Nangia Andersen LLP - NEWSFLASH KEY AMENDMENTS TO FINANCE BILL, 2020
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Nangia Andersen LLP NEWSFLASH KEY AMENDMENTS TO FINANCE BILL, 2020 MARCH, 2020
Newsflash
KEY AMENDMENTS TO FINANCE BILL, 2020
Background
The Finance Bill 2020 was presented by Hon’ble Finance Minister on 1st Feb 2020 proposing various changes
in the provisions of Income Tax Act, 1961. Subsequently, a revised draft of the Finance Bill was passed by the
Lok Sabha on 23rd March 2020 containing certain clarificatory and substantive changes. The key amendments
that have been proposed in the revised draft of the Finance Bill 2020 as passed by Lok Sabha, vis-à-vis original
Finance Bill 2020 and their implications are as follows:
Section Amended Original Proposal under Finance Bill Amendment Proposal passed in
alongwith Budget Lok Sabha
Section 6 (1) An individual, being a citizen of India, or In case of Indian citizens or a person of
[Explanation 1] a person of Indian origin, who being Indian origin having total income, other
outside India, comes on a visit to India than income from foreign source,
Residential Status in any previous year shall be resident in exceeding Rs. 15 lakhs, the period of
India provided he stays in India for 120 stay would be considered at 120 days
days or more. as against 182 days as provided in Expl
1(b)
Section 6(1A) An Indian citizen shall be deemed to be An Indian citizen, having total income
resident in India in any previous year, (other than income from foreign
Residential Status if he is not liable to tax in any other sources1) exceeding INR 15 lakh
country or territory by reason of his during the previous year shall be
domicile or residence or any other deemed to be resident in India in any
criteria of similar nature. previous year, if he is not liable to tax in
any other country or territory by reason
of his domicile or residence or any
other criteria of similar nature.
Section 6(6) In the original Finance Bill 2020, Changes made in definition of a
definition of ‘Not Ordinarily Resident’ resident but not ordinarily resident
Residential Status- was substantially relaxed (from being a as proposed in Finance Bill 2020 have
Not ordinarily non-resident in 9 immediately preceding been withdrawn. However, for Indian
resident years to 7 immediately preceding years citizens/ PIO’s for whom residency
out of total 10 immediately preceding rules are tightened due to stay in India
years). Further, the secondary condition for 120 days or more, it is provided that
of staying in India for 729 days or less in such Indian citizens/ PIOs will qualify
immediately preceding 7 years was also as ‘not ordinary resident’, if such Indian
removed. citizens/ PIOs stay for less than 182
days in India.
Nangia Andersen LLP’S Take
The anti-abuse provision was inserted to bring those non-residents in the tax net, who generally avoid being
taxed in India by arranging their affairs in such a manner that they keep shuttling between countries and don’t
qualify as ‘resident’ in India or any other tax jurisdiction for that matter. No monetary limit was prescribed to
bring such taxpayers under the tax net. However, the amendment to Budget 2020 seeks to tax only those
Indian citizens, who have stayed in India for a period of 120 days or more and have total income (other than
income from foreign source) exceeding INR 15 lakhs during the previous year.
There have been significant changes in tax residency rules for NRIs/ individuals working in India, both in
original Finance Bill, 2020 as well as in the amended draft presented in the Lok Sabha. The residential status is
a very important factor in determining income tax liability and tax compliance requirements in India. The NRIs/
individuals must take into account the new tax residency rules, while determining their income tax liability and
tax compliance requirements in India.
Income from foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India)
1
1Newsflash
Section Amended
Original Proposal under Finance Bill Amendment Proposal passed in
alongwith Budget Lok Sabha
Section 10(34) Taxability of the dividend in the hands It has been clarified that dividends
of the recipient shareholders was received by the shareholders after 1st
Taxability of reintroduced April 2020 shall not be taxed if tax has
Dividend in the been paid in accordance with the
hands of erstwhile provisions as per the earlier
shareholders law.
Nangia Andersen LLP’S Take
The amendment addresses the confusion revolving around the scenario where dividend has been declared/
distributed by the company before 1st April 2020 and DDT has been paid in accordance with the erstwhile
provisions but dividend was received by such shareholder on/ after 01 April 2020. The recipient shareholders
shall now be spared from double taxation of the dividend in such a case.
Section 10(23FE) Any income of a specified person (being The scope of section has been extended
Abu Dhabi Government/ overseas to include within its ambit:
sovereign wealth funds) in the nature of a) A business trust, being an
dividend, interest or long-term capital Infrastructure Investment Trust or
gains arising from an investment made Real Estate Investment Trust
by it in India, whether in the form of
debt or equity shall be exempt from tax, b) A category I or category II Alternative
if the investment, among the other Investment Fund regulated under the
things, is in: SEBI (Alternative Investment Fund)
a) a company or enterprise carrying Regulations, 2012
on the business of developing, or Exemption restricted to investment
operating and maintaining, or made during the period from April 1,
developing, operating and 2020 to March 31, 2024
maintaining any infrastructure
facility or such other business as the
Central Government may, by
notification in the Official Gazette,
specify in this behalf 1
Nangia Andersen LLP’S Take
The proposed amendment will encourage foreign investment by specified persons in Indian infrastructure
facilities not only in a company form, but also in forms of a business trust/ REIT or AIF.
Income from foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India)
1
2Newsflash
Section Amended
Original Proposal under Finance Bill Amendment Proposal passed in
alongwith Budget Lok Sabha
Section 80M Where the gross total income of a The scope of Section 80M has been
domestic company in any previous year expanded to include dividend income
Inter-corporate includes any income by way of received from a foreign company or
dividends dividends from any other domestic business trust also
company, such domestic company
shall be eligible to claim a deduction of
an amount equal to the amount of
income received by way of dividends
from such other domestic company.
Such deduction shall not exceed the
amount of dividend distributed by the
recipient domestic company on or
before the due date.
Nangia Andersen LLP’S Take
This is a welcome amendment, wherein income tax shall not be payable by a domestic company, not
only in respect of dividend received from another domestic company but also another foreign company
or a business trust.
Section 194J It was proposed to amend the TDS Benefit of reduced TDS rate of 2% has
rates as follows been proposed to be extended to
TDS on Fee for royalty (where such royalty is in the
professional or a) 2% of sum in case of FTS (not being nature of consideration for sale,
technical services a professional service) distribution or exhibition of
(FTS) cinematographic films) in addition to
b) 10% of sum in other cases FTS (other than professional fees)
Section 194 K The provisions of this section shall not Section 194K shall not be apply if
apply where the aggregate of the income is in the nature of capital gains
Income in respect amounts of such income credited or
of units of Mutual paid or likely to be credited or paid
Fund/ specified during the financial year does not
company exceed INR 5,000
194 N- - With effect from 1st July 2020, a person
who has not filed Income Tax Return
TDS on payment for all of the 3 preceding previous
of certain years shall be subject to TDS at the rate
amounts in Cash of 2% if withdrawal amount is between
INR 20 Lakhs and INR 1 crore and at
the rate of 5% if the same exceeds INR
1 crore.
194 O- Section applicable with effect from 01 Section applicable with effect from 01
April 2020 October 2020, i.e. applicability of TDS
TDS on payments on such payments by e-commerce
made by operators to e-commerce participants
e-commerce deferred by 6 months.
operators to
e-commerce 1
participants
Nangia Andersen LLP’S Take
Section 194N was introduced to enable TDS provisions on withdrawals of amount aggregating to INR 1 crore
or more from one or more accounts held in banks/ post-offices/ co-operative banks.
The said amendment indicates that the government is trying to tighten the noose around income tax evaders
having humongous bank balances. Further, other changes in TDS provisions are also sought to increase
compliance, at the same time giving relaxation in respect of certain provisions.
3Newsflash
Section Amended
Original Proposal under Finance Bill Amendment Proposal passed in
alongwith Budget Lok Sabha
Section 206C AD and Tour operators to Collect and Effective from 1st Oct 2020
(1G) and (1H) Deposit tax at source at the rate of 5%
in respect of overseas remittances Relaxation given to Individuals remit-
Tax collection at under LRS exceeding INR 7 Lakhs and ting money overseas abroad, especially
Source (TCS) in case of sale of overseas tour program for overseas education, especially by
packages irrespective of any amount. loan, where rate of TCS has been
reduced from earlier 5% to 0.5% for
amount exceeding INR 7 lakhs in a FY
Authorised dealer shall not collect tax if
aggregate amount being remitted by
buyer is less than INR 7 lakhs in a FY
and is for purpose other than purchase
of overseas tour package
Further in cases where the threshold of
7 lakh applies, the TCS at the rate of
5% would be on the amount exceeding
7 lakh in a financial year
Nangia Andersen LLP’S Take
These are welcome relaxations on overseas remittances, which will give substantial relief to the taxpayers/
remitters for necessary payments and reduce the hardship
Section 165A- - New Section 165A has been proposed
to be inserted which prescribes that on
Charge of and from 1st April 2020, equalisation
Equalisation Levy levy at the rate of 2% shall be charged
on e-commerce on the amount of consideration received
supply or services or receivable by an e-commerce
operator from e-commerce supply of
services by it to:
a) A person resident in India
b) A non-resident in ‘specified
circumstances2’ c) A person who
buys such goods or services or both
using internet protocol address
located in India
Equalisation levy shall not be charged
1) Where e-commerce operator has PE
in India and e-commerce service is
connected to such PE
2) Levy falls under section 1653
3) Sales/ turnover is less than INR 2
crores
A) Sale of advertisement, which targets a customer, who is resident in India or a customer who accesses the advertisement through internet protocol located in India
2
B) Sale of data, collected from a person who is resident in India or from a person who uses internet protocol address located in India
Specified services other than e-commerce
3
4Newsflash
Section Amended
Original Proposal under Finance Bill Amendment Proposal passed in
alongwith Budget Lok Sabha
Section 166A – - The equalisation levy collected shall be
paid by the e-commerce operator to the
Collection and government for the quarter of the FY
recovery of ending 30th June, 30th Sep, 31st Dec
Equalisation Levy and 31st March. The due date of
on e-commerce payment shall be 7th July, 7th Oct, 7th
supply or services Jan and 31st March respectively for
each quarter.
Section 171- - An amount equal to the amount of
Equalization levy that a person failed to
Penalty for pay shall be charged in addition to
failure to deduct interest4 under section 170
or pay
Equalisation Levy
Nangia Andersen LLP’S Take
The amended Finance Bill proposes to introduce and charge equalisation levy on revenues earned by a
non-resident e-commerce operator from supply or services to Indian residents, at the rate of 2% where
aggregate sales exceed INR 2 crores. This new provision expands the scope of equalization levy, and at the
same time brings e-commerce operators to tax net in India. Although, rate of equalization levy for such
e-commerce operators is only 2%, as opposed to the normal rate of 6% applicable on online advertisement
facility provided by non-resident. The section is a step ahead in taxation of digital economy.
Interest at the rate of 1% of such levy per month or part of the month
4
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