As the saying goes, there is many a slip between the cup and the lip. In the context of the Union Budget, there are many differences between the Finance Bill, 2020 and the Finance Act, 2020.
New tax regime for individuals
If an individual who earns business income opts for the new tax regime (after foregoing various deductions and exemption), the new regime would apply for subsequent years as long as the individual earns business income. Only when the taxpayer stops earning business income could he/she make a choice of switching back to the normal tax regime.
This dispensation has now been extended to individuals earnings income from professions such as chartered accountancy .
So, if you are an individual taxpayer and earn professional income, you won’t be able to opt in and out of the new tax regime every year.
Finance Bill 2020 had proposed new provisions for tax collections at source relating to foreign remittances. The authorised dealer or bank, through which the remittance was sent out of India under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS), had to collect tax at source at 5 per cent on remittances of above ₹ 7 lakh. Also, the new provision requires the seller of an overseas tour programme to collect tax at source from the buyer at 5 per cent of the amount received from a buyer.
However, the Bill did not specify whether the tax collected at source (TCS) was on the full remittance amount if it exceeded ₹7 lakh or the amount by which the remittance exceeded ₹7 lakh.
The Finance Act has clarified specifically that only foreign remittances (other than those to seller of an overseas tour programme) above ₹7 lakh will be subject to TCS. That is, only the incremental amount above ₹7 lakh will be taxed.
In case the foreign remittance is a loan taken from a banking company or institution for educational purpose, the TCS will at 0.5 per cent of the amount exceeding ₹7 lakh.
Additionally, if the seller has already collected tax at source, the TCS for foreign remittance isn’t required from the authorised dealer or bank’s end.
There will be no threshold for foreign remittances applicable to seller of an overseas tour programme. The whole amount will be subject to TCS.
However, according to a note by the taxman, in case the buyer of an overseas tour programme pays the seller of an overseas tour programme indirectly through an authorised dealer or bank, the threshold of ₹7 lakh will apply.
This is because remitting money for an overseas tour is also covered under LRS.
The Finance Act has delayed the applicability of the new TCS provisions to be effective October 1, 2020. They were originally to be applicable from April 1, 2020.
No TDS on MF capital gains
From FY2020-21 onwards, dividend distribution tax has been abolished and the dividend is taxable in the hands of the recipient. Corresponding provisions were incorporated for deducting tax at source at 10 per cent on payments made to mutual fund unit-holders.
This created confusion whether TDS (tax deducted at source) would apply even on redemption proceeds, which includes any capital gains. The Central Board of Direct Taxes had clarified in February that capital gains are not within the purview of this provision. The Finance Act, 2020 now has specifically excluded capital gains from the TDS provisions that are applicable on payments by fund houses to unit-holders.
TDS on dividends to non-residents
As now hat dividends are taxable in the hands of the recipient, most non-residents can claim beneficial rates under double tax avoidance agreements (DTAA) or the rate prevalent under the Income Tax Act, whichever is beneficial.
The rate at which dividend is taxed in the hands of non-residents is at 20 per cent. However, while making payments to a non-resident, a company has to deduct tax under Section 195 of the Income Tax Act. This is a residual section for incomes that have not been specifically covered.
The rate of TDS for non-residents is 30 per cent because Section 195 only refers to “rates in force”. The Finance Act has now amended the TDS rate on dividends paid to non-residents to 20 per cent.