This Article is written by Dev Agarwal, Law Student from Heritage Law College, Calcutta University.
In the wake of the ongoing Coronavirus (Covid-19) pandemic, the Hon’ble Prime Minister of India Shri Narendra Modi pitched for Aatmanirbhar Bharat, literally meaning Self-Reliant India. But before officially announcing this ambitious scheme, the legislation of Finance Act 2020 and the Amendment of Companies Act 2013 already hinted about an India which will facilitate not only a shift of manufacturing hub from China to India but also Aatmanirbhar Bharat. The Finance Act 2020, not only provided a sort of relief to taxpayers but also boosted the confidence of Indian entrepreneurs and their start-ups.
The Finance Act 2020 has majorly modified the provisions of the Income Tax Act, 1961. The major amendments have been done in the Income Tax Act 1961 includes –
- Section 6 which determines the Tax residency rules for Non-Residents, earlier the provision said that Indian Citizens or persons of Indian origin would qualify as taxpayers of this country if they spend 182 days in India whereas, now the number of days has been reduced to 120. Earlier, the said provision was misused by the Non-Residents as they showed that the total number of days spent here is less than 182. However, to keep a check on this, the Government has decreased the total number of days, and this 120 days scheme would only be applied in those cases where the income arising out of India would exceed 15 Lakhs.
- Section 115-O deals with Dividend Distribution Tax (DDT), the DDT is a tax that companies pay for the dividend distributed by them to shareholders. But, for the Financial Year 2020-21, this DDT is not payable and shareholders directly need to pay when they are filing their returns. The rate of the DDT was 15 percent.
- Individuals and Hindu Undivided Families (HUF) have been relieved. The amendment to Section 115BAC paved the way for an alternate and concessional tax slabs. The new rate of the concessional tax slabs would essentially help the taxpayers having an income of Rs. 50001-75000, 75000-100000, 100001-125000 and 125001-150000.
- The startups currently enjoy a tax waiver for any 3 years of their initial 7 years, if incorporated between 1st April 2016 to 31st March 2021 provided if they have a turnover of Rs.25 Crores. After the Finance Act 2020, the limit of 7 years has been increased to 10 years and the startups now can enjoy a waiver of tax for any 3 years for the initial 10 years and the threshold has been increased to Rs.100 Crores.
- The Ministry of Finance also amended the Companies Act 2013 by the Companies (Amendment) Bill 2020 which not only decriminalized certain offences but also facilitated the listing of Indian companies abroad in recognized stock exchanges of the world.
- It also provides that companies that spend Rs.50 Lakh or less on Company Social Responsibility (CSR) need not require to have a CSR Committee. In 2019, the Companies Act 2013 was amended to stricken the CSR but now it has been amended again to provide ease for the companies.
- As many as 23 offences would be re-categorized out of 66 compoundable offences under the Act. Compoundable offences are those offences that can be settled by paying a certain amount of money which therefore clearly paves way for an India which will focus more on Ease of Doing Business standards so that more companies are attracted to invest here.
This is a welcome step, however, it will be too early to conclude as to it will be beneficial in the long run. Having said that, the Government should provide a safer cushion for the Indian startups, because if global competitors are investing and setting up manufacturing hubs here, it will be difficult for start-ups to fight the juggernaut of the MNCs. Therefore, the Government should have proper checks and balances as to how to help the Indian startups to prosper. Moreover, government should also ensure that India can tap this opportunity of becoming a manufacturing hub of Asia and the world, when the companies are pulling away from China.
- Special Correspondent, Government approves amendments to Companies Act, THE HINDU ( March 04,2020) Govt approves amendments to Companies Act https://www.thehindu.com/business/Economy/govt-approves-amendments-to-companies-act/article30981204.ece
- Shambhu JP, 26 Amendments by Finance Act 2020 we must know, TAXGURU ( April 06, 2020) https://taxguru.in/income-tax/income-tax-amendments-finance-act-2020.html
- Ravi Sawana&SamyakLohade, INSIGHT: India’s Finance Act,2020 introducing a New Rule of ‘Residency’, BLOOMBERG TAX ( April 09,2020) https://news.bloombergtax.com/daily-tax-report-international/insight-indias-finance-act-2020-introducing-a-new-rule-of-residency