Page 3 - Budget_2020

Union Budget 2020

Foreword

Budget 2020, an event which was considered to give a significant boost to an ailing economy, proved to be a mixed bag
across fronts. The National Economic Survey (NES) which was published a day earlier, resonated with the Hon’ble Prime
Minister’s Republic Day speech that “Wealth Creators need to be respected and that there can be no wealth for
distribution if it cannot be created”. The budget speech also started on this note, with the Hon’ble Finance Minister
emphasizing on “Trusting” the entrepreneur and fostering “Wealth Creation” in India. However, the fine print, of the
tax proposals - with deepening powers for the bureaucracy and enhanced opportunities for TDS/ TCS, provides anything
but fear and confusion in the minds of the Indian entrepreneurs.

Post the budget, non-residents are to be taxed in India on global income, even under genuine circumstances - the
subsequent press release, two days after the budget, does not clear the air in the absence of a change in law. Increase in
compliance burden for charitable trusts and forcing them to re-register online would certainly increase confusion and
disputes with eligibility for renewals and claims for 80G deductions. Henceforth, the donors would need to follow up
with the trusts to file their donations similar to TDS/TCS or GST. The theme of simplification of tax provisions is still
elusive with the first nine pages of the memorandum being dedicated to explaining just the various tax rates and slabs
under the Act. The extension of benefits for startups and deferment of ESOP taxation are welcome steps to promote
entrepreneurship. Abolition of Dividend Distribution Tax has been one of the long pending demands of overseas
investors which has now been acceded to, however high earning domestic investors/ promoters would now pay an
effective tax in excess of 50% on corporate profits in their hands - of course you can’t please everyone. Expansion of the
scope of e-assessments to include best judgment assessments and penalty proceedings is expected to make the process
transparent and onerous for high-pitched assessments.
Expanding the TCS regime to include high value purchases have now brought unexpected consequences on all importers
– which hopefully would get addressed in due course. In keeping with our run rate of amendments we have another
budget with over 100 amendments to Income Tax Act - this is despite having three interim budgets during the past 12
months. The levy of 5% TCS on liberalized remittance scheme is a bit difficult to fathom - why should tax be collected
on remittance of tax-paid income. The expansion of the scope of TDS forms to collect higher data is another step in
using data analytics for expansion of tax base. The case for giving an option to the assessee to forego investment based
exemptions might set a dangerous precedent of gradually moving away from the famed saving culture of our society, at
a time when our domestic savings rate is already in the decline. Time will tell whether the effort was worth the Rs 40,000+
crore of extra money in the hands of the consumers.

Overall, the strategy could be perceived to significantly expand the avenues for collecting taxes at various transaction
level without expanding the scope of taxable income. The Government is working on the assessee psychology that
“refunds lead to scrutiny and hence avoidable” so higher the TDS/TCS, higher the effective collections and better cash
flow management for the ex-chequer. To sum up, the budget proposals on taxation seem to expand taxing opportunities,
deepening tax base and somewhere gives the impression that “Trust” as envisaged in the statements have lost its relevance
in law. As always, would love to receive your feedback so please feel free to write to me at divakar@dvsca.com.

Thanking you

Divakar Vijayasarathy

Founder and Managing Partner

DVS Advisors

1