February 3 2020

Union Budget 2020 presented to Parliament – tax administration and other measures

Source: IBFD Tax Research Platform News

On 1 February 2020, the Finance Minister presented the Union Budget 2020 before Parliament. The key amendments introduced in the Finance Bill 2020 regarding tax administration and other measures are summarized below.

Dispute settlement scheme ("Vivad Se Vishwas" Scheme)

  • Under the proposed scheme, taxpayers will be required to pay only the disputed taxes and will be granted a complete waiver of interest and penalties.
  • However, such a waiver will be available only if the disputed tax is paid by 31 March 2020. The scheme will be open until 30 June 2020 and can be availed after 31 March 2020 upon payment of some additional amount.
  • Taxpayers for whom appeals are pending at any level can benefit from this scheme.

Other administration

  • In line with the faceless assessment scheme already introduced, the Act has been amended to enable faceless appeals.
  • To enhance trust between taxpayers and administration and efficiency of the delivery system of the income tax department, amendments to the provisions of the Income Tax Act 1961 will be made to mandate the Central Board of Direct Taxes (CBDT) to adopt the "taxpayers charter".

Tax concession for affordable housing

  • To ensure that more people can claim the benefit from an additional deduction up to INR 150,000 for interest paid on loans taken out for the purchase of an affordable house, the date of loan approval for benefiting from this additional deduction is extended by 1 year to 31 March 2021.
  • To boost the supply of affordable houses, the date of approval of affordable housing projects is extended by 1 year to 31 March 2021 for developers of such affordable houses to benefit from a tax holiday on the profits earned.

Concession to real estate transactions

To minimize the hardship in real estate transactions, the difference between consideration value and circle rate (guideline value prescribed by the government) will be considered income in the hands of both the purchaser and seller only if such difference is more than 10%.

Financial sector

  • The Finance Bill 2020 seeks to amend the Banking Regulation Act for increasing professionalism, enabling access to capital and improving governance and oversight for sound banking through the Reserve Bank of India (RBI).
  • The limit of non-banking financial companies (NBFC) to be eligible for debt recovery under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is proposed to be reduced from an existing asset size of INR 5 billion to INR 1 billion or an existing loan size of INR 10 million to INR 5 million.
  • The Finance Bill 2020 seeks to amend the Factor Regulation Act to enable NBFCs to extend invoice financing to the MSMEs through TReDS (Trade Receivables Discounting System).

Financial markets

  • The limit of foreign portfolio investors (FPIs) in corporate bonds will be increased to 15% (from the existing 9%) of the outstanding stock of corporate bonds.
  • The Finance Bill 2020 seeks to formulate new legislation for laying down a mechanism for netting of financial contracts.
  • New debt-based exchange traded funds (ETFs) consisting primarily of government securities are proposed to be expanded.
  • To provide additional support to the partial credit guarantee scheme for addressing the liquidity constraints of NBFCs, a mechanism is proposed to be devised.