(Domestic and International) 23 · Budget at a Glance ..... 6 Proposed Rates of Tax Applicable in...

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Creation of Wealth through Entrepreneurship .......................................................................... 2

Budget at a Glance .................................................................................................................. 6

Proposed Rates of Tax Applicable in FY 2020-2021 (AY 2021-2022) ...................................... 7

Significant new proposal in Direct Tax (Domestic and International Taxation) .......................... 9

Significant Amendments proposed in various provisions of Direct Taxes (Domestic and International) .................................................................................................. 23

Indirect Tax Proposals ............................................................................................................. 35

For private circulation & internal use only

This booklet summarizes the important proposals included in the budget speech made by the Hon’ble Finance Minister on 1st February, 2020.

Whilst every care has been taken in the preparation of this document it may contain inadvertent errors for which we shall not be held responsible. It must be stressed that the Finance Bill may contain proposals which have not been referred to in the budget speech and additionally, the detailed proposals are liable to amendment during the passage of the Finance Bill through Parliament. The information given in this document provides a bird’s-eye view on the changes proposed and should not be relied for the purpose of economic or financial decision. Each such decision would call for specific reference of the relevant statutes and consultation of an expert.

Contents

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The budget, woven around themes of Aspirational India, Economic Development and a Caring Society, has the underlying philosophy of Wealth Creation leading in turn to its automatic distribution to the grass root levels via the faith driven market economy. The focal point, the entrepreneur, is expected to grab the opportunity provided and reap direct benefit and also help provide for externalities on one hand and, indirect income and wealth created through employees, suppliers of raw material and capital goods including machinery, foreign exchange earnings and by way of financing the welfare projects of government via payment of taxes and public private participation. Ease of Living is the declared target

The Aspirational India targets the Agriculture Irrigation and Rural Development on one hand and Education and Skills on the other hand, a holistic vision of healthcare involving wellness water and sanitation has been visualized. A number of schemes are devised through which these aspirations are expected to be achieved. Substantial funds have been allocated to give a big push.

The theme of economic development encompasses promotion of Infrastructure, Industry, Commerce and Investment. The government investment in key sectors has been recognized and adequate resources earmarked. The recognition of wealth creation as an engine for all round development of the country shall boost the entrepreneur from within India and from abroad in addition to imparting a big boost to the stalwart wealth creators who shall imbibe in them a strong feeling of a new entrepreneur for a new India.

The conceptualizing of a caring society has at its root the women and child as also social welfare and protection of environment and promotion of tourism. The wholesome human being is a product of a caring society which has rightly been propagated.

The budget recognizes ease of doing business backed by fairness, transparency and efficiency of tax administration as a pre-requisite to achieving any target. The faceless assessment scheme and the envisaged penalty and appeals on similar lines in the field of direct tax are a manifest. The budget proposals and schemes and some of the key direct tax measures, detailed subsequently, are all oriented to entrepreneurial growth leading to creation of wealth, measurable in GDP terms and its automatic distribution via the market forces, all leading to a higher capacity to spend, of the masses, and an ease of living becoming the norm of the country.

India’s contribution to the World GDP in ancient times India stood around 40%. Despite having such a rich tradition of wealth creation, India deviated from this model for several decades after independence. However, India returned back to these roots post economic liberalisation in 1991. The data, post liberalization, confirms that sectors that were liberalized grew significantly faster than those that remain closed. A comparison of Banks vis-à-vis Railways is a stark example. Post cleaning, a strong banking sector is likely to emerge and one can see more amalgamations

Creation of Wealth through Entrepreneurship

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of banks in the times to come as a step to meet the need for strength in this sector. The Life Insurance Corporation of India may see the door to public issue. All to support the demanding needs of the growing economy.

For the nation to unlock its true potential, various sectors of the economy i.e. Manufacturing, Service, Infrastructure and Agriculture, they act as pillars of the economy, must be given abundant impetus by promoting pro-active and a pro-business policy to:-

(i) provide equal opportunities for new entrants, enable fair competition and ease of doing business,

(ii) eliminate policies that undermine markets through government intervention even where it is not necessary,

(iii) enable trade for job creation, and

(iv) efficiently scale up the banking sector to be proportionate to the size of the Indian economy.

This will encourage the Entrepreneurial Spirit in the country which has since the last few years been THE talking topic. This will also attract new entrepreneurs from across the Globe to establish their ideas in India. The hidden potential in India will surface and a new entrepreneurial class likely to emerge. Wealth creation leading to its distribution and ultimately creating an environment of Ease of Living is what the exercise of budget attempts to achieve. Only time will tell the success story.

While the above developments are intended at the grass root level to increase the sense of growth in entrepreneurship, the Budget has provided various incentives to existing entrepreneurs and make India an attractive state for foreign funds. In the budget, several steps are apparent while others remain hidden, which go to augment the vision of potential entrepreneurs, in India and outside, on India as a favored destination. As a measure of hint, these are listed for proper appreciation of the state of seriousness the budget exercise has shown in this respect.

A. Dividend Distribution Tax Currently, companies are required to pay Dividend Distribution Tax (DDT) on the dividend paid to its shareholders at the rate of 15% plus applicable surcharge and cess in addition to the tax payable by the company on its profits. It has been argued that the system of levying DDT results in increase in tax burden for investors and especially those who are liable to pay tax less than the rate of DDT if the dividend income is included in their income. Further, non-availability of credit of DDT to most of the foreign investors in their home country results in reduction of rate of return on equity capital for them. In order to increase the attractiveness of the Indian Equity Market and to provide relief to a large class of investors, the budget proposes to remove the DDT and adopt the classical system of dividend taxation under which the companies would not be required to pay DDT. The dividend is proposed to be taxed only in the hands of the recipients at respective rates applicable. Further, a foreign fund or foreigner investing equity in India will be eligible to avail the DTAA benefits wherein the tax on dividend is in the range of 5% to 15% which again increases the net return on investment

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B. Tax concession for foreign investmentsIn order to incentivise the investment by the Sovereign Wealth Fund of foreign governments in the priority sectors, the budget proposes to grant 100% tax exemption to their interest, dividend and capital gains income in respect of investment made in infrastructure and other notified sectors before 31st March, 2024 though, with a minimum lock-in period of 3 years.

C. Concessional Tax RatesIn order to make available foreign funds at a lower cost, the budget proposes to extend the period of concessional withholding rate of 5% under section 194LC for interest payment to non-residents in respect of moneys borrowed and bonds issued up to 30th June, 2023. Also, proposal is to extend the period up to 30th June, 2023 for lower rate of withholding of 5% under section 194LD for interest payment to Foreign Portfolio Investors (FPIs) and Qualified Foreign Investors (QFIs) in respect of bonds issued by Indian companies and government securities.

Foreign Portfolio Investors (FPIs) and Qualified Foreign Investors (QFIs) are proposed to be allowed to invest in Bonds issued by Municipalities with benefit of concessional rate of 5% tax rate u/s 194D of the Act, a concept which may have the potential of changing the face of towns and cities in India.

It is also proposed to reduce the concessional rate of withholding to 4% on the interest payment made on the Municipal and other Bonds when listed on IFSC exchange.

D. ESOP benefitsStart-ups have emerged as engines of growth for our economy. Over the past year, our Government has taken several measures to hand-hold them and support their growth. During their formative years, Start-ups generally use Employee Stock Option Plan (ESOP) to attract and retain highly talented employees. ESOP is a significant component of compensation for these employees. Currently, ESOPs are taxable as perquisites at the time of exercise. This leads to cash-flow problem for the employees who do not sell the shares immediately and continue to hold the same for the long-term. In order to give a boost to the start-up ecosystem. The budget proposes to ease the burden of taxation on the employees by deferring the tax payment by four years or till they leave the company or when they sell their shares, whichever is earliest.

E. Start-up taxEligible Start-up having turnover up to 25 crores is allowed deduction of 100% of its the profits for three consecutive assessment years out of seven years if the total turnover does not exceed 25 crore rupees. In order to extend this benefit to larger start-ups, the budget proposes to increase the turnover limit from existing ` 25 crore to ` 100 crores. Moreover, considering the fact that in the initial years, a start-up may not have adequate profit to avail this deduction, the budget proposes to extend the period of eligibility for claim of deduction from the existing 7 years to 10 years.

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F. Faceless assessments and appealsSeveral procedural and other changes introduced are dealt with in what follows and will definitely have a positive impact on environment conducive to India’s growth. These include the faceless on-line appeal and penalty proceedings parallel to e-assessment already introduced. The depiction of AIS data on the designated portal of every assessee and the will to reduce litigation, the existing litigation by way of a scheme, of which details are awaited, wherein one would be able to settle the contentions by way of payment of tax alone, to escape interest and penalty. It is yet to be seen whether cases of foreign bank accounts would be covered by this scheme.

G. Annual Information StatementAnnual Information Statement will be prepared by the IT Department for every tax payer providing all the details of transactions known to them. Non-residents investors will be more aware and transparency will be maintained.

H. Exemption from Return filing extended to Non-residents Exemption from Return filing extended to Non-residents where their income includes only royalty and fees for technical services and TDS has been paid on such income by the deductor.

I. Reduction in rate of taxationReduction in rate of taxation for manufacturing companies including Power generation companies.

J. ProsecutionA stipulation that prosecution in respect of civil liabilities deserve dilution or may be, elimination from statutes, hinting similar amendments in the Income Tax Act to follow after amendments to the Companies Act in this respect

The above are apparently attempts towards the objective spelt out in the budget, of Wealth creation through entrepreneurial development leading to Wealth creation and its consequent devolution and simultaneous ease of living becoming a reality. The Government has recognized the power of new ideas and development of technology, development of human skills and education at the heart of creating India a 5 Trillion economy. A sense of business development is seen primary for wealth creation. Measures have been taken for making India attractive for foreign funds and create a robust environment for entrepreneurs. Let’s wish India 2020 a successful year ahead.

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Budget at a Glance

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Proposed Rates of Tax Applicable in FY 2020-2021 (AY 2021-2022)

A. Individuals/ HUFs/ AOP/ BOI• No Changes in the Tax Rate as per slab rates have been proposed unless Individual/HUF

opts for new scheme as per section 115 BAC

Income Slabs (in INR) Rate of tax (%)

Upto 2,50,000 NIL

2,50,001 to 5,00,000 5

5,00,001 to 10,00,000 20

Above 10,00,000 30

For resident senior citizens (60 years and above but less than 80 years) and very senior citizens (80 years and above), the basic exemption limit remains at INR 3,00,000 and INR 5,00,000 respectively.

The income-tax shall be increased by rates of surcharge (SC) as per Table B.

Rebate u/s. 87A available to resident individuals, whose total taxable income does not exceed ` 5,00,000. Relief available shall be 100% of income tax or ` 12,500, whichever is less.

B. Surcharge applicable to Individuals/ HUFs/ AOP/ BOI

Income Slabs (in INR) SC (%)> 50,00,000 to 1,00,00,000 10> 1,00,00,000 to 2,00,00,000 15> 2,00,00,000 to 5,00,00,000 25*> 5,00,00,000 37*

*Enhanced surcharge not applicable on income under capital gains taxable under Sections 111A and 112A

C. Co-operative Societies• No Changes in the Tax Rate as per slab rates have been proposed unless Co-operative

Societies opts for new scheme as per section 115 BAD

Total Income (in INR) Rate of tax (%) SC (%)

Upto 10,000 10 -

10,001 to 20,000 20 -

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Total Income (in INR) Rate of tax (%) SC (%)

Above 20,000 but less than 1,00,00,000 30 -

Above 1,00,00,000 30 12

D. Firm/LLP/Others

Total Income (in INR) Rate of tax (%) SC (%)Upto 1,00,00,000 30 -Above 1,00,00,000 30 12

E. Companies

Type of Companies Tax Rate (%)

Income upto INR 1

Crore

> INR 1 crore upto

INR 10 Crore

Income above INR 10 Crore

SC (%) SC (%) SC (%)

Domestic Companies with turnover/gross receipts upto INR 400 Crs. in FY 18-19

25 NIL 7 12

Other Domestic Companies 30 NIL 7 12

Domestic Companies opting for Section115BAA

22 10 10 10

New Domestic Manufacturing Companies including Companies engaged in business of generation of electricity opting for Section 115BAB

15 10 10 10

Foreign Companies 40 NIL 2 5

* Cess leviable @ 4% on income tax (including surcharge, if any)

** Marginal relief – for all the persons for whom surcharge is applicable, Marginal relief as existing shall continue.

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Significant new proposal in Direct Tax (Domestic and International Taxation)

Section 6 – Modification of residency criteria and provisions related to “Stateless Person”As per existing provisions [Clause (b) Explanation 1 of Section 6] of the Act, a person of Indian origin or a person who is a citizen of India, who being outside India, comes on a visit to India in any previous years shall be deemed to be resident in India if -

- he has been in India for an overall period of 365 days or more within 4 years preceding that year and

- is in India for an overall period of 182 days or more in that year

It is proposed to decrease the period of days provided in clause (b) of Explanation 1 of section 6(1) for visiting India in that year to 120 days from existing 182 days.

Further, it is proposed that, an individual or HUF shall be said to be not ordinarily resident in India in a previous year, if the individual or the manager of the HUF has been a non-resident in India in seven out of ten previous years preceding that year as again the earlier provision where in resident was considered as not ordinarily resident if he was non-resident in nine out of ten years preceding that year or has during seven previous years preceding that year been in India for an overall period of 729 days or less.

“Stateless Person” — A citizen of India not Taxable in any country on account of residence /domicile etc., may be deemed to be resident in India and accordingly may be liable to be taxed on its global income in India. There may be possibility that, income of High Net Worth Individual (HNWI) would not be taxable in jurisdiction where he is tax resident due to the relevant provisions of the law of that jurisdiction. Hence, the income of said HNWI may not be taxable under the laws of any country. With introduction of new provision there is likelihood that income of HNWI may be taxable in India based on citizenship.

The above amendment is proposed to be effective from AY 2021-22

Section 10(23FE) – Exemption in respect of certain income of Wholly owned subsidiary of Abu Dhabi Investment Authority or a sovereign wealth fundAny income received by a wholly owned subsidiary of the Abu Dhabi Investment Authority or a sovereign wealth fund which is in the nature of dividend, interest or long-term capital gains arising from an investment made by it in India, whether in the form of debt or equity, is fully exempt if the following conditions are fulfilled:

a) The investment is made on or before the 31st day of March, 2024;

b) The said Investment is held for at least three years; and

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c) The Investment is made in a company or enterprise carrying on the business of developing, or operating and maintaining, or developing, operating and maintaining any infrastructure facility as defined in the Explanation to clause (i) of sub-section (4) of section 80-IA or such other business as the Central Government may, by notification in the Official Gazette, specify in this behalf.


Increase in safe harbour limit of 5% under Sections 43CA, 50C and 56(2)(x) of the Act to 10%As per section 50C, amount of consideration received by an assessee on transfer of any capital asset, being land or building or both, is less than the value assessed by the stamp valuation authority then the value assessed by the stamp valuation authority shall be deemed to be the full value of the consideration for the purpose of computing capital gains. As per amendment made by the Finance Act, 2018, the variance of 5% was allowed between the amount of consideration received by the assessee and the value assessed by the stamp valuation authority.

As per the proposed amendment, the variance of 5% has been further increased to 10% between the amount of consideration received by the assessee and the value assessed by the stamp valuation authority. The similar amendments have also been proposed in Section 43CA and Section 56(2)(x) of the Act.


Section 80EEA – Deduction in respect of interest on Loan taken for Affordable HousingAs per the existing provision interest on loan taken from financial institution for acquisition of residential house property, who is a first time buyer and whose stamp duty does not exceed forty five lakhs rupees was eligible for deduction up to one lakh fifty thousand rupees subject to certain condition.

One of the conditions was that loan has to be sanctioned by the financial institution during the period from 1st April, 2019 to 31st March, 2020.

As per the proposed amendment, the period of sanctioning of loan by the financial institution is extended to 31st March, 2021.


Section 80-IAC-Special provision in respect of specified businessWhere the gross total income of an assessee, being an eligible start- up, includes any profits and gains derived from eligible business is allowed a deduction of an amount equal to one hundred per cent of the profits and gains derived from such business for any three consecutive assessment years out of seven years from the year in which eligible start up is incorporated. As per the proposed amendment now the span of seven years has been extended to ten years.

Eligible start-up means a company or a limited liability partnership engaged in eligible business which fulfils the certain conditions one of such condition is the total turnover of its business

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does not exceed twenty-five crore rupees in the previous year relevant to the assessment year in which the deduction is claimed. As per the proposed amendment now the limit of total turnover of the business is increased from twenty-five crore to one hundred crore rupees.


115-O – REMOVAL OF DIVIDEND DISTRIBUTION TAX (DDT)Currently, companies are required to pay Dividend Distribution Tax (DDT) on the dividend paid to its shareholders at the rate of 15% plus applicable surcharge and cess in addition to the tax payable by the company on its profits.

It is proposed to adopt old system of taxing dividend in the hands of shareholders and correspondingly abolishing DDT payment by the Companies. Accordingly, various consequential amendments are proposed under various sections as under:

1. Section 115-O (tax on distributed profits of domestic company) and Section 115R (tax on distributed income to unitholder) is amended to operate upto 31st March, 2020. Also, Section 115BBDA is amended to operate upto 31st March, 2020 wherein dividend income in excess of ten lakh rupees was taxable in hands of specified assessee at ten percent.

2. Amendments have been proposed in sections 10(34)/(35) stating that the said provisions will not be applicable to any dividend income received from 1st April, 2020.

3. Section 10(23FC) is amended so that dividend received by business trust from a Special Purpose Vehicle (SPV) is exempt in the hands of the Business Trust and Section 10(23FD) is amended to exclude dividend income received by a unitholder from business trust, which was earlier exempt in the hands of Unitholder is now proposed to be taxable in the hands of Unitholder. Also, Section 115UA(3) is proposed to be amended to give effect to the above.

4. Corresponding amendments have been proposed to omit the reference to Section 115-O from sections 115A, 115AC, 115ACA, 115AD, 115C, 115UA.

5. Section 80M is re-introduced after its removal by Finance Act, 2003 to remove the cascading effect, and as a result the set-off will be allowed on account of payment of dividend to share holders to the extent of Dividend received by such domestic company from another domestic company. It is further proposed that the deduction under this provision is available only if such dividend is distributed one month prior to due date of filing of Return of Income.

6. Section 57 is amended to provide that no deduction shall be allowed from dividend income or income from units of mutual funds other than deduction on account of interest expense not exceeding twenty percent of such dividend income or income from units included in total income for that year without considering deduction under section 57.

The above amendments are proposed to be effective from AY 2021-22

Further, consequential amendments have been brought under TDS provisions of Sections 194, 194LBA, 194K, 195, 196A, 196C and 196D effective 1st April, 2020 in order to deduct TDS on dividunt income paid to the recipient.

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Section 115BAA and 115BAB: Special Tax Rates for Domestic Companies:Section 115BAA was introduced last year vide the Taxation Law Amendment Act 2019 (‘TLAA’) where the existing domestic companies had the option to avail the reduced tax rates of 22% if certain exemptions, additional depreciation and deductions including under Chapter VI-A, Part C were forgone.

The Budget Bill has proposed to amend the provisions of the section and now no Deduction under the entire Chapter VIA (except 80JJAA and 80M) can be made by companies availing the benefits of this section. Thus now companies may not be allowed deductions of donations made under section 80G to charitable institutions, under section 80GGA towards scientific research and rural development, under section 80GGB to political parties or electoral trusts.

Similarly, provisions of section 115BAB have also been similarly amended.

This action of the Government seems inequitable as when the when the TLAA was introduced, the section had restricted the curtailment of deductions only to Part C of Chapter VI-A. Now the Finance Bill has curtailed the benefits given and the companies who have already switched to the new tax scheme would have borne in mind that such deductions may be granted under this section but now are in a position that they cannot switch back to the old regime.

Further Section 115BAB which was also introduced vide the TLAA to give new manufacturing companies the reduced tax rate of 15% has been proposed to include within its ambit even those companies who have newly established a business of generation of electricity.

The above amendments are proposed to be applicable w.e.f. A.Y. 2020-21 itself.

Section 115BAC – Optional Regime of Taxation for Individual and HUFIn line with the option provided to Domestic Companies under the Taxation Laws Amendment Act 2019, it is also proposed to provide similar option to Individual and HUF by insertion of Section 115BAC in the Act, which provides the following:

Tax Rates

Income Slabs (in INR) Rate of tax (%)

Upto 2,50,000 NIL

2,50,001 to 5,00,000 5

5,00,001 to 7,50,000 10

7,50,001 to 10,00,000 15

10,00,001 to 12,50,000 20

12,50,001 to 15,00,000 25

Above 15,00,000 30

Conditions Prescribed

To avail the benefit of the aforesaid section, specified person shall give up various exemptions and deductions, the details of which are tabulated below:

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Sr. No Section Remarks

1. 10(5) Leave Travel Allowance

2. 10(13A) House Rent Allowance

3. 10(14) * Special allowances to perform the duties (Not perquisites of Section 17(2)). *Other than those that may be prescribed – These will be allowed

4. 10(17) Daily allowance received by MLA and MP

5. 10(32) ` 1500 received against the clubbing of income of minor child

6. 10AA Exemption available for the new established unit in SEZ

7. 16 • Standard deduction of ` 50,000

• Entertainment allowance to government employees

• Tax on employment of ` 2,500

8. 24(b) Claim of interest expenditure on House Property

9. 32(1)(iia) Additional Depreciation

10. 32AD Investment allowance of 15%

11. 33AB Deduction available for business of growing and manufacturing tea, coffee and rubber

12. 33ABA Deduction available in business of prospecting for, or extraction or production of, petroleum or natural gas or both

13. 35(1)(ii)

Deduction available on payment for scientific research as prescribed14. 35(1)(iia)

15. 35(1)(iii)

16. 35(2AA)

17. 35AD Deduction in respect of expenditure on specified businesses

18. 35CCC Deduction on expenditure on agricultural extension project

19. 57(iia) Deduction available against income from family pension

20. Chapter VI A

No deductions apart from the following can be claimed:

• Section 80CCD (Contribution to Pension scheme of Central Government)

• Section 80JJAA (Deduction in respect of employment of new employees)

• Section 80LA(1A) (Deduction available to persons having unit in IFSC)

Other Conditions

• Carry forward of loss or depreciation from any earlier assessment years will not be allowed if such loss or depreciation is attributable to deductions / exemptions as specified above even in the case of subsequent withdrawal of the option.

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• Losses under the head, ‘Income from House Property’ will not be allowed to be set off against Income from any other heads.

• Depreciation other than additional depreciation (Section 32(1)(iia)) will be allowed

• Any exemption or deduction, by whatever name called provided under any other law will not be allowed

• If the effect of additional depreciation is pending on 1st April 2020 then corresponding adjustment shall be made in written down value of block of assets

• In case specified person is having business income, option should be exercised on or before the date of return filling u/s 139(1) of the Income tax Act and such option once exercised shall apply to subsequent year.

• In any other case, option be exercised alongwith return of income to be furnished u/s 139(1) of the Act.

• In case specified person is having business income who does exercise the option, the same can be withdrawn only once and thereafter, the person shall never be eligible to exercise the option again except when such specified person ceases to have business income.

• In event of failure to comply with the conditions prescribed, the option shall become invalid for that previous year and subsequent previous years and other provisions of the Act shall apply.

• Tax credit for alternate minimum tax as per section 115JD is not available.


Section 115BAD – Optional regime of Taxation for Cooperative SocietiesIn line with the option provided to Domestic Companies under the Taxation Laws Amendment Act 2019, it is also proposed to provide similar option to Cooperative Societies being tax resident in India by insertion of Section 115BAD in the Act, which proposes a flat lower tax rate of 22% subject to certain conditions.

Conditions Prescribed

To avail the benefit of the aforesaid section, co-operative societies shall give up various exemptions and deductions, the details of which are tabulated below:


1. 10AA Exemption available for the new established unit in SEZ

2. 32(1)(iia) Additional Depreciation

3. 32AD Investment allowance of 15%

4. 33AB Deduction available for business of growing and manufacturing tea, coffee and rubber

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5. 33ABA Deduction available in business of prospecting for, or extraction or production of, petroleum or natural gas or both

6. 35(1)(ii)

Deduction available on payment for scientific research as prescribed7. 35(1)(iia)

8. 35(1)(iii)

9. 35(2AA)

10. 35AD Deduction in respect of expenditure on specified businesses

11. 35CCC Deduction on expenditure on agricultural extension project

12. Chapter VI A No deductions can be claimed except for Section 80LA(1A) (Deduction available to persons having unit in IFSC)

Other Conditions

• Carry forward of loss or depreciation from any earlier assessment years will not be allowed if such loss or depreciation is attributable to deductions / exemptions as specified above even in the case of subsequent withdrawal of the option.

• Depreciation other than additional depreciation (Section 32(1)(iia)) will be allowed

• If the effect of additional depreciation is pending on 1st April 2020 then corresponding adjustment shall be made in written down value of block of assets

• Return should be filed u/s 139(1) irrespective of nature of income by exercising the option. Once the option is exercised in any previous year shall apply to subsequent previous years. It cannot be withdrawn subsequently.

• In event of failure to comply with the conditions prescribed, the option shall become invalid for that previous year and subsequent previous years and other provisions of the Act shall apply.

• Tax credit for alternate minimum tax as per section 115JD is not available.


Sec 192 – TDS on SalaryEarlier, the employer was supposed to deduct TDS on the prevailing rates, when its employees were offered shares under ESOP as the same were considered as perquisite. Now, in the case of ESOP given by eligible startup to its employee TDS on perquisite value will be deducted within 14 days from earlier of the following:

a. After the expiry of 48 months from the end of the relevant assessment year, or

b. On the date when such share is sold by the employee, or

c. On the date on which the assessee ceases to the employee of that employer

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Further, the consequential amendment is also proposed to insert clause (vi) of section 140A of self-assessment and accordingly any tax or interest payable in accordance with provisions of section 191(2) will be considered as self-assessment tax.

This amendment is proposed to be effective from 1st April 2020

194K- TDS on income in respect of unitsA 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, tax is required to be deducted at the rate of 10%

TDS is not required to be deducted when the aggregate amount does not exceed ` 5,000


194-O - TDS on payment of certain sums by E-Commerce Operator to E commerce participantE-commerce operator shall, at the time of credit of amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier, deduct income-tax at the rate of 1% of the amount of sales or services or both.

TDS is not required to be deducted when the aggregate amount does not exceed 5,00,000 in case of e-commerce participant, being an individual or Hindu undivided family and such e-commerce participant has furnished his Permanent Account Number or Aadhaar number to the e-commerce operator. In case the said person does not provide the details of PAN or Aadhar number then TDS will be deducted at the rate of 5% u/s 206AA

If tax is withheld in this provision then TDS will not be deducted in any other provision of this chapter.


206 C – TCS on profits and Gains from business of trading in alcoholic liquour, forest produce, scrap etc.Earlier, TCS provisions were not applicable to Authorised Dealers, Tour operators or Seller of goods. Now the said persons are required to collect taxes due to insertion of subsection 1G and 1H, as briefly outlined as under :

a. If an authorized dealer (AD) during the financial year receives an amount or an aggregate amount of seven lakh or more from a buyer being a person remitting such amount out of India under the LRS of the RBI, then it should collect tax @ 5%. Further if the buyer does not provide for PAN or Aadhar details TCS is to be collected @ 10%.

b. If the seller of an overseas tour program package receives any amount from the buyer of the package then the seller shall at the time of receipt of such amount or at the time

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debiting the account of the buyer whichever is earlier collect tax at source at the rate of 5%. Further if the buyer does not provide for PAN or Aadhar details TCS is to be collected @ 10%

c. If the seller having turnover exceeding 10 crore in preceding financial year receives any amount as consideration for sale of goods [other than those goods covered in sub section (1), (1F) & (1G) of Section 206C of the Act] of 50 lakh or more during the financial year, then such seller shall at the time of receipt of such consideration from the buyer collect tax at the rate of 0.1% of the consideration exceeding 50 lakh rupees. Further if the buyer does not provide for PAN or Aadhar details, TCS is to be collected @ 1%.


Section 44AB: Audit of accounts of persons carrying on business and professionAs per the existing provisions, the assessee was required to get its accounts audited if it is carrying on business and total sales, turnover or gross receipts exceeds one crore rupees.

As per the proposed amendment, the assessee is required to get its accounts audited if it is carrying on business and total sales, turnover or gross receipts exceeds five crore rupees only if the total amount received in cash including amount received in respect of the sales affected during the year must not exceed 5% of the total sales, turnover or gross receipts of the assessee and the total payments made during the year in cash must not exceed the 5% of the total payments made by the assessee during the year.

The above amendments are proposed to be effective from AY 2020-21.

Section 139 : Return of IncomeExisting provisions of clause (a) of explanation 2 of section 139(1) specify the due date for furnishing the return of income in case of following assessee’s as 30th September of the assessment year:

i. All Companies;

ii. Person other than company whose accounts are required to be audited under Income Tax Act,1961 or under any other Act in force;

iii. Working partner of a firm whose accounts are required to be audited under Income Tax Act or any other Act in force.

It is proposed to amend the due date for filing return of income to 31st October of assessment year.

Further, distinction between working partner and non-working partner has been removed and accordingly all partners due date for filing return of income is proposed to be 31st October of assessment year.

Revised Due date of furnishing Accountant’s Report under various provisions of the Act

Under the Income Tax Act, the assessee is required to obtain certificate/report from a Chartered Accountant for availing deduction under various sections. Under the existing provisions, these

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compliances were to be done along with filing of return of income. The due date is now proposed to be amended to obtain such certificate or report prior to filing to audit report u/s 44AB of the Act (Tax Audit report) as under:

Particulars Due date for Furnishing of Return of Income

Furnishing of Report of the Accountant

Tax Audit Report u/s 44AB On or before 31st October Before 30th SeptemberTransfer Pricing Report u/s 92E On or before 30th November Before 31st October

The indicative list of various sections under which the assessee is required to obtain certificate/report, wherein the proposed amendment has been proposed are tabulated as under:

Section Form of Audit report

Applicable for person

10(23C) Form 10BB For fund or trust or institution or any university or other educational institution or any hospital or other medical institution

10A Form 56F For an Undertaking located in FTZ/EPZ/EHTP/STP/SEZ)

12A Form 10B For a Charitable and religious Trust

32AB Form 3AAA For person claiming deduction for investment in Deposit account

33AB Form 3AC For person claiming deduction for investment in Tea development account, coffee development account and rubber development account.

33ABA Form 3AD For person is carrying on business consisting of the prospecting for, or extraction or production of, petroleum or natural gas depositing in site restoration account

35D Form 3AE For person amortising Preliminary Expenses

35E Form 3AE For person engaged in any operations relating to prospecting for, or extraction or production of, any mineral for production or mining of relevant minerals

44DA Form 3CE For non-resident, and foreign company person receives Royalty from Indian resident, and has a Permanent Establishment in India

50B Form 50B For Slump Sale of an undertaking

80-IA Form 10CCB For industrial undertakings or enterprises engaged in infrastructure development, etc.

80-IB Form 10CCB 10CCB 10CCBA 10CCBB 10CCBD

For industrial undertakings other than infrastructure development undertakings

80JAA Form 10DA For person claiming deduction of additional employees

115JB Form 29B For Companies covered under MAT Provisions

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Section Form of Audit report

Applicable for person

115JC Form 29C For Persons covered under AMT Provisions

115VW Form 66 For Company engage in Shipping and opting for Tonnage tax scheme

Section 144C – Filing an objections with Dispute Resolution Panel (DRP)As per existing provisions of the Act u/s 144C, scope of assessees eligible to apply for Dispute Resolution Panel (DRP) included

- assessees in whose case Transfer Pricing Adjustment has been made u/s 92CA(3)

- Foreign companies

The scope of eligible assessees proposed to widen to include any non-resident (not being a foreign company) i.e. post amendment all non-residents (Not being a company or otherwise) shall be eligible to apply before the DRP

Earlier, the Assessing Officer (AO) is required to make a draft assessment order in case he proposes to make variation to the ‘income or loss returned’ which is prejudicial to the interest of the assessee on which assessee can file objection before DRP. It is proposed to amend the section to include cases where the AO proposes to make any variation which is prejudicial to the interest of the assessee, within the scope of Section 144C. Accordingly, the assessee going forward would be able to file objection before DRP in any variation even though there is no variation in the income or loss.


Section 250 – Faceless E-appeal before Commissioner (Appeals)The Government has proposed dynamic changes in the way appeals before the first appellate authority are to be conducted. In order to impart greater efficiency, transparency and accountability, new sub-sections (6B), (6C) and (6D) are proposed to be inserted to empower the Central Government to notify e-appeal scheme for disposal of appeal in a faceless manner following dynamic jurisdiction of various Commissioners.

Such scheme may be notified on or before 31.03.2022.

Section 274 - Faceless E-penalty proceedingIn order to bring the penalty proceedings in line with the E-assessment Scheme launched by the Department, it is proposed to insert a sub-section (2A) in the said section to empower Central Government to notify an e-scheme for the purpose of imposing penalty so as to impart greater efficiency, transparency and accountability in a faceless manner.

Such scheme may be notified on or before 31.03.2022.

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Insertion of New Section 285BB: Annual Information Statement (AIS)As per the proposed section, the I.T. Department shall prepare and make available to the assessee an Annual Information Statement bearing such information as may be prescribed.

As per the Budget memorandum, the AIS shall include details of TDS deducted, sale/ purchase of immovable property and share transactions etc.

The AIS will be a collation of all the information of the designated transactions undertaken by the assessee during the year and available with the I.T. Department. There will be increased transparency. Form 26AS will become obsolete as all such details will be captured by the AIS.

The above amendment is proposed to be effective from June 1st, 2020

Insertion of Section 271AAD – Penalty for false entry/ omission of entryA new section is proposed to levy a penalty equal to the aggregate amount of

a. false entry found entered in the books of accounts or

b. where an entry is found to be omitted

undertaken in order to evade tax liability.

The penalty may also be levied on the person who causes any person to make a false entry or to omit an entry.

A false entry has been defined to include - use or intention to use forged document (false invoice/document), invoice in respect of supply of goods or services when no such supply has taken place or where the supplier is non existing.

For example, if a person, say A, issues bogus invoice to some other person, say B, of ` 1 crore then penalty of ` 1 crore will be levied on both A and B separately.

Similarly, in cases of receipt of undisclosed on-money, the payer as well as the recipient may be subject to penalty.

A person who has orchestrated such dubious arrangements may also be covered under the garb of this penalty as a person who ‘causes’ to make such false/omitted entry.

This penalty appears to be over and above other penalties imposable under the Act.

There is not clarity as to the effective date from when this provision is applicable.

Section 254 – Stay of Demand by TribunalThe Tribunal’s power to grant stay has been curtailed and now only if the assessee deposits at least 20% of the amount of tax, interest, penalty or fee or any other sum payable under the act or furnishes security of equal amount, stay may be granted by the Tribunal.

The above amendment is proposed to be effective from AY 2021-22.

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Rationalizing the process of registration of trusts, institutions, funds, university, hospital etc and approval in the case of association, university, college, institution or company etc The present process of registration of trusts, institutions, funds, university, hospital etc under section 12AA or under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10, and approval of association, university, college, institution or company etc need improvement with the advent of technology and keeping in mind the practical issue of difficulty in obtaining registration/ approval/ notification before actually starting the activities.

Therefore the new process is proposed to be prescribed to obtained registration. It is also proposed that the approval or registration or notification for exemption should also be for a limited period, say for a period not exceeding five years at one time.

The above amendments are proposed to be effective from June 1st, 2020.

‘Vivad Se Vishwas’ Scheme 2020This budget was highly expected to unveil a Scheme in the lines of the “Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019” which was introduced in the Union Budget of 2019 for the disputes pending in the Indirect Taxes regime.

The Sabka Vishwas has been a hit among small and medium taxpayers with almost 189,000 applications received, with a collection of almost ` 39,000 Crores. Around 87.5% of eligible assessee availed the scheme.

With the new Vivad Se Vishwas Scheme, the Government is looking to replicate the success of the last year. It is interesting to point out that a similar scheme has already been tried and tested by this Government earlier, in 2016 with the Direct tax Dispute Resolution Scheme, 2016 (DRS, 2016). The DRS did not go well with the tax payers.

The DRS, 2016 only applied to cases pending with the First Appellate authority, i.e., the CIT(A). At the time of Introduction of the DRS, 2016, around 3 lakh tax casses were pending with the CIT(A). Only around ` 1,200 Crores were collected from the aforesaid scheme. The brief highlights of the DRS, 2016 were as under:

- Applicable to cases pending the CIT(A) only.

- A taxpayer had to pay the disputed tax and interest up to the date of assessment.

- No penalty in respect of Income-tax cases with disputed tax up to ` 10 lakh will be levied.

- Cases with disputed tax exceeding ` 10 lakhs will be subjected to only 25% of the minimum of the imposable penalty

- Any pending appeal against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty.

- Certain categories of persons including those who were charged with criminal offences under specific Acts were barred from availing this scheme.

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The Hon’ble Finance Minister in this year’s Budget Speech had stated that at present there are around 4,83,000 Direct tax cases pending in various appellate forums ranging from the CIT Appeals, to the Supreme Court. The details of the Scheme are yet to be notified. However, the Hon’ble Finance Minister gave a summary of the scheme as under:

- Taxpayer would be required to pay only the amount of the disputed taxes and will get complete waiver of interest and penalty

- Tax should be paid by 31st March, 2020.

- Those who pay tax after 31st March, 2020 will have to pay some additional amount.

- Taxpayers in whose cases appeals are pending at any level can benefit from this scheme.

- The scheme will remain open till 30th June, 2020.

The above scheme may be a success, if it corrects all the shortcomings of the DRS, 2016. We need to wait for the official draft of the scheme. Considering the intention of the Government, immunity from penalty and prosecution should be inbuilt in the scheme.

Tax Payer CharterThe taxpayer Charter seeks to enhance the efficiency of income tax Department. This Government is active in improving transparency, and improving overall Governance. In this spirit and to improve the trust of the public in this Government, a step forward has been taken in this budget.

It is proposed to insert a new section 119A to empower the CBDT to adopt and declare a Taxpayer’s Charter and issue orders, instructions, directions or guidelines to other income-tax authorities as it may deem fit for the administration of Charter.

It has been stated by the Hon’ble Finance Minister in her budget speech that this Charter is “an important aspect of both ease of living and ease of doing business is fairness and efficiency of tax administration”. She also stated that “Our government would like to reassure taxpayers that we remain committed to taking measures so that our citizens are free from harassment of any kind.”

The taxpayer’s Charter will enumerate the taxpayer’s rights clearly, and the complete details of the charter will be conveyed soon.

The Taxpayer Charter is already available in other countries such as Ireland and Australia. It is a step in-line with the other countries. However inserting in the Income tax Act itself, is a bold move which makes the taxpayers rights enshrined in gold, rather than black and white.

The amendment in the Income tax Act will come into effect from 1st April, 2020.

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Significant Amendments proposed in various provisions of Direct Taxes (Domestic and International)

Existing Provisions Proposed Amendment Effective Date

Section 2 (13A) - Definitions

‘Business trust ’ means a trust registered as an Infrastructure Investment Trust under SEBI (Infrastructure Investment Trusts) Regulations, 2014, or A Real Estate Investment Trust under the SEBI (Real Estate Investment Trusts) Regulations, 2014 made under SEBI are bound to list the units on recognized stock exchange

As per proposed amendment, the provisions have been relaxed whereby the Business Trust is not bound to list the units on stock exchange.

AY 2021-22

Section 9 - Income deemed to accrue or arise in India

The Finance Act 2018 introduced provisions related to Significant Economic Presence (SEP) of a non-resident in India as part of forming ‘Business Connection’ in India for the purpose of Section 9 of the Act on the basis of various parameters including threshold limit on specific transaction.

The relevant threshold for the aggregate amount of payments arising from the specified transaction and for the number of users were required to be prescribed in the Rules. Since the discussion with respect to the same is still ongoing, and rules are yet to be notified the relevant provisions have been deferred till AY 2022-23.

AY 2022-23

Explanation 3A is inserted newly Income on the following transaction will constitute the income attributable to operation carried out in India

(i) such advertisement which targets a customer who resides in India or a customer who accesses the advertisement through internet protocol address located in India;

AY 2021-22

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(ii) sale of data collected from a person who resides in India or from a person who uses internet protocol address located in India; and

(iii) sale of goods or services using data collected from a person who resides in India or from a person who uses internet protocol address located in India.”

Explanation 5 to section 9 was inserted to clarify that when the asset or capital asset being shares or interest in a company or entity registered or incorporated outside India would be deemed to be situated in India. Subsequently exemptions given to Foreign Portfolio Investors (FPI) under SEBI Regulations 2014.

It is proposed to amend the provisions and bring them in line with new SEBI Regulations 2019 in case of FPI (i.e. SEBI has repealed the existing regulations, and accordingly, exceptions stated in Explanation 5 would be grandfathered)

AY 2021-22

As per existing definition of Royalty (Explanation 2 to section 9 clause (vi)), consideration for sale, distribution or exhibition of cinematographic films is not considered as royalty.

It is proposed to amend the said definition covering consideration for sale, distribution or exhibition of cinematographic films as royalty.

AY 2021-22

Section 9A- Certain activities not to constitute business connection in India

Under existing provisions, the criteria for an eligible investment fund to NOT constitute a ‘business connection’ in India, inter alia, included that the aggregate participation or investment in the fund, directly or indirectly, by persons resident in India does not exceed 5% of the corpus of the fund.

Quantification of ‘aggregate participation / investment’, by insertion of following proviso wherein, for the purpose of computing aggregate participation / investment in the fund, any contribution made by the eligible fund manager during the first three years of operation of the fund (subject to max 25 cr) shall not be taken into account

AY 2020-21

25


For the purpose not constituting ‘business connection’ in India, an investment fund is required to fulfil specified criteria u/s 9A, which inter alia include existence of corpus of more than 100 cr at the specified period (i.e. 6 months from the last day of the month of its establishment / incorporation or at the end of such previous year, whichever is later.

The said time limit for computing corpus of the eligible investment fund proposed to be increased to twelve months from the last day of the month of its establishment / incorporation.

AY 2020-21

Section 17: “Salary”, “Perquisites” and “Profits in lieu of salary” defined

Any amount contributed to an approved superannuation fund by the employer exceeding one lakh fifty thousand rupees shall be taxable as a perquisites in the hands of the employee.

The existing provision has been substituted and proposed that if the amount or aggregate of amounts of any contribution by an employer in a recognized provident fund; in the scheme referred to in sub-section (1) of section 80CCD; and in an approved superannuation fund exceeds seven lakh and fifty thousand rupees in a previous year shall be taxable as a perquisites in the hands of employee.

It is also proposed that wherein, any amount accruing in a form of interest, dividend or any other amount of similar nature on above mentioned fund shall also be treated as perquisites*.

AY 2021-22

Section 35: Expenditure on scientific research

As per existing provisions of section 35, it was provided through the explanation that the deductions to the assessee cannot be merely denied on the fact that approvals received by the eligible institutions defined under clause (ii) and (iii) to sub-section 1 of section 35 has been withdrawn post payment by the assessee.

As per the proposed amendment to section 35, the benefit of said explanation for allowance of deduction has been extended when any sum paid to a company to be used it for scientific research as mentioned in clause (iia) to sub-section 1 of section 35.

01.06.2020

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Clause (1A) is newly inserted Benefit of section 35 is not available in case where the research association, university, college or other institution referred to in clause (ii) or clause (iii) or the company referred to in clause (iia) of sub-section (1) of section 35 unless the such persons prepares and submit statement as may be prescribed and furnishes to the donor, a certificate as specified

01.06.2020

Section 35AD: Deduction in respect of expenditure on specified business

At present incentive of 100 percent deduction on capital expenditure (other than expenditure on land, goodwill and financial assets) incurred by the assessee on certain specified businesses is available under sub-section (1) of section 35AD. Further as per the sub-section (4) of 35AD, no deduction is allowable under any other section in respect to the expenditure referred to in sub-section (1).

At present, an assessee does not have any option of not availing the incentive under said section.

It is proposed to amend sub-section (1) of section 35AD to make the deduction thereunder optional.

This proposed amendment is made to overcome a legal interpretation that a domestic company opting for concessional tax rate under section 115BAA or section 115BAB of the Act, which does not claim deduction under section 35AD, would also be denied normal depreciation under section 32 due to operation of sub-section (4) of section 35AD.

AY 2021-22

Section 55: Cost of acquisition in respect of capital asset acquired before 01.04.2001

As per clause (b) of sub – section 2 of section 55, if the assessee transferred the capital asset being land or a building procured before 01.04.2001, then while computing capital gains on such transfer the cost of acquisition of such asset shall be actual cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of April, 2001, at the option of the assessee.

As per the proposed amendment while computing capital gains on the asset procured before 01.04.2001, the cost of acquisition shall not exceed stamp duty value as on that date i. e, 01.04.2001

AY 2021-22

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Section 80G-Deduction in respect of donation to certain funds, charitable institution, etc and consequential amendment in Section 234G and 271K .

Earlier the institution or fund gave receipt in respect to donation received by the donor.

As per the proposed amendment now institution or fund submit the prescribed statement to Income tax Authority and shall issue the certificate specifying the amount of donation in manner be prescribed.

01.06.2020

A failure to furnish prescribed statement/ certificate will attract a fee of ` 200/- per day of default under the proposed Section 234G not exceeding the amount as per the statement/ certificate.

Apart from a fees referred under 234G, a failure to furnish prescribed statement/ certificate will attract a penalty of ` 10,000 to ` 1,00,000 under section 271K

Section 80GGA-Deduction in respect of certain scientific research and rural development

Any assessee, whose gross total income does not include the income chargeable under the head “Profits and Gains of Business or Profession” and has paid any sum to research association having object of scientific research and rural development as specified u/s 85GGA (2) were eligible for deduction of rupees ten thousand unless it is paid by mode other than cash.

The deduction of rupees ten thousand is restricted to rupees two thousand. Further claim for the deduction shall be allowed on the basis of information relating to such sum furnished by the payee to the prescribed income-tax authority subject to verification in accordance with the risk management strategy formulated by the Board from time to time.

01.06.2020

Section 80-IBA-Deduction in respect of profits and gain from housing projects.

An assessee having any profits and gains derived from the business of developing and building housing projects is allowed a deduction of

As per the proposed amendment now the housing project has to be approved before 31st March 2021

AY 2021-22

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an amount equal to hundred per cent of the profits and gains derived from such business where the housing project is approved by the competent authority on or before 31st March 2020

Section 90 & 90- Agreement with foreign countries or specified territories and adoption by Central Government of agreement between specified associations for double taxation relief

Newly inserted India has signed Multilateral Instrument (MLI) with many countries which have since been ratified, to implement tax treaty related measures to prevent Base Erosion and Profit Shifting. MLI has entered into force for India on October 1, 2019 and its provisions will be applicable in case of Indian treaties from AY 2021-22 onwards.

AY 2021-22

Coverage of provision proposed to be made to bring the provisions of the Income Tax Act, 1961 in line with the MLI. Accordingly, it is proposed to amend section 90 and 90A to provide that the Central Government may enter into an agreement with the Government of any country 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 the said agreement for the indirect benefit to residents of any other country or territory)

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92CB & 92CC- Power of Board to make a safe harbour rule and Advance Pricing Agreement

Existing Safe Harbour Rules (SHR) and Advance Pricing Agreements (APA) provide for application of provisions of SHR and APA to ‘International Transactions’ i.e. determination of arm’s length price of international transaction with Associated Enterprises.

It is Proposed to cover determination of attribution of profits to Permanent Establishment (PE) within the scope of SHR and APA.

(It clarifies that attribution of profits to PE of a non-resident also results in avoidable disputes in a number of cases and therefore “In order to provide certainty, the attribution of income in case of a non-resident person to the PE is also required to be clearly covered under the provisions of the SHR and the APA”)

(Rules to follow)

AY 2020-21

(in case of SHR and for APA entered into on or after April 1, 2020)

92F- Definitions

Due date for furnishing Report u/s 92E (Form 3CEB) as per the due date for filing Return of Income u/s 139 (30th November)

It is proposed to revise the due date for filing Form 3CEB to one month prior to due date of filing ITR (i.e. by 31 October)

AY 2020-21

94B- Limitation on interest deduction in certain cases

Section 94B provides for limitation of deductibility of interest on loans obtained from Non-Resident AEs by Indian Co.s or PEs of foreign co.s in India (threshold in 30% of EBITDA)

It is proposed that - provisions of interest limitation would not apply to interest paid in respect of a debt issued by a lender which is a PE in India of a non-resident, being a person engaged in the business of banking in India.

AY 2021-22

The rationale behind the proposed amendment is as under:

Branch of Foreign Co. is considered as non-resident in India. As per eligibility criteria of AE stated u/s 92A of the Act, two enterprises are deemed to be AE, if loan advanced by one enterprise to other is more than 50% of book value of the assets of the other

30


enterprise. Hence, interest paid or payable in respect of loan from branch of foreign bank may attract provisions of interest limitations. To carve out this anomaly, above amendment has been proposed w.e.f. 1st April 2021

115A- Tax on dividends royalty and technical services fees in the case of foreign companies

Non-resident companies (or other non-resident assessees) are not required to furnish return of income provided their income comprised only of specified sources (mainly dividends and interest)

Scope of exemption from filing return of income proposed to widen and include income exclusively in the nature of Royalty and FTS as well (provided the conditions with respect to tax deduction at source have been satisfied)

AY 2020-21

115TD – Tax on Accreted Income

Existing provisions of section 115TD are only applicable to a Trust registered under section 12AA of the Act.

It is proposed to amend section 115TD to also include the newly inserted section 12AB - which prescribes the procedure of fresh registration of a trust through online mode along-side the section 12AA of the Act.

01.06.2020

133A – Power of Survey

Existing proviso to section 133A(6) provides that no survey action shall be taken under section 133A(1) of the Act by Assistant Director or a Deputy Director or a Tax Recovery officer or an Inspector of Income Tax without the prior approval of Joint Director or the Joint Commissioner as the case may be.

It is proposed to amend the said proviso to section 133A(6) to provide that no survey action under section 133(1) by Assistant Director or a Deputy Director or a Tax Recovery officer or an Inspector of Income Tax shall be taken, in a case where information is received by authority as may be prescribed, without the prior approval of Joint Commissioner or the Joint Director.

In all other cases no survey action under section 133(1) by Joint commissioner or the Joint Director or Assistant Director or a Deputy

AY 2021-2022

31


Director or a Tax Recovery officer or an Inspector of Income Tax shall be taken, without the prior approval of the approval of Director or the commissioner

Section 140: Verification of Return of Income

Existing provisions of clause (c) of section 140 state that in case of a Company, the return of income furnished u/s. 139 shall be verified by the Managing Director, or if Managing Director is not able to verify the return due to any unavoidable reason, then return is to be verified by any other director;

Existing provisions of clause (cd) of section 140 state that in case of a LLP the return of income furnished u/s.139 shall be verified by designated partner or if designated partner is not able to verify the return due to any unavoidable reason, then return is to be verified by any partner thereof;

It is proposed to amend clause (c) and (cd) of section 140 of the Act so as to enable any other person as may be prescribed by CBDT to verify the return of income in case of companies and LLPs. Further, in case of a company in whose case application for insolvency resolution process has been admitted by the Adjudicating Authority (AA) under the Insolvency and Bankruptcy Code, 2016 (IBC), the return has to be verified by the insolvency professional appointed by such AA.

AY 2021-2022

Section 143: Assessment

Existing provisions of section 143(3A) empowers the Central Government to make a scheme of “faceless assessment” for making assessment u/s. 143(3).

It is proposed to amend section 143(3A) to also include section 144 (Best judgement assessment) under the said scheme of “faceless assessment”

AY 2021-2022

194- TDS on dividends

Earlier a company was supposed to deduct TDS before paying dividend by cash or by issue of cheque or warrant to its shareholder, who is a resident in India, at the rates in force.

Also, as per the first proviso of the said section, no deduction would be made in case the amount of such dividend to be paid or likely to be paid does not exceed ` 2,500 in

Since the section 115-O has been deleted and therefore the TDS shall now be deducted @ 10% on dividends paid by any mode where the amount of dividend exceeds ` 5000

01.04.2020

32


that financial year and such payment is made through an account payee cheque.

Also, as per third proviso of such section, that no such deduction shall be made in respect of any dividends referred to in section 115-O.

194A- TDS on Interest other than interest on securities

Earlier co-operative societies was not required to deduct TDS on the payment of income to its member and other cooperative societies

Now, TDS is to be deducted by Co-operative societies on interest paid to its members if the turnover in preceding financial year exceeds 50 crore and amount of interest payment exceeds ` 50,000 in case of senior citizens and ` 40,000 in other cases.

01.04.2020

194C- TDS on payment to contractors

As per section 194C(7)(iv)(e) of the Act, the term “work” included, manufacturing or supplying a product as per the requirements or specifications of a customer by using the materials purchased from such Customer

In the definition of “work” now includes customer’s associate also as defined in section 40A(2B).

01.04.2020

194J- TDS on Fees for professional or technical services

Earlier TDS on technical services was deducted at the rate of 10%

Now, TDS on technical services (Other than professional services) will be deducted at the rate of 2%

01.04.2020

194LBA- TDS on certain income from units of Business Trust

Earlier TDS was to be deducted only on interest payment made by business trust covered under clause (a) of section 10(23FC)/(23FCA)

Now, TDS is also to be deducted on dividend paid by business trust covered under clause (a) of section 10(23FC)/(23FCA) to resident/non-resident payee at the rate of 10%

01.04.2020

33


194LC- TDS on income by way of interest from Indian company

Earlier the concessional rate of TDS of five per cent is applicable in respect of monies borrowed by a specified company or a business trust from a source outside India by way of issue of rupee denominated bond (RDB) before 1st July, 2020.

Now the time limit of issue of rupee denominated bond (RDB) to get the benefit of concessional rate of TDS of five percent has been extended up to 1st July 2023.

Further, concessional rate reduced to four percent in case money is borrowed from 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 recognised stock exchange located in any IFSC.

01.04.2020

194LD-TDS on interest on certain bonds and government securities

Earlier the concessional rate of TDS of five per cent on interest payable on or after 1st June 2013 but before 1st July 2020 on investment in municipal bonds by Foreign Portfolio Investors

Now, the time limit for interest payable has been extended from 1st July 2020 to 1st July 2023.

Further, concessional rate of TDS of said section shall also apply on the interest payable on or after 1st April, 2020 but before 1st July, 2023, to a FII or QFI in respect of the investment made in municipal debt security.

01.04.2020

195 – TDS on other sums

Earlier, no TDS was to be deduced on payment made to non-residents for dividends referred u/s 115-O of the Act.

Now, TDS is to be deducted on dividend paid to non-residents at rates in force

01.04.2020

196A – TDS on income in respect of units of non-residents

Earlier, TDS was to be deducted if payment was made by Mutual Funds or Unit Trust of India.

Now, Unit trust of India has been substituted by specified company as defined in section 10(35) of the Act.

01.04.2020

34


Common Amendment in section 194A, 194C, 194H, 194I, 194J & 206C

Earlier, under this section Individuals and HUFs were liable to deduct TDS only if their turnover exceeds the limits specified in section 44AB of the Act.

Now, the deduction of TDS under these sections by Individuals and HUFs does not depend on monetary limits specified u/s 44AB of the Act. Now, if turnover of Individual and HUF exceeds Rs. 1cr in case of Business and Rs. 50 Lakhs in case of profession TDS is liable to be deducted.

01.04.2020

204 –Meaning of “person responsible for paying”

The earlier definition of person responsible for paying tax did not include non-residents.

Now, the definition for person responsible for paying TDS/TCS includes non-resident himself, or a person authorized by such non-resident, or the agent of such non-resident in India including any person treated as an agent u/s163

01.04.2020

Section 288 - Appearance by Authorised Representative:

This section provides for the persons entitled to appear before any Income-tax Authority or the Appellate Tribunal, on behalf of an assessee, as its ‘authorised representative’

A new clause is proposed to include a prescribed person to be an authorized representative such as an Insolvency Professional/ Administrator in case of a company under the Insolvency and Bankruptcy Code that replaces the Board of Directors of the Corporate Debtor.

01.04.2020

Section 295 – Power to make Rules:

Sub-section (2) Power given to the CBDT to make Rules regarding specific matters.

Two sub-clauses are proposed and accordingly the CBDT has the power to make rules regarding the manner and procedure in determination of income of the following:

operations carried out in India by a non-resident and

AY 2021-22

transactions or activities of a non-resident

AY 2022-23

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Indirect Tax Proposals

AMENDMENTS IN GOODS & SERVICE TAX1

Input tax credit:

It is proposed to amend Section 16(4) of the Central Goods and Services Tax Act, 2017 (‘the CGST Act’) dealing interalia with the restrictions on time limit to avail the credit of GST charged in the debit note depending upon the date of issuance of invoice to which such debit note pertains.

If a debit note pertaining to an invoice of a given financial year is issued either after filing annual return of the said financial year or after due date of filing monthly return of September of subsequent financial year, then the assessee is not able to claim input tax credit of GST charged in such debit note.

By virtue of the amendment, it is proposed to delink the date of issuance of debit note from the date of issuance of underlying invoices for purposes of availing input tax credit. After this amendment, even if the debit note is issued after the aforesaid period (viz. after date of filing annual return or due date of filing return for the month of September as above) the assessee will be eligible to avail the input tax credit even if the invoice pertaining to such debit note, was not issued in a given financial year.

Cancellation of registration under GST:

It is proposed to amend Section 29(1)(c) of the CGST Act to provide for cancellation of registration, which has been obtained voluntarily by the assessee under Section 25 of CGST Act.

At present, the option to apply for cancellation of registration (which is obtained voluntarily) is not available even if the assessee is not liable to be registered under Section 22 (viz., persons liable for registration) or Section 24 (viz., compulsory registration in certain cases) of the CGST Act.

TDS under GST:

Section 51 of CGST Act is being amended to remove the requirement of issuance of certificate by the deductor. Consequently, the provisions relating to levy of late fees for delay in issuing TDS certificates are also removed.

Composition scheme under GST:

Section 10 of the CGST Act is being amended to exclude from the ambit of the Composition scheme following categories of taxable persons, engaged in making –

1. Date of effect to be notified

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(i) Supply of services not leviable to tax under the CGST Act, or

(ii) Inter-State outward supply of services, or

(iii) Outward supply of services through an e-Commerce operator.

At present, a person may be eligible for composition scheme under Section 10(2) of CGST Act, even if he is engaged in supply of service, which are not leviable to GST or in making Inter-State supply of services or supply of service through E-Commerce operator.

Penalty and offence:

Section 132, Section 140 and Section 122 of CGST Act is proposed to be amended to penalize the persons, who are ‘beneficiary’ to the transactions of passing on the benefit of, or availing fraudulent input tax credit.

Retrospective Amendments of GST rate notifications:

Sr. No. Amendment

1 Exemption from Central Tax, Union Territory Tax and Integrated Tax for fishmeal (HS 2301), for the period 01.07.2017 to 30.09.2019, subject to the condition that if GST has been paid, the same would not be eligible for refund.

2 Levy of 12% rate of Integrated Tax and 6% Central Tax and 6% Union Territory Tax during the period 01.07.2017 to 31.12.2018, on pulley, wheels and other parts (falling under heading 8483) and used as parts of agricultural machinery of headings 8432, 8433, and 8436, subject to the condition that if GST has been paid, the same would not be eligible for refund.

3 The refund of accumulated credit of compensation Cess on tobacco products arising out of inverted duty structure in Compensation Cess is disallowed w.e.f 1st October, 2019 vide notification No. 3/2019- Compensation Cess (Rate) dated 30.090.2019.

The aforesaid notification is being given retrospective effect from 1.7.2017 onwards. Accordingly, no refund on account of inverted duty structure would be admissible on any tobacco products

CUSTOMS DUTY

Levy of Health Cess:

Clause 139 of the Finance Bill, 2020 read with Fourth Schedule to the said Bill provides for levy of “Health Cess” is proposed to be imposed on the import of Medical devices falling under headings 9018 to 9022, at the rate of 5% ad valorem on the import value of such goods as determined under Section 14 of the Customs Act, 1962. This Health Cess shall be a duty of Customs.

Any Export Promotion scrips shall not be used for payment of said Cess. Health Cess shall not be imposed on medical devices which are exempt from Basic Customs Duty (‘BCD’). Further, inputs/parts used in the manufacture of medical devices will also be exempt from Health Cess.

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The proceeds of Health Cess shall be used by the Central Government for funding of health infrastructure in the Country.

Amendments in the Customs Act, 1962:

Sr. No. Amendment

Electronic Duty Credit Ledger

1. A new Section 51B is being inserted so as to provide for creating of an Electronic Duty Credit Ledger in the customs system. This will enable duty credit in lieu of duty remission to be given in respect of exports or other such benefit in electronic form for its usage, transfer etc.

The provision for recovery of duties provided under Section 28AAA of Customs Act, 1962 are also being expanded to include such electronic credit of duties.

2. Section 157(2) is being amended to empower the Central Government to make regulations for the purpose of prescribing the manner, procedures, conditions, restriction and other issue to carry out the purposes of newly inserted section 51B.

Preferential Tax Treatment

3. A new Chapter VAA (a new Section 28DA) is being incorporated in the Customs Act to provide enabling provision for administering the Preferential Tax Treatment regime under Trade Agreements.

The proposed new section seeks to specifically provide for certain obligation on importer and prescribe for time bound verification from exporting country in case of doubt. Pending verification preferential benefit shall be suspended and goods shall be cleared only on furnishing security equal to differential duty. In certain cases, the preferential rate of tax may be denied without further verification.

4. Section 111 is being amended to insert a new clause (q), to prescribe that goods imported on claim of preferential rate, and in relation to which any provision of Chapter VAA or of any rule made under this Act have been contravened shall be liable to confiscation.

5. Section 156 is being amended to insert a new clause (i) in sub-Section (2) to empower the Central Government to make rules for the purpose of prescribing the manner, procedures, conditions, restriction and other issue to carry out the purposes of newly inserted Chapter VAA.

Anti-Dumping Duty

6. Anti-Dumping Rules provides for manner and procedure for investigation into dumping of goods that cause injury to domestic industry. These rules also provide for investigation into cases of circumvention of antidumping duty by the exporters of subject goods to India.

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Sr. No. Amendment

Changes are being made in the Rules to strengthen the anti-circumvention measures by making them more comprehensive and wider in scope to take care of all types of circumventions of antidumping duty in line with best international practice. Certain other changes are being made in these Rules for bringing clarity in the scope of these rules.

7. Revocation of Anti-dumping duty on import of Purified Terephthalic Acid originating in or exported from: - I. South Korea and Thailand imposed vide notification No. 28/2019-Customs (ADD) dated 24.7.2019 II. China, Iran, Indonesia, Malaysia and Taiwan imposed vide notification No. 28/2016-Customs (ADD) dated 5.7.2016

Countervailing Duty

8. The Countervailing Duty Rules provide for manner and procedure for causing investigation into the cases of imports of subsidized goods that cause injury to domestic industry. Currently, the Countervailing Duty Rules do not have any mechanism for imposition of countervailing duty in case of circumvention of these measures.

A provision is being incorporated in the countervailing Duty Rules to enable investigation into the case of circumvention of countervailing duty for enabling imposition of such duty. Certain other changes are being made for bringing clarity in the Rules.

Uncontrolled Import & Export

9. Section 11(2)(f) empowers the Central Government to prevent injury to the economy of the country by the uncontrolled import or export of gold or silver. This clause is being amended to include ‘any other goods (in addition to gold and silver) in its ambit.

Demand of Customs duty

10. An explanation is being inserted in Section 28 to explicitly clarify that any notice issued under the said Section, prior to the enactment of the Finance Act, 2018, shall continue to be governed by the section 28 as it existed before the said enactment, notwithstanding order of any Appellate Authority, Appellate Tribunal, Court or any other law to the contrary.

Amendments in the Customs Tariff Act, 1975:

Section 8B is being substituted with a new section to empower the Central Government to apply safeguard measures, in case any article is imported into India in such increased quantities and under such conditions so as to cause or threatening to cause serious injury to domestic industry.

Safeguard measure shall include imposition of a Safeguard Duty or application of a Tariff Rate Quota or any other measure that the Central Government may consider appropriate as safeguard measure.

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