Decoding Indian Union Budget

Raffles University
Topic- Indian Union Budget financial bill,

2020
Law of Taxation
Submitted by Submitted to
Nikhil Kumar Maurya Arun Verma Sir
17RU11014
Semester 7th
Let us put on our analytical skills at work and decode the very carefully and deeply knitted
and worded legislative amendments and new insertions, as proposed in the Finance Bill 2020.
(i) Incorporation of New Personal Taxation Regime of Reduced Tax Rates with
No Deductions in Case of Individuals & HUFs.
In line with the new regime of reduced corporate tax rates, introduced by the Taxation Laws
(Amendment) Act 2019, the Finance Bill 2020, has proposed the insertion of a new section
115BAC, providing for a new personal taxation regime in the cases of individuals and
HUFs (hereinafter referred to as 'assessees'), wherein the assessees have been given the
option of either to continue with the existing tax rates with full deductions, or to opt for the new
regime of reduced tax rates with restrictions on approximately 70% of the deductions currently
available to them under different chapters and sections.
The proposed reduced personal tax rates in the case of individuals & HUFs u/s 115BAC, in
the Finance Bill
2020 are as under:
Total Income (Rs) Rate (%)
Upto 2,50,000 Nil
From 2,50,001 to 5,00,000 5
From 5,00,001 to 7,50,000 10
From 7,50,001 to 10,00,000 15
From 10,00,001 to 12,50,000 20
From 12,50,001 to 15,00,000 25
Above 15,00,000 30
Surcharge and cess shall be continued to be levied at the existing rates.

So, infact, the net tax outflow of the assessees, especially the salaried class, is coming out to
be more in the newly proposed personal taxation regime of reduced tax rates, as compared to
the old regime.
Further, the primary reason for introduction of this new personal taxation regime has been
asserted to be simplification of tax laws, however, ironically, it is resulting in a more
complicated scenario, wherein, the individuals and HUFs, like the corporates, are faced with
the difficult question and choice of opting for one of the taxation regimes, in order to optimise
their taxes.
(ii) Restrictions on the Powers of Income Tax Appellate Tribunal (ITAT) to
Grant Stay of Demand.
Another significant amendment which has been proposed in the Finance Bill 2020, although
not referred to in the Budget Speech is the amendment in the proviso to section 254(2A) of the
Act to provide that ITAT may grant stay under the first proviso subject to the condition that
the assessee deposits not less than twenty per cent of the amount of tax, interest, fee, penalty,
or any other sum payable under the provisions of this Act, or furnish security of equal amount
in respect thereof.
It is pertinent to mention here that in existing provisions of section 254(2A), the ITAT was
having full power to grant stay of income tax demand, even an absolute stay of demand, in
deserving cases, if it finds it appropriate as per the provisions of Law. However, now this
proposed amendment has made this power of ITAT to grant stay of demand, conditional on the
deposition of atleast 20% of the outstanding demand by the assessee.
So, now, even in the cases of high pitched assessments, wherein assessed income is twice or
more than the returned income, and wherein the legal position of grant of an absolute stay of
demand, was well-settled, as per numerous binding legal precedents, this proposed
amendment, will force the assessee to deposit atleast
20% of the outstanding demand, for even making his/her application for stay of demand being
admitted and entertained by the ITAT. However, it needs to be seen as to whether this
proposed amendment will muster the test of well-settled and established principles of Law, at
appropriate appellate forums.
(iii) Deeming Residential Status of a Person of Indian Origin or an Indian

Citizen, who is not liable to tax in any other country or territory.
By virtue of the existing provisions of section 6(1) read with clause (b) of Explanation 1 of said
section provides that an individual who is an Indian Citizen or a person of Indian Origin, shall be
Indian resident in a year, if he,-
(i) has been in India for an overall period of 365 days or more within four years preceding that
year, and
(ii) is in India for an overall period of 182 days or more in that year.
In order or to prevent the perceived misuse of this provision, wherein an Individual being an
Indian citizen or a person of Indian origin, carrying out substantial economic activities from
India, manages the period of his stay in India for less than 182 days, so as to remain a non-
resident in perpetuity and not be required to declare his global income in India, it has been
proposed in the Finance Bill 2020, that-
(i) the exception provided in clause (b) of Explanation 1 of sub-section (1) to section 6 for
visiting India in that year be decreased to 120 days from existing 182 days.
(ii) an individual or an HUF shall be said to be "not ordinarily resident" in India in a previous
year, if the individual or the manager of the HUF has been a non-resident in India in seven out of
ten previous years preceding that year. This new condition to replace the existing conditions
in clauses (a) and (b) of sub-section (6) of section 6.
(iii) an Indian citizen who is not liable to tax in any other country or territory shall be
deemed to be resident in India.
(iv) Penalty for False Entry/False Invoice.
The Finance Bill 2020 proposes to introduce a new provision in the Act to provide for a levy of
penalty on a person, if it is found during any proceeding under the Act that in the books of
accounts maintained by him there is a:
(i) false entry or;
(ii) any entry relevant for computation of total income of such person has been omitted to evade
tax liability.
The penalty payable by such person shall be equal to the aggregate amount of false entries or
omitted entry. It has also been proposed to provide that any other person, who causes in any
manner a person to make or cause to make a false entry or omits or causes to omit any entry,
shall also pay by way of penalty a sum which is equal to the aggregate amounts of such false
entries or omitted entry.
The connotation 'false entries', include use or intention to use –
(a) forged or falsified documents such as a false invoice or, in general, a false piece of
documentary evidence; or
(b) invoice in respect of supply or receipt of goods or services or both issued by the person or
any other person without actual supply or receipt of such goods or services or both; or
(c) invoice in respect of supply or receipt of goods or services or both to or from a person who do
not exist. This amendment will take effect from 1st April, 2020.
Thus, a penalty of 100% of the amount of bogus entries/purchase invoices, has been
proposed in the Finance Bill 2020. It is pertinent to mention here, that in several judgements of
different High Courts and even Supreme Court, it has been held that even in the cases of bogus
purchase entries, the entire bogus purchase entries can't be disallowed, and only an appropriate
NP rate may be added, if the purchases are correlated with the corresponding sales/closing stock.
Therefore, this proposed amendment will definitely have some major repercussions, as far as the
settled and established position of Law in this regard, is concerned.
(v) Removal of Dividend Distribution Tax:
At present dividend is taxed in the hands of company distributing such dividend u/s 115O. It
has been proposed in the Finance Bill 2020, to abolish the existing dividend distribution tax @
15% in the hands of companies and to shift to classical system of taxing dividend in the hands of
recipient shareholders.
Therefore, the double taxation of the income in the form of dividends in excess of Rs 10 lakhs
being taxed both in the hands of the recipient shareholders and the companies has been
removed by this proposed amendment.
However, the Exchequer may receive higher taxes at the maximum marginal rate of 30% in the
cases of high networth individuals earning dividend income upto Rs. 10 lakhs.
(vi) Insertion of Taxpayer's Charter in the Act
It is proposed to insert a new section 119A in the Act to empower the CBDT Board to adopt and
declare a Taxpayer's Charter and issue such orders, instructions, directions or guidelines to
other income-tax authorities as it may deem fit for the administration of Charter.

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Raffles University

Topic- Indian Union Budget financial bill,

Surcharge and cess shall be continued to be levied at the existing rates.

(iii) Deeming Residential Status of a Person of Indian Origin or an Indian

(iv) Penalty for False Entry/False Invoice.

(i) false entry or;

The connotation 'false entries', include use or intention to use –

(v) Removal of Dividend Distribution Tax:

(vi) Insertion of Taxpayer's Charter in the Act

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