Page 10 - Budget_2020

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
tax.
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

2014-15
2015-16
In US $ Million 2017-18
2016-17

2018-19
10,000 20,000 30,000 40,000 50,000
-
-10,000
2018-19 2017-18 2016-17 2015-16 2014-15
Offshore funds and - - - - -
others
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
st
 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
respectively.
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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