RESOURCE PAPER - 29

Market Highlights ofUnion Budget 2020-2021

by
R. Sridhar
Subham Kumar
Adhithiya Ramanujam

RESOURCE PAPER - 29

Market Highlights ofUnion Budget 2020-2021

by
R. Sridhar
Subham Kumar
Adhithiya Ramanujam(Budget Presentation in Japanese language is available in http://www.ijcci.com/budget/2020-jp.html)

We, at the Indo-Japan Chamber of Commerce and Industry haveimmense pleasure in presenting the Resource Paper on “Market
Highlights of the Union Budget” presented at the Indian Parliament for
the year 2020-2021. We are confident that this information would be ofimmense value to our Indian and Japanese business community. The
authors of this Resource Paper have taken adequate care to present it ina simple manner, easy to understand and without any prejudice.
The Authors are Mr. R. Sridhar, Mr. Subham Kumar and Mr. Adhithiya
Ramanujam. Mr. Sridhar is a qualified Company Secretary and a
Lawyer with over 23 years of post-qualification experience in Tax andRegulatory matters. He is a Tax Partner in Grant Thornton LLP where
he is responsible for Tax Practice of Chennai and Kochi offices. He is
also responsible for Transaction Tax Practice for South India.
Grant Thornton in India is one of the largest assurance, tax and advisory
firms, with over 3,000 professional staff across 15 offices. The firm
provides robust compliance services and growth navigation solution oncomplex business and financial matters through focused practicegroups. The firm has extensive experience across a range of industries,
market segments and geographical corridors.
Mr. Subham Kumar is a chartered Accountant with about 10 years ofexperience. He is an Associate Director in Walker Chandiok & Co LLP
and is a specialist in Income Tax & Corporate Reorganizations.
Mr. Adhithiya Ramanujam is a qualified Chartered Accountant
working with Walker Chandiok & Co. LLP as a Consultant, keen towork in the field of Direct Taxes and other Regulatory matters.
We hope our readers would find it informative and useful.

February 2020

Suguna Ramamoorthy
Secretary GeneralHighlights of Union Budget 2020-2021

Budget Expectation
Albeit the union budget was introduced during sluggish
economic environment, with the GDP at its lowest level of lessthan 5%, the Finance Minister has delivered a robust bill
fulfilling certain expectations of the eyes of the world. The key
amendments are (a) abolishing DDT with effect from 1st April
2020 (b) prescribing attribution rules for e-commerce(c) Rationalising the Personal Tax Regime and (d) creating aboom for FDI by exempting the investment income in the case ofcertain non-residents.
Steps to attract infusion of Foreign Capital
Sovereign Wealth Funds (SWFs) of foreign governments canavail a 100% tax exemption on the interest, dividend and capital5

gains income in investment made in infrastructure sector on or
before 31 March 2024 with a minimum lockin period of three years.
Several concessional rates of withholding tax for Foreign Portfolio
Investors (FPIs) and Qualified Foreign Investors (QFIs) have beenannounced. The abolition of Dividend Distribution Tax (DDT)
would help foreign investors as the respective tax treaty provides
lower tax rate on dividends. Further, in major countries the treaty
provides for full exemption and underlying tax credits in case ofdividends. In order to deliver higher-quality education by attracting
talented teachers, building better labs etc. the government hasannounced steps to enable sourcing of External Commercial
Borrowings (ECBs) and Foreign Direct Investment in the
education system. In addition to this, a liberalised FDI regime toboost the foreign investment are also made.
Capital Market and Financial Sector• India has a diversified financial sector undergoing rapid
expansion, in terms of both strong growth of existing financial
services firms and new entities entering the market. In the last
few years, the focus of the government to build a digital
payment ecosystem has led to an increased formalisation of
the Indian economy, and helped channelize retail investments
into financial products offered by mutual funds, insurancecompanies etc.
• In the last few years, various initiatives have been taken by thegovernment for digitisation of financial products (such as
PMJDY, Aadhar-enable e-KYC, UPI etc.) and increased
penetration of the banking / NBFC sector in rural and remoteareas of the country. This has led to the formalisation of theeconomy and higher spending habits.
6• With the introduction of the Insolvency and Bankruptcy Code(IBC), banks have been able to recover bad loans fromdefaulting borrowers expeditiously. IBC has addressedstressed assets worth over INR 4 lakh crore.
• Some of the key policy initiatives of the government for thefinancial services sector in the recent past are as follows:▪ Consolidation of Banks: The government has initiatedconsolidation of weaker public sector banks with stronger
public sector banks. This would lead to increased capitalwith banks for kick-starting the credit cycle.
▪ NBFCs: For purchase of high-rated pooled assets amounting
to INR 1 lakh crore of financially sound NBFCs, thegovernment will provide a one-time partial credit guarantee
to Public Sector Banks (PSBs) for first loss of up to 10 %.
▪ Housing Finance Companies (HFCs): The Net Own
Funds (NOF) requirement for HFCs has been enhanced
from INR 2 crore to INR 10 crore.
▪ Foreign Portfolio Investors (FPIs): The government has
permitted investment under the FPI route up to the sectorial
limits prescribed under the exchange control regulation as
against the present limit of 24%.
▪ Insurance: 100% FDI will be permitted for insuranceintermediaries.
• The following are the key economic reforms pertaining tofinancials services :▪ Deposit insurance coverage limit allowed to be increased
from INR 1 lakh to INR 5 lakh per depositor.
▪ Eligibility limit for NBFCs w.r.t. debt recovery under
Securitisation and Reconstruction of Financial Assets and7

Enforcement of Security Interest Act, 2002 Act proposed tobe reduced to asset size of INR 100 crore or loan size of
INR 50 lakh, from the existing limit of INR 500 crore and
INR 1 crore respectively.
▪ Specified categories of g-securities would be available forinvestment by non-residents as well.
▪ Universal pension scheme with auto enrolment to be
introduced.
▪ FPI limits for corporate bonds to be increased to 15% fromthe existing 9%.
▪ Window for restructuring of debt available for Ministry ofMicro, Small and Medium Enterprises (MSMEs) may be
extended up to 31March 2021.
▪ Withholding concession in case of investments by nonresident in certain types of bonds listed on a recognised
stock exchange located in International Financial Services
Centre (IFSC).
Infrastructure Development• The infrastructure sector has been a growth propeller for the
Indian economy. The correlation of infrastructure investment
to GDP has always been high. Last year, the correlation
between investment in road, rail and airport infrastructure to
the GDP of the country was at 0.9%.
• Massive investment is required in infrastructure to achieve
the targeted economic growth of the country. India requires
investment worth INR 50 trillion in infrastructure by 2022 tohave sustainable development in the country.
8• The country has the need to spend 7% to 8% of the GDP in
infrastructure every year to be able to sustain the requirements.
Recognising this, the government has been increasing its
spending on infrastructure every year, with particular focus onlarge infrastructure investments in the areas of roads andhighways, smart cities, airport and rail sector.
• India has considerably improved its ease of doing businessranking to 63 in 2020, indicating the positive thrust on
improving the industrial scenario through provision of good
infrastructure. (Source: Grant Thornton insights).
• Key policy initiatives and steps proposed by the government
in the budget is as follows:▪ Proposal to set up a project preparation facility to enable
recent pipeline projects.
▪ Infrastructure agencies to involve youth in infrastructure
start-ups.
▪ Smart Cities proposed to be developed in collaboration
with the states under public private partnership; these cities
will be chosen to develop upcoming economic corridors,
manufacturing and technology.
▪ More number of trains similar to ‘Tejas’.
▪ 100 more airports to be developed under ‘UDAAN’ by2024, which is likely to give a boost to the aviation sector
including aviation infrastructure.
▪ Corporatizing at least one major port.
▪ To invest INR 1.70 lakh crore for transport infrastructure.
INR 22 thousand crore to be provided to the power andrenewable energy sector.
9▪ Expansion of national gas grid to 27,000 km, which islikely to increase spending in the sector, thus improving thegas distribution network.
Rural India and Farmers Welfare
In line with the Economic Survey recommendations, the focus of
the Budget was on agriculture (with an eye on doubling farmers’
income), rural, education, etc. The government of India has
accorded high priority to agriculture and has come out withseveral policy and safety net related measures to enhance
farmers’ income. The recent announcements made in the primarysector is : (a) allocation of INR 1,40,763.97 crore (USD 1.95
trillion) made to the Ministry of Agriculture; (b) setting up ofbusiness incubators to develop 75,000 skilled entrepreneurs in
the agro-rural industry sector; (c) formation of 10,000 new
farmer producer organisations over the next five years; (d) focus
on zero budget farming to double farmers’ income &(e) government to work for the benefit of farmers throughe-NAM (National Agriculture Market).
The following are the key economic reforms proposed in thebudget in relation to Food & Agriculture:• Insurance for 6.11 crore farmers under PM ‘Fasal Bima
Yojana’.
• Liberalisation of farmer markets.
• Adoption of sustainable cropping patterns and introduction oftechnology integrated methods.
• Proposal of 16 action points which includes: (a) mobilisationof funds under ‘Deen Dayal AntyodayaYojana’ for alleviationof poverty and expand Self Help Groups (SHGs);
10

(b) framework for development, management andconservation of blue economy; (c) comprehensive relief
measures for 100 water stressed districts & (d) encouraging
the implementation of certain model laws (issued by Central
Government) by State Government.
Youth, Education, Women and MSMEs
The major economic reforms are: (a) employment of youth incoastal areas through Sagar Mitras and fish farmer producer
organisations with view to raise fishery exports;(b) infrastructure agencies to involve youth in infrastructure
start-ups & (c) implementing ‘Kayakave Kailasa’, thegovernment will enable about 10 million youth to take up
relevant skill training through the ‘Pradhan Mantri Kaushal
Vikas Yojana’ (PMKVY). It will include new-age skills like
AI, IoT, big data, 3D printing, VR and robotics.
The key budget announcement relating to education and skill
developments are: (a) in order to deliver higher quality
education, sourcing through ECB and FDI is proposed;(b) apprenticeship embedded degree/diploma courses by March
2021 to be instated by 150 higher educational institutions;(c) Ind-SAT to be held in Asian and African countries under“Study in India” programme; (d) proposed to attach a medicalcollege to an existing district hospital in PPP mode & (e) a startup programme whereby Urban local urban bodies provides
immense opportunity for fresh engineers.
With respect to MSMEs the budget has provided the following
fruitful reforms/measures such as: (a) window for restructuringof debt available for MSMEs may be extended up to 31 March
2021; (b) necessary amendments made to the Factor Regulation
11

Act 2011 to enable NBFCs to extend invoice financing to
MSMEs through TReDS, thereby enhancing their economic andfinancial sustainability; (c) auto component industry
significantly dominated by MSMEs; provision for access toworking capital through new scheme will enable them to remaincompetitive; (d) creation of Unified Procurement System in the
country in the Government e-Market place for providing a single
platform for procurement of goods, services and works. A great
opportunity for MSMEs; (e) National Logistics Policy to bereleased soon to create a single window e-logistics market andfocus on generation of employment, skills and making MSMEs
competitive; (f) an app-based invoice financing loan product tobe launched for MSMEs & (g) proposal for subordinate debt
scheme to address working capital credit requirements of
MSME entrepreneurs by banks as quasi-equity and fully
guaranteed through Credit Guarantee Trust for Medium andSmall Entrepreneurs (CGTMSE).
Direct Tax
1. Personal Tax
A. New Regime• The Budget has proposed a new tax regime for Individuals
and HUF’s with effect from fiscal year 2020-21 with areduced tax rates. This new scheme proposed in the budget
involves foregoing the following deduction/exemptions.
▪ The aggregate deduction up to 0.15 million from the Gross
Total Income (GTI), allowed in the erstwhile provisions.
12▪ All the deduction from the salary income.
▪ Certain other deductions specified therein. The new
Regime is optional for the tax-payers. In case of individual
having business income, the options once exercised cannot
be changed in subsequent years.
B. Residential status• In determining the residential status of Citizens of India and
PIO, the period of stay has been reduced to 120 days instead of
182 days. This will increase the tax base for India.
• The Finance bill proposes a new rule for qualifying as Not
Ordinary Resident (NOR), whereby an individual will qualify
as NOR if he/she has been a non-resident in India in 7 out of 10
preceding years.
• With modification of tax residency rules, globally mobile
individuals would need to evaluate their residential status in
India as their global income can become exposed to tax inIndia.
C. Deemed Residency• Initially in the budget, the global income earned by an
Individual which is not taxed in any other county by virtue of
his domicile, residency will be taxed in India. This was done
to curb the harmful tax practise followed by the individuals byshifting their residence in low tax or tax heaven jurisdiction.
• This gave rise to a question, even the legitimate salary income
earned by a bonafied employee in the tax heaven jurisdiction
will be bought to tax in India? To clarify the above, the CBDT
has issued a press release stating that “income attributable to13the business or profession carried on India” by such persons
are only taxed and not the other income.
D. Dividend Distribution Tax (DDT)• Currently, companies are required to pay DDT on the dividend
declared/distributed/paid to shareholders at the rate of 15%
plus applicable surcharge and cess.The Budget now proposes
to abolish DDT for dividends declared, distributed or paid on
or after 1st April 2020. Consequently, dividends will be
subjected to tax in the hands of the shareholders in all cases.It
is also proposed that interest expenditure be allowed as
deduction from dividend income, subject to a cap of 20% ofsuch income. The applicable rate of tax for dividend income
as per India - Japan tax treaty is 10%.
E. Others• Under the existing provisions, additional deduction of interest
up to INR 150,000 is available in respect of loans taken from afinancial institution to purchase an affordable residential
house subject to certain conditions. One of the conditions forclaiming such deduction is that the loan should be sanctioned
before 31 March 2020. It is proposed to extend the period of
sanctioning of loan to 31 March 2021.
• The overall limit of employer contribution to certain recognised
and approved funds is pegged at INR 0.75 million. Any
contribution in excess of the specified amount will be taxable asincome in the hands of employee. This proposal signals an intent
to shift from the Exempt-Exempt Exempt (EEE) regime. The
restriction will impact employees in higher income brackets.
142. Start-ups• Tax holiday eligibility criteria for start-ups is aligned withconditions prescribed by the Department for Promotion ofIndustry and Internal Trade (DPIIT).
▪ Turnover cap for start-up has been increased to INR 1000
million from INR 250 million.
▪ The period for exemption is extended from 7 years to 10
years.
• Deferment of payment of withholding tax from the time of
exercise of ESOP to:▪ Expiry of 48 months from the end of the relevant year inwhich the exercise is made or▪ Date of sale of securities or▪ Date on which individuals cease to be an employee(whichever is earlier). Deferring the taxation of theperquisite income arising from exercise of ESOPs for
eligible start-ups is a welcome step. However, the benefit
could have been extended to all companies as theemployees face the same tax burden.
3. International Tax
A. Digital Taxation• In respect of taxable income arising on account of Significant
Economic Presence of NR in India the following attribution
rules have been specified. Taxable income shall include
income from the following:15• Advertisements which targets resident customer or
through Indian IP address.
• Sale of data collected from a resident or through an Indian
IP address.
• Sale of goods/services from data collected from residents
or through an Indian IP address .
• The aforesaid attribution rules impact the business that haveoperations in India through digital means in respect of above
mentioned transaction. This is a significant step towards
taxation of digital economy.
• Insertion of new section in the budget imposing withholding
tax at the rate of 1% on the gross amount of sales or service byan e-commerce operator on payments made to an
e-commerce participant (i.e. person selling goods and/or
services on electronic or digital platform).
• Payments made to an individual or HUF e-commerce
participant are exempt from withholding tax if the grossamount does not exceed INR 500,000 subject to furnishing of
PAN/Aadhaar.
• In the absence of PAN/Aadhar of the e-commerce participant,withholding tax rate at the rate of 5% shall be levied.
• E-commerce participants shall be entitled to obtain lower tax
deduction certificate in respect of proceeds receivable frome-commerce operators.
B. Royalties, Interest and dividends• As a result of abolishing DDT, the consequential amendment
was brought to tax the dividend income distributed by Indiancompany to NR @ 20%.
16

• Currently, royalties exclude any amount paid for sale,
distribution or exhibitions of cinematography films. It is now
proposed to include such amounts within the purview ofroyalties.
• The applicable tax rate for royalty and interest as per IndiaJapan tax treaty is 10%.
• The Budget proposes that non-residents are required to filetheir tax returns in cases where the withholding tax rates arelower than the tax rates specified in the domestic law.
Non-residents are eligible to take lower rate as per applicabletax treaty, in which case they will be obligated to file the tax
returns in India.
C. Transfer pricing• From AY 2020-21, it is proposed that taxpayers can opt for
Safe Harbour Rule (SHR) to determine the income
attributable to a PE in India (detailed rule are expected to be
notified separately). It has also been clarified that Advance
Pricing Agreement (APA) provisions shall also apply todetermine income attributable to a PE, in cases of APAs
entered into on or after 01 April 2020.This is more in nature ofclarification, as in past foreign branch in India has entered into
APA.Taxpayers need to be cautious while evaluating whether
to go for SHR or APA.
• It is now proposed that a taxpayer can approach a DRP(Dispute Resolution Panel) against all variations even if
they do not impact the returned income or loss. For example,
if a software developer has been characterised by the tax
officer as a contract R&D service provider, without
17

disturbing the arm’s length price, the taxpayer can now
approach DRP.
• The Budget has also proposed that the DRP provisions be
extended to cover non-resident non-corporate taxpayer. It is a
big relief for non-corporate non -residents, who can now
access the faster DRP route.
• The due date for furnishing transfer pricing audit report has
been revised to 31st October of the assessment year instead of
30th November thereof.
• With effect from fiscal year 2020, it is proposed that to exempt
Indian branches of foreign banks from the interest limitation
rules.
D. Others• Under the existing provisions, fund managers of eligible
investment funds (EIFs) do not constitute ‘businessconnection’ in India for the EIF. This is subject to conditions
which include a cap of 5% investment by residents in theparticular EIF. This condition is proposed to be relaxed,
whereby the investment by the fund manager during the first
three years not exceeding INR 250 million shall not becounted for the 5% cap. Further, it is proposed that theminimum fund corpus shall be achieved within a period of 12months instead of the existing 6 months.
• The Budget proposes to exempt Category I FPIs from theapplicability of indirect transfer provisions.
• In alignment with Article 6 of the multilateral instruments (MLI),
the Budget proposes to deny treaty benefits to all arrangements
created for the purpose of tax evasion and avoidance.
18

4. Corporate Taxes
A. Concessional Taxes & Deductions• In order to eliminate the cascading tax effect in case of intercorporate dividends by providing a deduction in respect ofdividends received by a domestic company to the extent such
dividend is distributed. Such deduction shall be allowed only
if the dividend is distributed by the company at least one
month prior to due date of filing of return of income.
• However, it is pertinent to note that in case of Indian company
receiving dividends from the foreign subsidiary company thisprovision is not applicable. To this extent the cascading effectis not fully provided.
• There is new tax regime for manufacturing companies which
provides for concessional tax rate of 15%. From fiscal year
2020 onwards, companies engaged in electricity generation
are included in the regime. It is a welcome move to boost
investment in infrastructure spending in relation to generationof electricity.
• Currently the companies who are opting for concessional tax
rates cannot avail the deductions and allowance specified in
Chapter VI-A except for deductions in respect of expenditure
incurred for employment of new employees and intercorporate dividends.
B. Audit & Return Filing• It shall be proposed to increase the turnover threshold for
mandatory tax audit for persons carrying on business from,
INR 10 million to INR 50 million. The essential condition is19

that cash receipts and payments do not exceed 5% of the total
receipts and payments, respectively. The increase in turnoverthreshold is a welcome move as it will ease compliance burden
for MSMEs.
• The time limit for filing the return of income who are liable totax audit, from fiscal year 2020-21 onwards will be 31st
October.
• Further the tax audit report should be filed one month prior to
the due date for filing income tax return.
C. Banks and Insurance Companies• This benefit of carry forward loss and unabsorbed depreciation
is proposed to be extended to all banks whether incorporated ascompanies or not as well as general insurance companies. This
proposal is intended to facilitate consolidation of public sectorbanks and insurance companies. The amendment seeks tofacilitate re-organisation and re-capitalisation of public sectorbanks and general insurance companies.
5. Other forms of Entity
A. Concessional rate for co-operative society• At present the co-operative societies are taxed at 30% tax rate.
The budget proposes to tax at a reduced rate of 22%. Earlier thisprovision was available only for companies. Further Alternate
Minimum Tax (AMT) provisions and provisions related to carryforward and set-off of AMT credit will not apply to such resident
co-operative societies exercising this option.
20

B. Business Trust• Currently, only listed Infrastructure Investment Trust (InvITs)
and REITs are eligible to qualify as a business trust to get apass-through status for specified streams of income. A change
has been proposed to make unlisted trusts eligible for the
beneficial provisions.
• The amendment will facilitate a level-playing field for private
unlisted and public listed trusts with respect to availing of tax
benefits.
• Income earned from a business trust in the nature of dividend
from an SPV, which were earlier exempt from tax, is now
required to be offered to tax by the unit holder. Hence it would
be useful to evaluate the Inveit structure.
C. Mutual Funds• Income from units of a mutual fund, currently exempt andsubject to distribution tax, is proposed to be taxed in the handsof the unit holder with effect from 01 April 2020. It is also
proposed that the payer shall withhold taxes at the rate of 10%
on such income if it exceeds INR 5,000 and the unit holder is a
resident in India. In the case of a non-resident unit holder, it isexpected that the payer shall deduct tax at the rate of 20%.
D. Public Charitable Trust & Others• The interest, dividend and long-term capital gain earned by awholly owned subsidiary of Abu Dhabi Investment Authority
and Sovereign Wealth Funds (SWFs), meeting specified
conditions, be exempt in respect of investments in21

infrastructure facilities made on or before 31 March 2024 andheld for a period of three years.
6. Capital gains• It is proposed to increase the tolerance limit to 10% fromexisting 5%. It is also proposed that the cost of immovable
property acquired prior to 1 April 2001 shall not exceed thestamp duty value as on 01 April 2001, if available, to compute
capital gains.
7. Faceless Assessment, Appeals, and withholding Taxes
A. Withholding tax• The AD banker is required to withhold TCS at rate of 5% on
every remittance made by the buyer in the LRS scheme.
• Every seller of an overseas tour packages required to withhold
TCS at the rate of 5% without any limit.TCS shall be levied at
10% in case Permanent Account Number (PAN)/Aadhaar is
not furnished.
• The benefit of concessional withholding tax rate of 5% inrespect of interest on overseas borrowings, long-term bonds
and Rupee Denominated Bonds (RDBs) is available up to
1 July 2020. It is now proposed to extend this benefit forborrowings made up to 1 July 2023.
• In respect of long-term bonds and RDBs listed on a recognised
stock exchange in an IFSC, beneficial withholding tax rate of
4% is proposed. The amendment is proposed to be effectivefrom 1 April 2020.
22

• At present interest paid to an FII or a QFI on government
securities and RDB attracts 5% withholding tax. It is proposed
to extend the benefit of lower withholding rate up to 1 July
2023. Additionally, this benefit will be extended toinvestments in municipal debt securities. The amendment is
proposed to be effective from 1 April 2020.
• The Budget proposes to introduce withholding tax on
dividend pay-outs to residents exceeding INR 5,000 by anymode at the rate of 10%. Dividend paid to a non-resident
would also be subject to withholding tax at the rate of 20% or
any other beneficial rate as per applicable treaty.
• With a view to reduce litigation on account of short deductionof tax, fees for technical services (other than professional
services) paid to resident will now attract withholding at a
reduced rate of 2%. Further there is no exemption provided to
expats.
• It is proposed that a seller of goods shall collect tax on
payments in excess of INR 5 million at the rate of 0.1% (1% incase of no PAN/Aadhar) provided the seller’s turnoverexceeds INR 100 million.
B. Faceless assessments, appeals and penalty• A new direct tax amnesty scheme ‘Vivad Se Vishwas’ has been
proposed, encouraged by the success of the indirect tax Sabka
Vishwas (Legacy Dispute Resolution) scheme, with a view to
reduce litigation. The scheme proposes full waiver of interest
and penalty if the disputed tax amount is paid by
31 March 2020. The scheme shall remain open till 30 June
2020, but the amnesty will only be partially available forpayments made after 31 March 2020.
23

• With a view to enhance the trust between the taxpayer and thetax collector and to nurture an atmosphere of mutual
cooperation, the Finance Minister has announced theintroduction of a taxpayer’s charter in the statute. The Central
Board of Direct Taxes (CBDT) has been mandated to adopt
and implement the charter. The details of the charter are
expected to be announced shortly.
• With effect from 1 April 2020, it is proposed that the Income
Tax Appellate Tribunal (ITAT) may grant stay subject topayment of 20% of tax demand or furnishing of security of an
equal amount.
• The Budget proposes an e-appeal scheme for disposal of
appeals by the Commissioner of Income Tax (Appeals). A
detailed notification will be issued soon.
• Following the foot-steps of faceless assessment and appeal,
the budget also proposes an e-penalty scheme. A detailed
notification will be issued soon.
Indirect taxes
The government has re-affirmed the introduction of a simplified
return filing system from 1 April 2020 focusing on overall
simplification with improved flow of ITC. E-invoicing system
will be implemented in a phased manner starting February 2020
optionally; it will be made mandatory from1 April 2020. A new
scheme has been launched to allow exporters to obtain refund oftaxes (such as electricity duty, VAT on fuel used fortransportation etc.) which are not exempted or refunded under
the current regime. Aadhar-based verification to be introduced to
weed out dummy/non-existent taxpayers to check tax evasion.
24

The Budget proposes to impose penalty on any beneficiary whoretains the benefit of illegitimate ITC or any tax evaded, equal tosuch amount. Similar provisions have been extended to such
beneficiaries only incase of cognisable and non-bailable
offences. Further to track down the same even in the direct tax, a
new section was inserted for penalising the false/omission ofentry in the books of account. Amendment in the GST law has
been proposed to include Dadar and Nagar Haveli, Daman andDiu, and Ladakh as union territories. GST officers have been
empowered to cancel taxpayers’ voluntary registration.The
manner and time limit for availing transitional ITC of the preGST regime will be prescribed. Additional window to allow
transitional ITC could be a welcome move if implemented for all
taxpayers retrospectively.
Imposition of Health Cess on specified imported medical
devices. Health Cess has been imposed with the dual objective ofproviding impetus to the Make in India scheme and creating aviability gap funding window for setting up hospital sunder the
Ayushman Bharat scheme. Amendment in rules have been
proposed related to anti-dumping duty on dumped articles andcountervailing duty on subsidised articles. Stricter provisions forimposition of anti-dumping duties including investigations
would help in protecting domestic players.
An electronic duty credit ledger will be created on the customs
portal in order to provide duty credit in lieu of duty remissions(for export and other similar benefits) for duty payment. The
proposal is a welcome move to avoid manual intervention,
similar to the GST laws. Importers would be required to provide
compliance declaration, maintain proper records and provide
requisite data to substantiate compliance with rules of origin.
25

Non-compliance to amended procedures for claiming
preferential rate could lead to full disallowance or temporary
suspension.
There are changes in the custom duty rates for various products
and use-based rate changes proposed under Customs Tariff Act,
1975. Changes in duty rates are in line with the government’s aim
to protect, safeguard and boost domestic market, ultimately
fulfilling the objective of its Make in India initiative.
Budget 2020 Few Prominent misses• Though a much awaited personal tax regime was introduced
providing for concessional rates for individuals, the otheraspect of reducing the super-rich surcharge has not been
amended. As a result, the high net worth individuals is
required to pay tax at the rate of 42.74%. This becomes evenmore burdensome with the abolition of DDT.
• As a measure to promote more investment and FDI into India,
the much awaited expectation was to eradicate the tax on saleof listed long-term equity shares. However, this was not acted
upon in the budget.
• One of the major misses being that there was expectation ofextension of sunset clause of the Special Economic Zone tax
benefits which was not fulfilled.
• Although there were concessional tax rates which areprovided for domestic, manufacturing companies, power
generation companies and co-operative society, there was nosuch extension available to information technology / software
industries. This was a huge expectation around the budget
from various IT/ITes companies across the globe.
26• In order to reduce litigation for multi nation corporation, realignment of safe harbour rules in line with businessenvironment.
• Even after allocating a specific task force for unveiling theDTC, Budget 2020 remained silent on the introduction of the
Direct Tax Code.
• One sector which did not get the desired attention from a
Foreign Direct Investment perspective was the Defence Sector
where there was expectation that the government route for FDI
in the Sector would be increased from 49% to 74%. This move
was required considering the immediate need for transfer oftechnology and know-how required for the rapid growth anddevelopment of the defence equipment manufacturing sector.
Conclusion
The action points of union budget 2020 has given equal focus toprimary, secondary and tertiary sectors. From an ease of doing
business perspective, India is ranked at 63rd position. This is
expected to be further improve with significant economic
reforms proposed in the budget. If the policies and reforms are
implemented in true spirit, the expected GDP of 10% can beachieved. Abolition of dividend distribution tax is a positive
message to foreign investor as it will ensure lower tax cost to
upstream profits from Indian Corporate to Overseas Corporateshareholder.

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