Key Highlights of India's Union Budget 2020

India's Union Budget 2020 was unveiled by Finance Minister Nirmala Sitharaman on February 1, 2020. This budget included various initiatives aimed at propelling the nation towards a $5 trillion economy by 2022. The following sections detail the key sector-specific announcements.

Budget 2020 Key Documents

The official Budget 2020 Highlights document can be accessed here.

Direct Taxation (Income Tax)

The Union Budget 2020 introduced several changes to direct taxation, including income tax provisions.

• New Income Tax Regime: A new optional income tax regime was proposed under Section 115BAC, featuring revised tax slab rates. Taxpayers can choose between this new regime and the existing one, though switching back may be restricted for some after opting for the new system.
• Reduced TDS on Technical Fees: Tax Deducted at Source (TDS) for fees related to technical services under Section 194J was lowered from 10% to 2%.
• Increased Tax Audit Threshold: The tax audit threshold was raised from ₹1 crore to ₹5 crore for businesses where cash turnover or gross receipts do not exceed 5% in the preceding year, and cash payments also remain under 5%. For these taxpayers, the tax audit due date was extended from September 30 to October 31.
• Home Loan Deduction Extension: The additional deduction of ₹1.5 lakh for interest on home loans under Section 80EEA was extended for loans sanctioned until March 31, 2021 (later updated to March 31, 2022, in Budget 2021).
• Discontinuation of DDT: Dividend Distribution Tax (DDT) was abolished. Consequently, dividend recipients are now liable to pay tax at their applicable rates.
• ESOP Taxation for Startups: Employees of eligible startups holding Employee Stock Option Plans (ESOPs) can defer tax payments for up to five years from the exercise date, or until they leave the startup, or when they sell their shares, whichever occurs earliest.
• Startup Profit Deduction: Eligible startups with a turnover up to ₹25 crore were allowed a 100% deduction of profits for three consecutive assessment years within a seven-year period. This turnover limit was increased to ₹100 crore, and the eligibility period for deduction was extended from seven to ten years.
• TDS on Dividends (Section 194): Indian companies paying dividends to resident shareholders will deduct 10% TDS if the annual dividend exceeds ₹5,000.
• TDS on Mutual Fund Dividends (Section 194K): Mutual funds paying dividends to residents will deduct 10% TDS only if the annual dividend amount exceeds ₹5,000.
• TDS by E-commerce Operators (Section 194-O): E-commerce operators making payments to participants must deduct 1% TDS only if the annual amount paid or credited exceeds ₹5 lakh.
• PAN Furnishing for TDS (Section 206AA): The TDS rate under Section 206AA, concerning Section 194-O, was amended to 5% from 20% if a PAN is not provided.
• Changes in Residential Status (Section 6):
• An Indian citizen is considered a resident if not liable to tax in any other country during the previous year.
• An Indian citizen or Person of Indian Origin visiting India is deemed a resident if their stay in India is 120 days or more in the previous year.
• A person is 'not ordinarily resident' if they were a non-resident in India for seven out of the ten preceding previous years, or if they are a Hindu Undivided Family (HUF) whose manager was a non-resident in seven out of the ten preceding previous years.
• Fee for Default in Statement Furnishing (Section 234G): A new Section 234G was inserted, imposing a fee of ₹200 per day for defaults in furnishing statements or certificates under Section 35 by specified institutions.
• Stamp Duty Value vs. Consideration (Section 43CA and 50C): For property transfers (other than capital assets under Section 43CA, and capital assets being land/building under Section 50C), if the stamp duty value does not exceed 110% of the actual consideration received, then the consideration received is considered the full value for computing profits/capital gains. Previously, this limit was 105%.

Indirect Taxation (GST, Customs)

The Budget 2020 also introduced significant changes to indirect taxes, including GST and Customs.

• Penalty for Fake ITC: Individuals involved in or benefiting from fraudulent Input Tax Credit (ITC) claims will face a penalty equivalent to 100% of the tax amount involved.
• Composition Scheme Restrictions: The Composition Scheme was narrowed, now applying only to taxpayers engaged in inter-state service supplies, non-GST leviable supplies, and supplies made through e-commerce operators where TCS is deductible.
• Debit Note for ITC: The date of a debit note will independently determine the eligibility for Input Tax Credit, delinking it from the original invoice date.
• Retrospective Effect for Transition Provisions: Transition provisions were given retrospective effect from July 1, 2017, specifically to nullify a Gujarat High Court decision concerning Siddhartha Enterprises.
• TDS Certificate and Late Fee: Authority was granted to specify the format of TDS certificates, and the associated late fee (₹200 per day, capped at ₹5,000) for non-issuance of TDS certificates was waived.
• Voluntary GST Registration Cancellation: A new provision was added for distinct persons to voluntarily cancel their GST registration.
• Condonation of Delay for Revocation: The Additional Commissioner and Commissioner were empowered to condone delays, up to 30 days, in applying for the revocation of GST registration cancellation.
• Refund Bar for Tobacco Products: Refunds for inverted tax structures related to tobacco products were barred with retrospective effect from July 1, 2017.
• GST Rate for Agri-Machinery Parts: A 6% CGST rate (total 12% IGST) was applied retrospectively for the supply of pulleys, wheels, and other products used in agricultural machinery from July 1, 2017, to December 31, 2018.
• Ladakh as Union Territory: Ladakh was formally included in the definition of a Union Territory for tax purposes, and Jammu & Kashmir will establish its own appellate tribunal.
• Expanded Imprisonment for Offences: The law was amended to extend imprisonment to individuals who 'cause to commit' or 'retain the benefit' of an offence, beyond just the person who committed it. This applies particularly to fraudulently availing ITC without a valid invoice, making these offences cognizable and non-bailable.
• Retrospective GST Exemption for Fishmeal: The supply of fishmeal was granted retrospective GST exemption from July 1, 2017, to September 30, 2019.
• CBIC Power for Difficulty Orders: The Central Board of Indirect Taxes and Customs (CBIC) was granted an extended period, from three years to five years (effective July 1, 2017), to issue 'removal of difficulty' orders.
• Special Audit Expense Determination: Board approval will no longer be required for determining expenses incurred during a special audit.
• Time Limit Extension for Job Work Returns: Provisions were made to extend the deadline for returning inputs and capital goods from job workers.
• Invoice Issuance for Specific Supplies: Powers were granted to specify the timing and method of invoice issuance for particular categories of supplies or services.
• Exclusion from Business Asset Transfer: The entry in Schedule II of the CGST Act regarding 'Transfer of business assets' will now exclude transactions where no consideration is involved.

Support for Micro, Small, and Medium Enterprises (MSMEs)

The government outlined several initiatives to bolster the MSME sector:

• Factor Regulation Act Amendments: Changes are planned for the Factor Regulation Act, 2011.
• NBFCs and Invoice Financing: Amendments will allow Non-Banking Financial Companies (NBFCs) to offer invoice financing solutions to MSMEs.
• Subordinated Debt for MSMEs: Banks will provide subordinated debt to MSMEs, backed by the Credit Guarantee Trust, which will be treated as quasi-equity.
• App-Based Invoice Financing: A new app-based invoice financing loan product will be introduced to address issues of delayed payments and cash flow discrepancies for MSMEs.

Public Sector Banks (PSBs)

The budget emphasized the stability of Public Sector Banks (PSBs), stating that a strong framework is already in place to oversee the health of all scheduled commercial banks and safeguard depositors' funds.

Agriculture Sector Initiatives

Key proposals for the agriculture sector include:

• Doubling Farmers' Income: The government reiterated its commitment to doubling farmers' income by 2022.
• Solarization of Pump Sets: Support will be provided to 1.5 million farmers for solarizing their grid-connected pump sets.
• Efficient Transport for Perishables: "KisanRail" and "KrishiUdaan" initiatives will be launched to ensure smooth transportation of perishable agricultural products.
• Artificial Insemination Expansion: Coverage of artificial insemination services will be increased to 70%.
• Boosting Fishery Exports: The target for fishery exports is set to reach ₹1 lakh crore by 2024-25.

Education Sector Focus

The budget allocated significant resources and introduced new programs for education:

• Apprenticeship-Embedded Courses: Approximately 150 higher education institutions will introduce courses that include apprenticeships.
• Skill Development for Overseas Employment: Specialized bridge courses will be offered to enhance the skills of individuals seeking employment opportunities abroad.
• Ind-SAT Examination: The "Study in India" program will include the Ind-SAT examination, to be conducted in Africa and Asia.
• Increased Education Allocation: An allocation of ₹99,300 crore was made for the education sector in 2020-21.
• Skill Development Funding: ₹3,000 crore was earmarked for skill development initiatives.

Financial Sector Reforms

Key announcements for the financial sector include:

• Enhanced Deposit Insurance: Deposit insurance coverage per depositor will be raised from ₹1 lakh to ₹5 lakh.
• SARFAESI Act for NBFCs: The eligibility criteria for Non-Banking Financial Companies (NBFCs) to recover debt under the SARFAESI Act will be lowered to an asset size of ₹100 crore or a loan size of ₹50 lakh.
• NPS Trust Separation: The National Pension System (NPS) Trust for government employees will be separated from the Pension Fund Regulatory and Development Authority of India (PFRDAI).
• IDBI Bank Divestment: The government proposed to sell its remaining stake in IDBI Bank.

Water, Wellness, and Sanitation Initiatives

The budget highlighted goals for public health and environmental sustainability:

• PM Jan Arogya Yojana Hospitals: Over 20,000 hospitals are now empanelled under the Pradhan Mantri Jan Arogya Yojana.
• "TB Harega Desh Jeetega" Campaign: A campaign titled "TB Harega Desh Jeetega" has been initiated with the aim of eradicating tuberculosis by 2025.
• Jan Aushadhi Kendra Expansion: The Jan Aushadhi Kendra Scheme is set to expand to all districts across India by 2024.
• Water and Waste Management: A strong focus will be placed on effective liquid and greywater management, alongside comprehensive waste management strategies.