A. Amendments to Sec.206C (Tax collection at Source) regarding LRS, Tour Package and Sale of goods
In the Finance Bill, 2020 it was proposed to insert sub-section (1G) to section 206C of the Act to provide for collection of tax from a person purchasing overseas tour package or making foreign remittance exceeding Rs. 7 lakh during a financial year. Further, sub-section (1H) was also proposed to be inserted in section 206C to provide for TCS on sale of goods exceeding Rs. 50 lakh to a buyer in a financial year by seller having turnover of more than Rs. 10 crores in the preceding financial year. Now in the Finance Act 2020 as enacted, the above provisions are inserted with following changes vis-à-vis Finance Bill 2020:
- The insertion of sub-sections (1G) and (1H) in said section 206C shall be effective from 1st October, 2020 [as against 01st April 2020 as proposed in Finance Bill 2020];
- It is provided that Board may be authorised to issue guidelines for the purpose of removing difficulty arising regarding interpretation or implantation of these provisions and such guidelines shall be laid before Parliament and shall be binding on income tax authorities and person liable to collect sum.
- It is also provided that in case the amount remitted is for the purpose of pursuing education through a loan obtained from any financial institution, as defined in section 80E of the Income-tax Act, for the purpose of pursuing any education, the rate of TCS shall be 0.5% of amount exceeding Rs. 7 lakh in a financial year.
- The threshold limit for non-collection of TCS of Rs. 7 lakh on LRS would apply only for remittance other than for purchase of overseas tour package so as to have a level playing field between domestic and overseas tour operators. Further in cases where the threshold of 7 lakh applies, the TCS would be on the amount exceeding 7 lakh in a financial year.
- There would be no double collection of TCS under the two provisions (LRS and overseas tour package).
- The import of goods and export of goods shall be excluded from levy of TCS under said provisions.
- The provision of TCS on sale of goods would not be applicable if the buyer of goods is liable for deduction of TDS on purchase of goods from seller and he has deducted such amount.
B. Changes in Provisions relating to Residential Status
- Amendment in Section 6 for substituting 120 days with 182 days if total income exceeds Rs. 15 lakhs
The Finance Bill, 2020 proposed an amendment to the Explanation 1(b) that the concession in the period of stay in India, for an Indian citizen and PIO, shall be reduced from 182 days to 120 days.
However, the Finance Act, 2020 has provided that the new threshold of 120 days or more (instead of 182 days or more) shall only be applicable to Indian Citizen / Person of Indian origin (PIO) having total income other than income from foreign sources exceeding Rs. 15 lakhs during the previous year.
Accordingly, Indian Citizen / PIO having total income other than income from foreign sources less than Rs. 15 lakhs during previous year shall continue to be governed by the old threshold of 182 days or more (and the condition of being in India for 365 days or more within 4 preceding years) for becoming a resident in India shall continue to apply.
- Provision of ‘Deemed Resident’ applicable if total income exceeds Rs. 15 lakhs
The Finance Bill, 2020 proposed to insert a new clause (1A) to section 6 of the Income-tax Act to provide that an Indian citizen shall be deemed to be resident in India if he is not liable to tax in any country or jurisdiction by reason of his domicile or residence or any other criteria of similar nature. However, Finance Act, 2020 has made amendment in section 6(1A) that an Indian citizen shall be deemed to be resident in India only if his total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year and 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.
- Amendment in provision of section 6(6) which defines Resident but Not ordinary Resident ( RNOR)
As per Section 6(6) of the Act, a resident individual or HUF is deemed as Resident but Not Ordinarily Resident in India, if he satisfies any of the following conditions:
a). Individual or Karta of HUF been a non-resident in 9 out of 10 preceding years; or
b). Stay of individual or Karta of HUF in India for 729 days or less in preceding 7 years.
The Finance Bill, 2020 proposed amendment in these conditions by providing the following:
- An Individual/HUF shall be deemed to be Resident but Not Ordinarily Resident if he/Karta of HUF has been a non-resident in any 7 out of the 10 immediately preceding years;
- The second condition related to stay of individual or Karta of HUF in India for 729 days or less in preceding 7 years was proposed to be removed.
This proposed amendment has been withdrawn by the Finance Act, 2020. Therefore, the existing conditions as contained under section 6(6) of the Income-tax Act (mentioned in Point a & b above) shall continue. However, the Finance Act, 2020 has inserted the following two more situations wherein a person resident in India is deemed to be ‘Not Ordinarily Resident’ in India:
a). An Indian Citizen or a person of Indian origin whose total income (other than income from foreign sources) exceeds Rs. 15 lakhs during the previous year and who has been in India for a period of 120 days or more but less than 182 days;
b). An Indian Citizen who is deemed to be resident in India as per new Section 6(1A)
For the above provisions, 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).
C. Enlarging scope of Equalisation levy to e-commerce supply or services (This amendment was not proposed in Finance Bill, 2020)
The scope of equalisation levy which till now was applicable only on advertisement services provided by non-resident @6% is enlarged by Finance Act 2020. The scope of this levy is now extended to consideration received or receivable by a non-resident e-commerce operator from e-commerce supply or services made or facilitated by it to:
i) a person resident in India; or
ii) a person using IP address in India; or
iii) a non-resident in certain specified circumstances.
The rate of such levy will be 2% and will be applicable on and from 1st April 2020. Consequential amendment is done in Sec. 10(50) to provide that income arising from e-commerce supply or services chargeable to Equalisation levy would be exempt.
The equalisation levy shall not be charged in the following cases:
- where the e-commerce operator has a permanent establishment in India and e-commerce supply or services is effectively connected with such permanent establishment;
- where the equalisation levy is leviable under section 165; or
- Sales, turnover or gross receipts of the e-commerce operator from the e-commerce supply or services made or provided or facilitated is less than Rs. 2 crore during the previous year.
Every e-commerce operator will be required to make Equalization levy payments quarterly as mentioned below:
D. Dividend received on or after 01-04-2020 shall not be taxable if DDT is already paid by the Company
Finance Act, 2020 has made suitable amendments in Section 10(34) to provide that if a company has paid DDT u/s 115-O of the Act on amount of dividend before 01st April 2020, then the said amount of such dividend received on or after 01st April 2020 will be exempt in the hands of shareholder u/s 10(34) of the Act.
E. Amendment in Section 194-O (TDS on E-commerce transactions)
Finance Bill 2020, proposed to insert a new section Sec.194-O to levy TDS of 1% on e-commerce transactions requiring an ecommerce operator to deduct tax at the time of credit of sale/service amount to the account of e-commerce participant or at the time of payment thereof by any mode, whichever is earlier. In the Finance Act, 2020, sub sections (4), (5) & (6) have been inserted in Section 194-O which were not there in the Finance Bill, 2020 which provides for
a). Empowering the Board to issue Guidelines, with the approval of the Central Government, to remove difficulties that arise in giving effect to the provisions of Sec.194-O. The Guidelines shall be laid before the House of Parliament and be binding on the IT Authorities and e-commerce operator;
b). Sub-sec. (6) deems e-commerce operator to be the person responsible for paying to e-commerce participant;
c). Definition of e-commerce operator is amended to remove the words “and is responsible for paying to e-commerce participant” and to limit the definition to “a person who owns, operates or manages digital or electronic facility or platform for electronic commerce”.
d). The Section 194-O of the Act shall be effective from 1st October 2020.
F. Amendment to Part II of the First Schedule to the Bill [i.e. TDS rates]
This part seeks to provide rates of TDS for financial year 2020-21 in certain cases. Following are changes made in Finance Act, 2020 vis-à-vis Finance Bill, 2020:
i). The rate of TDS on dividend income in respect of non-resident (Indian or any other person or a company other than a domestic company) shall be 20 %.
ii). For the purposes of the rate of surcharge of 10 % and 15 % of the TDS under the said Part, the dividend income shall also be included whereas for the purposes of surcharge at 25 % and 37 %, the dividend income shall be excluded. It means that higher rate of surcharge of 25% and 37% shall not apply to dividend income.
iii). In case where the total income includes dividend income, the rate of surcharge on the amount of Income-tax deducted in respect of that part of income shall not exceed 15 %.
G. Amendment to Section 115BAC (Alternate Tax Regime for Individuals/HUF)
Finance Act, 2020 has included income from profession [as against only income from business specified earlier in Finance Bill, 2020] under the restriction specified for exercising optional personal tax regime for individual & HUF under newly inserted Sec 115BAC. It states that concessional rate shall not apply unless option is exercised by the individual or HUF in the form and manner as may be prescribed –
- Where such individual or HUF has income from business or profession, on or before the due date specified u/s 139(1) for furnishing tax return for any previous year relevant to AY commencing on/after 01st April 2021 and such option once exercised shall apply to subsequent AYs;
- Where such individual or HUF has income other than income referred to in (i) above, along with tax return to be furnished u/s 139(1) for a previous year relevant to the AY
H. Amendment in Section 80M (Related to deduction of inter-corporate dividend)
The Finance Act, 2020 expanded the scope of deduction available under Section 80M to include the dividend received from a foreign company and business trust. Thus, a domestic company can claim deduction under section 80M even in those cases where dividend received from a foreign company or business trust is further distributed to shareholders within one month before the due date of filing of return.
I. Amendment in Section 194A (TDS on Interest other than Interest on Securities)
Sec 194A(3)(iii)(f) specifies that TDS on interest under than ‘interest on securities’ shall not apply to income credited inter alia to such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette.
Finance Act, 2020 now added a proviso to clarify that no notification under this sub-clause shall be issued on/after April 1, 2020. Instead, inserted a new sub-section 194A(5) to provide that “The Central Government may, by notification in the Official Gazette, provide that the deduction of tax shall not be made or shall be made at such lower rate, from such payment to such person or class of persons, as may be specified in the said notification.”
J. Amendment in Section 194J (TDS on Fee for Professional or technical services)
Finance Act, 2020 has extended lower TDS rate of 2% u/s 194J to royalty [where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic films] in addition to such favourable rate on fees for technical services [other than professional fees] as originally proposed in Finance Bill.
K. Amendment in Section 194K – Income on MF Units
TDS u/s 194K [on any income in respect of units of a Mutual Fund specified u/s 10(23D) or units from the administrator of the specified undertaking or units from the specified company] shall inter alia not apply if the income is in the nature of capital gains.
L. Amendment in Section 194LBA (TDS on income from units of business trust)
TDS u/s 194LBA by business trust on dividend income paid to unit holder shall not apply in respect of income of the nature referred to in Sec 10(23FC)(b), if the SPV referred to in the said clause has not exercised the option u/s 115BAA.
M. Amendment in Section 194N w.e.f. 01-07-2020 (Amendment to this section was not proposed in Finance Bill, 2020)
If a recipient has not filed the return of income for three AY relevant to 3 PY immediately preceding the previous year in which the payment of the sum is made to him, then the provision of said section 194N would apply so that TDS would be:
i). At 2% when the cash withdrawal in a year is more than Rs 20 lakh but does not exceed 1 crore (on amount exceeding Rs 20 lakh) and
ii). At 5% when the cash withdrawal exceed 1 crore (on amount exceeding 20 lakh).
Currently, TDS was applicable at 2% when the withdrawal exceeded Rs. 1 Cr.
The Central Government shall be empowered to notify, in consultation with RBI, the recipient in whose case the above provision shall not apply or apply with reduced rate on satisfaction of conditions specified in the notification.
N. Amendment in Section 197A (Lower rate of TDS in certain cases) (Amendment to this section was not proposed in Finance Bill, 2020)
Section 197A of the Act provides for certain cases wherein no deduction is to be made. Sub-section (1F) of the section provides that no deduction shall be made from such specified payment to such institution, association or body or class of institutions as may be notified by the Central Government in the Official Gazette.
It is now provided in Finance Act, 2020 that Central Government by way of notification may provide for non-deduction of TDS or deduction at a lower rate from such payment to such person or class of persons, including institution, association or body or class of institutions, associations or bodies, as may be notified by the Central Government in official Gazette.
O. Amendment to Sec 10(23C) and 11
An explanation is added to clarify that income for the relevant institution shall not include voluntary contribution made with specific direction that they shall form part of corpus of fund, trust, etc.
As per Explanation 2 to Sec 11(1), any amount credited or paid, out of income referred to in clause (a) or clause (b) read with Explanation 1, to any other trust or institution registered under section 12AA, being contribution with a specific direction that they shall form part of the corpus of the trust or institution, shall not be treated as application of income for charitable or religious purposes. The provision is extended to such contribution to corpus of university, educational institution, hospital, other medical institution referred in Sec 10(23C).
P. Amendments to Sec 10(23FE) regarding Exemption of certain income of wholly owned subsidiary of Abu Dhabi Investment Authority and Sovereign Wealth Fund.
Following changes have been made in Section 10(23FE) in Finance Act, 2020 vis-à-vis Finance Bill, 2020:
- Exemption for dividend/LTCG/ interest arising from an investment made by it in India, whether in the form of debt or equity subject to specified condition. As per Finance Act, 2020, the investment can be in share capital or unit as against earlier term used as equity in Finance Bill, 2020.
- Restricts exemption u/s 10(23FE) to investment made during the period from 01st April 2020 to 31st March 2024;
- Expanding the scope of entities, investment in which would qualify for exemption. Thus, exemption would also be available to investment made in business trust as specified in Sec 2(13A)(i) or category I or II Alternative investment Fund regulated by SEBI having 100% investment in the specified companies (carrying out activities as specified under clause (b)).
Further the amendment also authorizes CBDT to issue guidelines for interpretation of the above eligibility clause which have to be laid before the Parliament.
The amendment further provides that if a person avails exemption and subsequently, it fails to satisfy any condition for exemption, then the said income for which the exemption is claimed would be taxable in the year in which such failure takes place.
As per amended provision, the eligible entities would also include specified pension funds in addition to wholly owned subsidiary of Abu Dhabi Investment authority and a sovereign wealth fund.
For details of the provisions, please refer the link below of The Finance Act, 2020 as passed by Parliament and as approved by Hon’ble President of India:
For Brief summary of Finance Bill, 2020 as presented by Hon’ble Finance Minister of India on 01.02.2020, please refer the link below:
This document has been prepared in summary form by Dewan P. N. Chopra & Co. from sources believed to be reliable based on Finance Bill, 2020 and Finance Act, 2020 as approved by Hon’ble President of India on 27th March 2020. For further details, please refer Finance Act 2020 as passed by Parliament and approved by President of India and related Explanatory Memorandum. The information contained herein is intended only for the person to whom it is sent. While the information is believed to be accurate to the best of our knowledge, we do not make any representations or warranties, express or implied, as to the accuracy or completeness of such information. Recipients should conduct and rely upon their own examination, investigation and analysis and are advised to seek their own professional advice. The information and data contained herein is not a substitute for the recipient’s independent evaluation and analysis. This document is not an offer, invitation, advice or solicitation of any kind. We accept no responsibility for any errors it may contain, whether caused by negligence or otherwise or for any loss, howsoever caused or sustained, by the person who relies on it.