Other Amendments.

1.     CENTRAL GOVERNMENT IS EMPOWERED TO PROVIDE FOR A LOWER RATE OF TDS UNDER SECTION 194A

As per section 194A of the Income-tax Act, every person (other than an individual or HUF, whose turnover  or gross receipt during the preceding year does not exceed Rs.  1 crore in the case of business and Rs. 50 lakhs in case of the profession) is required to deduct tax at the rate of 10% from interest, other than on securities, paid or payable to a resident person.

Section 194A(3) contains various clauses, inter-alia, clause (i) to clause (xi), to provide an exemption from deduction of tax in certain cases.  For instance,  as per clause (iii), no tax is required to be deducted by a person from the interest paid or payable to a Bank, Financial Corporation, Insurance Company or such other institutions or bodies as may be notified by the Central Government. Various persons had been notified for this purpose by the Government through various notifications.

In the Finance Bill, 2020 (as passed by Lok Sabha), the said clause (iii) of sub-section

(3) of section 194A has been amended to provide that no notification shall be issued   by the Central Government in respect of the said clause on or after 01-04-2020. A new sub-section (5) has been inserted to provide the absolute powers to the Central Government whereby in addition to notifying the cases where no tax shall be deducted, the Government shall also have the power to provide for the lower rate of tax in certain cases.

In other words, the aforesaid amendments empower the Central Government with absolute authority to provide an exemption from deduction of tax or deduction at the lower rate for entire section 194A instead of issuing notifications clause-wise or sub- section wise.

A similar amendment has also been made to Section 197A. As per current provisions  of Section 197A(1F), no deduction of tax shall be made from the specified payment to such institution, as may be notified by the Central Government in this behalf. To empower the Central Govt. to notify the specified payments for both nil deduction of tax and lower deduction of tax, the sub-section (1F) of Section 197A has been substituted. The new sub-section provides that no deduction of tax shall be made or deduction of tax shall be made at a specified lower rate by the deductor in cases notified by the Central Government.

2.     ROYALTY IN RESPECT OF EXHIBITION OF CINEMATOGRAPHIC FILMS TO ATTRACT TDS AT THE RATE OF 2% UNDER SECTION 194J

Every person (other than an individual or HUF whose turnover or gross receipts during the preceding year does not exceed Rs. 1 crore in case of business and Rs. 50 lakhs in case of the profession) is required to deduct tax under section 194J while making payment of royalty, fee for technical services, fee for professional services, director’s fee and non-compete fees to a resident person. The tax is required to be deducted at the rate of 10%. However, where the payee is engaged in the business of operation of the call centre, the tax is deducted at a lower rate of 2%.

In the Finance Bill, 2020, the Government has proposed to reduce the rate of withholding tax to 2% from existing 10% under section 194J in respect of fees for technical services to reduce the litigation as deductors always try to bring the said payments within the ambit of Section 194C, whereas department argues to treat it as FTS under section 194J.

In the Finance Bill, 2020 (as passed by Lok Sabha) the Government has reduced the  rate of tax deduction to 2% on royalty income arising to a person by way of sale, distribution or exhibition of cinematographic films. This will provide relief to the film distributors as currently tax is deducted at the rate of 10% on revenue they earn from sale, distribution or exhibition right of the film which block their working capital.

3.     DEFINITION OF ‘E-COMMERCE OPERATOR’ AMENDED TO REMOVE AMBIGUITY UNDER SECTION 194-O

The Finance Bill, 2020 has proposed to insert a new section 194-O to provide for deduction of tax from the payment made by an e-commerce operator to e-commerce participant for the sale of goods or provision of services through a digital or electronic facility or platform facilitated by it. This section provides that any payment made by the purchaser of goods or recipient of services directly to the e-commerce participant, for sale of goods or services facilitated by an e-commerce  operator,  shall be deemed  as the amount paid or credited by the e-commerce operator. Whereas the section has defined e-commerce operator as the person responsible for payment to e-commerce participant. Thus, the provision deeming the payment made by the customer as payment made by an e-commerce operator. This interpretation is contradictory to the definition of e-commerce operator as an e-commerce operator is not actually making payment to e-commerce participant in such cases.

To remove this ambiguity, the Finance Bill, 2020 (as passed by the Lok Sabha) has proposed to amend the definition of e-commerce operator to remove the condition  that requires an e-commerce operator to make payment to e-commerce participant.

Further, it has been proposed to empower the CBDT to issue guidelines for removing the difficulties arising in giving effect to the provisions of section 194-O. Each such guideline shall be binding on the Income-tax authorities and the e-commerce operator.

4.      MEANING OF ‘SAFE HARBOUR’ FOR DETERMINATION OF ALP EXPANDED

[Applicable from Assessment Year 2020-21]

The Finance Bill, 2020 proposed substitution of Section 92CB(1) with effect from the Assessment Year 2020-21 to provide that apart from the determination of Arm’s Length Price, the determination of the income referred to in section  9(1)(i) shall also  be subject to Safe Harbour Rules.

Section 9(1)(i) covers various types of income, i.e., income through or from any business connection in India, any property in India etc. Further, it has various Explanations including:

a)     Explanation 2 (‘agency business connection’)

b)     Explanation  2A (‘Significant  Economic Presence’)

c)      Explanation  3A (income  from advertisement etc.)

The existing Section 92CB of the Act provides that the determination of Arm’s Length Price under Section 92C or Section 92CA shall be subject to Safe Harbour Rules as prescribed by the Board. For this purpose ‘safe harbour’ means circumstances  in which the Income-tax authorities shall accept the transfer price declared by the assessee. The Explanation to Section 92CB defining safe harbour was not amended by the Finance Bill, 2020 to provide that safe harbour would now also include circumstances in which income tax authorities shall accept the income under section 9(1)(i) declared by the assessee. Thus, the Finance Bill, 2020 (as passed by the Lok Sabha) has made the consequential amendments to section 92CB to expand the meaning of safe harbour. ‘Safe harbour’ for section 92CB shall now cover the transfer price or income, deemed to accrue or arise under section 9(1)(i), as the case may be, declared by the assessee.

5.      TAX ON SPECIFIED INCOMES OF NON-RESIDENTS

[Applicable from Assessment Year 2020-21]

Section 115A of the Income-tax Act specifies the tax rates for specified incomes in the hands of a non-resident assessee, inter-alia, dividend income, interest income, capital gains, royalty and fee for technical services. Clause (BA) of Section 115A provides   that the following incomes received by a non-resident person shall be taxable at the rate of 5%:

a)     Interest received from an infrastructure debt fund as referred to in section 10(47);

b)     Interest of the nature and extent as referred to in section 194LC or section 194LD;

c)      Interest paid by a business trust under section 194LBA(2).

The Finance Bill, 2020 (as passed by the Lok Sabha) excludes the income mentioned in point (b) and (c) above from the purview of 5% taxation. Interest income as referred to in section 194LC, Section 194LD and 194LBA(2) shall now be taxable at the rate provided in the respective sections.

The rates prescribed under sections 194LC and 194LD for deduction of tax at source    is also 5% but that rate is applicable on the interest payable on the money borrowed   or investment made before 01-07-2020.  For new borrowings and investments which are made after this sunset date, the tax may be deducted at the higher rate under the said sections. To avoid any conflict, Section 115A restrains from giving references to the absolute rate for taxability, rather it shifts reference to the parent provisions only.

6.     TAXPAYER EARNING PROFESSIONAL INCOME WILL HAVE NO OPPORTUNITY TO OPT OUT OF CONCESSIONAL TAX REGIME OF SECTION 115BAC

[Applicable from Assessment Year 2021-22]

The Finance Bill, 2020 has proposed concessional tax regime for individual and HUF by inserting Section 115BAC to the Income-tax Act, 1961. This provision provides an option for payment of taxes at the reduced rates. However, the benefit of reduced tax rates is available only after forgoing certain deductions and exemptions.

To get this concessional tax regime, an Individual and HUF is required to exercise the option on or before the due date of furnishing  the return  of income. Once the option  is exercised, it will be applicable to forthcoming years as well if assessee is earning the business income. If the taxpayer does not have any business income, the assessee shall have a choice to decide every year if he wants to opt for concessional tax regime. The proposed Section 115BAC did not give any reference to the taxpayers earning professional income and it was believed that this class was intentionally left  out, which brings them at par with those taxpayers who are not earning business income.

The Finance Bill, 2020 (as passed by the Lok Sabha) makes the necessary amendments to section 115BAC to provide that taxpayers having income from profession shall also get only one time option to opt for concessional tax regime. The taxpayers earning business income or professional income are now at par as far as this provision is concerned.

7.     SECTION 80M DEDUCTION TO BE AVAILABLE FROM AY 2021-22 TO THE COMPANIES OPTING FOR NEW TAX REGIME

The Taxation Law (Amendment) Act, 2019 has inserted two new sections (section 115BAA and section 115BAB) to provide domestic companies with an option to be taxed at concessional tax rates with effect from April 1, 2020. Various conditions are provided in the new sections to opt for the new tax regimes including non-availability of deductions under Chapter-VIA except deductions under Section 80JJAA or Section 80LA.

The Finance Bill, 2020 has proposed to allow the deduction, to the domestic companies opting for the concessional rates, under section 80M as well. Section 80M is a newly

proposed section which provides deduction in case of inter-corporate dividends with effect from 01-04-2021.

Section 80M has been introduced by the Finance Bill, 2020 but it does not provide any clarity on the date of applicability of the provision. The Finance Bill, 2020 (as passed  by the Lok Sabha) has clarified that deduction under section 80M shall be available to the companies opting for new tax regime with effect from Assessment Year 2021-22.

8.      AMENDMENT IN THE DEFINITION OF ‘CHIEF COMMISSIONER’

As per Section 2(15A) of the Income-tax Act, ‘Chief Commissioner’ means a person appointed to be a Chief Commissioner of Income-tax or a Principal Chief Commissioner of Income-tax.

The Finance Bill, 2020 (as passed by the Lok Sabha) makes an amendment to this provision to include the Director General and Principal Director General of Income-  tax within the meaning of ‘Chief Commissioner’. Now, the Principal Director General of Income-Tax shall be treated as an authority at par with Director General of Income- tax. Hence, for all such purposes under the income tax act, the Principal Director General of Income-Tax shall have all the powers which have been conferred upon Director General of Income-tax.