Amendments to Finance Bill, 2013

 

The Finance Bill, 2013 (relating to the tax proposals of Budget 2013) has been passed by the lower house of the Indian Parliament on April 30, 2013. Certain significant amendments have been incorporated in the revised version of the Bill. The key changes introduced by the Finance Minister have been summarised below.

I. Changes in Tax Residency Certificate (“TRC”) provisions to avail Tax Treaty benefits

By virtue of an amendment introduced by the Finance Act, 2012, in section 90 of the Income Tax Act, 1961 (“Act”), it is mandatory for a non-resident taxpayer to obtain a TRC containing the ‘prescribed particulars’ to avail the benefits under a Tax Treaty. In this regard, Notification No 39 dated September 17, 2012, issued by the Central Board of Direct Taxes, prescribed the specific particulars that are mandatorily required to be mentioned/ contained in a TRC.

The Finance Bill, 2013 further proposed a stipulation that submission of TRC by a non-resident would be a “necessary but not sufficient” condition for claiming Tax Treaty benefits. This was in line with the clarification articulated in the Memorandum to Finance Bill, 2012.

The aforementioned stipulation of TRC being a necessary but not sufficient condition, as introduced in the original Bill, has been deleted in the revised Bill. The revised Bill has also deleted the requirement of TRC to contain the prescribed particulars, as introduced by the Finance Act, 2012. However, a new provision has been inserted which provides that the non-resident taxpayer claiming Treaty relief shall be required to provide such other documents and information, ‘as may be prescribed’. Similar amendments have been introduced in the provisions of section 90A of the Act as well.

II. Beneficial tax withholding provisions for Foreign Institutional Investors (“FIIs”) and Qualified Financial Investors (“QFIs”)

A new provision, by way of section 194LD, has been introduced in the revised Bill which provides for a beneficial tax withholding rate of 5 percent for interest income earned by FIIs and QFIs (on or after June 1, 2013 but before June 1, 2015) from investment made in:

· Rupee denominated bonds of Indian currency; or

· A Government security.

Corresponding amendment has also been made under section 115A of the Act, governing the taxability of income.

Further, proviso to section 194LC of the Act introduced in the original Finance Bill, 2013, wherein, beneficial tax withholding rate of 5 percent was provided on interest income earned by a non-resident/ foreign company on investment in rupee denominated long term infrastructure bonds of an Indian company through converted foreign currency deposited in a designated bank account, has been deleted.

III. Other key amendments

· The exemption from income tax on income received in India in Indian currency by a foreign company from sale of crude oil in India, as provided for under section 10(38) of the Act, has been extended to cover income from sale of any other goods or services, as may be notified by the Government;

· Transactions in commodity derivatives carried out in a recognised association have been excluded from the scope of speculative transactions, subject to stipulated conditions, under section 43(5) of the Act;

· The person required to withhold tax on payment of INR 5 million or more to an Indian resident on purchase of any immovable property, under the newly introduced section 194-IA of the Act, has been spared from the obligation to obtain a ‘Tax-deduction Account Number’;

· The provisions of section 194LC of the Act, providing for lower tax withholding rate of 5 percent on interest income earned by a non-resident/ foreign company on the stipulated loan agreement and long-term infrastructure bonds, have been excluded from the purview of section 206AA of the Act, providing for applicability of higher tax withholding rate in the absence of a Permanent Account Number;

· A person who is a sitting or retired judge of a High Court can be appointed as the President of the Income tax Appellate Tribunal by the Central Government, provided he has completed at least seven years of service as a judge in a High Court;

· The exception from collection of tax at source provided, under section 206C(1D) of the Act, on sale of coins/ other article weighing upto 10 grams has now been withdrawn