Finance Bill 2020 vs Finance Act 2020 - International Taxation Perspective International Taxation Study Group of CTC Sunil Maloo FCA, LLB, DIIT, DISA Ahmedabad
Agenda 2 Modification of Residency Provisions 01 Changed Residency Norms for Indian Citizens, Person of Indian Origin, Deemed Residency for Stateless persons and RBNOR New Era of Taxation of Dividend 02 Removal of DDT and revised Scheme of Taxation of Dividend Introduction of Equalization Levy on E-Commerce 03 Expanding the scope of existing equalization levy on the E- Commerce Operators (Non-Resident) Other International Tax Amendments 04 Significant Economic Presence, Scope of Safe Harbor & APA, Section 115A, Definition of ‘Royalty’, MLI Amendment etc
3 Amendments in Modification of residency provisions Section – 6 - Modification of residency provisions - 120 days to substitute 182 days – Clause (b) to Explanation 1 – Section 6(1) - Modification of residency provisions – Deemed Residency for Stateless Person - Modification of residency provisions – Resident but Not Ordinarily Resident (RBNOR)
Modification of residency provisions – 120 days to substitute 182 day 4 Before Amendment – 1) Condition of 182 days or more in the PY; or 2) 60 days or more in that PY and 365 days or more within 4 preceding years. However, for two categories period of 60 days to be read as 182 days, which are – - Indian Citizen leaving India as member of Crew or for employment outside India; - Indian Citizen or Person of Indian Origin
Modification of residency provisions – 120 days to substitute 182 day 5 Proposed Amendment – Finance Bill 2020 - However, Period of 60 days to be read as 120 days for Indian Citizen or Person of Indian Origin - Proposal aimed to prevent misuse of 182 criteria and to tax global income
Modification of residency provisions – 120 days to substitute 182 day 6 Final Amendment – Finance Act 2020 - However, Period of 60 days to be read as 120 days for Indian Citizen or Person of Indian Origin whose total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year. - For this provision, 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)
Modification of residency provisions – 7 Deemed Residency for Stateless Person Existing Provisions – - The Residency Provisions as per Income Tax Act may sometime results into a Indian citizen to be non resident for all countries and resident for none. Thus, the issue of stateless persons has been bothering the tax world for quite some time.
Modification of residency provisions – 8 Deemed Residency for Stateless Person Proposed Amendment – 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. - Proposal aimed to tax worldwide income of stateless person - Immediate clarification by CBDT dt. 02/02/2020 - to give benefit to bonafide persons working in abroad
Modification of residency provisions – 9 Deemed Residency for Stateless Person Final Amendment – Finance Act 2020 - Notwithstanding anything contained in clause (1), an individual, being a citizen of India, having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year shall be deemed to be resident in India in that previous year, if 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
Modification of residency provisions – 10 Resident but Not Ordinarily Resident (RBNOR) Existing Provisions – Two Situations - Individual or Karta of HUF has been a non-resident in India for 9 years out of 10 years preceding the previous year; or - Individual or Karta of HUF has been in India for 729 days or less during the period of 7 years preceding the previous year.
Modification of residency provisions – 11 Resident but Not Ordinarily Resident (RBNOR) Proposed Amendment – Finance Bill 2020 - Substituted both the existing situation with one new condition; - That an Individual/HUF shall be deemed to be Not Ordinarily Resident if he/Karta of HUF has been a non- resident in 7 out of the 10 immediately preceding years
Modification of residency provisions – 12 Resident but Not Ordinarily Resident (RBNOR) Final Amendment – Finance Act 2020 - Set aside the new proposal of Finance Bill 2020. It restored earlier two conditions and added further two situations 1) 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; or 2) An Indian Citizen who is deemed to be resident in India as per new Section 6(1A).
Section 5 - Scope of Total Income 13 Resident RBNOR Non - Resident a) Received or Deemed to a) Received or Deemed to a) Received or Deemed to Received In India Received In India Received In India b) Accrues or arises or b) Accrues or arises or b) Accrues or arises or Deemed to accrue or Deemed to accrue or Deemed to accrue or Arise in India Arise in India Arise in India c) Accrues or Arises c) Accrues or Arises Same as per Outside India Outside India but definition of derived from Income from Foreign Business Controlled Source – or Profession Set up Section 6 in India
Analysis of important terms 14 Derived from Derived from is different from term ‘Attributable to’. As per SC in 16 ITR 325, ‘ Derived from ’ should bring first degree relationship. Whereas ‘ Attributable to ’ has a wider meaning Business Controlled in India Language used is ‘Business controlled in India’ and not ‘carried on in India’ . Exception to Difficult to determine whether control ‘Income from exist in India in an Individual’s Foreign perspective. Sources’ Profession Set up in India Control of Business is a continues state of affairs, ‘Set up’ in relation to profession is historic set of affairs . Once profession is set up in India, same will remain so during the lifetime of said profession
Reintroduction of Traditional System of Taxation for Dividends 15 Proposals by Finance Bill 2020 04 80M Reintroduced 03 Deduction u/s 57 To remove the cascading effect, a deduction of an 02 Dividend Taxable Deduction u/s 57 can be amount equal to income claimed maximum upto by way of dividends 01 DDT Removed New regime to move to 20% of such dividend received from such other classical system of domestic company Remove the concept of taxing dividend in the Dividend Distribution hands of Tax u/s 115-O (from shareholders/unit Companies) and 115R holders if it is received (From Mutual Funds etc) after 01/04/2020
Further Amendment – Finance Act 2020 16 Scope of Section 80M as per Finance Bill expanded Scope of Section 80M expanded to include the dividend received from a foreign company and business trust Rate of TDS on Dividend Distributed To a Non-Resident or Foreign Company Section 115A prescribes Tax Rate for dividend income @ 20%, whereas in most of DTAA it ranges from 5-15%. But Rate for TDS u/s 195 are prescribed in Part II of First Schedule , wherein no rate was hitherto prescribed for Dividend, so it was falling in residuary category of 40% for foreign companies and 30% for other NR Now Part II of First Schedule has been amended to include TDS rate of 20% for such dividends
Further Amendment – Finance Act 2020 17 Dividend received on or after 01/04/2020 not taxable if DDT is already paid thereon As per Finance Bill 2020 – No exemption u/s 10(34) shall be available in respect of dividend received on or after 01-04-2020. Whereas as per Section 115-O, DDT was required to be deposited by the Company within 14 days of the earliest of declaration or distribution or payment of Dividend. Further, as per ICDS the recipient has also to pay tax on dividends on earliest of the accrual or receipt basis. Problem may arise in two cases: - 1. There may be situations, where dividend is declared prior to 01/04/2020 but received in the hands of the shareholder post 01/04/2020; or 2. The shareholder has already offered such dividend as income in FY 2019-20 on accrual basis To remove this kind of situation, Finance Act 2020 has amended Section 10(34) and 10(35) to provide that dividend received by assessee on or after 01- 04-2020 shall not be included in his income if tax has already been paid on such dividend under section 115-O or section 115BBDA
Equalization Levy on E-Commerce 18 03 02 01 04
19 01 Scope of Equalization Levy 02 Taxable Transactions 03 Important Definitions 04 Threshold & Exceptions 05 Compliance Portion
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