The Finance Minister Nirmala Sitharaman has proposed the following changes across various spheres of International Taxation and Transfer Pricing:
Contribution of the eligible fund manager during first three years up to twenty-five crore rupees shall not be accounted for the purpose of calculation of the aggregate participation or investment in the fund, directly or indirectly, by Indian resident and if the fund has been established or incorporated in the previous year, the condition of monthly average of the corpus of the fund to be at one hundred crore rupees shall be fulfilled within twelve months from the last day of the month of its establishment or incorporation.
It is proposed to amend section 9A of the Act will take effect from 1st April 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.
The Government in a view to attract fresh investment, create jobs and stimulate the economy, has proposed to extend the period of said concessional rate of TDS of five percent to 1st July 2023 from 1st July 2020 provide that the rate of TDS shall be four percent on the interest payable to a non-resident, in respect of monies borrowed in foreign currency from a source outside India, by way of issue of any long term bond or RDB on or after 1st April 2020 but before 1st July 2023 and which is listed only on a recognized stock exchange located in any IFSC.
The Government has proposed to amend section 194LD to extend the period of rate of TDS of 5% under the said section to 1st July 2023 from the existing 1st July 2020 provide that the concessional rate of TDS of five per cent under the said section shall also apply on the interest payable, on or after 1st April 2020 but before 1st July 2023, to an FII or QFI in respect of the investment made in municipal debt security.
The Government has proposed to amend section 94B of the Act so as to provide that provisions of interest limitation would not apply to interest paid in respect of a debt issued by a lender which is a PE of a non-resident, being a person engaged in the business of banking, in India.
This amendment will take effect from 1st April 2021 and will, accordingly, apply in relation to the assessment year 2021-22 and subsequent assessment years.
The Government has proposed to amend section 115A of the Act in order to provide that a non-resident, shall not be required to file return of income under sub-section (1) of section 139 of the Act if, – his or its total income consists of only dividend or interest income as referred to in clause (a) of sub-section (1) of said section, or royalty or FTS income of the nature specified in clause (b) of sub-section (1) of section 115A, and the TDS on such income has been deducted under the provisions of Chapter XVII-B of the Act at the rates which are not lower than the prescribed rates under sub-section (1) of section 115A.
In view of the above, it is proposed to amend section 92CB and section 92CC of the Act to cover the determination of attribution to PE within the scope of SHR and APA.
With respect to section 92CB, the amendment will take effect from 1st April 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years. With respect to section 92CC, the amendment will take effect from 1st April 2020 and therefore will apply to an APA entered into on or after 1st April, 2020.
The Government has proposed to suitably amended provisions of section 144C of the to include cases, where the AO proposes to make any variation which is prejudicial to the interest of the Assessee, within the ambit of section 144C; expand the scope of the said section by defining eligible Assessee as a non-resident not being a company, or a foreign company.
This amendment will take effect from 1st April 2020. Thus, if the AO proposes to make any variation after this date, in case of eligible Assessee, which is prejudicial to the interest of the Assessee, the above provision shall be applicable.
The Government has proposed to provide that ITAT may grant stay under the first proviso subject to the condition that the Assessee deposits not less than twenty per cent of the amount of tax, interest, fee, penalty, or any other sum payable under the provisions of this Act, or furnish security of equal amount in respect thereof.
It is also proposed to substitute the second proviso to provide that no extension of stay shall be granted by ITAT, where such appeal is not so disposed of which the said period of stay as specified in the order of stay. However, on an application made by the Assessee, a further stay can be granted, if the delay is not disposing of the appeal is not attributable to the Assessee and the Assessee has deposited not less than twenty per cent of the amount of tax, interest, fee, penalty, or any other sum payable under the provisions of this Act, or furnish security of equal amount in respect thereof. The total stay granted by ITAT cannot exceed 365 days.
This amendment will take effect from 1st April 2020.
The Government has proposed to amend clause (b) of sub-section (1) of section 90 of the Act so as to provide them with an opportunity to enter into an agreement with the Government of any country outside India or specified territory outside India for, inter alia, the avoidance of double taxation of income under the Act and under the corresponding law in force in that country or specified territory, as the case may be, without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this agreement for the indirect benefit of residents of any other country or territory).
It is also proposed to make a similar amendment in clause (b) of sub-section (1) of section 90A of the Act.
These amendments will take effect from 1st April 2021 and will, accordingly, apply in relation to the assessment year 2021-22 and subsequent assessment years.
The Government has proposed to defer the applicability of SEP to starting from the assessment year 2022-23. Certain drafting changes have also been made while deferring the proposal.
The current SEP provisions shall be omitted from the assessment year 2021-22 and the new provisions will take effect from 1st April 2022 and will, accordingly, apply in relation to the assessment year 2022-23 and subsequent assessment years.
Further, as per the discussion going on in the international forum, countries generally agree that income from the advertisement that targets Indian customers or income from the sale of data collected from India or income from the sale of goods and services using such data collected from India needs to be accounted for in Indian revenue. Hence, it is proposed to amend the source rule to clarify this position.
It is proposed that the exception from said Explanation 5 provided to an asset or a capital asset, held by a non-resident by way of investment in erstwhile Category I and II FPIs under the SEBI (FPI) Regulations, 2014 may be grandfathered. Further, similar exceptions may be provided in respect of investment in Category-I FPI under the SEBI (FPI) Regulations, 2019.
Amendment of the definition of royalty so as not to exclude consideration for the sale, distribution or exhibition of cinematographic films from its meaning is also in the proposal.
It is further proposed to amend section 295 of the Act so as to empower the Board for making rules to provide for the manner in which and the procedure by which the income shall be arrived at in the case of operations carried out in India by a non-resident and transaction or activities of a non-resident.
To enable pre-filling of returns in case of persons having income from business or profession, it is required that the tax audit report may be furnished by the said assesses at least one month prior to the due date of filing of return of income. This requires amendments in all the sections of the Act which mandates the filing of audit report along with the return of income or by the due date of filing of return of income. Thus, provisions of section 10, section 10A, section 12A, section 32AB, section 33AB, section 33ABA, section 35D, section 35E, section 44AB, section 44DA, section 50B, section 80-IA, section 80-IB, section 80JJAA, section 92F, section 115JB, section 115JC and section 115VW of the Act are proposed to be amended accordingly.
The Government has proposed to amend sub-section (2) of section 288 to enable any other person, as may be prescribed by the Board, to appear as an authorized representative.
These amendments will take effect from 1st April 2020.
The Government has proposed to carry out amendments so that dividends or income from units are taxable in the hands of shareholders or unitholders at the applicable rate and the domestic company or specified company or mutual funds are not required to pay any DDT. It is also proposed to provide that the deduction for expense under section 57 of the Act shall be a maximum of 20 percent of the dividend or income from units. Therefore, it is proposed to-
i. amend section 115-O to provide that dividend declared, distributed or paid after 1st April 2003, but on or before 31st March 2020 shall be covered under the provision of this section.
ii. amend clause (34) of section 10 to provide that the provision of this clause shall not apply to any income, by way of dividend, received on or after 1st April 2020.
iii. amend section 115R to provide that the income distributed on or before 31st March 2020 shall only be covered under the provision of this section.
iv. amend clause (35) of section 10 to provide that the provision of this clause shall not apply to any income, in respect of units, received on or after 1st April 2020.
v. amend clause (23FC) of section 10 so that all dividends received or receivable by the business trust from a special purpose vehicle is exempt income under this clause.
vi. amend clause (23FD) of section 10 to exclude dividend income received by a unitholder from the business trust from the exemption so that the dividend income is taxable in the hand of unitholder of the business trust.
vii. amend subsection (3) of section 115UA to delete reference to sub-clause (a) so that distributed income of the nature as referred to in clause (23FC) or clause (23FCA) of section 10 shall be deemed to be income of the unitholder and shall be charged to tax as income of the previous year. Thus, dividend income distributed by a special purpose vehicle to business trust would be taxed in the hands of the unitholder.
viii. remove reference of section 115-O dividend income in various sections like section 57, section 115A, section 115AC, section 115ACA, section 115AD, and section 115C.
ix. remove the opening line of clause (23D) of section 10, as mutual fund no longer required to pay additional tax.
x. insert new section 80M as it existed before it removed by the Finance Act, 2003 to remove the cascading effect, with a change that set-off will be allowed only for dividend distributed by the company one month prior to the due date of filing of a return, in place of the due date of filing return earlier.
xi. amend section 115BBDA which taxes dividend income in excess of ten lakh rupee in the hands of the shareholder at ten per cent., to the only dividend declared, distributed or paid by a domestic company on or before the 31st day of March 2020.
xii. amend section 57 to provide that no deduction shall be allowed from dividend income, or income in respect of units of the mutual fund or specified company, other than a deduction on account of interest expense and in any previous year such deduction shall not exceed twenty percent. of the dividend income or income from units included in the total income for that year without the deduction under section 57.
xiii. amend section 194 to include dividend for a tax deduction. At the same time the rates of ten percent. is proposed to be prescribed and the threshold is proposed to be increased from Rs 2,500/- to Rs 5,000/- for the dividend paid other than cash. Further, at present, the mode of payment is given as “an account payee cheque or warrant”. It is proposed to change this to any mode.
xiv. amend section 194LBA to provide for a tax deduction by the business trust on dividend income paid to unitholder, at the rate of ten percent. for the resident. For a non-resident, it would be 5 percent for interest and ten percent. for the dividend.
xv. insert a new section 194K to provide that any person responsible for paying to a resident any income in respect of units of a Mutual Fund specified under clause (23D) of section 10 or units from the administrator of the specified undertaking or units from the specified company shall at the time of credit of such income to the account of the payee or at the time of payment thereof by any mode, whichever is earlier, deduct income-tax thereon at the rate of ten percent. It may also be provided for the threshold limit of Rs 5,000/- so that income below this amount does not suffer tax deduction. It is also proposed to defined “Administrator”, “specified company”, as already defined in clause (35) of section 10. It is also proposed to define “specified undertaking” as in clause (i) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002. It is also proposed to provide that where any income is credited to any account like suspense account, in the books of account of the person liable to pay such income, the liability for tax deduction under this section would arise at that time.
xvi. amend section 195 to delete exemption provided to the dividend referred to in section 115-O.
xvii. amend section 196A to revive its applicability on TDS on income in respect of units of a Mutual Fund. It is also proposed to substitute “of the Unit Trust of India” with “from the specified company defined in Explanation to clause (35) of section 10” and “in cash or by the issue of a cheque or draft or by any other mode” with “by any mode”.
xviii. amend section 196C to remove exclusion provided to a dividend under section 115-O. It is also proposed to substitute “in cash or by the issue of a cheque or draft or by any other mode” with “by any mode”.
xix. amend section 196D to remove exclusion provided to a dividend under section 115-O. It is also proposed to substitute “in cash or by the issue of a cheque or draft or by any other mode” with “by any mode”.
Amendments at clause (i) to (xii) above will take effect from 1st April 2021 and will, accordingly, apply in relation to the assessment year 2021-22 and subsequent assessment years. Amendments at clause (xiii) to (xix) will take effect from 1st April 2020.
In regard to residency provisions, the government has proposed that
This amendment will take effect from 1st April 2021 and will, accordingly, apply in relation to the assessment year 2021-22 and subsequent assessment years.
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