflective of the fiscal situation on hand. 

On the personal tax front, the introduction of the option to opt for lower tax rates would need some careful evaluation of the tax cost before adoption of the same. On the corporate taxes, the abolition of DDT is a significant and the move to shift the tax burden to the recipients may lead to higher taxes in some cases but would be beneficial to non-resident shareholders  who could not claim a DDT credit under the present regime. Further the move to provide 100% exemption to sovereign wealth funds in infrastructure and other notified sectors under specified conditions should help in attracting much needed push needed to the relevant sectors. Further the move to extend the lower withholding taxes u/s 194 LC and 194 LD is on foreign debt is logical to attract investment. Further the move to open up of certain specified categories of government securities for foreign investors and increasing the FPI limit in corporate bonds from 9% to 15% is a welcome move and should help deepen the bond market in India.

On the litigation front introduction of quasi-settlement scheme by payment of taxes and waiver of interest and penalty should assist in reducing ligation to some extent and assesses would need to make a careful choice depending on the complexity of issues and the amounts involved under litigation.

Overall the tax measures introduced in the Budget may not be euphoric but certainly progressive and one that attempts to address the fiscal situation on hand."

A Budget with calibrated moves

Finance Minister indeed had an arduous task of presenting the first budget of the government for the decade, arguably in the most daunting macro-daunting circumstances. Moderated growth numbers, sluggish tax collections and uninspiring divestment proceed causing marginal slippage in fiscal deficit targets were challenges presented by the Economic Survey. Seen from that lens, the FM has most certainly delivered a fine balance between its socio-economic programmes and the demands from the industry for more growth impetus. In doing so, the government has taken a bold move to sway from fiscal consolidation targets for rolling out structural reforms in the economy.

From tax policy standpoint, several rationalization measures aptly complement recent headline corporate tax rate cut to 25 percent. Proposal to replace DDT by classical taxation system is a major draw, and would enhance planned return on investments largely for foreign shareholders. For infrastructure sector, extending reduced tax rate of 15 percent to electricity generation companies, extension of concessional 5% tax withholding rates for select foreign borrowings and tax exemption on certain earnings of sovereign wealth funds are other key rate rationalization measures which score quite well. Startups also had their share in the pie, as they can benefit from the enhanced turnover limits and extended eligibility period of 10 years.

What more particularly stands out is, the proposal to legislate taxpayers’ charter in the Income tax law; this has been long time coming in the wake of the government’s objective of reforming tax administration and ensuring taxpayer service is at the core of administrative regime. Measures for faceless appeals and dispute resolution scheme for direct taxes, align with the stated intent of the government that wealth creators shall not be harassed are huge takeaways.

There are certain proposals adding to the tax burden that may be dampening or providing relief that seem half-hearted eg employers contribution to provident and superannuation fund, modification in residency definition, reduction in individual tax rates, ESOP taxation, modification of condition for off-shore funds.

Overall, the budget appears to have delivered on broad expectations and will likely promote private investments and wealth creation.

"Budget 2020 was widely expected to be a “Go for Growth“ Budget where even a temporary slippage in target fiscal deficit was recommended to ensure that growth impulses in the economy get enhanced. At the same time, India’s hard earned recent macro economic stability could be seriously jeopardised if the fiscal deficit was allowed to go haywire to get a short lived impetus to consumer demand. Considering the scale and sweep of the challenges faced by Govt, the FM has done a commendable balancing act in allowing fiscal deficit to reach 3.8 % in FY 20 (against a target of 3.3%) and a slightly higher target of 3.5% in FY 21 by keeping intact the trajectory of social and infrastructure spending in the economy.  The widely expected removal of Dividend Distribution Tax (DDT) completes the revamping of the corporate tax structure in India and truly makes India one of the most attractive investment destinations in the world. This step alone should considerably improve the ROI for foreign investors in Indian companies. The exemption of tax on interest, dividends and capital gains for investments in specified infrastructure projects by Sovereign Wealth Funds (SWFs) would enable India to tap into large pools of long term global capital. Similarly, the relaxation in limits of FPI investment from 9% to 15% of outstanding value of corporate bonds will enhance investments in India’s bond market.  The optional lower rates of personal income tax in lieu of availing various exemptions and deductions is a significant reform on the back of similar redesign in the corporate tax rate structure. Lastly, the dispute resolution scheme is a welcome announcement giving an attractive option to taxpayers to pay the disputed tax before March 2020 and avail exemption from interest and penalties. It would have been better if, like for indirect tax scheme, the requirement was kept at payment of 50% of the disputed tax amount rather than 100%."

The Economic Survey presented by the Chief Economic Advisor on Friday, the 31st January, 2020 gave a signal that we can hope and optimistic ; for one thing, it acknowledged the various gaps in the economy that needed to be addressed. However, in terms of the Budget today, at least on the direct tax front, it has been a significant disappointment, since not only has no meaningful thrust addressing consumption issues and tepid growth, been provided, but, on the contrary, several negative and outlier provisions have been introduced in the fine print.

Touted as the toughest budget in a decade, the Government had its task cut for pleasing the taxpayer and the investors. Whilst the direction is clear to eliminate tax harassment and simplify taxes, whether it would provide the necessary impetus and optimism in the economy only time would tell.

There have been significant changes proposed in the tax provisions which would have impact on the transactions / Mergers and acquisitions space:

• Elimination of Dividend Distribution tax –

This was the long standing demand of the industry. DDT was as an additional cost for repatriation of dividends from Indian companies.  Hence, the acquisition of holding company or investment in Indian operating entity by foreign companies was expensive. Further, the foreign companies would also be able to take credit of withholding taxes on dividend paid in India.

• 15% concessional tax rate extended to Power sector -

The reduction in taxes should act as a catalyst for investment in the Power Sector.  This can provide much needed relief and the foreign investors may look at the sector from positive lens.

•  Start ups provided with additional tax benefits i.e. taxability of ESOPs in the hands of the employees, definition of start ups amended to increase turnover qualification criteria from Rs 25 crs to Rs 100 crs, increased period of deduction;

• Time period to obtain approval for affordable housing project extended to March 2021.  This may attract foreign investment in the sector.

• Period for 5% withholding taxes extended for foreign currency borrowings

The above amendments/incentives may act as one of the key parameters during the M&A deal.

"The Union Budget is directed at three different objectives.  Attracting foreign investment is clearly important and the amendment to the dividend distribution tax provisions is designed for this. Interestingly, these provisions are not going to be of much relief to Indian shareholders and promoters.  The second objective is to make it simpler for the common man to compute and pay taxes.  This is evident from the various proposals to simplify the personal income tax regime.  Finally, this government is keen on promoting make in India. The customs proposals are clearly directed at building a strong domestic industry that manufactures goods in India. The rates have been modified, the free trade agreement benefits tightened.  It is clear that the government is really serious in this regard. And this is what this Budget seeks to achieve."

"There are several important changes proposed in the Finance Bill. The move to eliminate the Dividend Distribution Tax and shift to the classical system is a positive move, that will simplify the corporate tax regime. Importantly, it will make it easier for foreign investors to claim treaty benefits and foreign tax credits in their home country and enable small shareholders to pay tax on dividends at the usual marginal rates. Under the DDT regime, many taxpayers were facing protracted litigation on disallowance of expenditure attributable to the hitherto exempt dividend income. This litigation will be avoided under the proposed classical regime.

The new regime for personal taxes also carries forward the strategy adopted by the Government last year for corporate taxpayers as regards incentives. Instead of directly eliminating incentives, the approach seeks to provide alternative beneficial regimes that are conditional upon not claiming incentives and deductions. From a foreign investment standpoint, the proposal to exempt sovereign funds from tax on their income debt and equity investments in India’s infrastructure sector is a very significant step, and could go a long way in financing India’s infrastructure needs. 

Though full details of the ‘Vivad se Vishwas scheme’ are not yet available, it could also help bring down pendency in tax disputes, and help the Government unlock significant revenues locked up in litigation."

"Budget 2020 focuses on ‘Aspirational India’, ‘Economic Development’ and ‘Caring Society’, providing emphasis on agricultural, healthcare, solar, education, infrastructure sector, etc. 

From an overview of the budget speech, government seeks to embrace broader goals of liberation of technology and electronic movement, boost to government’s Make in India initiative by laying down additional customs duties, face-lifting personal income tax laws and incentivizing investment in infrastructure and notified sectors.

Impetus through a new scheme, is proposed to be given to indigenous electronics manufacturers for mobiles, semi-conductor packaging and electronic equipment along with medical devices. This should help India in generating foreign investment and employment opportunities. Much anticipated encouragement to farming community, through support for building advanced infrastructure for solar power generation, is a welcome move.

Introduction of Vivaad se Vishwas Scheme, in line with the Sabka Vishwas Scheme, for Direct tax dispute resolution, is a welcome move. The details would need to be analyzed. Besides this, Institution of tax charter in statutes seems to be introduced for direct taxes, this would be helpful for taxpayers to reduce tax harassment by officers and instill confidence in the bigger tax payers. It should be made applicable to indirect taxes as well.

From an indirect tax perspective, the Union Budget has again laid focus on its key agenda of “Make in India” and “Ease of doing business”, with an increase of customs duty on certain sectors like healthcare. This has also been supplemented with the withdrawal of exemptions or increase in rate of customs duty, on import of certain electronic goods. Changes in the Customs sphere seem to align country’s policies with global norms, set in the current environment."

"Overall, the Budget has sought to address the issues of every sector and taken into account various demands and representations from taxpayers.  On Corporate Tax front, the long pending demand of corporates for abolition of Dividend Distribution Tax has been fulfilled, leaving more money in hands of companies to distribute to shareholders.  Instead, the Dividends will be taxes in hands of shareholders, paving way for foreign investors to claim credit for such tax on dividends in their home country.  The Government has listen to the woes of the starts up and has given further tax benefits to start-ups increasing turnover limit for eligible start-ups from existing 25 to 100 crores, increasing window for claiming tax holiday to 10 from existing 7 years and also allowed deferment of tax on ESOPs granted to employees by start-ups which will provide a much needed relief  On personal tax side, the Government has apparently tried to simplify the tax calculations while giving the taxpayers an option to give up all their exemptions/ deductions and be eligible for beneficial tax slabs. However, in this process the Government has in fact created 3 more slabs which may make calculations more complicated for individuals.

In a significant move to reduced tax litigation and give certainty, Government also introduced an amnesty scheme for Direct Taxes, allowing taxpayers to pay their disputed tax dues by 31 March 2020 or June 30 and claim immunity from penalty and interest. This will be a win-win situation for the tax payer and the government both."

The New Rules for Determination of Residential Status  

The Finance Bill, 2020 (“FA20”) makes far reaching changes in the manner of determination of the Residential Status of the Individuals and HUFs under the Income Tax Act, 1961 (“the Act”) by proposing amendment to Section 6 of the Act. 

"Citizenship now an Important criterion 

Hitherto the citizenship played a very minor role in determining the residential status of an individual and whenever it played it played the role of being beneficial to the Indian Citizens.  However, a draconian provision have been introduced to consider an Indian Citizen as resident of India, if he is “not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.” 

Therefore, the popular concept of global non-resident will not longer be applicable to the Indian citizens.  If you are an Indian citizen and if you are not liable to tax by reason of your domicile, residence or any other criteria of similar nature in any other country, then you will be treated as resident.  This would have a far reaching impact, especially to those persons who have during the recent times migrated out of India due to the tax consequences.  Since most of these persons have businesses in more than one countries they continue to remain global non-residents as they do not meet the criteria of residence in any of the countries and are therefore not liable to be taxed in any country by reason of their domicile, residence or criteria of similar nature. 

Curtailment of benefit of visiting India to NRIs 

Under the existing provisions, a person who is a citizen of India or person of Indian Origin (NRI), he would not become resident in India if he visits India during a previous year but his total stay in India does not exceed 182 days, even where his stay in India during immediately preceding 4 previous years is 365 days or more.  A person other than a citizen of India or a NRI would become resident if he stays in India for 60 days or more in a previous year.  However, by virtue of special concession given to a citizen of India or a NRI, the said period of 60 days was extended to 182 days and accordingly he would not become resident even if he stays upto 181 days in a year, despite the fact his stay in India for immediately preceding 4 years has been for 365 days or more. 

This period of 182 days available to the Citizens of India or NRIs is now proposed to be reduced to 120 days.  Therefore, if a citizen of India or NRI satisfies cumulatively the following two conditions, then he would become resident of India:

(i) He has been in India for 365 days or more in 4 years immediately preceding the previous year; and

(ii) He has been in India for 120 days during the previous year; 

This would also significantly affect the persons who has significant interests in India and is managing such businesses or activities from outside India while maintaining his non-resident status.  With this amendment they will be able to visit India for a period of less than 120 days.  

Relaxation of norm for becoming Ordinary Resident 

Hitherto a person would become ordinary resident unless he has been non-resident in 9 out of 10 years immediate preceding the relevant previous years.  Therefore, in case of a person becoming resident of India, he can maintain his status as not ordinarily resident only for 2 years.  i.e. the year in which he becomes resident for the first time and then in the subsequent year.  In the year after that (i.e. the third year) he would become ordinary resident. 

As a major relief to the such returning Indians or ex-patriates, a person would not become ordinarily resident if he has been non-resident in 7 out of 10 years immediately preceding the relevant previous years.  Accordingly a person will be able to maintain the status of not ordinarily resident for a period of 4 years after returning to India or an expatriate would be able to provide service in India for a continuous period of 4 years without being ordinarily resident of India. 

The earlier provision was creating serious difficulties for the expatriates and also returning Indians.  This amendment will release the pressure to a certain extent. 

These amendments are made primarily to target those persons who have moved out of India during the recent times."

"Budget 2020 on direct tax side seems to be more or less on expected lines atleast in so far as rationalisation of personal tax rates are concerned upto the threshold of taxable income of Rs. 15 lakhs to leave more disposable income in hands of the individuals. This of course needs to be thrashed out after considering how tax impact of exemptions/ deductions which cannot be availed works out in individual cases. There is no change in surcharges for higher incomes announced which will disappoint large income tax payers. There is no relief in tax rates to Firms looks like unlike some relief announced for co-operative societies post rationalisation of corporate tax rates.’

The rationalisation of tax rates for start ups under section 80IAC of the Income-tax Act, 1961 (‘Act’) is largely to synchronise turnover criteria in DIPP policies with those under the Act. Also in so far as Real Estate sector is concerned there is no significant new measure or benefit announced other than extension of benefit to profits on affordable housing projects approved upto 31 March 2021. Similar to above, benefit u/s 80EEA of the Act is extended upto 31 March 2021. The increase in safe harbour limit to 10% under section 50C of the Act will give some relief although it would be more prudent to reflect modified circle rates in stamp duty laws by states to reflect present market condition. The announcement of deferring taxes on ESOP’s of start ups is a welcome move although the fine print needs to be looked at. A welcome provision of reduction in TDS rates u/s 194J to 2 % from 10% qua technical services will avoid fruitless litigation of short deduction of taxes where there was confusion as to whether section 194C applied or section 194J applied.

Measures announced to improve effectiveness of tax administration to impart greater efficiency, transparency and accountability will be keenly awaited. Also the E-appeal process and its implementation is a measure to be watched out for in coming years.

Over and above the aforesaid items there are various items like below whose impact will need to be analysed eg.:

1. Alignment of purpose of DTAA with multilateral instruments;
2. Rationalisation of provisions relating to trusts , institutions and funds
3. Aspects of pre-filled return forms with donations made with donee declarations to cross check
4. Allowance of benefit of carry forward of losses or depreciation under section 72AA of the Act to address issues faced by PSB and General Insurance Company mergers
5. Exemption to certain categories of Non-residents under section 115A of the Act from return filing requirements fulfilling specified requirements etc. 

Also the ‘Vivaad se Vishwas’ dispute resolution scheme will help declog the litigation cases pending before CIT(A), Tribunal and courts while allowing government to realise tax revenues quickly. However, the date of 31st March 2020 may prove to be too near for tax payers to evaluate adoption of this option. Having said that, it is certainly a step in the right direction."

"The Finance Minister stepped up to present Budget 2020, in the backdrop of a low GDP growth rate and sluggish economy. The main thrust of the Budget was around health & well-being, infrastructure development and ease of doing business. The Finance Minister announced slew of proposals on the direct tax front. One of the proposals is in relation to rationalization of personal income tax rates along with removal of exemptions / deductions. Further, as a welcome move, it is also proposed to abolish DDT and fall back to the historical method of taxing dividends in the hands of the shareholders. In order to provide a boost to the start-ups, the taxation of ESOPs in the hands of the employees of start-ups has been rationalized. It is also proposed to introduce “Vivaad se Vishwas” scheme for settlement of pending direct tax disputes. Directionally, it is a good budget aimed at stimulating growth, simplifying the taxation structure and minimizing administration."

Several important tax measures : 

- DDT abolished - as demanded and expected. Dividends will now be taxed in the hands of the shareholder as per the tax rate applicable to him. This is a major relief in respect of distributed income and inviting equity investment 

-  in a bid to give push to major investment in infrastructure, any income from investment  by a sovereign fund in infrastructure prior to 39 June 2024 and locked in for 3 years will be exempt from tax in India 

- 5% withholding tax on interest for bonds has been expanded to give impetus to more debt investment

The number of days’ presence in India for remaining  non- resident is reduced for those who are  non- resident  to 120 days from 182 days. This means that those who actually have their businesses in India and stay in India for more than 120 days while they are resident elsewhere, would now become resident in India. They will have to live outside India for more than  245 days to be able to remain out of Indian tax net. Also  Indian citizen, who is not taxed elsewhere in the world for whatever reason and also not taxed in India because not being present in India for more than 120 days, will now be taxed in India. This will hit those who have moved out of India to tax havens but not yet got their  foreign citizenship

-  startup can give ESOP to founders without tax being attracted at the time of shares being issued. The tax event is pushed to the earlier of 5 years from date of issue of shares, or the person leaving the company or sale of shares. 

-  individuals are given option to elect to be taxed under lower tax bracket and not claim any deduction or continue to claim deduction and be taxed at old rates. Makes it easy for all new entrants to tax net

"Central GST collection target for this financial year (FY 19-20) has been revised downwards from INR 526,000 crores to INR 514,000 crores. The target for FY 20-21 has been pegged at INR 580,000 crores, a growth of about 13% from the revised collection target, which seems to be a positive step towards setting up more realistic targets.

On GST, directionally, thrust towards simplification and technology led administration is expected to continue. The proposal of implementing a system of cash reward to incentivise customers seeking invoice should help create a more compliant GST ecosystem. Proposal to make fraudulent claim of input tax credit without any invoice or bill a cognizable and non-bailable offence is important and should help the Government enforce a check on tax evasion, though it needs to be ensured that the same is implemented well on the ground. 

Changes incorporated in the Customs Act to provide for stringent checks on preferential duty claims on goods imported under a free trade agreement (FTA) based on rules of origin requirements would necessitate a complete review of current imports by the businesses. 

There has been a decision to review all Customs duty exemptions by September 2020, which is a directional shift to provide additional incentive to domestic manufacturing. However, it will have to be seen if increasing Customs duty alone would help the Government meet this objective."

Transfer Pricing

"The Budget has proposed a dispute resolution scheme that may help companies to resolve their pending disputes and reduce the volume of pending cases in the courts. Taxpayers usually do not want to litigate but at times they need to litigate due the risk of penalties. Further, in the area of transfer pricing, the Budget proposes to extend the benefit of APAs to the question of PE attribution. A lot of times clients may be willing to agree to attribution to avoid PE controversy, rather than get into prolonged litigation on the legal question of PE. The APA would help the foreign companies to get an agreement on their attribution which was not possible until now. This is a very welcome change and would help foreign companies get more clarity on their tax outcomes."

Digital Taxation

“The Budget has moved a step ahead on Digital Taxation. The taxation of foreign companies in case of a significant economic presence in India will need global multilateral agreement for seamless implementation. Current tax treaties would override the proposed amendment. Nevertheless, it’s the beginning of Digital Tax and would trigger multilateral negotiations and hopefully, an agreement too.”

"While the Budget speech of our Honourable Finance Minister seemed long, it was well structured to articulate measures proposed by the government across various buckets of Aspirational India, Economic development and Caring Society. The impetus of the budget was definitely to boost economic development by creating more income in hands of Indians. It was surprising that the market reacted negatively despite abolition of DDT and personal rate cuts. I think not tinkering with LTCG was the culprit of the negative sentiments. Having said that, on the tax front a number of proposals have been considered by the government based on various expectations laid out by the tax payers in the last few months. 

The government has taken serious steps in reducing litigation and tax harassment for tax payers in the last few years, whether it is to increase the threshold limit of appeals for revenue, introduction of amnesty scheme for IDT to settle disputes, impetus on bilateral APA negotiations, faceless assessments etc. Continuing this momentum, the most critical budget proposals to further resolve or reduce disputes in this Budget have been the following announcements: 

• Advance Pricing Agreement program for attribution of profits to a Permanent establishment: While the original FAQ of the APA program clarified to include these cases, in the last two years there was a push back from the authorities to consider this as it was not clearly part of the law. Bringing it now clearly under the APA provisions is a very positive step by the government to provide an option to the tax payer to consider an APA mechanism to resolve PE attribution issues instead of litigating them. While the APA program is extended to included attribution of profits to PE, it will be critical that attribution mechanisms under APA should be restricted to the transfer pricing methods used internationally and no unilateral apportionment method must be considered unless international consensus is reached on this matter.  
• Introduction of direct tax dispute settlement scheme called Vivaad Se Vishwaas (VSV).The scheme provides an option for the taxpayer to settle their cases in appeal by paying 100% of the tax dues by March 31, 2020. Opting for such scheme will give them a waiver of interest and penalty. While the scheme was introduced on the back of success of the IDT scheme launched last year, the IDT scheme had a concessional offer to pay 50% of taxes, unlike 100% in the proposed VSV proposed. There is also an option to pay after March 31st but before June 30, 2020 in which case they may have to pay 10% additional to the tax amount. The fine print of the scheme is awaited to evaluate the various nuances. Impact of whether secondary adjustment would trigger if the tax payer opts for the VSV scheme is also to be considered. 
• Extending the DRP mechanism to all non-resident persons not only foreign companies. The DRP mechanism was applicable only if there was a variation of income. For eg if the tax rate was challenged and income was not disturbed in such cases tribunals held that DRP route cannot be considered. The budget proposes to do away with these wordings I.e. variation to income is not necessary."
• Faceless appeals has also been introduced to achieve the objective of less human intervention not only at assessment stage but also seems to be at first appellate stage. This is an extension of the faceless e-assessment scheme. The effort is to ensure effective dispute resolution, however, appropriate implementation measures should be taken to ensure this is smooth and does not result in fact in lack of opportunity for taxpayers to explain their cases in complex adjustments which may require personal hearings to explain their proposition.

All in all, steps in the right direction have been taken by the government to reduce litigation and tax harassment, what is critical to evaluate is - whether the implementation of these measures will be carried out in the right spirit and effective manner, both by the tax payer and tax authorities." 

"After presenting the Economic Survey 2019-20 yesterday, the Hon’ble Finance Minister Ms. Nirmala Sitharaman presented the Budget 2020 in the Lok Sabha today.

In her budget speech the Finance Minister mentioned that the Budget is entwined around three themes:

• Aspirational India;
• Economic development; and
• Caring India.

The Budget touched upon various socio-economic factors such as education to girl child, farming, infrastructure, etc. In addition, there have been certain critical tax reforms aimed at simplification of tax structure, on bringing in ease of compliance and reduced litigation to stimulate growth of the economy.

1.  Individual Tax:

·      A new personal tax regime has been proposed to be introduced for individuals (at the option of the individual) willing to forego certain deductions and exemptions such as LTA, HRA, interest u/s 24, chapter VI-A deductions except 80CCD(2) and 80JJAA, etc. The old as well as the proposed personal tax rates have been tabulated below: 

* Rebate continues to be available up to income of INR 5 lakhs.

·      Under the new regime, it is proposed to provide pre-filled income tax returns;

·      It is proposed that an Indian citizen who is not liable to tax in any part of the world, would be deemed to be a tax resident in India. The tie-breaker rule under the respective DTAA may be examined to address this issue;

·      The taxability of ESOPs issued by a start-up has been proposed to be deferred from the event of exercise to the earliest of certain specified events. This is likely to bring much needed relief to the start-ups and will resolve cashflow mismatch issues.

 2.         Corporate Tax:

 ·      Dividend Distribution Tax (‘DDT’) payable (currently 20.56%) by the companies proposed to be abolished. Dividend would now be taxed in the hands of the shareholder at respective tax rates. For non-resident recipients FTC should now be available in the home country (subject to the resident country’s FTC rules); 

·      Benefit of reduced tax rate of 15% for new manufacturing companies proposed to be extended to the domestic companies engaged in the sector of electricity generation. This will encourage investment in power sector;

·      Proposal to grant 100% tax exemption with regards to the interest, dividends and capital gains earned from the infrastructure and other notified sectors by the sovereign wealth funds in (subject to lock-in period of 3 years). This will promote investment in much needed infrastructure sector;

·      Threshold for start-ups eligible to claim 100% deduction proposed to be increase from INR 25 crores to INR 100 crores. Further the period for availing the deduction has been extended to any 3 out of the 10 years (previously 7 years);

·      Concessional net tax rate of 25.17% proposed for co-operative societies; subject to exemptions / incentives under the current tax regime being foregone; No AMT payable by such co-operative societies;

·      The threshold for tax audits has been proposed to increase from INR 1 crore to INR 5 crores; subject to less than 5% business transactions (both receipts and payment) in cash;

·      In order to attract fresh foreign investments to stimulate the economy, the withholding tax rate at 5% on borrowings (from non-residents) has been extended to July 1,2023 (from July 1,2020). Similarly withholding on interest payment to FPI and QFI has been extended to June 30, 2023.

 3.         International Tax: 

 ·      Tax net has been widened to bring e-commerce transaction with the tax net; levy of TDS at the rate 1%;

·      Determination of profits attributable to PE will now be covered within the scope of safe harbour rules and APA programme for transfer pricing;

·      In line with the MLI initiative, amendment under the domestic law has been proposed to avoid double non-taxation;

·      Existing SEP provisions proposed to be omitted and new provisions will take effect from April 1, 2022 (AY 2022-23);

·      The source rule been amended to cover transactions which target Indian customers through advertisement or earn income from sale of data collected from India or sale of goods and services using data collected from India. However, attribution provisions related to SEP transactions will take effect from April 1, 2022 (AY 2022-23);

·      It is proposed that any non-resident earning royalty / FTS income from India (subject to taxes being withheld) would not be required to file return of income in India. 

 4.         Tax administration and litigation: 

·      In order to reduce direct tax litigation, “Vivad se Vishwas Scheme” has been proposed. Under the said scheme the taxpayer (cases pending at any level) could opt to pay the disputed amount of tax (without any interest and penalty) before March 31, 2020 or certain additional amount between the period April 1, 2020 to June 30, 2020; 

·      In line with the new assessment scheme introduced last year, proposal has been made to introduce faceless appeal scheme;

·      With an objective to reduce litigation the withhold tax on FTS u/s 194J (other than professional services) applicable to residents has been proposed to be reduced from 10% to 2%.

From a taxation standpoint, now with the proposed individual tax reforms, the government has ensured an overall structured reform and transformation of corporate and individual taxation. Further, the efforts and proposals with respect to ease of doing business and compliances and reduction in tax litigation are welcome and well appreciated by the stakeholders. The Budget proposals bring about the much necessary stimulus to the economy and it has to be commended that the FM has been receptive to the stakeholder representations."

The 2020 Budget Speech was no doubt lengthy and repetitive, but it was quite structured in so far as the approach is concerned. Some of the initiatives under Aspirational India, economic development and caring society were well thought of. On the direct tax front, abolition of the Dividend Distribution Tax is one of the top moves since this was completely an artificial and arbitrary exercise of triple taxation. Given the Revenue numbers, there was not much of headroom for significant tax concessions, but within the limited scope, the FM managed to provide relief to individuals. While the details are yet to come out, the Dispute Resolution Mechanism for direct taxes would be successful though the time limit and window is likely to be a challenge, given the fact that most businesses would not have the money to pay the taxes and close the dispute.

On the GST front, it is unfortunate that the Government continues its path of attempting to nullify decisions through retrospective amendments. Having referred to ease of business, it is high time that decisions are respected and amendments are not made retrospectively. Similar retrospective amendment has been made in the context of Section 28 of the Customs Act. The amendment to Section 11 of the Customs Act is significant since the Government is now empowered to prohibit importation or exportation of any goods in order to prevent injury to economy by the uncontrolled import or export. Originally, this power was confined to only gold and silver.

However, the extension of time to five years from three years to issue Removal of Difficulty Orders in GST and the failure to amend the provisions with reference to Tribunal in GST to address the defect pointed out by the Madras High Court only indicates that the turbulence in GST would continue for some more time.

"The budget does not provide the boost that the economy required. While removal of DDT, deferment of SEP and providing for safe harbour and APA for attribution of profits to business connections / Permanent Establishments (PEs) are positive measures and are welcomed, the introduction of TDS on e-commerce and TCS on LRS payments are disappointing at the least. The policy rationale for many of the introductions in the budget are not clear. All in all, the budget provides for rationalisation of a few existing provisions but lacks to provide the impetus that India currently requires."

"The change in the Dividend tax regime may provide a significant relief to foreign investors and provide a boost to foreign investments into India. The removal of Dividend Distribution Tax (DDT), which was unique to India, and its replacement by the charge of tax on the recipient of dividends which typically qualifies for Treaty benefits would ensure the tax is restricted to the withholding tax rate under the relevant Treat. Further, it also reduces the difficulty and uncertainty surrounding the availability of credit for the Indian withholding tax against tax payable in their home jurisdiction by such overseas shareholders. The exemption of Dividends, Interest and Long Term Capital Gains earned by Sovereign Wealth Funds from investments made upto 31 March 2024 in infrastructure and other notified sectors should help attract much needed capital and give a fillip to investments in these key sectors and which could also help in reviving growth in general.”

"Simplified and New Tax Regime for Individuals - Proposal for new tax regime for Individuals with lower tax rate compared to existing rate who forgoes deductions, exemptions and rebates. Taxpayers granted an option to either continue under existing rate or to opt for new regime. This would complicate things and it appears that person claiming all deductions would be disadvantaged and would not opt for new regime. However, it seems that the Government is setting a direction where the old regime would be withdrawn gradually and a simple tax structure to remain in future. 

Dividend Distribution Tax Abolished - This will make India an attractive Investment destination and is on expected lines. This may be somewhat negative for promoters who hold their companies directly since their tax liability on dividends would increase to their personal tax rate. The major gainers here seem to be foreign investors who were burdened with the dividend distribution tax which was not available as a tax credit in their home country. 

Reduction in Tax Litigation -  The FM has in her Budget Speech proposed a “Vivad se Vishwas Scheme” - a tax dispute resolution scheme for taxpayers to pay only disputed tax amount and the interest and penalties would be foregone/ waived. The Scheme would be operational till 30 June 2020 with a window available till 31 March 2020 for further reduction in tax amount.  It would be interesting to see what cases would get covered and whether the tax rate would be current (reduced) tax rate or the tax rate of the respective years to which dispute pertains. This would provide big boost to reducing litigation and cases that are stuck at various levels of judiciary. 

Non-Resident Shocker - Now to be regarded as a non-resident, an Indian citizen now must stay outside India for 245 days, against 182 days previously.  Also, a Citizen of India who is staying abroad in a country where he is not liable to tax will be regarded as Indian resident and liable to tax in India. This is a big disadvantage to Indian Citizens resident abroad especially in Middle East Countries – who would be liable to tax in India on their overseas income and would have to comply with Indian laws. 

Tax Collected at Source provisions expanded - 

The lesser known concept of TCS has suddenly sprung a surprise in this Budget. The scope of TCS has been significantly expanded to now include

• Sale of goods by any person of more than 50 Lakhs to a buyer, where seller would be a person whose turnover is more than 10 crores in the previous financial year. In such a cases TCS would be collected by the seller from buyer @ 0.1% and deposited to Government. It is unclear whether buyer would include buyer situated outside India in which case there would be 0.1% TCS even on exports. We hope that the Government specifies classes of Buyers & Sellers to whom these provisions won’t apply. This would also have additional cash flow issues and increased compliance burden on the taxpayers.
• Another category that has been added is under the TCS net is remittances made by Indians under Liberalised Remittance Scheme (LRS) and Indians who buy overseas tour program package from a tour operator. In case of LRS, authorised dealers (bankers) are required to collect TCS @ 5% on LRS remittances of more than Rs. 7 Lakhs. In case, of tour operators the tour operator would have to collect TCS @ 5% in case of overseas tour program and there is no threshold limit here. 

E-Commerce TDS - New provisions on E-commerce TDS has been introduced in the Budget. The provisions now provide that the E-Commerce operator shall deduct tax @ 1% on payments made to e-commerce participant. An E-commerce participant would be an Indian resident person selling goods or services or both including digital products to an E-commerce operator. This would affect all e-commerce transactions and would also have impact on cash flows of E-commerce participant. The new provisions provide a relief in case of individual E-commerce participant if their sales through E-commerce operator is less than Rs. 5 Lakhs. It would also increase the compliance burden of E-commerce operator. 

End of Tax Harassment - A tax-payer charter will be a part of statute. Government will ensure that the citizens are not worried of tax harassment. This is first of its kind move to bring trust and demonstrating the seriousness of taxpayer’s right and providing legal backing by bringing it in statute. This would need serious mindset change at the lowest level of the tax officer and if implemented in right spirit would change the way taxpayer perceives the tax department.

This comment has been co-authored by Aditya Nadkarni. 

"Continuing the new practice of carrying the Union Budget documents in a red bag, reminiscence of the ‘bahi-khata’, the Hon’ble Finance Minister Ms. Nirmala Sitharaman unveiled this year’s budget in the backdrop of two cross-cutting developments:

a)      Proliferation of technologies specially analytics, machine learning, robotics, bio-informatics and Artificial Intelligence; and

b)      The number of people in the productive age group i.e. 15-65 years in India, being at its highest.

Woven around three prominent themes, viz. ‘Aspirational India’, ‘Economic Development’ and ‘Caring Society’, the Union Budget has given plenty to ponder upon on the Income tax front such as incentives on the personal tax front, modification of concessional tax schemes for domestic companies u/s 115BAA and 115BAB, rationalization of provisions for start-ups, as well as rationalization of provisions relating to tax audit in certain cases, dispute resolution scheme etc.

However, the measures announced around indirect taxes albeit few are no less worthy of taking note of. The Government has, like last year, proposed amendments to GST law through the Finance Bill. These include inter alia –

(a)         Harmonization of the conditions or eligibility to opt for composition scheme for supply of goods vis-à-vis supply of services;

(b)         Delinking of the date of issuance of debit note from the date of issuance of underlying invoice for purposes of claiming ITC. Accordingly, credit in respect of a debit note issued in say FY 2018-19 for an invoice pertaining to FY 2017-18, can now be claimed by the earlier due date of September 2019 return or Annual Return of FY 2018-19;

(c)         retrospectively empowering the Central Government to prescribe time limit and the manner for availing transitional credit against certain unavailed credit under existing law;

(d)         making the offence of fraudulent availment of ITC without invoice or bill cognizable and non-bailable; and

(e)         making the person who retains the benefit of a fraudulent supply or ITC availment / utilization / distribution or at whose instance such transactions are conducted, liable to penalty.

On the Customs front, some significant amendments have been proposed to the Customs Act 1962 with a view to curb injury to the domestic economy on account of uncontrolled import or export of goods. These are –

(i)           introduction of stringent checks on rising imports under Free Trade Agreements which include adherence to Rules of Origin requirements;

(ii)         strengthening of the provisions regulating surges in dumping of goods and imports of subsidized goods and empowering the Central Government to apply safeguard measures such as imposition of safeguard duty, application of tariff-rate quota or such other measures to check increased import of an article;

(iii)        withdrawal of Customs duty exemptions which have outlived their utility, with a further review in September 2020; and

(iv)        introduction of an additional “Health Cess” of 5% on import of medical devices which shall be used for financing the health infrastructure and services;

The Government has also sought to introduce a “ledger for duty credit” under the Customs law where the Government shall issue duty credit – (a) in lieu of remission of any duty or tax or levy, chargeable on any material used in the manufacture or processing of goods or for carrying out any operation on such goods in India that are exported; or (b) in lieu of such other financial benefit subject to such conditions and restrictions as may be specified therein. Such duty credit shall be maintained in the Customs Automated System in the form of Electronic Duty Credit Ledger of the recipient and same can be used towards payment of customs duties.

As a revenue measure, the Hon’ble FM has also proposed to raise excise duty by way of NCCD on cigarettes and other tobacco products.

With a view to boost exports, the Government has proposed a Scheme for Reversion of duties and taxes on exported products that will be launched in this year. Under this scheme, it is proposed to digitally refund to exporters, duties and taxes levied at the Central, State and local levels, such as electricity duties and VAT on fuel used for transportation, which are not getting exempted or refunded under any other existing mechanism.

The aforesaid sops would certainly help put a stop to the worst economic slowdown the country has witnessed in a decade and it will spur consumer demand and investment. After all, the Government has estimated a nominal growth of GDP, on the basis of trends available, at 10% for this fiscal!! However, it seems the Government has missed the bus by not introducing certain clarificatory amendments in the GST law, which are the need of the hour. For eg. tweaking of definition of “intermediary” which has been plaguing majority of companies engaged in backend support services."

“It is a mixed budget for the Auto sector. Higher allocation for infrastructure (including highways) and proposed National Logistics Policy are positive for the industry and clearly the FM has opted for a higher Fiscal Deficit to support higher capital expenditure.  The scheme to boost electronic manufacturing along with higher customs duty on imports of electrical vehicles and parts should incentivise domestic electric vehicle industry. Lack of directional guidance on GST rate cut or cess reduction is disappointing. The optional personal tax slab rate reduction should increase disposable income for some end consumers (mostly the self-employed rather than the salaried) which the industry would hope leads to increased demand for automobiles especially in sync with the planned BS VI introduction from April 2020.” 

"This Union Budget has certainly set the ball in motion for great transition in the overall scheme of Taxation. However, with Direct Taxes receiving watershed benefits in this budget, Indirect Taxes ranked low in the Government’s list of priorities. This is clearly evident from the formal adoption of Taxpayer’s Charter, statutorily recognizing the rights of taxpayers and duties of tax administrators, only in the Direct Tax laws.

In the customs duty arena, the Government continues to strengthen Indian domestic market. The duty rates have been rationalised to lower the duty liability on inputs and increased duties on finished goods. The strengthening of FTA compliances and enhancement of safeguard duties will also positively serve the interests of domestic industry. The Government has also announced its plans for comprehensive review of customs duty exemptions, introduction of product-specific Country of Origin Rules and incentive scheme for electronics manufacturers in the coming months.

To give impetus to ‘Make in India’ scheme and ‘Ayushman Bharat’ initiative, the Government has levied ‘Health Cess’ on imported medical equipment. With the ‘Health Cess’ being levied while levy of Social Welfare Surcharge on imported goods continues, expectations of Cess-free regime seem fanciful.

On export incentives front, the Government plans on introducing enabling provisions for Electronic Duty Credit Ledger (‘EDCL’) to incentivize exporters. This seems to be in line with the export incentives likely to be introduced in the upcoming Foreign Trade Policy 2020-25. The Government has also announced its plans to grant refund of other taxes (like VAT on fuel, Electricity Duty etc.) to exporters in the future.

Interestingly, Government chose not to introduce a Dispute Resolution Scheme for customs litigations like the Sabka Vishwas Scheme introduced in the last budget. This Scheme, if introduced, would have gone a long way in closing customs litigations and concurrently harnessed extra revenue for the Government.

On GST front, the Government reiterated its commitment on two major changes effective from April 1, 2020 viz. New Returns and E-Invoicing."

“The changes to the GST law proposed by the Finance Bill are few but impactful. Some of the changes that need a careful analysis are:

·       Making a person who may unknowingly retain the benefit of input tax credit on an incorrect or false invoice issued by supplier, liable to penalty should be reconsidered.

·       Taxpayers are known to take credit of input taxes on invoices appearing in GSTR 2A and then following up with the supplier for the missing invoice. Tax authorities making them liable to punishment alleging fraudulent retention of such input tax credit taken without any invoice is possible; requiring review of practices of taking input tax credit.

·       Delinking of underlying invoices while determining the financial year to which a debit note pertains is a necessary and welcome amendment. But it should be given retrospective effect since most tax payers would have generally read the law in the amended form without realizing the nuances.”

"The Finance Minister listed out three major themes for Union Budget 2020 - Aspirational India, Economic Development and building a caring society. Although the intention is expressed as boosting people’s income, no appreciable allocation is seen in many sectors.

Coming to the tax proposals , option of simplified tax regime provided to individuals may not give significant benefits to tax payers, especially with the condition to forego exemptions. This jugglery in lower tax slab rates will have very less impact on increasing consumption.

Further, interest benefit on affordable housing loans of Rs. 1.5 lakhs is extended till March 2021. Corresponding extension given on approval of projects should encourage developers to come up with more projects.

Benefits to corporates include abolition of DDT and bringing back levy of withholding  tax in the hands of shareholders a much awaited move.

Measures to boost start-ups includes, deferring taxation on ESOP by five years and increasing the turnover threshold for taxation of start-ups from Rs. 25 crores to Rs. 100 crores.

MSME’s have been exempted from requirement of tax audit where their turnover does not exceed Rs. 5 crores a good move.

Amnesty scheme proposed ‘Vivad se Vishwas’ for direct taxpayers to settle litigation by paying only the tax amount before 30 March 2020 a good initiative. However, one will have to await the fine print to understand impact on taxpayers who have pending issues on principle issues.

The current threshold of 182 days for determining residential status has been reduced to 120 days. Also, where an Indian citizen is not liable to tax in any country will be deemed to be an Indian resident. This is focussed on HNWI’s who avoid paying taxes in any country , a perceived loophole plugged ?

Exempting non-residents who receive Royalty or FTS which is subject withholding tax, from filing of return of income is a welcome move.

Widening the scope of TDS by levying 1 percent for e-commence sectors is measure undertaken by this Government to increase it tax collection.

To sum up, Union budget 2020 is a mixed chart with no bold moves to bolster the economy. With the revenue foregone in this Budget added with shortfall in tax collection, fiscal deficit of 3.8 percent seems to be highly optimistic."

"In last Financial Year, Indirect tax collection has contributed approx. 46% of Gross Tax Revenue. Amidst global weakening economic environment, geo political tensions between US-IRAN, US-China, decelerating Indian economy, GST collections have matured over last couple of quarters. Union Budget 2020 has reiterated Government’s focus on continuous GST reforms in the form of introduction of simplified returns coupled with electronic invoicing system, adhaar based verification, improved data analytics for streamlining refunds and ITC, e-governance, etc. The Union Budget has channelized its efforts to boost make in India initiative, through various customs duty rationalization proposals, such as review of unwarranted customs duty exemptions and concessions, introduction of health cess on medical devices, safeguard and anti dumping duty measures to restrict poor quality import and dumping, providing level playing field to MSME sectors. The most impacted sectors are dairy, agriculture, electronic goods, medical devises, furniture, footwear, toys etc., Amendment proposed in Rules of Origin and related compliances may make import of certain goods difficult under the FTA."

"The Union Budget contains certain big-ticket announcements, many of which are on the predicted lines. On a macro level, infrastructure development, employment generation, revival of farm sector, amongst others remains on the forefront. Fiscal consolidation without compromising the need for government spending would prove to be tough balancing act for the government with the government estimating the fiscal deficit target to be 3.8%, breaching the earlier FD target of 3.5%. On a micro level from a direct tax standpoint, some announcements stand out – Abolition of DDT is a welcome move to reduce the overall tax burden of the shareholder and will also act as a catalyst for foreign investment as foreign investor will now be able to avail credit of the DDT, which hitherto was unavailable. Proposal to draw up a Tax payer charter to clearly enumerate tax payer’s right will help instill taxpayer’s confidence in the tax administration and prevent tax harassment. Introduction of tax amnesty scheme on the lines of Indirect taxes, will help reduce litigation and could prove to be game changer, as far as addressing the issue of falling tax revenues is concerned. Raising the turnover limit from INR 1 crore to INR 5 crore for MSMEs would certainly bring some cheer to the sector and help them reduce their compliance burden. Finally, reduced tax rates for personal taxation of the income in the bracket of INR 5 lakhs to 15 lakhs, at the cost of giving up exemptions and deductions, is a welcome move and should help revive consumer demand."

"Much awaited liberalisation in personal tax rates comes in form of an optional tax regime of lower taxes but with a condition of almost no deductions and exemptions. This should be seen as a harbinger of transformational tax reforms leading to ease of compliance."

"“Rationalize & reform” to transform the tax administration has remained the focus of the Government for facilitating investments in the economy. Full throttle continues on Infrastructure, Transportation & Logistics sector towards channelizing investments and bringing cost efficiencies. With launch of the National Infrastructure Pipeline (‘NIP’) and the National Logistics Policy on anvil, the investment commitment of government to propel the economy is commendable. On tax front:

(a)   Extension of the concessional WHT of 5% on foreign currency borrowings till 30th June 2023 is a welcome move (4% for bonds listed only on a recognized stock exchange in an IFSC)

(b)  Eliminating double taxation by abolishing Dividend Distribution Tax (‘DDT’) which especially brings cheer for foreign investors."

Budget 2020 is growth oriented one to meet aspirations becoming a USD 3 Trillion economy

"It is said that women are best suited to set the house when it comes to budgetary constraints. Our Finance Minister Mrs. Nirmala Sitharaman proved this. She attempted to cover various facets of the Indian economy ranging from personal taxation till taxation of digital economy.

The Three prominent themes of the Budget are - Aspirational India, Economic Development for all and Caring Society.

The Budget has attempted to foster the overall growth of the Indian economy by offering soaps to Indians as well as foreign enterprises while protecting the Indian manufacturers by rationalizing customs duty and revising anti-dumping duties.

This fulcrum is to give boost to the economy, which clearly gets reflected in the budget proposals:

• Boost consumption – revising the personal tax regime, re-calibrating start-ups regimes, relaxing ESOP taxation, extending benefits for affordable housing, etc.
• Attracting foreign investments – removal of DDT and re-introducing dividend taxes in the hands of the shareholders, extending lower 5% withholding tax rates for one more year, exemption from filing of tax returns by non-residents for specified payments, etc. 
• Impetus to Infrastructure – Allocation of funds for agri-infrastructure, power sector, data center, tax exemptions to Sovereign Wealth funds for investing in infrastructure funds, corporatization of PSEs, rationalization of taxation of InvITs, 15% tax for power generation companies, extending tax holidays for SEZ and Affordable Housing sector by one more year and many more.
• Dispute resolution and certainty – rolling out dispute resolution scheme following huge success from Indirect tax dispute resolution scheme, faceless appeal hearings, rationalizing appeal related provisions, extension the scope of Advance Pricing Arrangement to include profit attribution determination for foreign companies and many more

At the same time, in order to increase the tax base, various measures have been introduced such as withholding tax on specified payments to residents and non-residents, change in the definition of residents, introducing anti-dumping duties, rationalizing customs duties, etc.

Overall, this budget is a progressive budget and will help reviving the Indian economy and has set the direction for the overall growth."

While abolition of dividend distribution tax and reduced tax burden for individuals are few good proposals no major stimulus has been provided which could significantly help boost the economy.

Some good steps include, attracting foreign investment, make in India initiatives and a definitive timeline for implementation of new incentive scheme for exporters. The direct tax amnesty scheme has been announced to reduce the pendency in the direct tax litigation against the backdrop of success of indirect tax amnesty scheme - however the benefits under the scheme are significantly low when compared with the indirect tax scheme and therefore the scheme may not be as successful. No major steps have also been taken for sectors which were in dire need of sops (infrastructure, real estate and auto sector) – to kickstart growth in the economy. Even the new direct tax regime which does not permit any deductions/exemptions for individuals may also not provide the expected increase in disposable income in the hands of individuals to boost consumption.

Overall the budget still appears to be not meeting the expectations.

"Overall the budget did not meet the expectations of the industry. However to cite a few positives on the indirect tax front would be – inclusion of tax payer’s charter in the statute is a confidence building measure; there is a clear indication of RoDTEP proposal being considered seriously to replace some of the export incentives; review of ADD and SG provisions under customs and creation of electronic customs duty ledger. On the contrary, the points of worry for the industry would be steep increase in the customs duties for several products which significantly impact the auto sector including the EV segment, mobiles and refrigerating industry. Instead of increasing the import duties on medical devices, introduction of health cess is not expected by the industry, when these cesses are not being put to intended use in the past.

On the direct tax front, the positives would be introduction of new tax slabs for those prepared to forego the exemptions and Vivad se Vishwas scheme. But the expectations of the individual regarding the tweaking of exemptions particularly in relation to medical insurance, housing loan repayment did not meet the expectations.

On the corporate tax front, the abolition of DDT in the hands of the companies and impetus given to startups would be welcome move.

The reforms announced in education sector particularly introduction of INDSAT, introduction of new courses which have industry acceptance are good measures."

The Union Budget 2020 was poised to the be one of the most significant budgets in recent times, coming in the backdrop of a tepid global growth, slowing Indian economy and low business and consumer sentiment. The expectations were high considering we had a substantial reduction in tax rates recently. 

The FM has risen to the occasion and has taken several important steps especially on the tax front. The Budget is based on 3 pillars, Aspirational India, Economic Development, Caring society and give necessary impetus to several key sectors like agriculture, irrigation, rural development, Infrastructure, power sector, healthcare and other areas. Even though the fiscal deficit has widened, the focus seems to be on the right areas. 

On the direct tax front there have been several changes. Individual taxpayers have been given two different regimes. One under the normal provisions and the other without certain exemptions and deductions like HRA, Chapter VIA deduction, etc. Depending on the individual situation, one would need to see which regime would be beneficial, but it could be safely said that the impact would be minimal. A big change on personal tax has been taxing stateless NRIs by deeming them residents in India. 

On the corporate tax front, the biggest change has been changing the taxation of dividends from the current taxation in the hands of the company to that to shareholders. This is a big change and will benefit smaller resident shareholders which will get benefit of lower slab rates. The biggest class of beneficiaries would be foreign shareholders who would be able to get benefit of treaty tax rates and also a credit of that in the home country. Startups have also got further clarification by extending the tax holiday to 7 years and the increase in the revenue threshold from existing Rs. 25 crores to Rs. 100 crores. Startup employees will be able to defer their tax liability on exercising ESOPs for 5 years or sale of ESOPs or leaving employment whichever is earlier. 

For international companies, apart from abolition of DDT, relaxation in filing of tax return in case of income from Fees for Technical Services (‘FTS’) or royalty where no further taxes are due, extending safe harbor provisions and APA to attribution of profits to PE are welcome provisions. 

The Budget also has taken anti-abuse measures/widening of tax base namely, bringing TDS provisions on merchants, service providers on E-commerce platforms, TDS on Liberalized Remittance Scheme (‘LRS’) and penalizing generation of fake invoices under GST. The budget has taken some measures for improving the experience of taxpayers by bringing in e-appeals scheme for taxpayers and also codifying the Taxpayer’s Charter in the Act. 

As a revenue mobilization measure, Direct Tax dispute resolution has been brought in by giving an option to pay any disputed taxes without any interest and penalties. 

Overall, the Budget has brought in several amendments and quite a few of them have been in line with the Direct Tax Code task force recommendations. With the removal of DDT, the effective tax rate for foreign investors has come down and the Indian corporate tax regime has truly become very competitive.

"In spite of slippage in the fiscal deficit for FY20 and FY21 by margins of 0.5% points each from their respective targets at 3.3% and 3% of GDP, the extent of stimulus provided by Union Budget FY21 has remained marginal. There are small increases in capital expenditure as percentage of GDP amounting to 0.1% point of GDP both in FY20 and FY21 as compared to the preceding years. Some net increase in personal disposable incomes has been provided for after balancing rate reductions against sacrificing deductions and exemptions. In any case, the fiscal deficit target of 3.5% of GDP in FY21 is critically dependent on the ambitious disinvestment target of INR 2.1 lakh crore, which is 223% more than the FY20 RE. Further, there has been a slippage in the fiscal deficit for FY20 and FY21 by margins of 0.5% points each from their respective targets at 3.3% and 3% of GDP. Moreover, the quality of fiscal deficit is projected to deteriorate in FY21 as compared to FY20. The share of revenue deficit in fiscal deficit is expected to increase to 77% in FY21 (BE) as compared to 63% in FY20 (RE)."

Some of the key takeaways from the Union Budget 2020-21 are -

• Indirect tax revenue for 2019-20 -  shortfall of INR 1.33 lakh crores from budgeted estimates to revised estimates; a modest growth of 5.3% as compared to 2018-19 (Actuals).
• Indirect tax revenue for 2020-21 – reduction of 2% as compared to 2019-20 (budget estimates); revenue increase estimated at 11.1% as compared to 2019-20 (revised estimates).
• GST revenue – shortfall of INR 0.51 lakh crores from budgeted estimates to revised estimates for 2019-20; revenue increase estimated at 12.8% as compared to 2019-20 (revised estimates).
• GST – 20% reduction in turnaround time for trucks, saving of 4% in monthly average household spending, 60 lakhs new tax payers added in last 2 years
• Availment of input tax credit without an invoice to be a cognizable and non-bailable offence.
• Scheme for Reversion of duties and taxes on exported products - electricity duties and VAT on fuel used for transportation to be refunded (details of the Scheme not announced)
• An importer claiming preferential rate of duty in terms of any trade agreement will be required to possess sufficient information regards the manner in which country of origin criteria specified in the rules of origin in the trade agreement are satisfied.  The importer is required to exercise reasonable care as to the accuracy and thruthfulness of the information furnished, including that of certificate of origin.
• Health Cess to be levied, with immediate effect, at 5% on import of specified medical devices.  Customs duty exemptions pruned.  Social Welfare Surcharge exempted on certain items.
• National Calamity Contingency Duty, with immediate effect, increased on tobacco and tobacco products.

"The announcements around tax are simple but interesting. It appears very clearly that the government has learnt the benefits of Amnesty scheme introduced for the indirect tax regime and has now proposed it even for the direct tax regime. It is expected that the scheme will resolve lot of pending litigation, resulting in benefits to the taxpayers and the government exchequer. The interesting and innovative announcements related to inclusion of the tax charter and cash rewards needs to be closely monitored. The finance minister did not shy away from making announcements to show that the focus will remain on a better tax compliance and hence appropriately commented with respect to returns, refund, electronic invoices, Aadhaar-based verification, credit mismatch and deep data analytics. The other important issues announced were the rate rationalisation and removal of the problem of inverted duty structure. The government is keen to pragmatically address these issues apart from addressing the problem of foreign trade agreements. It is a fact that various imports under the foreign trade agreements are made based on the rules of Origin. The government is clear that various checks would be put to examine these rules including those provisions where the tax leakages may happen in Customs and GST." 

FM's Recipe for glorious future through Budget 2020 : Ancient wisdom and the modern technology

The notable feature of this Union Budget 2020 are that:

a.         we are referring to and glorifying the golden heritage of our amazing country,

b.         we are learning from it,

c.         we are ready to address the most important concerns,

d.         we have the capability to identify the potentials which can provide the maximum comparative advantage, and

e.         new India has decided to apply the latest technological tools and investment in infrastructure to harness the fullest potential

To me these features are unparalleled. For a hitherto thought constrained policy makers who represented India as a "backward under developed country", Budget 2020 marks a quantum jump towards an aspiring Bharat. The Bharat which had golden heritage and which is ready and willing to regain it once more.

The FM gave the trinity of mantras i.e.

- Aspiring India i.e. never give up approach so as to continue moving towards the better, the Lord Shiv who continuously meditates within to learn and achieve more

- Economic Development which is the basis for third dimensional existence. Through prosperity i.e. goddess Laxmi the human beings can achieve the goal of wholistic well being, and

- Caring society - Economic Development without a society which is humane and compassionate leads to materialism. The Finance Minister has done well by channelizing the economic development towards the positive goal of an egalitarian society

I would briefly discuss each of the above to further what I perceive of this budget. 

GLORIFYING THE GOLDEN HERITAGE OF OUR AMAZING COUNTRY

a.         references have been made to Saraswati Sindhu civilization, and to the Harappan Seals tracing the history of our ancient wisdom

b.         establishing Indian Institute of Heritage and Conservation as a deemed university is also a positive step to scientifically bring to fore, our history and heritage

c.         Development of 5 archeological sites as iconic sites with iconic museums is yet another step towards glorifying the rich part of our country, which will also bring opportunities in international tourism.

d.         likewise development and re-curation of other museums is a step towards re-affirming our history and portraying the same to the outside world.

READY TO LEARN FROM PAST

Our children are eating poison in form of food, and we can do nothing about it.

Notable feature of the budget to address this problem is the Government's initiative to reduce the use of chemical fertilizers.

Our country had huge share in global GDP and the lion's share came from agriculture and allied products. That time chemicals were not used for growing crops. Modern agriculture is largely dependent on increased use of chemicals, and the Government of the day has to spend huge amount by subsidizing the said chemical fertilizers. The government has shown renewed rigour and commitment and has made a bold statement by laying down the policy towards changing the incentive (read subsidy) regime. Towards this end, the FM has stated the following in her budget speech:

Our government shall encourage balanced use of all kinds of fertilizers including the traditional organic and other innovative fertilizers. This is a necessary step to change the prevailing incentive regime, which encourages excessive use of chemical fertilisers.

Reaffirming the use of organic farming methods and reference to zero budget farming are very important road maps laid by the present government. Zero budget farming is the farming by ancient methods where nature and natural products easily available to farmers are used for doing the farming in substitution of the chemical based farming.

The dedication of the budget towards making available easy finance to the farmers, and helping the rural women to setup Village storage scheme, through self help groups (SLG), are also quite important. This is seen as a step towards helping women regain their position as "Dhaanya Lakshmi", whereby the women of the village were the repositories of seeds of all type of crops. Wonderful thought for women empowerment!!

With proper implementation of these goals, the vision towards healthy India, doubling the income of the farmers, gender equality, etc. can become a reality.

WE ARE READY TO ADDRESS THE MOST IMPORTANT CONCERNS, and WE HAVE THE CAPABILITY TO IDENTIFY THE POTENTIALS WHICH CAN PROVIDE THE MAXIMUM COMPARATIVE ADVANTAGE

Education

"Garibi hatao" has been a political war cry. But no one was ready to address the concerns. This budget has shown the willingness to address the problem in our education system which produce graduates who are far from the requirement of the employers.

Towards this end, the following are important:

a.         New education Policy is slated to be issued

b.         About 150 higher educational institutions will start apprenticeship embedded degree/diploma courses by March 2021

c.         urban local bodies across the country would provide internship opportunities to fresh engineers for a period up to one year

d.        degree level full-fledged online education programmes for students of deprived section of the society by institutions who are ranked within top 100 in the National Institutional Ranking framework.

Health and piped water supply for all through "Jal Jeevan Mission" are also being provided a prominent space in the budget exercise. To provide for adequate number of doctors, medical colleges are proposed with each Distt hospital.

The resolve to provide minimum basic facilities to all with renewed vigour, forms the basis for the Aspirational India.

NEW INDIA HAS DECIDED TO APPLY THE LATEST TECHNOLOGICAL TOOLS AND INVESTMENT IN INFRASTRUCTURE TO HARNESS THE FULLEST POTENTIAL

The budget make references to extensive use of Artificial intelligence, Internet-of-Things (IoT), 3D printing, drones, DNA data storage, quantum computing, etc.,

Huge investment is proposed to be made in infrastructure including railways, roadways, airways and inland waterways.

Investment in quality education and backing it up with robust infrastructure will be the quotient of growth for new India.

This is completing the full circle. Starting from the history, and aligning the values and the learnings with the modern day technology in the practical perspective to achieve maximum good for maximum number of people. This is the FM's recipe for glorious future and THE NEW INDIA.

Dear FM, we are very optimistic. 

With an aim to simplify governance and introduce transparency and accountability in the system, the Central Government has increased emphasis on use of digital modes for administration as well as compliance. Post formulation of the national e-governance plan, various e-governance initiatives such as Digital India, Aadhar, Umang, Digital Locker, computerisation of land records have been launched. 

Several proposals in the recently presented Union Budget furthers the agenda of digital governance.

§  The Hon’ble Finance Minister(FM) proposed to launch a scheme for exporters this year to reimburse taxes and duties paid by them.

§  Under the GST regime, exporters of goods & services as well as suppliers to SEZ units will receive refunds automatically as the government has introduced faceless scrutiny of refunds to enable faster claim settlement. The government will also introduce dynamic QR-code for consumer invoices which will carry certain GST parameters. Electronic invoice is another innovation wherein critical information shall be captured electronically in a centralised system from this month onwards on optional basis, thus facilitating compliance and return filing.

§  In addition to the faceless e-assessment scheme launched last year, the budget also proposed to introduce electronic filing of appeals and penalty proceedings under the IT Act.

§  In order to further ease the process of allotment of PAN, the FM has proposed to launch a system under which PAN shall be instantly allotted online on the basis of Aadhaar without any requirement for filling up of a detailed application form.

§  Similarly, to boost the use of digital payment methods, the FM has raised the turnover limit for applicability of tax audit by five times to INR 05 crore for businesses which carry out less than 5% of their transactions in cash.

§  Electronic toll collection through FASTags has increased commercialisation of highways. The FM announced that NHAI will monetise at least 12 more highway stretches spread over 6,000 km of highways, through FASTag mechanism.

§  The government also equipped more than six lakh anganwadi workers with smart phones to upload the nutritional status of more than 10 crore households.

§  The proposed new National Policy on Official Statistics would use latest technology including AI to lay down a road-map towards modernised data collection, integrated information portal and timely dissemination of information.

Increasing use of electronic platforms to exchange information and communication with citizens, businesses and internal administrations is helping the government develop an environment of transparency, accountability, trust and inclusive governance. Digital delivery is assisting in quick implementation, reduced corruption, greater convenience and reduced costs. With constant and automated monitoring and use of AI, the government is focused on arresting non-compliance and increase tax revenues. In the words of PM Modi, “e-governance is easy governance, e-governance is economical governance”.

With a focus to give wings to India’s aspirations, the budget focuses on economic and social growth. On the tax front, the Finance Minister has promised further simplification of GST. For further boosting the domestic manufacturing sector, customs duties on import certain commodities electric vehicles and parts of mobile phones is proposed to be increased. A new health cess is also proposed to be imposed to incentivise domestic manufacturers in the health sector. It is also proposed to review existing customs duty exemptions, FTA’s, safeguard duty measures, dumping of goods so as to prevent injury to the domestic market.

To continue to give impetus to exports, the FM announced that a scheme is proposed that would allow exporters digital refunds with no human interface. Further, it is also proposed that exporters would be digitally refunded the duties and taxes levied at the Central, State and local levels, such as electricity duties and VAT on fuel used for transportation,  which are not getting exempted or refunded under any other existing mechanism – a welcome move.

Aadhaar based verification of taxpayers is being introduced with a view to call out the non-existent units. Dynamic QR-code is proposed for consumer invoices. GST details would be captured when payment for purchases is made through the QR-code. Further, in order to encourage a customer to seek an invoice from supplier, a system of cash reward is proposed. 

The FM’s speech displayed reliance on technology, AI and PPP models in all identified sectors- steering the path to a digital economy. The Union Budget 2020-21, lays down what look like tax friendly measures, however how much of it would actually translate into a reality, is something that time would tell.    

"Under the erstwhile provisions, Dividend Distribution Tax (‘DDT’) after grossing up comes to 20.56% (including surcharge and cess). The multi-level taxation results in high effective tax rate compared with other foreign jurisdictions. Additionally, Foreign Tax Credit (‘FTC’) of DDT was ambiguous and thereby, foreign investors viewed DDT as cost.

The Government has taken an important step by proposing to remove DDT and restoring taxation of dividend in the hands of the shareholder. This will result in improved return of capital employed, considering the availability of foreign tax credit and ability to enjoy lower rates available under the tax treaty for dividend taxation. On the contrary, resident HNIs will likely be taxed at 30% (excluding surcharge and cess) on such income. 

We will have to read the the fine print of the Finance Bill to understand the impact of the proposal in greater detail."

"Reinstatement of April 1 for implementation of new GST returns further fosters the Government's intent to enforce this soon and companies should commence gearing up of their systems/processes for complying with this change.  Measures like imposition of health cess for import of medical equipments, review of imports/ Rules of Origin on concessional duties for import from certain countries, etc should help boost domestic industries and support the 'Make in India' leitmotif"

"The Government’s focus on ‘Make in India’ campaign was significantly evident through proposed increase in rates of customs duty on import of several products including electric motor vehicles, refrigerating equipment, furniture, parts of cellular mobile phones, headphones and earphones and an exemption for parts used for manufacture of some of these products.  The said proposals should incentivise domestic industries and boost indigenization of various goods including local value addition. To further incentivize domestic industry, proposals have been made for ensuring adequate controls on any undue benefits being claimed by businesses including larger administration of benefits being claimed under the preferential tariff treatment regime, liability on importers claiming such benefits for ensuring the eligibility of such benefits, etc. 

Proposals for strengthening safeguard measures including additional duties, tariff quotas, etc to protect dumping of goods and jeopardization of domestic industries as well foster the ‘Make in India’ leitmotif of this Government.  On similar lines, proposal of levying health cess on import of certain medical devices should also help boost the healthcare sector in India and the proposition of limited use of this Cess for generating resources for health services should help the larger Indian population as well.  Confirmation on implementation of RoDTEP Scheme for exporters in this fiscal year helps boost morale for our foreign exchange earners on continuation of fiscal incentives and the provisions on electronic duty credit ledger with allowing of transfer of funds credited in the said ledger provides a blueprint of the proposed framework and related comfort for the exporters. 

From a GST perspective, relaxation in restriction of 30th September/ annual return deadline for input tax credit on debit notes with it now being linked to the debit note date instead of the original invoice date should financially benefit various sectors especially sectors where finalization of price adjustments is a long drawn battle or are into continuous supply and price monitoring by customers.  Similarly, higher penalty and prosecution provisions for nurturing fake input tax credits through self- availment or inducing fake invoicing should also help effectively deter/ check tax evasion. Also, reinforcement by the Finance Minister on implementation of New Returns from 1 April, e invoicing system in a phase wise manner, cash reward system for incentivising customers who seek tax invoices, etc further reflect the Government’s focus on implementing measures for checking tax evasion”

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"While the budget is a non-event from a GST perspective, the Finance Minister reiterated and confirmed the steps being taken by the Government towards ease of compliance and curbing tax evasion. The Finance Minister has re-stated that the new simplified return filing mechanism will be implemented April 2020 and the various steps that are being taken to improve compliances such as the E-invoicing, dynamic QR Code, Automated refunds etc. On the Customs front, the key amendment includes legislative changes that have been made to introduce stringent measures to avoid abuse of Free Trade Agreements, an outcome of the multiple disputes that are ongoing with respect to payment of Customs duty on imports at preferential rates under FTA. It was also mentioned that the Certificate of Origin Rules will be re-discussed and tightened to curb improper use of the FTAs."