Budget 2020-21 Propose to Exempt non-resident from filing of Income-tax return under sub-section (1) of section 139 in certain conditions.
Section 115A of the Act provides for the determination of tax for a non-resident whose total income consists of:
(a) certain dividend or interest income;
(b) royalty or fees for technical services (FTS) received from the Government or Indian concern in pursuance of an agreement made after 31st March 1976, and which is not effectively connected with a PE, if any, of the non-resident in India.
Sub-section (5) of said section provides that a non-resident is not required to furnish its return of income under sub-section (1) of section 139 of the Act, if its total income, consists only of certain dividend or interest income and the TDS on such income has been deducted according to the provisions of Chapter XVII-B of the Act.
While, the current provisions of section 115A of the Act provide relief to non-residents from filing of return of income where the non-resident is not liable to pay tax other than the TDS which has been deducted on the dividend or interest income, the same relief has not been extended to non-residents whose total income consists only of the income by way of royalty or FTS of the nature as mentioned in point (b) above. Representations have been received to extend this benefit to royalty and FTS income as well.
Therefore, it is proposed to amend section 115A of the Act in order to provide that a non-resident, shall not be required to file return of income under sub-section (1) of section 139 of the Act if, –
(i) his or its total income consists of only dividend or interest income as referred to in clause (a) of sub-section (1) of said section, or royalty or FTS income of the nature specified in clause (b) of sub-section (1) of section 115A; and
(ii) the TDS on such income has been deducted under the provisions of Chapter XVII-B of the Act at the rates which are not lower than the prescribed rates under sub-section (1) of section 115A.
This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.
[Clause 47]
Extract of Relevant Clauses of Finance Bill, 2020
Clause 47
“Clause 47 of the Bill seeks to amend section 115A of the Income-tax Act relating to tax on dividends, royalty and technical service fees in the case of foreign companies.
The said section, interalia, provides for taxation of dividend excluding dividends referred to in section 115-O. It is proposed to omit the reference of dividends referred to in section 115-O so that all dividend income is taxed in the hands of non-resident (not being a company) or a foreign company.
This amendment will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.
Sub-section (1) of the said section provides for the determination of tax in case of a non-resident whose total income consists of dividends or interest payments as specified in clause (a) of the said sub-section and royalty or fees for technical services as specified in clause (b) of the said sub-section.
Sub-section (5) of the said section provides that a non-resident will not be required to furnish its return of income under sub-section (1) of section 139 of the Income-tax Act, if the conditions in clause (a) and clause (b) of said sub-section are satisfied.
The condition under clause (a) of said sub-section requires that the total income of a non-resident should consist only of income in the nature of dividends or interest as referred to in clause (a) of sub-section (1) of the said section.
It is proposed to amend clause (a) of the said sub-section so as to provide that the total income of the non-resident should consist only of the income in the nature of dividend or interest as referred to in clause (a) of sub-section (1) of the said section or income in the nature of royalty or fee for technical services as referred to in clause (b) of sub-section (1) of the said section.
The condition under clause (b) of said sub-section requires that the tax deductible at source on such income as referred to in clause (a) of sub-section (1) of the said section has been deducted as per the provisions of Part B of Chapter XVII of the Income-tax Act.
It is further proposed to amend clause (b) of the said sub-section so as to provide that the tax deductible at source on income referred to in clause (a) or clause (b) of sub-section (1) of the said section, has been done under the provisions of Chapter XVII at the rates which are not less than the rate specified under clause (a) or clause (b) of sub-section (1) of the said section.
This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-2021 and subsequent assessment years.”
Extract of Relevant Amendment Proposed by Finance Bill, 2020
47. Amendment of section 115A.
In section 115A of the Income-tax Act,–
(I) in sub-section (1), in clause (a), the words, figures and letter “other than dividends referred to in section 115-O” at both the places where they occur, shall be omitted with effect from the 1st day of April, 2021;
(II) in sub-section (5),–
(i) in clause (a), for the word, brackets and letter “clause (a)”, the words, brackets and letters “clause (a) or clause (b)” shall be substituted;
(ii) for clause (b), the following clause shall be substituted, namely:–
“(b) the tax deductible at source under the provisions of Part B of Chapter XVII has been deducted from such income and the rate of such deduction is not less than the rate specified under clause (a) or, as the case may be, clause (b) of sub-section (1).”.
