Budget 2020 highlights: New income tax slabs, DDT gone..

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In the union budget 2020, the following section 115BAC shall be inserted in the Income Tax Act, with effect from the 1st day of April, 2021, with  new income tax slabs and lower rates. These income tax rates are optional and are available to those who are willing to forego some exemptions and some deductions.

Direct Taxes
1. Tax rate reduced for new companies to 22% and for manufacturing companies 15%
2. New simplified personal tax regime for Individual tax payers. The revised slab can be availed if they do not claim deductions and certain exemptions.
For income :
Upto 5,00,000 nil
Rs 5,00,000 -7,50,000: 10%
Rs 7,50,000 – 10,00,000 : 15%
Rs10,00,000 – Rs 12,50,000 20%
Rs 12,50,000- Rs 15,00,000 : 25%
More than Rs 15,00,000 : 30%
3. Companies not required to deduct dividend distribution tax and will be taxed only in the hands of the recipient. Parent company to be allowed deduction of dividend received subsidiary
4. Concessional tax rate of 15% extended to power generation companies
5. Investment made in Infrastructure and other specified sectors
6. Tax rate of 194LC at 5% for interest payment to non resident in respect of money borrowed or bond issued upto June 30,2023 and for 194LD at 5% for interest on borrowing from foreign institutional or qualified investor and municipal bonds
7. Interest payment on bonds listed on exchange by ILFS – 4%
8. Option to Cooperative societies to pay tax at 22% with no exemption or deduction. Exempt from alternative minimum tax
9. Affordable housing tax breaks extended by one year. Additional 1.5 lakhs tax benefit on interest paid on affordable housing loans to March 2021
10. Turnover threshold for tax audit raised to Rs 5 crore from Rs 1 crore
11. 100% tax concession to sovereign wealth funds on investment in infra projects
12. Income from Charitable institutions fully exempt from taxation. Donation to such institution allowed as deduction.
13. Registration of charity institutions to be made completely electronic, donations made to be pre-filled in IT return form to claim exemptions for donations easily.
14. Faceless appeals against tax orders on lines of faceless assessments
15. For tax payers who have appeals pending only disputed tax is to be paid by tax payer and no interest or penalty if the same is paid within March 31,2020. Post March 31,2020 certain amount levied uptill June 30,2020
16. Startup ESOP taxes deferred by 5 years
Other Areas
1. New scheme to provide subordinate debt to MSME
2. Decriminalise some norm violations in Companies Act
3. Increase the bank deposit insurance from Rs 1 lakh to Rs 5 lakh
4. New system for instant allotment of PAN
5. A new scheme NIRVIK to be launched this year itself for exporters
6. A debt ETF consisting of government securities will be launched.
7. For NBFCs and HFCs, liqduity constraints will be addressed.
8. FPI Limit in corporate bonds will be raised to 15% from 9%.
9. LIC to be listed at stock exchanges

Two important changes in Income tax (TDS/TCS)
— TCS to be collected by seller whose turnover exceeds Rs. 10 cr. In previous year from each buyer on amount exceeding 50 lacs @0.1% for sale of goods.

-TDS rate u/s 194J for technical payment changed from 10% to 2% to avoid litigations in respect of 194J Vs 194C

ITR Form for AY 2020-21: new disclosures that taxpayers need to make in new ITR forms

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The changes in this year’s ITR forms are significant because it is seeking more disclosures.
  • More disclosures are aimed at improving income tax compliances & e-assessments.
  • In AY 2018-19, 58.7 million returns were filed, out of which about 23.7 million people filed returns with no tax liability

While it may be commonplace in Uncle Sam’s country, India is slowly getting used to the idea of disclosing more information to the taxman. In the last five years, income tax return (ITR) forms have started asking for more details to ensure that your spending patterns match your tax return profile.

However, the department seeking details of a valid passport or foreign travel with spends of over ₹2 lakh has left many with a feeling of discomfort as it further complicates the filing process. Many experts also worry about the privacy and security issues. “Data protection law for individuals in our country is not like that in developed countries such as the US. Also, given that the Personal Data Protection Bill 2019 is under consideration, many people are worried and skeptical when it comes to divulging so much information,” said Divya Baweja, partner, Deloitte Haskins and Sells LLP, an accounting firm.

Whether asking for more information will bear fruit and result in better tax compliance continues to be a question mark. The fact remains that you need to provide additional details, for which you have to be on top of many things, including your spending patterns. Now, if you have spent more than ₹2 lakh on foreign travel or ₹1 lakh on electric bills in the current financial year (FY), you will need to furnish these details. The new ITR forms notified by Central Board of Direct Taxes (CBDT), for the upcoming assessment year (AY) 2020-21, require you to disclose such information. If your spending patterns don’t line up with your tax declarations, it may land you in hot water.

The objective is to gather more and more information and make the process of selecting cases for scrutiny easier.

New ITR Forms: ITR-1 &  ITR4

ITR-1 which is also known as “Sahaj” can be used by an individual whose incomes primarily include salary income and whose total income does not exceed Rs.50 lakh during the FY. On the other hand ITR-4 can be used to file returns by resident individuals, Hindu Undivided Family (HUFs) and firms (other than LLP) having a total income of up to Rs.50 lakh from business and profession and filing return under presumptive taxation scheme.

There are two major changes in the ITR Forms – first, an individual taxpayer cannot file return either in ITR-1 or ITR4 if he is a joint-owner in house property, second, ITR-1 form is not valid for those individuals who have deposited more than Rs.1 crore in bank account or has incurred Rs2 lakh or Rs1 lakh on foreign travel or electricity respectively.

Additional info

So far, the government has notified ITR-1 and ITR-4 forms for tax filing for FY 2019-20 or AY 2020-21. However, you will have to wait to file returns as online utilities are not yet updated. The new ITR forms ask you to provide a valid passport number, if you have one; and details of your employer like name, nature of business, address and TAN.

The objective is to gather more and more information about an individual, which will help the tax department carry out specific enquries and make the process of selecting cases for scrutiny easier. “These alterations may be happening because the government is slowly moving towards e-assessments and is thus seeking greater clarification from taxpayers in the return itself to save time and costs,” said Shailesh Kumar, director, Nangia Andersen Consulting Pvt. Ltd, a business tax advisory firm.

Other experts echo the thought. “The changes reflects the continuing journey of the government towards simplification and automation. It has already started providing pre-filled return forms. These disclosures will help capture the complete details of taxpayers and the validation of their financial information, wherever such information is available from more than one source,” said Kuldip Kumar, partner and leader, personal tax, PwC, an accountancy firm.

Data is the new oil

In a computerised environment, tax returns are now filed online and data is something that the government wants to be best friends with to tackle the problem of tax evasion. At the front-end, it is seen as asking for more information from you, the tax payer. However, this isn’t the first time the ITR forms have been amended. Every year, CBDT notifies the forms carrying amendments in accordance with the Finance Act. The aim is to increase the tax base as only a tiny percentage of the population files returns. Also, among the people who file returns, about 40% show that they have no tax liability.

At the back-end, the government is taking steps to strengthen the compliance ecosystem. For instance, in 2004, as a measure to widen the tax base, the concept of Annual Information Return (AIR) filing was introduced. AIR is a statutory requirement where mutual funds, institutions issuing bonds and registrars or sub-registrars, and so on are required to record and report high-value financial transactions of individuals to the tax department.

In 2006, a project for enabling e-filing of ITR was launched. Further, in 2007, the government launched integrated taxpayer data management system (ITDMS). Under this system, data from multiple sources is collected in a complex process for drawing a complete profile of the taxpayer. A non-filers monitoring system (NMS), focusing mainly on non-filers with potential tax liabilities, was also initiated by the department. The system assimilates and analyses in-house information as well as transactional data received from various sources like ITR and AIR filed by third parties and other departments to identify people who had undertaken high value financial transactions but did not file their returns.

Taking it further, in the year 2017, the tax department initiated “project insight” to strengthen the non-intrusive information-driven approach for improving tax compliance and effectively utilizing information in tax administration. Under this project, an integrated data warehousing and business intelligence platform, which includes Income Tax Transaction Analysis Centre (INTRAC) and Compliance Management Centralized Processing Centre (CMCPC), has been set up. According to the department’s website, INTRAC leverages data analytics in tax administration and performs tasks related to data integration, compliance management, enterprise reporting and research support. CMCPC uses campaign management approach (consisting of emails, SMS, reminders, outbound calls and letters) to support voluntary compliance.

Will disclosures help?

The government wants you to divulge more information for better scrutiny. However, some experts feel that this will only increase the burden on the tax payers, who are already struggling with a very complicated system of tax filing. “This is overreach and intrusion, and it’s a wasteful exercise. For instance, many people from India go to gulf countries for labour work; if such people get notices, they won’t know how to respond. There is a lot of duplication. The department has already acquired most of this information through AIR filed by different entities,” said Himanshu Sinha, partner, Trilegal, a law firm.

While giving out more information makes things more difficult, such information will be able to trace non-filers and is intended to bring more compliances.

CBDT extends till Jan 31 deadline for compounding of I-T offences

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Taxpayers get one more chance to clear their tax dues.

The CBDT has extended till January 31 the last date for taxpayers to avail a “one-time” facility to apply for compounding of income tax offences, an order issued on Friday said.

The earlier deadline was December 31, 2019.

In I-T parlance, compounding means that the taxman does not file a prosecution case against the offender or tax evader in court in lieu of payment of due taxes and surcharges.

The decision to extend the last date was taken “in view of references received from field formations, including requests made by ICAI (Institute of Chartered Accountants of India) chapters wherein it has been brought to the notice of the CBDT that the taxpayers could not avail the benefit of the one-time relaxation window due to genuine hardships,” the order issued by the Central Board of Direct Taxation (CBDT) said.

The order was accessed by PTI.

Final opportunity
Hence, the order stated, the date has been extended to give a final opportunity to such taxpayers and reduce the pendency of existing prosecution cases before the courts.

Applications, as per the procedure of the scheme, are to be filed before the appropriate competent authority that is either a principal chief commissioner or a chief commissioner or a principal director general or director general of the Income-Tax Department “on or before” January 31, 2020.

The CBDT, while launching the scheme in September last year, had said that this “one-time measure” is being undertaken to mitigate unintended hardship to taxpayers in deserving cases and to reduce the pendency of existing prosecution cases before the courts.

“Cases have been brought to the notice of CBDT where the taxpayers could not apply for compounding of the offence as the compounding application was filed beyond 12 months,” it had said.

The riders
The relaxation, however, shall not be available in respect of an offence which is generally or normally not compoundable, indicating instances of serious tax evasion, financial crime, terror financing, money laundering, possession of illegal foreign assets, benami properties or conviction by a court in the past.

The CBDT circular added that application for compounding of an income tax offence can be filed in cases where: Prosecution proceedings are pending before any court of law for more than 12 months or any compounding application for an offence filed previously was withdrawn by the applicant solely for the reason that such application was filed beyond 12 months or any compounding application for an offence had been rejected previously solely for technical reasons.

The CBDT, which frames policy for the tax department, had earlier said that compounding of offences is “not a matter of right” and the department can extend such a relief only in certain cases.

This will be done keeping in view factors like “conduct of the person, the nature and magnitude of the offence on the context of the facts and circumstances of each case,” it had said.

Don’t let the tax scrutiny spoil happy returns

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The income tax department issues notices when it has doubts about income or expenses declared by the taxpayer. Unless you have misreported your income or assets or made wrong claims, you need not worry. Here is a rundown on when you may get a notice.

What happens after you file your return?

Once you file your income tax return (ITR), it is processed by the income tax department. The department first examines the return of income for its correctness, a process called assessment. At first, a preliminary assessment under Section 143(1) of the Income Tax Act, 1961, is done, wherein the department checks for arithmetical error, incorrect claim and so on. The department has to complete the assessment under Section 143(1) within a year from the end of the fiscal in which the return of income is filed. At this stage, no detailed scrutiny of the return of income of a taxpayer is carried out.

What are the most common tax notices?

Based on the preliminary assessment, routine notices are sent regarding mistakes you might have made while filing the ITR. Often you don’t have to respond to the notices: mostly, it’s intimation that the ITR has been processed. If the department has made any adjustment in return that you don’t agree with, you can respond within 30 days. If the department doesn’t receive a response, it will consider the ITR as acceptable. Notices under Section 143(1) for errors and omissions are the most common, but taxpayers may get notices for not disclosing certain income or due to adjustment of pending tax dues against refund.

What’s the reason behind this year’s scrutiny notices?

In the first phase, about 58,000 taxpayers, who filed their ITR for FY18, were served scrutiny notices. In the last few years, there has been a spike in the declaration of foreign incomes and assets. This could be a reason why more scrutiny notices have been issued in cases where tax filers have declared foreign assets and incomes.

When do you get a tax notice for scrutiny?

Scrutiny is of two types—limited and detailed. If the department needs more information, it sends limited scrutiny notices. Detailed scrutiny notices are sent to check the correctness of claims and deductions made in the ITR. Notices are sent within six months from the end of the fiscal in which the return is filed. A case can be opened afresh within six years from the end of the assessment year. If the return included foreign income and assets, notices can be issued up to 16 years from the end of the relevant year.

How should you reply to a scrutiny notice?

Under the “e-proceeding” facility, tax officers have to take recourse to electronic communication for all scrutiny notices. For each tax notice, a particular response procedure has to be followed. Once you get a notice, access your income tax account under “My Account”, click on “My Pending Actions” tab or on “Worklist” and go to “For your action” to see if any demands or arrears are pending. You must submit the information needed within the time mentioned in the notice. A delay can have a bearing on your refunds, if any.

Faceless scrutiny of income tax return.. Here is all you need to know

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Individual will be required to respond to the notice or order received through the registered account only.

The E-assessment Scheme 2019 aims to eliminate human interface, reduce corruption and bring in transparency.

The idea of faceless E-assessment was mooted in the Budget 2018 by the late Finance Minister, Arun Jaitley, who announced the proposal to introduce the new assessment scheme to replace the old assessment system of manual scrutiny and face-to-face interaction with tax authorities.

The new scheme, called the ‘E-assessment Scheme, 2019 (Scheme), was notified by CBDT on 12 September, 2019. It will be an online system, which will use artificial intelligence, machine learning and technology tools to randomly and automatically allocate cases for assessment within the Income Tax Department. It aims to eliminate human interface, reduce corruption and bring in transparency.

 

Salient features of the Scheme:

The Scheme will have dedicated E-assessment centres such as the National E-assessment Centre, Regional E-assessment Centre, assessment units, verification units, technical units and reviewer units with each centre and unit having a clearly defined role and process to follow.

# National E-assessment Centre (NEC): NEC will be a single point of contact for the taxpayer as well as for all units conducting assessment. NEC will interact with the taxpayer to obtain evidence, issue notices, receive information, issue draft assessment order, raise demand, etc, and also interact with all units for smooth conduct and completion of assessment proceedings. All communication between the NEC, the taxpayer and various units would be done online and would be digitally signed.

# Regional e-assessment Centre (REC): REC will ensure smooth conduct of E-assessment under the region of a Principal Chief Commissioner.

# Assessment units (AU): AU will perform the function of scrutinising tax returns, analysing submissions made and evidence submitted by the assessee and make requests, if any verification or technical assistance is required.

# Verification units (VU): VU will perform the function of making enquiry, cross verification, examination of records or witnesses and recording statements, as may be required for verification.

# Technical units (TU): TU will give advice on legal, accounting, forensic, information technology, valuation, transfer pricing, data analytics, management or other technical matter required for conducting assessments.

# Review units (RU): RU will review draft assessment order (DAO) to check if all material evidence, relevant points of fact and law, relevant tax case laws have been included in the DAO. It will also ensure the arithmetical accuracy of modifications proposed and perform other functions as may be required for review.

Procedure for assessment:

NEC will issue notice under section 143(2) online by uploading the digitally signed copy on the registered income tax account or by sending notice to the assessee’s registered email address or uploading the copy on a mobile app. A real time alert will be sent through SMS or the mobile app informing the same to the assessee

The assessee is required to respond within 15 days of receipt of notice.

On the issue of a notice, NEC will allocate the case to any AU through an automated allocation system. The AU will then identify issues, seek clarifications from the assessee and may request for verification or enquiry through VU or seek technical assistance through TU. Accordingly, NEC will initiate request to the respective units through an automated allocation system.

On receipt of all information, AU will prepare a DAO accepting the returned income or modifying the returned income or send the DAO to NEC for review. NEC will accordingly finalise the order or modify it or send the DAO to RU for review. Accordingly, it may send the DOA along with demand notice and penalty notice, where applicable, to the assessee or issue a showcause notice to the assessee.

In case of a showcause notice, the assessee will submit the response within the timeline specified in the notice. Considering the response, the NEC may either finalise the DAO or ask the AU to prepare a revised DAO.

On receipt of the revised DAO, the NEC will verify if any modification prejudicial to the taxpayer’s interest is proposed. Accordingly, the NEC will give an opportunity to the assessee to show cause as to why assessment should not be finalised as per the revised DAO; otherwise, NEC will finalise the assessment.

On completion of assessment, all records will be electronically transferred to the jurisdictional assessing officer (AO) only for imposition of penalty, recovery of demand, rectification of mistake, giving effect to appellate orders, submission of remand report or representation or for placing of any record before Commissioner (Appeals), Appellate Tribunal or Courts and for initiating prosecution or filing of complaint before the courts.

During the course of assessment proceedings, any unit may initiate penalty proceedings for non-compliance of any notice, direction or order and may recommend to the NEC to serve notice to the assessee.

Any appeal from the order of the NEC will be filed before the Commissioner (Appeals) having jurisdiction over the jurisdictional Assessing Officer.

During the assessment proceedings, no personal appearance will be allowed before the income-tax authority at NEC or any other units. In case personal hearing is required, to make oral submission or present the case, it shall be done only through video conferencing.

The E-assessment Scheme, 2019 is a welcome step towards standardisation and easing of assessment procedure. However, its success and ensuring that ease of doing business is achieved will depend on its careful implementation