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Union Budget 2020 –Analysis Key Tax Proposals

Download the presentation linked below for a detailed business impact analysis of the Union Budget 2020 provisions. The key tax proposals and other major proposed reforms have been explained in the presentation for a holistic view.

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Union Budget 2020 –Analysis Key Tax Proposals

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  1. U N I O N B U D G E T 2 0 2 0 – A N A L Y S I S K E Y T A X P R O P O S A L S 0 4 F E B R U A R Y 2 0 2 0 © C O I N M E N C O N S U L T A N T S L L P

  2. H E L L O In the midst of an economic slowdown, all eyes were on the country’s Finance Minister, Nirmala Sitharaman to deliver the 2020 Union Budget and provide revival measures to boost the economy. The Budget met the expectations of some, while some were left wanting for more answers. Via this presentation, we aim to showcase an impact analysis of the Budget provisions and highlight the Budget’s key proposals. We further discuss how these proposals will impact businesses across various industries in the long run. © C O I N M E N C O N S U L T A N T S L L P

  3. I N D E X TOPIC COVERED SLIDE NUMBERS INDIVIDUAL TAXES 4 – 11 STARTUPS 12 – 17 BUSINESS TAXES 18 – 31 TRANSFER PRICING 32 – 34 WITHHOLDING TAXES 35 – 41 APPELLATE AUTHORITIES 42 – 47 FINANCIAL SERVICES SECTOR 48 – 50 CHARITABLE INSTITUTIONS 51 – 54 MISCELLANEOUS 55 – 68 * Click on the individual topics to jump to their specific provisions © C O I N M E N C O N S U L T A N T S L L P

  4. I N D I V I D U A L T A X E S © C O I N M E N C O N S U L T A N T S L L P

  5. P R O P O S E D A M E N D M E N T S EMPLOYER’S CONTRIBUTION TO VARIOUS FUNDS CAPPED EXTENSION OF SUNSET DATE FOR SEC 80EEA NEW TAX REGIME WITHDRAWAL OF EXEMPTION Interest paid on loan taken to acquire property under affordable housing is allowable deduction under chapter VIA. The sunset date for approval of loan is now 31.03.2021 Exemption of certain perquisites/allowances of some government employees have been withdrawn. Government employee here means–  UPSC Chairman;  UPSC Members;  Chief Election Commissioner; and  Election Commissioners It has been proposed that the employer’s combined contribution to recognized provident funds, superannuation fund and national pension scheme shall be capped at INR 7,50,000. Individuals shall have an option to pay tax at a reduced rate This option will be available to those individuals who forgo certain exemptions/ deductions. Old tax regime continues to be in force. © C O I N M E N C O N S U L T A N T S L L P

  6. N E W T A X R E G I M E P R O P O S E D P R O V I S I O N S A P P L I C A B I L I T Y C O M M E N T S This amendment has been brought to reduce the tax liability of the individual taxpayer. However, quantum of benefit of this amendment would be contingent upon the salary structure and investment done by such individual. However, rules may be notified, where following allowances shall exempt under new regime – 1) Transport Allowance to Divyang employee; 2) Conveyance Allowance; 3) Allowance to meet expenditure on tour & travel; 4) Daily allowance in case of absence from normal place of duty. As per proposed amendment, individual may have an option either to pay taxes at existing slab rate by availing benefits of exemptions and deductions or pay tax at reduced rate by forgoing certain exemptions/ deductions like standard deduction, HRA, LTC, allowances u/s 10(14), deductions under chapter VIA (except 80CCD(2) and 80JJAA). New slab shall be as follows – Individual may have an option to pay tax at reduced tax rate by forgoing certain exemptions/deductions The said amendment would come into force from AY 2021-22. 0 - 2.5 (nil); 2.5 - 5 (5%), 5 - 7.5 (10%); 7.5 - 10 (15%); 10 - 12.5 (20%); 12.5 - 15 (25%); above 15 (30%). (all figures in INR lakhs) © C O I N M E N C O N S U L T A N T S L L P

  7. E M P L O Y E R ’ S C O N T R I B U T I O N T O V A R I O U S F U N D S C A P P E D P R O P O S E D P R O V I S I O N S A P P L I C A B I L I T Y C O M M E N T S This amendment has been proposed to plugin the loophole that was used by the employees earning high salary and not offering major potion of the said salary income to tax at any point of time by showing them as employer’s contribution to the said scheme. As per the proposed amendment, any amount contributed above INR 7.5 lakhs by the employer to the below mentioned scheme shall be taxable in the hands of the employee. Scheme here means superannuation fund, provident fund and National Pension Scheme. Employer’s contribution to superannuation fund, recognized provident fund and National Pension Scheme capped Also, any income by way of interest, dividend, etc. on the portion of employer’s contribution and credited to the account of the employee will also be taxable.as perquisite in his hands. The overall contribution of INR 7 .5 lakhs shall be exempt. Any contributed above said limit will be taxable. © C O I N M E N C O N S U L T A N T S L L P

  8. P R O P O S E D A M E N D M E N T S RESIDENTIAL STATUS TEST FOR INDIVIDUALS THRESHOLD FOR NOT ORDINARILY RESIDENT RELAXED STATELESS PERSON - BROUGHT UNDER TAX AMBIT Threshold test of 182 days reduced to 120 days for an Indian citizen or person of Indian origin (PIO) who visits India occasionally. Non-resident status in India in 7 out of 10 previous years (preceding that year) instead of earlier requirement of 9 out 10 previous years (preceding that year) sufficient to deem ‘not ordinarily resident’. Condition of up to 729 days during 7 preceding years omitted. An Indian citizen who is not liable to tax in any other country or territory shall be deemed to be a resident in India. Individuals, who are citizens of India, who manage to arrange their affairs in such a manner that they are not liable to tax in any country or jurisdiction during a year shall be deemed to be residents of India. Decrease in threshold to cover cases wherein individuals, being Indian citizens or PIO, usually escaped becoming resident in India. Relaxation of threshold to deem not ordinarily resident for individuals as well as HUF. Applicable w.e.f. AY 2021-22 Applicable w.e.f. AY 2021-22 Applicable w.e.f. AY 2021-22 © C O I N M E N C O N S U L T A N T S L L P

  9. R E S I D E N T I A L S T A T U S T E S T F O R I N D I V I D U A L S P R O P O S E D P R O V I S I O N S I M P A C T C O M M E N T S Section 6(1) provides relaxation to an Indian citizen or a person of Indian origin (PIO), who occasionally visits India, allowing them to visit India for longer duration without becoming resident of India. The threshold of 182 days has been reduced to 120 days. Individuals who were misusing this relaxation and managed to be indefinitely treated as non-resident in India will now have to re-visit their respective strategies. Even though the intention to reduce the threshold is to cover those notorious strategies deployed to avoid becoming resident in India, genuine cases may find it difficult to cope up as the revised threshold is very less. Having said that, treaty provisions may trigger in such a case enabling such person to avail treaty benefit. © C O I N M E N C O N S U L T A N T S L L P

  10. T H R E S H O L D F O R N O T O R D I N A R I L Y R E S I D E N T P R O P O S E D P R O V I S I O N S I M P A C T C O M M E N T S Erstwhile sub-section (6) of section 6, which deems a resident in India (individual/HUF) to be ‘not ordinarily resident’, has been substituted with a new clause. This is a welcome step. Even if a resident in India, being an individual or HUF, has had non-resident status in 7 out of 10 previous years preceding that year, it is sufficient to deem that person as ‘not ordinarily resident’. Relaxation to individuals/HUF under deeming provisions of treating a resident of India as ‘not ordinarily resident’. Non-resident status in India in 7 out of 10 previous years preceding that year instead of earlier requirement of 9 out 10 previous years preceding that year sufficient to deem ‘not ordinarily resident’. © C O I N M E N C O N S U L T A N T S L L P

  11. S T A T E L E S S P E R S O N - B R O U G H T U N D E R T A X A M B I T P R O P O S E D P R O V I S I O N S I M P A C T C O M M E N T S A new sub-section in form of sub-section (1A) has been proposed to be inserted in section 6. Indian citizens staying abroad in tax free countries will not automatically fall under this tax net. Stateless persons (Indian citizens) deemed to be residents in India. Such provisions are proposed to cover cases where Indian citizens manage to arrange their affairs in such a manner that they are not liable to tax in any country or jurisdiction during a year. This is mainly targeted for individuals who escape tax by failing to meet the definition of tax resident in any country. Indian citizens who are not considered tax residents in any country/territory shall be deemed to be residents in India. A CBDT communique was issued on 2ndFebruary 2020 to clarify that this new provision shall not apply on those Indian citizens who are bonafide workers in other countries. © C O I N M E N C O N S U L T A N T S L L P

  12. S T A R T - U P S © C O I N M E N C O N S U L T A N T S L L P

  13. P R O P O S E D A M E N D M E N T S REDUCED TAX BURDEN FOR START-UPS TAX RELIEF WITH ESOP REFORMS In order to facilitate start ups to attract top talent and curb the cash flow problems faced by the employees of start-ups, conditions relating to taxability in case of ESOP’s have been relaxed . Conditions for claiming 100% deduction on profit has been extended to large start-ups also along with extension of time period to avail the above benefit. This amendment shall be effective from AY 2021-22. This amendment shall be effective from AY 2021-22. © C O I N M E N C O N S U L T A N T S L L P

  14. P R O P O S E D A M E N D M E N T S SETTING UP CENTRALIZED INVESTMENT CLEARANCE CELL SEED FUNDING FOR START-UPS Early-life funding for start-ups has been proposed by the government to support ideation and development of early-stage start-ups ; Considering the risk factor in setting up start-ups government has announced to set up investment clearance cell portal. This incentive has been brought in as a support for the funding required for early stage start-ups although no action plan has been drawn out. In order to promote eligible startup in India, a facilitation and support portal is announced to be established by the government. © C O I N M E N C O N S U L T A N T S L L P

  15. T A X R E L I E F W I T H E S O P R E F O R M S I M P A C T C O M M E N T S P R O P O S E D P R O V I S I O N S Section 17, 191 and 192 has been amended in order to defer the tax payable on income in the hands of Assessee on exercising the ESOP’s provided by an eligible start-up. According to the proposal, the tax shall be required to be paid on the event which occurs earlier: This is a major move to liberalize the hardship faced by the employees of start-ups as cash flow problems arises as taxation begins at the time when the employee exercise the ESOP’s. This amendment enables the start-up in attracting top talent as this proposal seeks to provide a tax relief by deferment of tax to the employees and further it also relaxes the cash flows. With this provision the government has tried to encourage the youth of the country for setting up start- ups.  5 years from allotment;  Sale of security; The provision shall be effective from AY 2021-22  End of his employment with the eligible start-up. © C O I N M E N C O N S U L T A N T S L L P

  16. R E D U C E D T A X B U R D E N F O R S T A R T - U P S I M P A C T C O M M E N T S P R O P O S E D P R O V I S I O N S Section 80-IAC provides that deduction shall be available to eligible start-up for a period of three consecutive assessment years out of the ten years beginning from the year of incorporation in cases where the turnover does not exceed 100 Crores in the previous year relevant to assessment year. In order to facilitate ease of doing business in India, Section 80-IAC have been liberalized; The amendment roll over the benefits and promote investment in start-ups it is aimed at ensuring a more helpful ecosystem for start-ups. Conditions for claiming exemption have been modified in order to provide maximum benefits to larger start-ups The provision shall be effective from AY 2021-22 © C O I N M E N C O N S U L T A N T S L L P

  17. S E E D F U N D I N G A N D C E N T R A L I S E D I N V E S T M E N T C L E A R A N C E C E L L I M P A C T C O M M E N T S P R O P O S E D P R O V I S I O N S This key move encourages the start-ups and its investors by way of introducing the following incentives: The government has tried to solve the early-stage problems faced by the start- up founders but has not presented any such action plans which in turn leaves the entrepreneurs in a dilemma of the impact of this proposed provision. The move comes at a time when start-ups is in growing trend and start- up founders are emerging in huge numbers with great ideas. The move is surely expected to incentivize the young entrepreneurs and expected to generate more employment.  Seed funding to help early- stage start-ups with fund issues, development/support in the earlier years of setup.  Setting up Centralised Investment Clearance Cell in order to promote entrepreneurship and provide end-to-end support along with pre-investment advisory and clearance facilities. © C O I N M E N C O N S U L T A N T S L L P

  18. B U S I N E S S T A X E S © C O I N M E N C O N S U L T A N T S L L P

  19. A B O L I T I O N O F D I V I D E N D D I S T R I B U T I O N T A X ( D D T ) P R O P O S E D P R O V I S I O N S I M P A C T C O M M E N T S Section 115O/115R shall not be applicable on the dividend distributed on after 1st April 2020. Henceforth, dividend distributed by specified companies shall be taxable in the hands of recipient. Dividend being made taxable in the hands of recipient at the applicable tax rates may result in a significant tax outflow. The abolition of DDT will be beneficial from the point of view of foreign investors as now the tax paid by such investors on dividends in India shall be available as credit in their home country. Furthermore, dividend received from foreign companies continues to have cascading effect. Further, deduction of expense under section 57 shall be restricted only to interest expense and shall not exceed 20% of dividend amount. Inter- corporate dividends to be allowed as deduction under section 80M. The amendment is effective from AY 2021-22 onwards. © C O I N M E N C O N S U L T A N T S L L P

  20. P R O P O S E D A M E N D M E N T S SIGNIFICANT ECONOMIC PRESENCE INCOME FROM ADVERTISEMENTS Current provision to apply only for AY 2020-21 and the provision to be replaced for AY 2022-23. The new provision is similar to the old provision, with minor changes New Explanation 3A proposed to be inserted to Section 9(1)(i) to provide that income earned from advertisements that targets Indian customers or income from sale of data collected from India residents or income from sale of goods or services using the data collected from India residents to be chargeable to tax in India The new provision is proposed to apply from AY 2022- 23 The new provision is proposed to apply from AY 2022-23 © C O I N M E N C O N S U L T A N T S L L P

  21. S I G N I F I C A N T E C O N O M I C P R E S E N C E O L D P R O V I S I O N P U R P O S E A N D I M P A C T N E W P R O V I S I O N Transaction in respect of any goods, services or property carried out by a non-resident in India including provision of download of data or software in India, if the aggregate of payments arising from such transaction or transactions during the previous year exceeds such amount as may be prescribed; Transaction in respect of any goods, services or property carried out by a non-resident with any person in India including provision of download of data or software in India, if the aggregate of payments arising from such transaction or transactions during the previous year exceeds such amount as may be prescribed; The changes, though minor, have been done with an intent to streamline the provision so as to not attract any illogical or unreasonable interpretation Systematic and continuous soliciting of business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means Systematic and continuous soliciting of business activities or engaging in interaction with such number of users in India, as may be prescribed The provision shall be effective from AY 2022-23 © C O I N M E N C O N S U L T A N T S L L P

  22. I N C O M E F R O M A D V E R T I S E M E N T S A P P L I C A B I L I T Y P U R P O S E A N D I M P A C T S C O P E Such advertisements which targets customers who reside in India or who accesses the advertisement through internet protocol address located in India; Such incomes shall be considered to be the incomes attributable to the operations carried out in India; The changes are in line with the ongoing discussions at the International Forum and aim to bring to tax the transactions primarily carried out through digital means Provisions of this Explanation to also apply to the incomes attributable to the transactions or activities under the Significant Economic Presence provision Sale of data collected from a person who resides in India or from a person who uses internet protocol address located in India; and 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. The provision shall be effective from AY 2022-23 © C O I N M E N C O N S U L T A N T S L L P

  23. P R O P O S E D A M E N D M E N T S INDIRECT TRANSFERS ROYALTY Investments held by non-residents through Category I and II FPIs were under the exceptions to the Indirect transfer provision. With the amendment in the FPI Regulations, the categories of FPI have been reduced from 3 to 2. In light of the same, only Category I FPI is now excepted from the Indirect Transfer provision. However, the Category I and II FPI’s prior to the repeal of the earlier provision have been grandfathered Incomes from the transfer of all or any rights in respect of the sale, distribution and exhibition of cinematographic films shall be chargeable to tax as Royalty The provision is proposed to apply from AY 2020-21 The provision is proposed to apply from AY 2021-22 © C O I N M E N C O N S U L T A N T S L L P

  24. P R O P O S E D A M E N D M E N T S NO RETURN FILING REQUIREMENT IN CASE OF ROYALTY/FTS RATIONALISATION OF PROVISION TOWARDS INTEREST PAID OR PAYABLE TO PE OF NR BANK To reduce the compliance burden on NR, the return filing requirement has been done away with even for royalty and fee for technical services subject to the fact that taxes of such income has been deducted at a rate which is not lower than the rate prescribed under the Act Now, no interest limitation on interest paid or payable in respect of debt issued by a Permanent Establishment of Non Resident in India, being in the business of banking in India. This amendment shall be effective from AY 2020-21 This amendment shall be effective from AY 2021-22 © C O I N M E N C O N S U L T A N T S L L P

  25. I N T E R E S T P A I D O R P A Y A B L E T O P E O F N R B A N K P R O P O S E D A M E N D M E N T I M P A C T C O M M E N T S Currently, interest paid by a Indian Company or a PE of a foreign company exceeding INR 10 Million, in respect of debt from a non-resident, being an AE, interest in excess of 30% of EBITDTA or interest paid, whichever is lower, is not allowed as deduction. The Finance Minister has partly removed the confusion. Removal of Interest limitation on loans from Branch of Foreign Bank in India will lead to reconsideration of funding options for Indian Companies An unanswered question which still requires clarity on the treatment of loan taken from Indian bank which is counter guaranteed by NR AE, where there is no base erosion and profit shifting from India. As a result of the above, the branches of foreign bank in India would attract interest limitation while computing its business income in India. The same has been proposed for an amendment in the Budget. Can this be construed that this provision was never applicable to Indian Bank as there is no base erosion and profit shifting?. © C O I N M E N C O N S U L T A N T S L L P

  26. P R O P O S E D A M E N D M E N T S CONCESSIONAL TAX RATE EXTENDED TO BUSINESS OF GENERATION OF ELECTRICITY REQUIREMENT OF OBTAINING TAX AUDIT REPORT RELAXED The threshold limit of turnover for a person carrying on business has been revised from INR 1 Crore to 5 Crore in cases where: Amendment to Section 115BAB of the Act to extend the benefit of concessional rate of tax of 15% to business of generation of electricity.  Cash receipts do not exceed 5% of total amount received during the year and  Cash payment does not exceed 5% of total amount paid during the year Clarificatory amendment to explain that for the purposed of Section 115BAB, manufacture or production of article or thing to include generation of electricity. This amendment shall be effective from 1stApril 2020 © C O I N M E N C O N S U L T A N T S L L P

  27. C O N C E S S I O N A L T A X R A T E E X T E N D E D T O B U S I N E S S O F G E N E R A T I O N O F E L E C T R I C I T Y P R O P O S E D P R O V I S I O N I M P A C T C O M M E N T S New domestic companies engaged in the business of power generation set up on or after 1st October 2019, commencing operations by 31st March 2023 and not availing any specified incentives or deductions, may opt to pay tax at rate of 15%. The amendment may encourage companies to invest in the business of electricity generation in India. This amendment shall enable companies to invest in the business of power generation in India and enjoy concessional rate of tax of 15%. Also, the companies shall continue to remain eligible for claiming terminal depreciation. Further, the companies shall be entitled to pay surcharge at the rate of 10%. The amendment is retrospective & hence, applicable from AY 2020-21 onwards © C O I N M E N C O N S U L T A N T S L L P

  28. P R O P O S E D A M E N D M E N T S DEDUCTION U/S 35AD MADE OPTIONAL INCLUSION OF SECTION 80M IN CONCESSIONAL TAX SCHEME Deduction under section 35AD i.e. 100% deduction of capital expenditure in respect of the specified business made optional. The domestic companies opting to be taxed at concessional tax rates shall now be eligible to claim deduction under section 80M i.e. deduction in respect of inter-corporate dividends. Clarificatory amendment to provide that where the domestic companies opt to pay tax at concessional rates and forego the deduction under section 35AD would be eligible to claim normal depreciation under section 32 of the Act. As a result, domestic companies paying dividends to its holding companies and tax under concessional tax scheme shall be entitled to claim such dividend as deduction from its total income. © C O I N M E N C O N S U L T A N T S L L P

  29. D E D U C T I O N U / S 3 5 A D M A D E O P T I O N A L P R O P O S E D P R O V I S I O N I M P A C T C O M M E N T S Section 35AD currently provides for 100% deduction on capital expenditure incurred on certain specified business. This amendment shall enable the companies engaged in specified business such as cold chain facility, warehousing facility, etc. to avail concessional tax scheme and claim normal depreciation on the capital expenditure incurred on such business. This amendment shall enable the domestic companies opting to pay tax under concessional rate scheme to avail benefit of normal depreciation under section 32 of the Act Further, the provision also provided that no deduction is allowable under any other section in respect of the above capital expenditure. The above scheme has now been made optional and it has been further clarified that no deduction shall be allowed under any other provision of the Act in any previous year wherein the assessee has claimed deduction u/s 35AD The amendment is effective from 1st April 2020 and thus, applicable from AY 2020-21 onwards. © C O I N M E N C O N S U L T A N T S L L P

  30. I N C L U S I O N O F S E C T I O N 8 0 M U N D E R C O N C E S S I O N A L T A X S C H E M E P R O P O S E D P R O V I S I O N S I M P A C T C O M M E N T S Currently, the domestic companies opting to pay tax at concessional rates i.e. 22% and 15% respectively, are not entitled to avail any deduction under Chapter VI-A from its total income except section 80JJAA. The amendment shall remove the cascading effect. Domestic companies declaring dividends to its holding companies and paying tax under concessional tax scheme shall be entitled to claim deduction of inter- corporate dividends. However, the taxpayers would need distribute the dividend at least one month prior to the due date of filing the return of income It has now been proposed to include section 80M, i.e., deduction in respect of inter- corporate dividends in the exceptions. The amendment is effective from 1st April 2020 and thus, applicable from AY 2020-21 onwards. © C O I N M E N C O N S U L T A N T S L L P

  31. P R O P O S E D A M E N D M E N T S P R O P O S E D P R O V I S I O N S I M P A C T S C O P E MLI (Multilateral Instrument) effect incorporated into domestic tax law Scope of MLI extends to cover cases to avoid double non-taxation or tax evasion or avoidance. Earlier the scope, inter alia, was limited to avoid double taxation. Earlier it was argued if the MLI signed and ratified by India is ultra vires the Income-tax Act since the scope of MLI extends beyond what is prescribed under the erstwhile section 90(1) & 90A(1) With this amendment, such arguments have been laid to rest © C O I N M E N C O N S U L T A N T S L L P

  32. T R A N S F E R P R I C I N G © C O I N M E N C O N S U L T A N T S L L P

  33. P R O P O S E D A M E N D M E N T S DUE-DATE ADVANCED FOR FILING FORM 3CEB AND MAINTAIN TP DOCUMENTATION ATTRIBUTION OF PROFITS TO PE ALLOWED UNDER SAFE HARBOUR AND APA Highly litigative issue of attribution of profits to permanent establishment (PE) in India proposed to be covered under safe harbour provisions and advanced pricing agreements (APA)  Accountant’s report in the form of Form 3CEB to be filed and transfer pricing document to be maintained on or before one month prior to the due date of furnishing return of income. Step towards reassuring tax certainty as one of the primary objectives of the government.  Effectively, the filing date advanced to 31 October of the relevant assessment year from 30 November of the relevant assessment year Applicability For Safe Harbour– AY 2020-21 For APA – Will apply to an APA entered into on or after 1 April 2020 This is more of a procedural amendment. The due of master file remains the same, i.e., on or before the due date of furnishing return of income (30th November of the relevant assessment year) © C O I N M E N C O N S U L T A N T S L L P

  34. S C O P E O F A P A A N D S A F E H A R B O U R E X P A N D E D P R O P O S E D P R O V I S I O N S I M P A C T C O M M E N T S Highly litigative issue of attribution of profits to Permanent Establishment (PE) in India proposed to be covered under safe harbour provisions and advanced pricing agreements (APA) Even though the FAQs (FAQ #23) on APA clearly mentioned that cases of attribution of profits of PE shall be considered under APA, practically the applicants were denied APA on this issue. This amendment will resolve this issue. Much awaited amendment. This will reduce number of unwarranted litigations on this issue. Having said that, it will be interesting to see the fate of existing pending APA applications on this issue. Practical implementation could be a challenge especially under safe harbour provisions. © C O I N M E N C O N S U L T A N T S L L P

  35. W I T H H O L D I N G T A X P R O V I S I O N S © C O I N M E N C O N S U L T A N T S L L P

  36. P R O P O S E D A M E N D M E N T S WITHHOLDING TAX PROVISIONS EXPANDED TO COVER E- COMMERCE TRANSACTIONS WIDENING THE DEFINITION OF ‘WORK’ Applicable on operators selling goods or rendering services through e-commerce platforms. The definition of work under section 194C of the Act to provide that in a contract manufacturing, the raw material provided by the assessee or its ‘associates’ shall fall within the purview of ‘work’. Applicable rate – 1% on gross amount (5% in case of no PAN/Aadhar furnished – consequent amendment has also been made in section 206AA) Exemptions to individuals/HUF having gross amount of sales/services upto INR 5 lacs and who have furnished their PAN/Aadhar Consequently, payment for carrying out contract manufacturing according to the specification of customer by using material purchased from the ‘associate’ of such customer shall be subject to deduction of tax under section 194C of the Act. Applicable from 1st April 2020 © C O I N M E N C O N S U L T A N T S L L P

  37. W I T H H O L D I N G T A X P R O V I S I O N S E X P A N D E D T O C O V E R E - C O M M E R C E T R A N S A C T I O N S P R O P O S E D P R O V I S I O N S I M P A C T C O M M E N T S Insertion of new section, section 194O to cover operators, being Indian residents, selling goods or rendering services through e- commerce platforms (resident or non-resident). Such operators shall be subject to 1% withholding tax (5% in case of no PAN/Aadhar furnished – consequent amendment has also been made in section 206AA). Exemptions to individuals/HUF having gross amount of sales/services up to INR 5 lacs and who have furnished their PAN/Aadhar. This amendment may have major ramifications. Any resident selling goods/rendering services even on a foreign e-commerce portal will also be covered under this ambit. Sellers/service providers using e-commerce platform brought under the ambit of withholding tax provisions. Such e-commerce platform entities will now have to comply with withholding tax requirements in India. Non-resident entities operating an e- commerce platform required to deduct TDS on sales/services sold/rendered by any Indian resident through its platform. (Consequential amendment made in section 204 which defines ‘person responsible for paying’’) © C O I N M E N C O N S U L T A N T S L L P

  38. D E F I N I T I O N O F ‘ W O R K ’ E X P A N D E D P R O P O S E D P R O V I S I O N I M P A C T C O M M E N T S Currently, the provision of Section 194C of the Act provides for deduction of tax @ 1% or 2%, as the case may be, for payments made to contractors for carrying out work. The amendment shall bring a substantial amount of income in the tax net and shall prevent the tax avoidance among related parties. This amendment shall curtail the escape from TDS by getting contract manufacturer to procure the material purchased from its related parties. The definition of ‘work’ shall now include within its purview the manufacturing or supplying of a product according to specifications of the customer by using the material purchased from such customer or its associate. The amendment shall be effective from 1stApril 2020. Hence, a TDS of 1% or 2% shall be deductible on such payments. © C O I N M E N C O N S U L T A N T S L L P

  39. P R O P O S E D A M E N D M E N T S REDUCED TDS ON FEES FOR TECHNICAL SERVICES (OTHER THAN PROFESSIONAL SERVICES) REQUIREMENT FOR WITHHOLDING TAX BY INDIVIDUALS AND HUFs Individual/HUFs are required to withhold taxes if their turnover exceeds INR 1 Crore in case of business and INR 50 Lakhs in case of profession irrespective they are covered in tax audit or not on payment made to resident for interest (other than interest on securities), contractors, commission or brokerage, rent and fees for technical and professional services The rate of TDS on payment made to resident towards fees for technical services under section 194J has been reduced to 2% (as against 10% earlier). However, the TDS rate on other services (including professional services) is still 10%. This amendment shall be effective from 1stApril 2020 This amendment shall be effective from 1stApril 2020 © C O I N M E N C O N S U L T A N T S L L P

  40. R E D U C E D T D S O N F E E S F O R T E C H N I C A L S E R V I C E S P R O P O S E D A M E N D M E N T I M P A C T C O M M E N T S Currently, rate of TDS on fees for technical services and professional fees is 10%. The Applicable rate of TDS on professional services is 10% which is defined in explanation to section 194J of the Act. This amendment has removed the anomaly around the provision. Reduced TDS rate will enhance the cash flow for the person providing such fees for technical services There is huge litigation on whether the payment would qualify towards contract or towards Fees towards professional or technical services. Thus, litigation around 194C and 194J will reduce substantially. In order to reduce litigation, it is proposed that the rate of TDS on section 194J in case of fees for technical service (other than professional and other services) be 2%. The amendment shall be effective from 1stApril 2020. © C O I N M E N C O N S U L T A N T S L L P

  41. E X T E N S I O N O F S U N S E T C L A U S E F O R L O W E R W H T I N C A S E O F F O R E I G N B O R R O W I N G S SECTION 194LC SECTION 194LD The sunset clause has been extended to the borrowings made before July 1st, 2023. Further, for long-term bonds or Rupee-denominated bonds issued on or after April 1st, 2020 and before July 1st, 2023 and listed on a recognised stock exchange in an IFSC, benefit of lower withholding taxes at a further reduced rate of 4% has been proposed. The sunset clause has been extended to the interest payable before July 1st, 2023. Further, ‘Municipal Debt Securities’, as provided in Regulation 2 of the SEBI (Issue and Listing of Municipal Debt Securities) Regulations, 2015, and issued on or after April 1st, 2020 but before July 1st, 2023 have also been proposed to be brought under the ambit of lower withholding tax. This amendment shall be effective from 1stApril 2020 This amendment shall be effective from 1stApril 2020 © C O I N M E N C O N S U L T A N T S L L P

  42. A P P E L L A T E A U T H O R I T I E S © C O I N M E N C O N S U L T A N T S L L P

  43. F A C E L E S S A S S E S S M E N T S A N D P E N A L T I E S FACELESS ASSESSMENTS FACELESS PENALTIES  Scope widened to cover Best Judgement Assessment under Section 144; Proposed to implement similar provisions for disposal of penalty proceedings by the Assessing Officer as has been issued for faceless assessments. Moreover, Central Government empowered up to March 31st, 2022 for issuing notifications regarding non-applicability or modified applicability of any provision of the act on such disposal of penalty proceedings by AO.  Moreover, Central Government empowered up to March 31st, 2022 for issuing notifications regarding non-applicability or modified applicability of any provision of the act on such disposal of faceless assessments This amendment shall be effective from 1stApril 2020 This amendment shall be effective from 1stApril 2020 © C O I N M E N C O N S U L T A N T S L L P

  44. A P P E L L A T E A U T H O R I T I E S APPEALS IN CIT(A) TO BE FACELESS WIDENING OF SCOPE OF DRP Proposed to cover: Proposed to implement similar provisions for disposal of appeal by CIT(A) as has been issued for faceless assessments. Moreover, Central Government empowered up to March 31st, 2022 for issuing notifications regarding non-applicability or modified applicability of any provision of the act on such disposal of appeal by CIT(A)  Any variation by the Tax Officer in the assessment which is prejudicial to the taxpayer and not just to income or loss returned;  Scope widened to cover any non resident and not just a foreign company This amendment shall be effective from 1stApril 2020 This amendment shall be effective from 1stApril 2020 © C O I N M E N C O N S U L T A N T S L L P

  45. A P P E L L A T E A U T H O R I T I E S STAY ON DEMAND VIVAD SE VISHWAS Proposed that ITAT shall not grant stay of demand unless 20% of the tax demand, including interest, fee, penalty, or any other sum payable under the provisions of the Act has been deposited or guaranteed by way of a security by the taxpayer. The condition shall also apply where an extension on stay of demand has been sought for by the taxpayer. A new scheme is proposed to be launched to reduce the existing pending litigations so as to allow the taxpayers an option to pay taxes and will get complete waiver from interest and penalty. The scheme, to be the 3rdof its kind, after VDIS in 1997 and IDS in 2016 appears to be a positive step taken by the Government to put an end to the unending litigations of the taxpayers. The scheme has been proposed and could be opted for up to June 30th, 2020. Framework of the scheme is yet to come out This amendment shall be effective from 1stApril 2020 © C O I N M E N C O N S U L T A N T S L L P

  46. A P P E L L A T E A U T H O R I T I E S - I T A T C L A R I F I C A T I O N R E Q U I R E D P U R P O S E A N D I M P A C T C L A R I F I C A T I O N R E Q U I R E D  Where basis the Office Memorandum dated February 29th, 2016, stay on recovery of demand has been granted by the AO, whether such stay granted shall dilute basis this amendment; Where the appeal in question pertains to an issue already covered through an earlier order of ITAT in the case of the taxpayer; Though the amendment has been brought in with an intent to streamline the process of recovery of demands, however, this may cause undue hardship to the taxpayers  Whether the amendment shall also apply to the stay of demand already granted by the ITAT The amendment shall be effective from 1stApril 2020. © C O I N M E N C O N S U L T A N T S L L P

  47. V I V A D S E V I S H W A S P O S I T I V E S F R O M T H E S C H E M E P U R P O S E A N D I M P A C T C L A R I F I C A T I O N R E Q U I R E D The tax rate would be significantly lesser that that of 45% in IDS, 2016; It is yet to be clarified whether the scheme would provide immunity from prosecution under the Act, similar to what IDS provided; Though the scheme is a very positive move to end huge pending litigations, however without complete immunity from prosecution and also under other Acts, this may only prove to be redundant Cases of taxpayers that are pending in litigation would also be covered in the scheme. This would give huge relief to the taxpayers; It is yet to be clarified, whether indefinite immunity under other laws viz Prohibition of Benami Property Transactions Act, 1988 and Prevention of Money Laundering Act, 2002 would be provided to taxpayers who opt for this scheme, similar to what VDIS provided In case of disputed penalty, interest and fee, and which is not connected to disputed tax, 25% shall be paid for settling the dispute; The framework of the scheme is yet to be notified For payments post 31 March 2020, payment amount shall be 110% of disputed tax & 30% of disputed penalty, interest & fee. © C O I N M E N C O N S U L T A N T S L L P

  48. F I N A N C I A L S E R V I C E S S E C T O R © C O I N M E N C O N S U L T A N T S L L P

  49. F I N A N C I A L S E R V I C E S S E C T O R OFFSHORE INVESTMENT FUNDS BUSINESS TRUSTS Further relaxation of conditions prescribed in Section 9A for determining the eligibility of an offshore investment fund to qualify as an Eligible Investment Fund ('EIF') Requirement of listing on stock exchange to qualify as a Business Trust under Section 2(13A) has been done away with. Further, dividend income received by Business Trust from Indian company continues to be exempt in the hands of the Business Trusts, despite the rollback of DDT. Such dividend to be taxable in the hands of the unit holder The amendment to proposed to apply from AY 2021- 22 The amendment to proposed to apply retrospectively from AY 2020-21 © C O I N M E N C O N S U L T A N T S L L P

  50. O F F S H O R E I N V E S T M E N T F U N D S R E L A X A T I O N 1 I N C E N T I V E R E L A X A T I O N 2 The condition regarding the investment from persons resident in India to be not greater than 5% of the corpus of the fund relaxed. Investments up to INR 25 crores and made by the eligible fund manager in the first 3 years of operation of the fund shall not be taken into account The requirement of having the monthly average of the corpus of INR 100 crores within 6 months of the establishment or incorporation relaxed to 12 months of the establishment or incorporation The proposal is a welcome one and comes at a time when the Government is aiming at increasing FDI flows into India to boost the sectors The provision shall be effective retrospectively for AY 2020-21 which is further expected to boost the sentiments of international investors in India © C O I N M E N C O N S U L T A N T S L L P

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