Changes for the company after budget 2020.

In the below article, we try to summarize the budget 2020 proposals which will have an impact on the operation of companies.  The first impact is levying tax on Dividend Income.  This change will have several impacts on the company. The below points to summarize the impact.

·         Dividend Income is no more exempt and hence taxable at the rate of 22  or 30 percent as applicable. This will increase the tax expense of the company.

·         There is no more need to pay dividend distribution tax on dividend payment. This step will reduce the compliances for the company.

·         Since the dividend is no more exempt income, there cannot be any further disallowance under section 14A of the Income-tax act.  However 14A still applicable for other exempted income. This will reduce the quantum of litigation for the companies.

·         Due to taxation of dividend income, there is a need to reconsider the decision of movement of tax policy to section 115BAA of the Income-tax act as under old tax regime dividend is taxable @ 30 percent and under the new regime of section 115BAA, the dividend is taxable @ 22 percent.

·         There will be TDS on dividend Income. Further, companies require to deduct TDS @ 10 percent while making dividend Income to their resident shareholder and TDS @ 20 per cent to their non-resident shareholder. The non-resident shareholder can take benefit of double tax avoidance agreement which will reduce the deduction of TDS.  Further, there will be no TDS on domestic shareholders if the annual dividend payout to him is less than 5000 in a year.  Hence, companies now require to make sure that they able to deduct correct TDS for their various shareholders.

·         Further, no deduction of expenditure against dividend income will be allowed under section 57 except interest which will not exceed 20percent of dividend income.  

·         Benefit of section 80M of the Income-tax act will be available to a company in respect of dividend income received by it during the previous year and distributed by it, one month before the due date of filing return

Another major impact on the companies is towards their payroll process. As per section 192 of the Income-tax Act, Companies being employer, require to compute Income tax of all their employees and deduct TDS and deposit the same to the government. There are two major changes proposed for individual taxation. The first one introduction of section 115BAC where employees have the option to select every year among two tax slab and the second one is taxing contribution to NPS, superannuation and  Provided fund over and above employer contribution exceeds Rs. 7,50,000/-.  Thus, now computing Income tax of employees is no more a simple task. Due to the introduction of section 115BAC, there will be confusion amongst the employees about their decision and ultimately they will trouble the only payroll of the company.  The government should step in and provide some way out which provide some better way out to do the compliances.

Given below few more budget proposals which have impacts on companies.

·         Companies opting for new tax regime under new section 115BAA and 115BAB can claim only deduction under section 80JJA and 80M from chapter VIA.  Thus there will be no benefit of section 80G can be claimed even though there is the compulsion to do CSR expenses.

·         The due date of tax audit has been delinked from due date of filing return of Income.  Thus, in case of Transfer pricing case, the due date of filing all kinds of reports will be October 31 and income tax return can be filed before November 30.

·         TDS on FTS (few cases or other than professional) reduced under section 194J to 2 percent.

·         It is proposed to provide that stay under the first proviso to section 254(2A) shouldn’t be provided by ITAT unless assessee deposits or furnish security for at least 20 percent of the amount of tax, interest, fee, penalty, or any other sum payable under the provisions of this Act. The stay cannot exceed 365 days.  This step will increase the quantum of bogus demand by the tax department as now tax officer can easily collect 20 percent of demand and to do that they will do bogus demands. The government should reconsider its decision.     

·         Amend clause (c) and (cd) of section 140 of the Act so as to enable any other person, as may be prescribed by the Board to verify the return of income in the cases of a company and a limited liability partnership. 

·         Power Generation included as eligible for a lower corporate tax rate of 15 percent under section 115BAB.

·         TDS on e-commerce payment to e-commerce participant at the rate of 1 percent. 

·         TCS at the rate of 0.1 percent will be applicable on the sale of goods if total sales to one person is more than Rs 50 lakhs by a person having turnover of more than Rs 10 crore. In this regard, government requires to provide clarification for export of goods as if TCS were collected from export of goods then it will discourage exports from India. Further, on sale of goods, GST is already applicable and additional burden of TCS will increase the cost of running the business. 

Finally we can conclude that in this budget, due to tax on dividend and TCS on sale of goods, the companies will increase their tax cost.  Their compliance will be  more complicated due to TDS on salary and dividend and at last litigation also will be increased as companies will not able to get stay on their bogus tax demand.  The government should understand the pain point of doing business in India and take necessary steps to reduce hardship for companies.