March 26 2020

Union Budget 2020: Finance Bill 2020 passed by Lok Sabha – key amendments

Source: IBFD Tax Research Platform News

On 23 March 2020, the Lok Sabha (Lower House of Parliament) passed the Finance Bill 2020 (the Bill) with amendments. The key amendments are summarized below.

Income tax

  • The following provisions relate to residence status:
    • the concession for the period of stay in India for an Indian citizen and a person of Indian origin will be reduced from 182 days to 120 days; and
    • an Indian citizen will be deemed to be resident in India only if his total income, other than income from foreign sources, exceeded INR 1.5 million in the previous year.
  • The tax deducted at source (TDS) rate on payment of dividend to a foreign company, non-resident Indian or other non-resident person will be 20% with effect from 1 October 2020. However, this is subject to the provisions included in the relevant tax treaties that India has concluded with other countries.
  • Dividend received on or after 1 April 2020 will not be taxable as income of the shareholder if tax has already been paid on such dividend under section 115-O or section 115BBDA of the Income-tax Act, 1961, (amendment to section 10(34) of the Income-tax Act, 1961).
  • An amendment will be made to section 194N of the Income-tax Act, 1961 with effect from 1 July 2020 as follows:
    • tax on cash withdrawals of over INR 2 million will be 2% if the tax return has not been filed for 3 years; and
    • tax on cash withdrawals of over INR 10 million will be 5% if the tax return has not been filed for 3 years.
  • No tax is levied on income arising from e-commerce supply on which equalization levy is chargeable (amendment to section 10(50) of the Income-tax Act, 1961).
  • The tax collected at source (TCS) on Liberalized Remittance Scheme (LRS) will be relaxed as follows:
    • no tax will be levied in respect of export or import of goods;
    • tax will be levied at 5% only on the amount in excess of INR 700,000, except where a remittance has been made for overseas tour program package;
    • a lower rate of 0.5% applies where the amount is being remitted out of India as a loan, obtained from a banking company, banking institution, financial institutions notified under section 80E of the Income-tax Act, 1961 for the purposes of education; and
    • applicability of the amendments made to TCS provisions will be deferred from 1 April 2020 to 1 October 2020.
  • Royalties in respect of the exhibition of cinematographic films will be subject to TDS at a rate of 2% under section 194J of the Income-tax Act, 1961.
  • No TDS will be levied, under section 194K of the Income-tax Act, 1961 from capital gains arising on the transfer of units of mutual funds.
  • The scope of section 80M of the Income-tax Act, 1961 will be expanded to include dividend received from a foreign company and business trust. Companies opting for the new tax regime will be eligible for deduction under the said section from assessment year 2021-22.
  • To ensure that section 10(23) institutions do not avail dual benefit (exemption of income as well as application of income), corpus donations by a fund or trust or institutions to another such fund will not be considered application of income.
  • The concessional tax regime can be opted by taxpayers having income from a profession as well, similar to the option available to taxpayers earning income from business (amendment to section 115BAC of the Income-tax Act, 1961).
  • No exemption will be available to a unit holder of business trust in respect of a dividend received from a special purpose vehicle (SPV) if such SPV has not exercised the option of section 115BAA of the Income-tax Act, 1961 (amendment to section 115BAA of the Income-tax Act, 1961).
  • The tax exemption for sovereign wealth funds is extended to pension funds with regard to infrastructure investment (amendment to section 10(23FE) of the Income-tax Act, 1961).

Transfer pricing

'Safe harbour' for the purposes of section 92CB of the Income-tax Act, 1961 will cover the transfer price or income, deemed to accrue or arise under section 9(1)(i), declared by the assessee.

Equalization levy

  • The equalization levy of 2% is chargeable on non-resident e-commerce supply, except in the following cases:
    • for e-commerce operators with a permanent establishment in India;
    • for online advertisement service covered under section 165 of the Finance Act, 2016; and
    • if the consideration is less than the threshold limit of INR 20 million (aggregate and not buyer specific).

The Finance Bill will be enacted into law when it is passed by the Rajya Sabha (Upper House of Parliament) and assent is given by the President.