Union Budget

2020-21
Rebuilding momentum

PwC Union Budget 2020 – 2021 (Rebuilding momentum)

Section 01

Corporate
Direct tax
Corporate Tax Rates - No change

Tax rates (in %)

> INR 1 Cr > INR
Type of Entities Upto INR 1 Cr <= INR 10 Crs 10 Crs MAT @ 15%*
Domestic companies
Not claiming prescribed deductions
Manufacturing Cos set up
• Post March 01, 2016 – section115BA 26.00% 27.82% 29.12% Yes
• Post October 01, 2019 – section 115BAB 17.16% No
Other Domestic Cos 25.17% No
Continue to claim deductions
MSME (T/o < INR 400 crs in FY 18) 26.00% 27.82% 29.12% Yes
Other Domestic Cos 31.20% 33.38% 34.94% Yes
Foreign companies 41.60% 42.43% 43.68%
LLPs, firms 31.20% 34.94% 34.94%

* Excluding applicable surcharge and cess

DDT abolished resulting in lower ETR for companies

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 3

Clarification on reduced Rate of Tax

Extension of lesser rates of tax [section 115BAA and section 115BAB]

• Companies opting for the lesser rate of tax under section 115BAA / section 115BAB would
be eligible only for following deductions allowed from for companies opting for reduced tax
rate (22% / 15%):

– Section 80JJAA - deduction in respect of employment of new employees;

– Section 80M - Removal of cascading effect of dividend taxation for domestic companies

• Earlier, only deductions under the heading “C - Deductions in respect of certain incomes”
were not eligible [viz., deduction under section 80G could have been claimed]

• Provisions of section 115BAB of the Act [providing for lesser rate of 15%] to
be applicable to companies engaged in the business of generation of electricity

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 4

Taxation of Dividends

Particulars Amendments

Taxability of dividend • Dividend income / income in respect of units declared on or after 01 April 2020* would be subject to tax in the hands of
income shareholder.

• In case of resident shareholder- tax at normal tax rates as ‘income from other sources’.

• In case of a non-resident shareholder- tax @ 20% under DTL or the beneficial rate prescribed under tax treaty.

Withholding Tax(WHT) • Dividend paid to resident shareholder-WHT at the rate of 10% (for payment of dividends other than cash in excess of INR
provision – Resident 5,000) [section 194]
share holder
• Dividends in respect of units of Mutual Funds- WHT at the rate of 10% (for payment of dividends in excess of INR 5,000)
[section 194K]

WHT provision – Non- • Dividend paid to non-resident shareholder- No specific provision for withholding tax rate of 20% provided yet.
Resident share holder
• Dividends declared by a business trust to unit holder– WHT at the rate of 10%
[section 194LBA]

*Unintentional effect of amendment- Since the amendment of abolition of DDT comes in the statute book only from April 1,2021 and considering that DDT is a transaction tax payable
as and when a dividend is declared, a question arises as to whether dividends declared during FY 2020-2021 can also be subject to DDT ?

Reversal to classical system of taxation

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 5

Taxation of Dividends

Particulars Amendments

Interest deduction under • Where income is offered to tax under DTL, a corresponding deduction on account of interest only would be allowed under
section 57 section 57 of the DTL to the extent of 20% of the gross dividend income

Insertion of Section 80M-
for removal of cascading
effect in respect of
domestic dividends
• Introduction of section 80M to provide for deduction to domestic companies, of dividends received from other domestic
companies.
- Deduction would be capped to dividends distributed by the recipient on or before the due date [one month prior to the date for
furnishing return of income under section 139(1)]

- No holding-subsidiary relationship mandated

Corresponding • References to section 115-O removed to facilitate applicability of provisions of section 115A / section 115ACA / section 115AD
amendments to the etc. that provide for special rates of taxes for dividend incomes by non-residents / FIIs
provisions of the DTL
• Sunset clause of March 31, 2020 introduced for provisions of section 115BBDA [10% tax on dividends in excess of INR 10 lakhs
received by specified assesses]

Reversal to classical system of taxation

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 6

TDS related provisions
TDS on Payments e-Commerce operators to e-Commerce participants - Section 194O

Particulars Amendments

Applicable Rate • 1% TDS on gross payment made by e-Commerce operator to e-Commerce participant for sale of goods / provision of services.

• TDS of 5% in case of failure to provide PAN [Section 206AA]

• Lower rates applicable in cases where lower deduction certificate is obtained under section 197.

• Overriding provision – thus, transaction covered / exempted by section 194-O shall not be subject to other TDS provisions

Applicable Transaction • Payments in relation to sale of goods / provision of services facilitated by e-Commerce operator though the platform / digital facility
maintained by e-Commerce operator.

• Direct payment made by customers to e-Commerce participant would be deemed to be considered as payment effected by e-
Commerce operator.

Exception • Transactions with individual / HUF not exceeding INR 5 Lakh during the year on furnishing PAN / Aadhar.

• Amounts received by e-Commerce operator for hosting advertisement / providing any other services not connected with sale of
services.

TDS on Payments e-Commerce operators to e-Commerce participants - Section 194O

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 7

TDS related provisions

TDS on payment to contractors - Section 194C

• WHT under works contract at 2% to cover cases of contract manufacturing where raw material is provided by related parties

TDS on Fees for Professional and technical services - Section 194J

• WHT on technical services (excluding professional services) to be reduced to 2% as against the existing 10%
• Rate of 10% shall continue to apply for professional services. There could be some challenges in determining whether certain payments are
professional or technical considering the TDS differential between the two categories

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 8

TCS related provisions

Particulars Rate of TCS

Authorized dealers making remittances in excess of INR 0.07 Crores in a financial year under the LRS • 5% - PAN/Aadhaar cases;
Scheme of RBI
• 10% - Non PAN/Aadhaar cases
Seller of overseas tour program package

Non-Applicability:
• When buyer is liable to deduct TDS;
• Buyer is Central Govt, State Govt., embassy, High Commission, legation, commission, consulate, trade representation of foreign state and prescribed persons

Sale of goods exceeding INR 0.5 Crores by specified sellers (turnover > 10 crores) in a FY • 0.1% of consideration received;
• 1% - Non PAN/Aadhaar cases
(Amendment to S. 206CC)

Non- Applicability:
• Notified persons by Central Government;
• Buyer is Central Govt, State Govt., embassy, High Commission, legation, commission, consulate, trade representation of foreign state and prescribed persons
• Seller is liable to deduct TCS under existing provisions (or) Buyer deducts TDS under any provisions of the Act

implementation in case of non-residents could pose challenges especially when the Non-resident is not liable to tax in India

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 9

International Taxation

Significant Economic Presence (SEP)

• New SEP provisions introduced with effect from FY2021-22 repealing the erstwhile provisions. The applicability of SEP provisions is deferred
keeping in mind G20 OECD report which is expected to be rolled out by December 2020.
• New provisions provides that the below shall constitute SEP:
– Transaction in respect of any goods, service or property carried out by the non-resident with any person in India including provision of
download of data or software in India
– Digital means of rendering services is no more a pre-condition for soliciting business activities/engaging in interactions with users in India.

Expansion of source rule under Section 9

• The source rule determining the income attributable to the operations carried out in India shall include:
– Advertisements targeting customers resident in India or accessing ads through IP address in India
– Sale of data collected from a person resident in India or from a person using IP address located in India
– Sale of goods or services using such data

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 10

International Taxation

Alignment of domestic tax provisions with MLI [section 90 / 90A]

• Preamble of Article 6 of MLI is introduced in provision of the Act. The language includes “without creating opportunities or reduced taxation
through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in the said agreement
for the indirect benefit to residents of any other country or territory)”
• Impact on existing treaties where MLI has not been entered into, to be evaluated

Return filing requirement of Non-residents receiving Royalty, FTS, Dividend and Interest Income

• Non-resident taxpayers receiving dividend, interest, royalty or fees for technical services to be exempted from filing tax returns in India
provided there is no other taxable income and taxes are withheld at a rate not less than the rate specified under clause (a) or (b) of
Section 115A(1).

• Possible to argue that the rates specified under clause (a) or (b) of Section 115A(1) are exclusive of surcharge, however highly litigative

• Currently, this relief is available only for interest income.

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 11

Eligible Start-ups

Relaxation to tax holiday conditions for start-ups

• Increase in turnover limit to INR 100 crores from INR 25 crores in order to qualify as an ”eligible start-up”
• Increase in tax holiday duration for 3 consecutive assessment years out of 10 years [increased from 7 years]

Deferral of Tax incidence on Employee Stock Option Plans (ESOPs)

• Presently, ESOPs are taxable as below:

– Perquisite under the head salaries at the time of exercise by the employee;
– Capital gain at the time of sale by the employee
• Normally, employer is required to deduct taxes at the time of exercise on the notional gains. It has been proposed to defer the perquisite
taxation of ESOPs by giving additional time to deduct the taxes, in order to ease the cash outflow for employees who exercise ESOP of
eligible start-ups. The taxes are now proposed to be deducted within 14 days from the earliest of the following events:
– Expiry of 48 months from the end of the relevant assessment year; or
– Date of leaving employment; or
– Date of sale of such ESOPs
• However, the TDS should be deducted on the basis of valuation mechanism and tax rates applicable in the FY in which the ESOP was
exercised by the employee.

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 12

Concessional provisions for Non-residents w.r.t Interest income

Sunset clause extended for concessional WHT rate at 5% on interest payable to non-residents [Section 194LC]

• Withholding tax rate of 5% extended in respect of money borrowed by a Indian company/business trust in foreign currency under loan
agreement, or issue of long term bonds or rupee denominated bonds prior to July 01, 2023 (earlier July 01, 2020)

Lower WHT rate of 4% for IFSC listed bonds [section 194LC]

• Interest payable in foreign currency to non-residents on long terms bonds or rupee denominated bonds listed only on IFSC exchanges
between April 01, 2020 and June 30, 2023 will enjoy a lower tax rate of 4%.

Sunset clause extended for concessional WHT rate of 5% on interest payable to FPI or QFI [Section 194LD]

• On Government securities and Rupee Denominated Bonds meeting the specified conditions for interest payable prior to July 01, 2023
(earlier July 01, 2020)
• Benefit now also available on interest payments made on or after April 01 2020 but before July 01, 2023; in respect of municipal
debt securities

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 13

Tax filings

Revision in due dates for Non Transfer pricing cases

• Provisions of Section 139 amended extending the due date to October 31 from September 30 for non-transfer pricing cases and in case of all the partners of a firm
irrespective of whether or not the partner is a working partner

Verification of the Return of Income

• In case of a company - Persons as may be prescribed other than MD or Director;

• In the case of a Partnership firm - As may be prescribed other than a Partner.
• Relaxation would apply for signing of appeal documents also

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 14

Assessments

Expansion of scope of E-Assessment scheme

• E-Assessment scheme, 2019 applicable to best judgement assessment under section 144 of the Act
• Applicable w.e.f. April 1, 2020
• Notifications by Central Government, regarding e-assessment scheme to be issued by March 31, 2022

Faceless appellate and penalty proceedings

• E-appeal scheme for disposal of appeals (Section 250) filed before the CIT(A) and e-penalty proceedings (section 274) to be notified in line
with the e-assessment scheme
• Elimination of human interface – to improve the transparency and accountability;
• Introduction of mechanism for disposal of appeal/ imposing penalty with dynamic jurisdiction - one or more authority to dispose off
appeal/impose penalty;
• Aims at greater efficiency through optimization of resources through economies of scale and functional specialization.
• Central Government empowered to notify provisions relating to jurisdiction and procedure of disposal of appeal which shall apply with
exceptions, modification and adaptations or shall not apply

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 15

Assessments

Stay proceedings before the ITAT

• ITAT may grant stay after considering the merits of the case only if 20 % of the total demand is paid or security of equivalent amount is furnished before
approaching the ITAT;
• Stay extension shall be allowed only if condition of payment of 20% is adhered to by the assessee.
• ITAT not to grant stay beyond 365 days.

Taxpayer’s Charter

• In order to improve the fairness and efficiency of tax administration, it has been proposed to introduce a new section 119A in the Act to empower the Board to adopt
and declare a Taxpayer’s Charter w.e.f April 1, 2020.
• Aimed at reassuring the taxpayers that the Government is committed to taking measures so that the taxpayers are free from harassment of any kind.
• Orders, instructions, directions or guidelines to other income-tax authorities for the administration of the Charter shall be issued subsequently.

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 16

Direct tax - Others

Insertion of new Section 285BB

• Annual information statement shall be uploaded in the e-filing account in the designated portal by the income tax authority/ person authorized
by the income tax authority

• The time limit, form and manner of statement shall be prescribed.

• Form 26AS substituted by this annual information statement capturing multiple information viz., sale or purchase of immovable property,
share transactions etc.

• Applicable from June 1, 2020

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 17

Direct Tax Vivad se Vishwas Bill, 2020 – Brief Overview

• A taxpayer or the tax authority can file declaration, whose appeal pending before the appellate forum
[CIT(A)/ITAT/HC/SC] as on 31 January 2020 Points for deliberation
• Disputed income means whole or so much of total income as is relatable to disputed tax • Credit of disputed taxes already paid
• Disputed tax = Total tax (-) Undisputed tax • Refund of Interest/ penalty already paid
• Will also cover tax on WHT non-compliance as well • Withdrawal of appeal should be pushed
once DA grant certificate for tax arrears
- Alternatively, enabling provision for
Amount payable before Amount payable on or after 1
Nature of tax arrear restoration of appeal withdrawn
31 March 2020 April 2020 but before the last date
• Loss scenario – carried forward of
differential amount of loss to be
Disputed tax, interest and penalty 100% of the disputed tax 110% of the disputed tax
available– if tax paid on the scheme
Disputed interest or penalty or fee 25% of the disputed amount 30% of the disputed amount • Enabling provision for withdrawal of
appeal by the department missing
Brief Procedure: • Following situations covered?
• Filing of declaration by declarant - Appeals heard and
orders/Judgements reserved
• Within 15 days, Designated Authority (‘DA’) to determine amount payable and issue certificate
- Pending MA in Tribunal, due to which
• Declarant to pay such amount within 15 days
appeal not filed in High Court
• DA to pass the final order
- Pending appeal as on January 31 but
the order passed after January 31
• Undertaking to be provided waiving full rights to seek or pursue any remedy for such settled dispute - CIT(A)/ITAT/HC order received but
• Any issue settled will not be reopened and any amount paid under this scheme is not refundable period of limitation of filing appeal
• The scheme will not apply to cases of search / seizure, pending prosecution, undisclosed income / asset from pending
outside India, etc.
PwC Union Budget 2020 – 2021 (Rebuilding momentum) 18
Section 02

Transfer pricing
Transfer Pricing

Safe Harbour rules

• Section 92CB of the Act deals with Safe Harbour forum to reduce the number of transfer pricing audits and prolonged disputes especially in
case of relatively smaller assessees

• In the Indian context, a non resident with a taxable presence in India in the form of a business connection is liable to pay tax on the profits
that can be attributed to its Permanent establishment (PE) in India. With a view to provide tax certainty in such cases, the Safe Harbour
forum provisions shall cover PE attribution cases from FY 2019-20 onwards.

Due date of filing Form 3CEB

• As per Section 92E of the Act, any person who has entered into an international transaction or specified domestic transaction has to
obtain a report from an Accountant (Form 3CEB) certifying the arm’s length nature of the transaction

• While the erstwhile due date for filing the Form 3CEB was November 30th of every year, it has now been amended to
1 month before due date of filing return of income i.e., 31st October. The amendment is effective from FY 2020-21 onwards

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 20

Transfer Pricing

Advance Pricing Agreement (APA)

• Section 92CC of the Act empowers the CBDT to enter into an APA in relation to an international transaction. APA provides tax certainty in
determination of arm’s length price (ALP) for five future years as well as for four earlier years and has been successful in reducing litigation in
determination of the ALP.

• In the Indian context, a non resident with a taxable presence in India in the form of a business connection is liable to pay tax on the profits
that can be attributed to its PE in India. In order to provide tax certainty on the income to be attributed to PE, the below amendment has been
made:

– In relation to international transaction, arm’s length price/ specifying manner in which ALP is to be determined based on methods referred
in Section 92C, with such adjustments or variations, as may be necessary or expedient so to do

– In relation to the PE, the income as is reasonably attributable to the operations carried out in India by or on behalf of non-resident, would
be determined based on methods provided in the rules made under the Act, with such adjustments or variations, as may be necessary or
expedient so to do

• The amendment will take effect from 1st April, 2020 and therefore will apply to an APA entered into on or after 1 st April, 2020.

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 21

Section 03

Indirect taxes
Indirect taxes - General

Indirect taxes are expected to grow between 10-11 percent on an average over the next 3 years; Addition of 60 lakh new GST
01 taxpayers in the last 2 years

02 Use of Big Data Analytics and AI to curb frauds relating to GST input tax credit, refunds, etc.

To impose stringent actions, Rules of Origin requirements is being reviewed to align Free Trade Agreements (FTAs) FTAs with an
03 intention to protect domestic industry

04 To ensure level playing field for MSMEs, provisions relating to safeguard duties are being strengthened

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 23

GST amendments

01 Simplified GST return and E-invoicing Model for B2B transactions (threshold > INR 1 billion) shall be implemented from April 01, 2020

Section 16(4) of the Act amended so as to delink the date of issuance of debit note from the date of issuance of the underlying invoice for
02 purposes of availing input tax credit

Requirement of issuance of TDS certificate by the deductor to be removed. Government to make rules to provide for the form and manner
03 in which a certificate of tax deduction at source shall be issued

Offence of fraudulent availment of input tax credit without invoice or bill is now made cognizable and non-bailable offence. Any person at
04 whose instance such transactions are conducted are also liable for punishment

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 24

Customs amendments

Push for “Make in India” initiative of the Government with the following amendments:
• Increase in rate of customs duty
01
• Withdrawal of exemption from levy of social welfare surcharge cess
• Removal of concessional duty benefit on several items

“Health Cess” on import of medical devices

• Health Cess levied @ 5% on imported medical devices falling under headings 9018, 9019, 9020, 9021 and 9022 of the First Schedule
02 to the Customs Tariff Act, 1975
• Health Cess is exempt on following goods - where the Basic Customs Duty of the goods to be imported is exempt and where goods
are used as inputs/ parts in manufacture of medical devices

Safeguard provisions proposed to protect interest of domestic industry – Central government empowered to prohibit uncontrolled
03 importation of goods which causes injury, administer preferential tax treatment regime under FTAs

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 25

Tariff change - BCD

Electronic Goods, Parts thereof

S.No HSN Commodity Old rate New rate

1 8414 30 00, 8414 80 11 Compressor of Refrigerator and Air Conditioner 10% 12.5%
2 8418 10 10 Commercial type combined refrigerator freezers, fitted with separate external doors 7.5% 10%
3 8418 30 10 Commercial freezers of chest type, not exceeding 800 liters capacity 7.5% 10%
4 8418 30 90 Other Chest type Freezers 10% 15%
5 8418 40 10 Electrical Freezers of upright type not exceeding 800 liters 7.5% 10%
6 8418 69 40 Refrigerator equipment's /devices used in leather industry 7.5% 15%
7 8418 69 50 Refrigerated farm tanks, industrial ice cream freezer 7.5% 15%
8 8504 40 Specified Chargers and Power adapters Nil-20% 20%
9 8517 70 10 PCAB of Cellular mobile phones (w.e.f. 01.04.2020) 10% 20%
10 8517 70 90 Fingerprint readers/scanner, for use in cellular phones Nil 15%
11 8517 70 90 Vibrator/Ringer of cellular mobile phones (w.e.f. 01.04.2020) Nil 10%
12 8517 70 90 Display Panel and Touch Assembly of Cellular Phone (w.e.f. 01.10.2020) Nil 10%
13 8518 30 00 Headphones and Earphones 0-15% 15%
(only for Headphone) (All items in Tariff)
14 8518 90 00 Parts of microphone for use in the manufacture of microphones namely microphone 10% Nil
cartridge, holder, grill and body

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 26

Tariff change - BCD

Automobiles

S.No HSN Commodity Old rate New rate

(w.e.f. 01.04.2020)

1 8702, 8704 Complete Built Units (CBUs) of commercial vehicles (other than electric vehicles) 30% 40%
2 8702, 8704 Complete Built Units (CBUs) of commercial electric vehicles 25% 40%
3 8703 Semi knocked Down (SKD) forms of electric passenger vehicles 15% 30%
4 8702, 8704, 8711 Semi knocked Down (SKD) forms of electric vehicles – Bus, Trucks and Two wheelers 15% 25%
5 8702, 8703, Complete Knocked Down (CKD) forms of electric vehicles – Passenger vehicles, Bus, 10% 15%
8704, 8711 Trucks and Two wheelers, Three wheelers

Automobile Parts

S.No HSN Commodity Old rate New rate

1 8421 39 20, 842139390 Catalytic Convertor 10% 15%

2 2843 Nobel metal solutions and Nobel metal compounds used in the of catalytic convertor 5% 10%
and their parts
3 84 or any other Chapter Parts of the Catalytic Convertor for manufacture of catalytic convector 5% 7.5%

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 27

Section 04

Personal tax
Optional tax regime for Individuals

• Personal income tax rate, surcharge and cess remains unchanged

• An optional New Personal Tax Regime (NPTR) devoid of any deductions or exemptions has been introduced with lower tax rates spread
across six income levels. However, if NPTR is NOT opted, the existing income tax rates shall apply.

• Under NPTR, the taxpayer is not eligible to claim following exemptions/ deductions/ set off of loss:

- Leave Travel Allowance;

- House Rent Allowance;
- Exemption towards free food and beverages through vouchers provided by the employer;
- Standard deduction of INR 50,000;
- Deduction towards interest payment on housing loan;
- All Chapter VIA deductions like provident fund, children tuition fees, LIC premium, Donations, Medical premium etc. except employer
contribution towards notified pension scheme;

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 29

Optional tax regime for Individuals

Tax rate including Existing tax Reduction in

Income limit between Proposed tax rates surcharge and cess rate including personal tax rates if
(Amt. in INR) under NPTR under NPTR surcharge and cess NPTR is opted

- 250,000 0% 0.000% 0.000% 0.00%

250,001 500,000 5% 5.200% 5.200% 0.00%

500,001 750,000 10% 10.400% 20.800% -10.40%

750,001 1,000,000 15% 15.600% 20.800% -5.20%

1,000,001 1,250,000 20% 20.800% 31.200% -10.40%

1,250,001 1,500,000 25% 26.000% 31.200% -5.20%

1,500,001 5,000,000 30% 31.200% 31.200% 0.00%

5,000,001 10,000,000 30% 34.320% 34.320% 0.00%

10,000,001 20,000,000 30% 35.880% 35.880% 0.00%

20,000,001 50,000,000 30% 39.000% 39.000% 0.00%

> 50,000,001 30% 42.744% 42.744% 0.00%

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 30

Personal tax - Change in residency rules

Resident and Ordinarily Resident

• The criteria for determining residential status has been changed. Under the existing provisions, an individual will qualify as a Resident of
India if he satisfies either of the two basic conditions:

– Stay in India for 182 days or more during the relevant Financial Year (FY);

– Stay in India for 60 days or more during the relevant FY and for 365 days or more during the four FYs immediately preceding the relevant
FY.

• Further, an individual being a citizen of India or a person of Indian origin (being outside India) comes on a visit to India, 60 days shall be
replaced with 182 days in condition (2) above.

• It has now been proposed to reduce the limit from 182 days to 120 days. In other words, person of India origin (being outside India) comes
on a visit to India will qualify as a Resident if his/ her aggregate presence in India is120 days or more.

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 31

Personal tax - Change in residency rules

Resident and Not Ordinarily Resident

• An individual currently qualifies to be a Resident and Ordinarily Resident (ROR) during the relevant FY if he/she satisfies both the conditions:

– Qualifies to be a Resident for at least two FYs out of 10 FYs immediately preceding the relevant FY;

– Stay in India is 730 days or more during seven FYs immediately preceding the relevant FY

It is proposed that an individual will qualify as a ROR only if he/she satisfies to be a Resident in at least Four FYs out of 10 FYs immediately
preceding the relevant FY. The second condition as mentioned above is proposed to be repealed.

• In other words, an individual coming to India for work, will qualify as ROR (subject to global income taxation) not before a period of four years
of stay

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 32

Personal tax - Change in residency rules

New Rule for Deemed Residency

• It has been proposed that an individual who being a citizen of India, will be deemed to be a resident if he/she is not liable to tax in any
other country or territory by reason of his domicile, residence etc.

• A press release has been issued by the CBDT clarifying that, under the deemed residency rule, Indian citizens who are bonafide workers in
other countries including Middle East, their income earned outside India shall not be taxed in India unless it is derived from an Indian
business or profession. It was also stated that the necessary clarification will be incorporated in the provisions of law.

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 33

Personal tax - Others

Employer’s contribution to Retirement funds

• It is proposed that the aggregate employer contributions to the following funds in excess of INR 7.5 lakhs in a FY would be taxable as
perquisite in the hands of the employee:

Retiral Plans Existing Limits Proposed Limits

Superannuation INR 1.5 Lakhs Aggregate INR 7.5 lakhs

Provident Fund 12% of salary

NPS 10% of salary

• Annual accretion by way of interest, dividend or other similar amount credited to the account on the above excess contribution will be taxable.
It would now on be important for an employer to track whether aggregate of the above contributions in the relevant FY exceeds INR
7.5 lakhs, so that the excess contribution is offered to tax in the hands of the employee.

Additional deduction for interest on loan for affordable housing

• The deduction under this section can be claimed by the individual up to INR 1.5 lakhs in respect of interest on loan sanctioned for certain
house property during the period beginning from 01 April 2019 to 31 March 2021 (earlier it was till 31 March 2020).

PwC Union Budget 2020 – 2021 (Rebuilding momentum) 34

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