BUDGET 2020 - FII’s & Foreign Companies.

FII’s & Foreign Companies.

·         Section 194LC of the Act provides for a concessional deduction of tax at 5% by a specified company or a business trust, on interest paid to non-residents. The period of said concession deduction has been proposed to be extended to 01-07-2023 from 01-07-2020. Further, the rate of TDS been reduced to 4% on interest payment against borrowings through issues of long-term bonds and RDB which are listed only on a recognised stock exchange in any IFSC. 

·         Section 194LD of the Act provides for lower TDS of 5% in case of interest payments to Foreign Institutional Investors (FII) and Qualified Foreign Investors (QFIs) on their investment in Government securities and Rupee Denominated Bonds of an Indian company. It has been proposed to extend the period of concessional TDS of 5% to 01-07-2023 from existing 01-07-2020. Further, the concessional rate of TDS of 5% under the said section shall also apply on the interest payable to an FII or QFI in respect of the investment made in municipal debt security.

 

·         Exemption to Non Resident in filing of ROI in certain cases.  non-residents whose total income consists royalty or fees for technical services subject to requisite tax has been deducted at source, by amending section 115A of the Act with prospective effect from 1st April, 2020 to apply from the assessment year 2020-21 onwards.

·         Deferral of ‘significant economic presence’ (SEP) provisions-Applicability of the SEP provisions deferred to AY 2022-23.

 

·         Section 9A of the Act provides for a special regime in respect of offshore funds by providing them exemption from creating a “business connection” in India on fulfilment of certain conditions. It has been proposed that certain conditions for offshore funds shall be relaxed.

·         Section 94B provides for the restriction on deduction of interest payment made by the Indian company or a permanent establishment of the foreign company in India to its Associated Enterprise abroad. Finance bill 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 of a non-resident, being a person engaged in the business of banking, in India. 

·         Safe harbour and APA going to be  extended to PE Attribution.

BUDGET 2020 - TDS/ TCS

TDS/TCS

·         TCS in foreign remittance under LRS exceeding Rs 7 lakh at the rate of 5%. Also on overseas tour package -@ 5%.

·         TDS on e-commerce payment to e commerce participant at the rate of 1%  (194-O limit)

·         TDS on FTS (few cases or other than professional) reduced under section 194J to 2%.

·         TCS at the rate of 0.1% will be applicable on sale of goods if total sales to one person is more than Rs 50 lakhs by a person having turnover of more than Rs 10 crore.

·         TDS on Dividend  is applicable (194 -@ 10%. Limit 5000)  including  foreign shareholder (194LBA-10%, No PAN/ TRC-20%)

·          Section 194C provides for deduction of tax from payment to a resident person for carrying out any “work”. The definition of work has been proposed to be amended to provide that if any product is supplied or manufactured according to requirements of the customer, it shall fall under the category of ‘work’ even if raw material is supplied by the associated enterprise of such customer.

BUDGET 2020 - Assessment Procedure

Assessment Procedure

·         DRP forum not to be limited to TP issues only but to be allowed to non residents for all disputes.   It is proposed that any variation done by the AO which is prejudicial to the interest of the assesse (even if there is no impact on profits/losses) can be referred to DRP.

·         Penalty for false entry of invoice or omitted invoice @100% of such transactions under new section 271AAD.

·         Vivad se Vishwash Scheme  to reduce litigation. Only tax amount to be paid . Full waiver of interest and penalty .  In case of penalty and interest dispute which is not related to income only 25% of such interest and penalty to be paid. In case payment is made after 31.3.2020 the amount to be paid is 110% of tax in dispute and 30% in case of penalty. (Scheme not yet in public domain).

·         Survey under section 133A now only with the approval of CIT or DIT.

·         E Appeals system for appeal before CIT(A). ( Faceless Appeals)

·         E Penalty system before AO.

·         Due date of filing of Tax Audit report de linked from filing of return .  Tax Audit filing by 30th September  and Return filing by 31st October.

·         Tax Charter to made and brought into Statute books.

·         The scope of e-Assessment is proposed to be extended, so as to include the proceedings under Section 144 of the Act relating to best judgement assessment;

·         It is proposed to provide that stay under the first proviso to section 254(2A) shouldn’t be provided by ITAT unless assesse deposits or furnish security for at least 20% of the amount of tax, interest, fee, penalty, or any other sum payable under the provisions of this Act. The stay cannot exceed 365 days.

·         Insolvency Professional now can act as authorized representative ( sec 288).

·         New section 285BB replacing section 203AA towards rationising Form 26AS.

Amend clause (c) and (cd) of section 140 of the Act so as to enable any other person, as may be prescribed by the Board to verify the return of income in the cases of a company and a limited liability partnership.  

BUDGET 2020 - CORPORATE TAX

Corporate Tax

·         Dividend Distribution Tax being abolished wef 1.4.2020.

·         Benefit of section 80M will be available to a company in respect of dividend income received by it during the previous year and distributed by it, one month before the due date of filing return.

·         No deduction of expenditure against dividend income will be allowed under section 57 except interest which will not exceed 20% of dividend income.  

·         Dividend Income is now Taxable, Once Dividend is taxable, disallowance under section 14A become infructuous.   

·         Since Dividend is taxable now, require to reconsider again  for corporate which is more beneficial , 30% or 20%. Further ,   there will be TDS on dividend Income .  

·         Section 35AD deduction now made optional.   

·         Power Generation included as eligible for lower corporate tax rate of 15% under section 115BAB.

·         Time limit for approval of affordable housing project for availing deduction under section 80-IBA. The period of approval of the project by the competent authority is proposed to be extended to 31-03-2021. Earlier, the project was required to be approved by the competent authority during the period from 01-06-2016 to 31-03-2020.

·         Companies opting for new tax regime under new section 115BAA and 115BAB can claim only deduction under section 80JJA and 80M from chapter VIA.

BUDGET 2020- PERSONAL TAX

Personal Tax

·         Now there are two options available to individual tax payer . The first option is to continue with old rate with all tax exemptions and another one with new tax rate slab without any tax exemptions. 

Ø  Old Scheme.

Income Slabs (Rs.)		Individuals (< 60 years)		Senior Citizens (60 years to 80 years)		Super Senior Citizens (> 80 years)
Upto 2,50,000		-		-		-
2,50,001 To 300,000	5%				-		-
301,000 to 5,00,000		5%		5%		-
5,00,001 to 10,00,000		20%		20%		20%
More than 10,00,000		30%		30%		30%

 

·          

·         Rebate of Rs. 12,500  if taxable Income less than Rs. 500,000/-. Thus there is no tax payable for Income less than  Rs. 5 Lakhs and if Income exceeds Rs. 500,000 then compute tax as per captioned slab.

·         All other regular exemptions and deductions are available.  

Ø  New Scheme

·         A new Section 115BAC has been proposed to be inserted to provide an alternative to Individuals and HUFs to pay tax at lower rates. Option under this scheme can be exercised by every individual or the HUF. However, an individual and HUF having business income, the option once exercised for a previous year shall be valid for that previous year and for all subsequent years. (it means for other there is option to swap in next subsequent years)The income under this scheme shall be computed without claiming any deduction under Chapter VI-A (except Sections 80CCD or 80JJAA) or Section 24 or exemptions.  Further, similar table applicable for senior citizen.

Total Income	Tax Rate
Upto 2,50,000	-
250,001 to 500,000	5%
500,000 to 750,000	10%
750,001 to 10,0000	15%
10,00,001 to 12,50,000	20%
12,50,001 to 15,00,000	25%
15,00,001 & above	30%

 

·         As mentioned above, taxpayer cannot claim any exemption or deduction if they opt for the new scheme.    The few exemptions which are not available is given below.

Ø  Deduction under chapter VIA which include 80 C and 80D. (other than 80CCD(2) and 80JJA)

Ø  HRA under section 10(13A)

Ø  Allowance under section 10(14). (Conveyance allowance allowed)

Ø  LTA under section 10(5)

Ø  Interest on house property u/s 24(i)

Ø  Rebate under section 87A.

Ø  Standard deduction of 50K.

Ø  Food Coupon.

·         No Change in Surcharge and cess.

·         Section 80EEA was introduced vide Finance (No. 2) Act 2019 to provide a deduction for the interest on loan taken to buy an affordable residential house property. One of the conditions to claim this deduction is that loan should be sanctioned by the financial institution during the period from 01-04-2019 to 31-03-2020. The period of sanctioning of loan by the financial institution is proposed to be extended to 31-03-2021.

·         Dividend Income is taxable.

·         Overall ceiling of exemption in respect of employers contribution to PF, Superannuation fund and National Pension Scheme restricted time Rs 7.50 lakhs.  Thus there is double taxation of same income as the time of withdrawal.

NON RESIDENT

·         All Indian Citizens to be deemed Resident of India, if they are not resident of any other country. Accordingly if any Indian is holding Indian passport ,he needs to establish Residential status of other country if he claims to be a non resident. Such Indian Citizen shall be required to pay tax on global income.

·          Further for the purpose of determining residential status, the number of days for stay in India will be 120 days as against 182 days. 

·         For Resident but not ordinary resident -- test will be of non resident in 7 out of 10 preceding years as against present condition of 9 out of 10 preceding years.

History of E Way

Introduction

It is said that the month of ‘January’ is named after the Roman God of Beginnings, Janus. Janus is usually depicted with two faces, one on each side of the head. One may wonder whether the positioning of the heads is meant to signify a glance at both the past and the future at the same time. Whether or not the God signifies so, no doubt that the beginning of a new calendar year is an important time to reflect on the past, learn from the rights and wrongs and commit to change in the year to come. For businesses, tax consultants and other stakeholders who have had around three years to settle down in the Goods and Services Tax (GST) regime, it is a time to provide constructive feedback to the Government so that changes, if any, can be brought about through the Annual Financial Statement, also popularly referred to as ‘the Union Budget of India’.

Operation Clean Money Assessments- Postscript

(Perspective on : Its Various aspects e.g infirmities in revenue’s approach ; unexplained income charge , section 115BBE applicability , penal provisions of section 270A & 271AAC & its stay of demand etc)

Blocking GST Credit - is Legal or Illegal.

The concept of self-assessment in tax administration was introduced in India with an expectation to usher in a new era of trust-based partnership with the assessees leading to greater facilitation of compliant assessees.

“Circular Trading”, “Fake Bill issue”, “enhanced bill” unfortunately are methods of tax evasion not new in India. Under GST bogus invoices are raised without any actual supply of goods or services or both in several stages culminating finally in no supply or part supply. In some cases materials are sold in cash to the unorganised or those who do not avail ITC [ Residential Housing or Hotel Industry] and the bill without supply is given to the tax evaders who wish to claim credit[ Commercial construction or hotels availing ITC. At times in Circular / fake bill trading, the goods manufactured/ imported without paying due taxes are supplied to the customer and a fake invoice is provided to cover the same quantity. Based on such bogus invoices, the registered persons who were recipients were claiming ITC.