Page 10 - Budget_2020
P. 10

Union Budget 2020
                                         Abolition of Dividend Distribution Tax (DDT)
                             DDT is a levy on distribution of dividend income to shareholders/unit holders
                             Dividend shall now be taxable in the hands of shareholders/unit holders at applicable slab rate
                             Deduction of interest expenses shall be allowed, to an extent of 20% of the dividend
                             Dividend received by business trust from special purpose vehicle shall be exempt in the hands of business
                             trust and taxable in the hands of unit holders
                             Against the dividend received by a company from another company, dividend distributed by the first
                             mentioned company shall be reduced if the said dividend is distributed one month prior to the due date
                             of filing the return of income
                             Consequential amendments, including TDS, have been proposed in other provisions

                          AY 2021-22 and subsequent AYs. Amendments relating to TDS obligation - from 1st April 2020
                          The new system would encourage debt mutual fund market in India as most of the individuals would pay tax
                          at lower rate on income received from debt fund as compared to old regime. It will additionally encourage low
                          income earners to invest in capital market as the person with total income upto Rs. 5 lakhs will not pay any
                          The primary beneficiaries seem to be overseas investors as they would now be able to claim tax credit for the
                          dividend withholding tax; however, HNIs and promoters in the highest tax slab would now be paying dividend
                          tax at 43% which is extremely regressive. The effective tax on corporate profits in the hands of the shareholder
                          is in excess of 53%.

                                                Foreign Portfolio Investment

                                          In US $ Million  2017-18

                                                            10,000  20,000  30,000  40,000  50,000
                                                 2018-19 2017-18 2016-17 2015-16 2014-15
                                 Offshore funds and  -       -       -       -        -
                                 FIIs              12,667  22,165  7,766   -4,016  40,923
                                 GDRs/ADRs           -       -       -      373     1,271

                                                 Source: Reserve Bank of India
                                           Rationalising Tax Audits in Certain Cases
                             It is proposed to increase the threshold limit for applicability of tax audit u/s 44AB, for businesses, from
                             Rs. 1 crore to Rs. 5 crores where-
                                 (i) aggregate cash receipts shall not exceed 5% of total receipt; and
                                 (ii) aggregate cash payments shall not exceed 5% of total payment.
                             Further, tax audit report shall be filed 1 month before the due date of filing the return of income
                             There shall be no distinction between a working and non-working partner of a firm liable for audit
                             Due date of filing the return is to be amended for company, tax audit assessees and partners of firm liable
                             for tax audits, to 31  October
                             However, the TDS and TCS provisions, which were linked with the tax audit threshold limit, shall continue
                             to apply based on the earlier thresholds of Rs. 1 crore and Rs. 50 lakhs for business and profession
                          AY 2021-22 and subsequent AYs

                          This is a welcome move for small businesses where they shall not face the burden of audit, which will further

                          enhance compliance. However, in practice, the maximum beneficiaries from this proposal may not exceed 5-
                          10% of the applicable businesses given the pervasiveness of cash transactions.

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