AMENDMENTS FOR NON-RESIDENT INDIANS
1. Modification of Residency Provisions
- Tax Residency Period for Indian Citizens and Person of Indian Origin reduced from 182 days or more to 120 days or more along with stay of 365 days or more in India within 4 years preceding the financial year for determining as Resident in India.
- Individual or HUF to be treated as Not Ordinarily Resident in India only if the individual or manager of HUF has been Non-Resident in India in 7 out of 10 previous years preceding financial year (earlier 9 out of 10 previous years). Also earlier condition of stay of 729 days or less in 7 years preceding the financial year removed.
- Indian Citizen who is not liable to tax in any other country or territory shall be deemed to be resident in India. However, it has been subsequently clarified by way of Press Release that an Indian Citizen who becomes deemed resident of India under this provision, income earned by him shall not be taxed in India unless it is derived from an Indian Business or Profession.
Thus, Indian Citizens who are bonafide workers in other countries and Non Resident in India will not be taxed in India for the income earned through such employment outside India.
Definition of Resident & Ordinarily Resident in India w.e.f. April 1, 2020
♣ Indian Citizen or Person of Indian Origin
- Period of Stay in India is 182 days or more in Financial Year
- Period of Stay in India is 182 days 120 days or more in Financial Year and Period of Stay in India is 365 days or more in 4 years preceding the Financial Year
♣ All Other Individuals
- Period of Stay in India is 182 days or more in Financial Year
- Period of Stay in India is 60 days or more in Financial Year and Period of Stay in India is 365 days or more in 4 years preceding the Financial Year
2. Tax Return Filing
♣ NRIs have been Exempt from filing Return of Income from FY 2020-21 in India, if
- Total Income consists only Dividend or Interest Income
- TDS on such income has been deducted at rates not lower than those specified under section 115A(1) of the IT Act.
3. TCS Provisions (Withholding Taxes) for Remittance outside India
- TCS @ 5% to be collected by Authorised Dealer from a person remitting amount in excess of Rs. 7 lacs in a financial year outside India under Liberalised Remittance Scheme of RBI. In non-PAN/Aadhaar cases, TCS rate shall be 10%.
- TCS @ 5% to be collected by a seller of an Overseas Tour Package who receives any amount from any buyer who purchases such package. In non-PAN/Aadhaar cases, TCS rate shall be 10%. Overseas Tour Package to mean expenses for travel or hotel stay or boarding or lodging or any other expense of similar nature or in relation thereto.
Above TCS provisions would not be applicable if the person remitting money is required to deduct TDS under any other provisions of Income Tax Act, 1961 or person remitting money is the Government or a Government authority.
Both the above TCS provisions may result in withholding taxes on already Tax paid income resulting in cash flow issues for the person remitting money for genuine needs of their family members abroad.
As these amendments would be effective from April 1, 2020, one can plan their remittances earlier to avoid above withholding tax implications.
- 194LC – A concessional rate of TDS @ 5% by a specified company or a business trust, on interest paid to non-residents on the prescribed forms of borrowings (approved by the Central Government) made in foreign currency from sources outside India – cut-off date for issuing loan or bonds extended from 1st July, 2020 to 1st July, 2023.
- TDS shall be @ 4% on the interest payable to a non-resident, in respect of monies borrowed in foreign currency from a source outside India, by way of issue of any long-term bond or RDB on or after 1st April, 2020 but before 1st July, 2023
- 194LD – TDS @ 5% in case of interest payments to Foreign Institutional Investors (FII) and Qualified Foreign Investors (QFIs) on their investment in Government securities and RDB of an Indian company.
4. Sovereign Wealth Funds
- 100% Tax exemption to investments done by Government of a Foreign Country in any infrastructure facility as defined in Sec 80-IA(4)(i) of the Act.
- Investment in form of Debt or Equity
- Investment to be done before March 31, 2024.
- Lock in Period of investment of 3 years.
- Subject to other certain conditions
5. Dividend Distribution Tax for Resident and Non Residents
- Dividend distribution tax (DDT) in the hands of the Company to be abolished and proposed to move towards classical system of taxing dividend in the hands of shareholders/unit holders.
- Dividend received by Non-Residents from Indian Companies will now be subject to tax as per the slab rates.
- For Resident Indians, TDS will be deducted by companies @ 10% if dividend distributed to shareholder exceeds Rs. 5,000/-.
- Sec 194K – TDS @ 10% on payments exceeding Rs. 5,000/- made by Mutual Funds to the assesses.
TAX AMENDMENTS FOR INDIAN RESIDENTS
1. New Tax Regime v/s Old Tax Regime
Optional Tax Rates proposed in case of Individual, HUF, Association of persons and Body of Individuals, whether incorporated or not, or every artificial juridical person under New Tax Regime as under:
||Rate of Tax
||Up to Rs 2,50,000
||From Rs 2,50,001 to Rs 5,00,000
||From Rs 5,00,001 to Rs 7,50,000
||From Rs 7,50,001 to Rs 10,00,000
||From Rs 10,00,001 to Rs 12,50,000
||From Rs 12,50,001 to Rs 15,00,000
||Above Rs 15,00,000
Option A – Pay tax at above rates and no deductions or exemptions to be claimed.
Option B – Continue to Pay taxes at earlier rates after claiming deductions and exemptions as earlier.
- Option by Individuals and HUF having Business Income need to exercise option once and follow same option for all subsequent assessment years. Option can be withdrawn only once after exercising the option.
- Individuals and HUF not having any Business Income given flexibility to exercise option every year.
2. Tax Audit for Small and Medium Enterprises
- Tax Audit Threshold limit increased to Turnover of Rs. 5 Crores provided the aggregate cash receipts in a year does not exceed 5% of the Total Receipts and aggregate cash payments in a year does not exceed 5% of the Total Payments during the year.
- TDS continues to be deducted on Non-Salary payments if the Gross Receipts or Turnover of and Individual or HUF during the preceding financial year exceeds Rs. 1 Crore.
3. Relaxation in Variation in Stamp Duty Value and Consideration Value of Immovable Property
- Difference in consideration received or accruing as a result of the transfer of land or building or both and the value adopted by Stamp Valuation authorities should not exceed 10% of the consideration amount as against earlier 5% rule.
4. E-Commerce Transactions
- Sec 194O – TDS @ 1% to be deducted by Ecommerce Operators at the time of payment to supplier and or service provider. Such TDS would not be applicable where the supplier is an Individual or a HUF and the gross amount of sales or services do not exceed Rs. 5 lacs in a year.
- Once TDS is deducted under above section, no further TDS for the same service shall be deducted under any other section.
5. Affordable Housing Projects
- As per Section 80-IBA to incentivise building affordable housing and to boost the supply of such houses, the period of approval of the project by the competent authority is proposed to be extended to 31st March, 2021.
- As per Section 80EEA deduction allowed up to Rs.150,000/- subject to certain conditions shall be continued to incentivise first time buyers to invest in residential house property whose stamp duty does not exceed Rs.45,00,000/-. In order to continue promoting purchase of affordable housing, the period of sanctioning of loan by the financial institution is proposed to be extended to 31st March, 2021.
6. Assessments / Appeals and Tax Disputes-
- Faceless Appeals to be conducted on lines of Faceless Assessments
- VIVAAD SE VISHWAS SCHEME IN INCOME TAX – Under the proposed ‘Vivaad Se Vishwas’ scheme, a taxpayer would be required to pay only the amount of the disputed taxes and will get complete waiver of interest and penalty provided the assessee pays entire tax amount by 31st March, 2020.
Those who avail this scheme after 31st March, 2020 will have to pay some additional amount. The scheme will remain open till 30th June, 2020.
- Tax Holiday for the Eligible Start-ups shall now be available for a period of 3 consecutive assessment years out of 10 years (earlier 7 years) beginning from the year in which it is incorporated and the Turnover cap increased to Rs. 100 Crores from earlier 25 Crores limit.
- ESOPs to employees to be taxable after 48 months from end of relevant assessment year or on sale of such stocks or from the date of which the assessee ceases to be the employee of such start-up, whichever is earlier.
8. Rationalisation of provisions of Form 26AS
- Financial transactions as prescribed will appear in Form 26AS even where no TDS is deducted.
9. Co-operative Societies
- New Regime for Co-operative Societies under section 115BAD that the Co-operative Society can choose Tax rate @ 22% with addition of surcharge @ 10% and cess @ 4% with no exemptions and AMT will be abolished for such Cooperative Societies.
10. Charitable Institutions
- New Unique Registration number to be applied by new and existing charitable institution
- Filing of statement of donation by Donee to cross-check claim of donation by donor by giving full information of the donor in order to claim Deduction by the donor which will be prefilled in IT return in New regime.
11. Withholding Taxes (TDS and TCS)
- TDS on Fees for Technical Services u/s 194J reduced to 2% against earlier 10%. However, TDS on Professional Services continues to be at 10%.
- TCS @ 0.1% on sale of goods to be collected by specified sellers on consideration received from a buyer in a FY in excess of Rs. 50 lacs.
Specified sellers means sellers having total sales, gross turnover or gross receipts exceeding Rs. 10 Crores during preceding financial year.
No TCS to be collected if TCS is collected on such transaction under any other provisions or TDS is deducted by the buyer.
12. Extension of Definition of Work under Sec 194C
- Work shall also include work carried out by contract manufacturer (job worker), to whom the raw material is provided by the assessee or its associate.
- Associate meaning same as mentioned in 40A(2)(b).
13. Penalty for Fake Invoicing
- Penalty proposed to be introduced for issuing fake invoice or recording fake invoice without actual supply of goods or service.
- Penalty amount equivalent to amount of false entries or omitted entries.
14. Insurance for Bank Deposits
- Deposit insurance coverage to be increased to 5 lacs from 1 lacs
15. Export Credit Scheme
- NIRVIK Scheme to be launched – Provides for higher insurance coverage, reduction in premium for small exporters and simplified procedure for claim settlements.
16. Digital Refund of Taxes to Exporters
Scheme to be launched this year providing refund to Exporters for –
- Electricity duty paid on power consumption
- VAT on fuel used for transportation
About Author – Author is a Fellow Chartered Accountant and Partner in P R AND CO LLP, Chartered Accountants, Mumbai
DISCLAIMER: The basis of this article is the Finance Bill 2020. The article is for informational purpose only and is solely aimed at providing the reader an insight to the Tax related changes brought out in Budget 2020-21. No part of this article shall be construed as any kind of legal advice.