Budget 2019: Transfer Pricing, Personal Taxation & Tax Rate Changes

[Provided that the person, being a constituent entity of an international group, shall also keep and maintain such information and document in respect of an international group as may be prescribed.

Explanation.—For the purposes of this section,—

(A) “constituent entity” shall have the meaning assigned to it in clause (d) of sub-section (9) of section 286;

(B) “international group” shall have the meaning assigned to it in clause (g) of sub-section (9) of section 286.]

(2) Without prejudice to the provisions contained in sub-section (1), the Board may prescribe the period for which the information and document shall be kept and maintained under that sub-section.

(3) The Assessing Officer or the Commissioner (Appeals) may, in the course of any proceeding under this Act, require any person who has entered into an international transaction or specified domestic transaction to furnish any information or document in respect thereof, as may be prescribed under sub-section (1), within a period of thirty days from the date of receipt of a notice issued in this regard :

Provided that the Assessing Officer or the Commissioner (Appeals) may, on an application made by such person, extend the period of thirty days by a further period not exceeding thirty days.

(4) Without prejudice to the provisions of sub-section (3), the person referred to in the proviso to sub-section (1) shall furnish the information and document referred to in the said proviso to the authority prescribed under sub-section (1) of section 286, in such manner, on or before the date, as may be prescribed.

(i) who has entered into an international transaction or specified domestic transaction shall keep and maintain such information and document in respect thereof, as may be prescribed;

(ii) being a constituent entity of an international group, shall also keep and maintain such information and document in respect of an international group as may be prescribed.

Explanation.—For the purposes of this section,—

(A) “constituent entity” shall have the meaning assigned to it in clause (d) of sub-section (9) of section 286;

(B) “international group” shall have the meaning assigned to it in clause (g) of sub-section (9) of section 286.]

(2) Without prejudice to the provisions contained in sub-section (1), the Board may prescribe the period for which the information and document shall be kept and maintained under that sub-section.

(3) The Assessing Officer or the Commissioner (Appeals) may, in the course of any proceeding under this Act, require any person referred to in clause (i) of sub section (1) to furnish any information or document referred therein, within a period of thirty days from the date of receipt of a notice issued in this regard:

Provided that the Assessing Officer or the Commissioner (Appeals) may, on an application made by such person, extend the period of thirty days by a further period not exceeding thirty days.

(4) The person referred to in clause (ii) of sub-section (1) shall furnish the information and document referred therein to the authority prescribed under sub-section (1) of section 286, in such manner, on or before the date, as may be prescribed.

Such designated constituent entity is also required to file requisite form in this regard.

This amendment would take effect from 1^st April 2019 and will accordingly applicable to Financial Year 2019-20 relevant to Assessment Year 2020-21 and subsequent Financial Years relevant to Assessment Years.

My Comments:

Existing Section 92D might be interpreted as designated constituent entity is required to keep and maintain information or documents i.e. to furnish master file, only when the constituent entity enters into an International Transaction.

Now the position has been clarified.

(i) has been made suomotu by the assessee in his return of income;

(ii) made by the Assessing Officer has been accepted by the assessee;

(iii) is determined by an advance pricing agreement entered into by the assessee under section 92CC;

(iv) is made as per the safe harbour rules framed under section 92CB; or

(v) is arising as a result of resolution of an assessment by way of the mutual agreement procedure under an agreement entered into under section 90 or section 90A for avoidance of double taxation, the assessee shall make a secondary adjustment:

Provided that nothing contained in this section shall apply, if,—

(i) the amount of primary adjustment made in any previous year does not exceed one crore rupees; and

(ii) the primary adjustment is made in respect of an assessment year commencing on or before the 1st day of April, 2016.

(2) Where, as a result of primary adjustment to the transfer price, there is an increase in the total income or reduction in the loss, as the case may be, of the assessee, the excess money which is available with its associated enterprise, if not repatriated to India within the time as may be prescribed, shall be deemed to be an advance made by the assessee to such associated enterprise and the interest on such advance, shall be computed in such manner as may be prescribed.

(3) For the purposes of this section,—

(i) “associated enterprise” shall have the meaning assigned to it in sub-section (1) and sub-section (2) of section 92A;

(ii) “arm’s length price” shall have the meaning assigned to it in clause (ii) of section 92F;

(iii) “excess money” means the difference between the arm’s length price determined in primary adjustment and the price at which the international transaction has actually been undertaken;

(iv) “primary adjustment” to a transfer price, means the determination of transfer price in accordance with the arm’s length principle resulting in an increase in the total income or reduction in the loss, as the case may be, of the assessee;

(v) “secondary adjustment” means an adjustment in the books of account of the assessee and its associated enterprise to reflect that the actual allocation of profits between the assessee and its associated enterprise are consistent with the transfer price determined as a result of primary adjustment, thereby removing the imbalance between cash account and actual profit of the assessee.]

(i) has been made suomotu by the assessee in his return of income;

(ii) made by the Assessing Officer has been accepted by the assessee;

(iii) is determined by an advance pricing agreement entered into by the assessee under section 92CC, on or after 1st day of April 2017;

(iv) is made as per the safe harbour rules framed under section 92CB; or

(v) is arising as a result of resolution of an assessment by way of the mutual agreement procedure under an agreement entered into under section 90 or section 90A for avoidance of double taxation, the assessee shall make a secondary adjustment:

Provided that nothing contained in this section shall apply, if,—

(i) the amount of primary adjustment made in any previous year does not exceed one crore rupees; or

(ii) the primary adjustment is made in respect of an assessment year commencing on or before the 1st day of April, 2016.

Provided further that no refund of taxes paid, if any, by virtue of provisions of this sub section as they stood immediately before their amendments by the Finance No (2) Act, 2019 shall be claimed and allowed.

(2) Where, as a result of primary adjustment to the transfer price, there is an increase in the total income or reduction in the loss, as the case may be, of the assessee, the excess money or part thereof, as the case may be which is available with its associated enterprise, if not repatriated to India within the time as may be prescribed, shall be deemed to be an advance made by the assessee to such associated enterprise and the interest on such advance, shall be computed in such manner as may be prescribed.

Explanation: For the removal of doubts, it is hereby clarified that excess money of part thereof may be repatriated from any of the associated enterprise of the assessee which is not a resident in India.

(2A) Without prejudice to the provisions of sub section (2), where the excess money of part thereof has not been repatriated within prescribed time, the assessee may, at his option, pay additional income tax at the rate of eighteen percent on such excess money of part thereof, as the case may be.

(2B) The tax on the excess money or part thereof so paid by the assessee under sub section (2A) shall be treated as final payment of tax in respect of excess money of part thereof not repatriated and no further credit therefore shall be claimed by the assessee or by any other person in respect of the amount of tax so paid.

(2C) NO deduction under any other provisions of this Act shall be allowed to the assessee in respect of the amount on which tax has been paid in accordance with the provisions of sub section (2A).

(2D) Where the additional income tax referred to in sub section (2A) is paid by the assessee, he shall not be required to make secondary adjustment under sub section (1) and compute interest under sub section (2) from the date of payment of such tax.

(3) For the purposes of this section,—

(i) “associated enterprise” shall have the meaning assigned to it in sub-section (1) and sub-section (2) of section 92A;

(ii) “arm’s length price” shall have the meaning assigned to it in clause (ii) of section 92F;

(iii) “excess money” means the difference between the arm’s length price determined in primary adjustment and the price at which the international transaction has actually been undertaken;

(iv) “primary adjustment” to a transfer price, means the determination of transfer price in accordance with the arm’s length principle resulting in an increase in the total income or reduction in the loss, as the case may be, of the assessee;

(v) “secondary adjustment” means an adjustment in the books of account of the assessee and its associated enterprise to reflect that the actual allocation of profits between the assessee and its associated enterprise are consistent with the transfer price determined as a result of primary adjustment, thereby removing the imbalance between cash account and actual profit of the assessee.]

I. the condition of threshold of one crore rupees and of the primary adjustment made upto assessment year 2016-17 are alternate conditions.

II. the assessee shall be required to calculate interest on the excess money or part thereof.

III. the provision of this section shall apply to the agreements which have been signed on or after 1st April, 2017; however, no refund of the taxes already paid till date under the pre amended section would be allowed.

IV. the excess money may be repatriated from any of the associated enterprises of the assessee which is not resident in India even if such AE is not the party to the international transaction resulting in primary adjustment.

The above said amendments would take effect retrospectively i.e. from Financial Year 2017-18 and onwards.

Further, proposed amendments provide an option to the assessee to pay additional tax in case where it is impracticable or impermissible to repatriate the excess money.

I. In a case where the excess money or part thereof has not been repatriated in time, the assessee will have the option to pay additional income-tax at the rate of 18% on such excess money or part thereof in addition to the existing requirement of calculation of interest till the date of payment of this additional tax. The additional tax is proposed to be increased by a surcharge of 12%.

II. the tax so paid shall be the final payment of tax and no credit shall be allowed in respect of the amount of tax so paid;

III. the deduction in respect of the amount on which such tax has been paid , shall not be allowed under any other provision of this Act; and

IV. if the assessee pays the additional income-tax, he will not be required to make secondary adjustment or compute interest from the date of payment of such tax.

This amendment would take effect from 1st September, 2019.

My Comments:

To simplify the applicability of the provisions related to secondary adjustment and further providing an option to the assessee to pay additional tax (which is one time levy) in case where it is impracticable or impermissible to repatriate the excess money is somewhere a good move. It enables the assessee to bring certainty to pending tax matters.

(2) Save as otherwise provided in this section, all other provisions of this Act shall apply accordingly as if the modified return is a return furnished under section 139.

(3) If the assessment or reassessment proceedings for an assessment year relevant to a previous year to which the agreement applies have been completed before the expiry of period allowed for furnishing of modified return under sub-section (1), the Assessing Officer shall, in a case where modified return is filed in accordance with the provisions of sub-section (1), proceed to assess or reassess or recompute the total income of the relevant assessment year having regard to and in accordance with the agreement.

(4) Where the assessment or reassessment proceedings for an assessment year relevant to the previous year to which the agreement applies are pending on the date of filing of modified return in accordance with the provisions of sub-section (1), the Assessing Officer shall proceed to complete the assessment or reassessment proceedings in accordance with the agreement taking into consideration the modified return so furnished.

(5) Notwithstanding anything contained in section 153 or section 153B or section 144C,—

a) the order of assessment, reassessment or recomputation of total income under sub-section (3) shall be passed within a period of one year from the end of the financial year in which the modified return under sub-section (1) is furnished;

b) the period of limitation as provided in section 153 or section 153B or section 144C for completion of pending assessment or reassessment proceedings referred to in sub-section (4) shall be extended by a period of twelve months.

(6) For the purposes of this section,—

I. “agreement” means an agreement referred to in sub-section (1) of section 92CC;

II. the assessment or reassessment proceedings for an assessment year shall be deemed to have been completed where—

a) an assessment or reassessment order has been passed; or

b) no notice has been issued under sub-section (2) of section 143 till the expiry of the limitation period provided under the said section.

(2) Save as otherwise provided in this section, all other provisions of this Act shall apply accordingly as if the modified return is a return furnished under section 139.

(3) If the assessment or reassessment proceedings for an assessment year relevant to a previous year to which the agreement applies have been completed before the expiry of period allowed for furnishing of modified return under sub-section (1), the Assessing Officer shall, in a case where modified return is filed in accordance with the provisions of sub-section (1), pass an order modify the total income of the relevant assessment year determined in such assessment or reassessment, as the case may be, having regard to and in accordance with the agreement.

(4) Where the assessment or reassessment proceedings for an assessment year relevant to the previous year to which the agreement applies are pending on the date of filing of modified return in accordance with the provisions of sub-section (1), the Assessing Officer shall proceed to complete the assessment or reassessment proceedings in accordance with the agreement taking into consideration the modified return so furnished.

(5) Notwithstanding anything contained in section 153 or section 153B or section 144C,—

a) the order under sub-section (3) shall be passed within a period of one year from the end of the financial year in which the modified return under sub-section (1) is furnished;

b) the period of limitation as provided in section 153 or section 153B or section 144C for completion of pending assessment or reassessment proceedings referred to in sub-section (4) shall be extended by a period of twelve months.(6) For the purposes of this section,—

I. “agreement” means an agreement referred to in sub-section (1) of section 92CC;

II. the assessment or reassessment proceedings for an assessment year shall be deemed to have been completed where—

a) an assessment or reassessment order has been passed; or

b) no notice has been issued under sub-section (2) of section 143 till the expiry of the limitation period provided under the said section.

This amendment would take effect from 1^st September, 2019.

My Comments:

This amendment clarificatory in nature and now the power of Assessing Officer is limited to only pass an order modifying the total income of the assessee consequent to filing of modified return of income in pursuance of to APA.

Therefore, now the Assessing Officer does not have any power to assess, reassess or recomputed the total income of the assessee.

(a) “accounting year” means,—

(i) a previous year, in a case where the parent entity or alternate reporting entity is resident in India; or

(ii) an annual accounting period, with respect to which the parent entity of the international group prepares its financial statements under any law for the time being in force or the applicable accounting standards of the country or territory of which such entity is resident, in any other case;

(a) “accounting year” means,—

(i) a previous year, in a case where the parent entity is resident in India; or

(ii) an annual accounting period, with respect to which the parent entity of the international group prepares its financial statements under any law for the time being in force or the applicable accounting standards of the country or territory of which such entity is resident, in any other case;

The above said amendments would take effect retrospectively i.e. from Financial Year 2016-17 and onwards.

My Comments:

This amendment is clarificatory in nature and accounting year would always be the accounting year of the ultimate parent entity where it resides, not the previous year of the entity resident in India.

These amendments would take effect from Financial Year 2019-20 and onwards.

(2) The sums referred to in sub-section (1) shall be any sums paid or deposited in the previous year by the assessee—

After clause (xxiv), Insertion of new clause (xxv)

(2) The sums referred to in sub-section (1) shall be any sums paid or deposited in the previous year by the assessee—

(xxv) being an employee of the Central Government, as a contribution to a specified account of the pension scheme referred to in section 80CCD––

a) for a fixed period of not less than three years; and

b) which is in accordance with the scheme as may be notified by the Central Government in the Official Gazette for the purposes of this clause.

Explanation.—For the purposes of this clause, “specified account” means an additional account referred to in sub-section (3) of section 20 of the Pension Fund Regulatory and Development Authority Act, 2013. ’.

These amendments would take effect from Financial Year 2019-20 and onwards.

2) Where, in the case of an assessee referred to in sub-section (1), the Central Government or any other employer makes any contribution to his account referred to in that sub-section, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government or any other employer as does not exceed ten per cent of his salary in the previous year.

2) Where, in the case of an assessee referred to in sub-section (1), the Central Government or any other employer makes any contribution to his account referred to in that sub-section, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government or any other employer as does not exceed –

a) fourteen per cent., where such contribution is made by the Central Government;

b) ten per cent., where such contribution is made by any other employer, of his salary in the previous year”

It is proposed to increase the limit from ten to 14% of contribution made by the Central Government to the account of its employee to ensure that the Central Government employees get full deduction of the enhanced contribution.

These amendments would take effect from Financial Year 2019-20 and onwards.

(2) The deduction under sub-section (1) shall not exceed one lakh and fifty thousand rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on the 1st day of April, 2020 and subsequent assessment years.

(3) The deduction under sub-section (1) shall be subject to the following conditions, namely:— (i) the loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2019 and ending on the 31st day of March, 2020;

(ii) the stamp duty value of residential house property does not exceed forty-five lakh rupees; (iii) the assessee does not own any residential house property on the date of sanction of loan.

(4) Where a deduction under this section is allowed for any interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provision of this Act for the same or any other assessment year.

(5) For the purposes of this section,––

(a) the expression “financial institution” shall have the meaning assigned to it in clause (a) of sub-section (5) of section 80EE;

(b) the expression “stamp duty value” means value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property.

(i) loan has been sanctioned by a financial institution during the period beginning on the 1st April, 2019 to 31st March 2020.

(ii) the stamp duty value of house property does not exceed 45 lakh rupees;

(iii) assessee does not own any residential house property on the date of sanction of loan.

(iv) No deduction shall be allowed in respect of such interest under any other provisions of the Act for the same or any other assessment year.

These amendments would take effect from Financial Year 2019-20 and onwards.

(2) The deduction under sub-section (1) shall not exceed one lakh and fifty thousand rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on the 1st day of April, 2020 and subsequent assessment years.

(3) The deduction under sub-section (1) shall be subject to the condition that the loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2019 and ending on the 31st day of March, 2023.

(4) Where a deduction under this section is allowed for any interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provision of this Act for the same or any other assessment year.

(5) For the purposes of this section,––

(a) “electric vehicle” means a vehicle which is powered exclusively by an electric motor whose traction energy is supplied exclusively by traction battery installed in the vehicle and has such electric regenerative braking system, which during braking provides for the conversion of vehicle kinetic energy into electrical energy;

(b) “financial institution” means a banking company to which the Banking Regulation Act, 1949 applies, or any bank or banking institution referred to in section 51 of that Act and includes any deposit taking non-banking financial company or a systemically important non-deposit taking non-banking financial company as defined in clauses (e) and (g) of Explanation 4 to section 43B.’.

(i) the loan has been sanctioned by a financial institution including a non-banking financial company during the period beginning on the 1st April, 2019 to 31st March, 2023;

(ii) the assessee does not own any other electric vehicle on the date of sanction of loan.

(iii) No deduction shall be allowed in respect of such interest under any other provisions of the Act for the same or any other assessment year.

These amendments would take effect from Financial Year 2019-20 and onwards.