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Tax Alert: Economic stimulus package 2.0 to counter challenges posed by COVID-19

13 May 2020

COVID-19 has brought entire world to a standstill. In order to boost the economy, various countries have doled out stimulus packages. In the address made to the nation on 12 May 2020, the Hon’ble Prime Minister of India has, inter-alia, made a clarion call for Aatmanirbhar Bharat (i.e. Self-reliant India) and has announced that an economic stimulus to the tune of INR 20 lakh crore (being about 10% of India’s GDP) will be rolled out. Pursuant to this announcement, on 13 May 2020, the Hon’ble Finance Minister clarified that by Aatmanirbhar Bharat, the idea is not to make India an isolated country but to build a confident India capable of contributing to the world’s growth. The five pillars of Aatmanirbhar Bharat are: Economy, Infrastructure, Technology-driven systems, Vibrant demography and Demand.

Taking ahead Hon’ble Prime Minister’s announcement on the economic stimulus package, while the Hon’ble Finance Minister announced various measures on 13 May 2020, further measures will be announced in coming days. We, at BDO in India, have summarised these key announcements from direct tax and employees provident fund perspective here below:

Direct Tax

  • Tax withholding rate as well as tax collected at source rate reduced

Certain payments are liable for tax withholding (TDS) / tax collected at source (TCS). Depending upon the type of payment, different TDS / TCS rates would apply. In order to boost the liquidity, the prescribed rates of TDS on specified non-salaried payments to resident payees and TCS have been reduced by 25%. The reduced rate of TDS / TCS shall be applicable from 14 May 2020 to 31 March 2021.

  • Extension of tax return filing and tax audit deadline

Depending upon the type of taxpayers, the due dates for filing tax return for the fiscal year (‘FY’) 2019-20 were 31 July 2020, 31 October 2020 or 30 November 2020. Now, the deadline for filing tax return for all types of taxpayers for FY 2019-20 will be 30 November 2020. Consequently, the deadline for tax audit is extended to 31 October 2020

  • Issuance of Tax Refund

The pending income tax refunds in case of charitable trusts and non-corporate businesses and professions including proprietorship, partnership and LLPs and cooperatives shall be issued immediately.

  • Extending period of limitation for assessment proceedings

During the press conference, the Hon’ble Finance Minister announced that the due date for completing assessment proceedings, which are getting time barred on 30 September 2020 and 31 March 2021 shall be extended to 31 December 2020 and 30 September 2021, respectively.

The Direct Tax Vivad se Vishwas Act, 2020

The timeline for payment of disputed arrears without attracting additional 10% amount under the Vivad se Vishwas Scheme is further extended from 30 June 2020 to 31 December 2020.

Employee Provident Fund

  • EPF Contribution to be reduced for Employers and Employees for 3 months

Statutory PF contribution of both employer and employee shall be reduced to 10% each from the existing 12% each for all establishments / organisations covered by EPFO for next 3 months.

BDO Comments

Apart from the above-mentioned measures, the Finance Minister has announced other measures to boost MSME sector. All these steps will certainly help taxpayers navigate these unprecedented times. With the lockdown getting elongated, it could take some more time for the economy to show signs of recovery. Considering the challenges on the ground, several requests for the deferral of tax payment have not been accepted. The reduction in withholding tax and reduced penal interest may not fully address the concerns of the taxpayers. Nonetheless, these and other economic boosters by the Indian Government are expected to bring back normalcy in the country faster once the lockdown is relaxed.