Union Budget 2019 Highlights – International Taxation

1. Relaxation in conditions of special taxation regime for offshore funds [Section 9A]

In case of the investment fund incorporated or registered outside India, which satisfies certain conditions as provided in subsection 3 of section 9A of the IT Act, the fund management activity carried out through an eligible fund manager acting on behalf of such fund shall not constitute the business connection in India of the said fund.

It is proposed to relax certain conditions as provided in subsection 3 of section 9A of the IT

Act as under:-

Relaxation in first proviso to clause j of subsection 3 of section 9A

a. In case the fund is incorporated in the previous year then the corpus of the fund shall not be less than Rs 100 crores at the end of a period of six months from the end of the month of its establishment or incorporation or at the end of such previous year, whichever is later (earlier the condition stated, at the end of previous year, not broadened)

Relaxation in clause m of subsection 3 of section 9A

b. the remuneration paid by the fund to an eligible fund manager in respect of fund management activity undertaken by him on its behalf is not less than the amount calculated in such manner as may be prescribed (earlier the condition was, not less than the arms’ length price of the said activity).

Applicable in relation to the assessment year 2019-20 and subsequent assessment years

2. Exemption of interest income of a non-resident arising from borrowings by way of issue of Rupee Denominated Bonds referred to under section 194LC [Section 10]

It is proposed to insert clause 4C of section 10 whereby any interest paid by Indian Company or business trust to a non-resident in respect of monies borrowed from a source outside India by way of issue of rupee denominated bond, as referred to in clause (ia) of sub-section (2) of section 194LC, during the period beginning from the 17th day of September, 2018 and ending on the 31st day of March, 2019 will be exempt from tax. Thus, no TDS u/s 194LC is required to be deducted on the payment of interest in respect of the said bond.

Applicable in relation to the assessment year 2019-20 and subsequent assessment years

3. Online filing of application seeking determination of tax to be deducted at source on payment to non-residents [Section 195(2) and Section 195(7)]

It is proposed to amend the provisions of sub-section 2 and sub-section 7 of section 195 to allow for prescribing the form and manner of application to the Assessing Officer and for the manner of determination of appropriate portion of sum chargeable to tax by the Assessing Officer.

Currently the procedure is manual; however as per proposed amendment there will be reduction of time for processing of such applications and help tax administration in monitoring such payments.

These amendments will take effect from 1st November, 2019

4. Relaxing the provisions of sections 201 and 40 of the Act in case of payments to non- residents [proviso to Section 201, proviso to section 201(1A), Section 201(3) and section 40]

The relief in proviso to section 201(1) is extended on payment to non-resident as well As per the proposed amendment if a deductor fails to deduct whole or any part of tax on any payment made to a non-resident then the dedutor will not be deemed as assessee in default.

Further when deductor fails to deduct whole or any part of tax on any payment made to a non-resident and deductor is not deemed as assessee in default, then interest shall be payable from the date when tax is deductible till the date of furnishing of return of income by such non-resident.

  • Amendment in time limit for passing of order u/s 201(1)

As per the proposed amendment, no order u/s 201(1) shall be made deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India, at any time

a. after the expiry of seven years from the end of the financial year in which payment is made or

b. two years from the end of the financial year in which the correction statement is delivered under the proviso to sub-section (3) of section 200 credit is given whichever is later

The amendment is effective from 1st September 2019

  • Amendment in Section 40

No disallowance under section 40 when it is deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of the return of income by the payee referred to in proviso to section 201(1) explained above.

The amendment is applicable in relation to the assessment year 2020-21 and subsequent assessment years

5. Clarification regarding power of the Assessing Officer in respect of modified return of income filed in pursuance to signing of the Advance Pricing Agreement (APA) [Section 92CD]

It proposed to amend sub-section (3) of section 92CD to clarify that in cases where assessment or reassessment has already been completed and modified return of income has been filed by the tax payer under sub-section (1) of 92CD, the Assessing Officers shall pass an order modifying the total income of the relevant assessment year determined in such assessment or reassessment, having regard to and in accordance with the APA.

Currently due to the use of words “assess or reassess or recompute” in section 92D(3), the Assessing Officer may start fresh assessment or reassessment in respect of completed assessments or reassessments of the assessees who have modified their returns of income in accordance with the APA entered into by them. Since this is not the intent the amendment has been proposed as above.

The amendment is effective from 1st September 2019

6. Clarification regarding the provisions of secondary adjustment and giving an option to assessee to make one-time payment [Section 92CE]

In order to make the secondary adjustment regime effective and easy to comply with, it is proposed to amend section 92CE of the Act as under:

1. The condition of threshold of one crore rupees and of the primary adjustment made upto assessment year 2016-17 are alternate conditions Thus word ‘AND’ is substituted as ‘OR’;

2. The assessee shall be required to calculate interest on the excess money or part thereof. Currently only the word ‘excess money’ was mentioned. Now it is proposed to add ‘or part thereof’.

3. The provision of this section shall apply to the Advance Pricing 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.

4. It has been proposed to clarify by way of explanation to sub section 2 that the excess money may be repatriated from any of the associated enterprises of the assessee which is not resident in India;

Applicable in relation to the assessment year 2018-19 and subsequent assessment years

5. Following is proposed to be inserted after sub section 2 to Section 92CE Payment of additional income tax @18% plus surcharge 12%

a. Option for the assessee to pay additional income-tax @ 18% on excess money or part thereof not repatriated in addition to the existing requirement of calculation of interest till the date of payment of this additional tax. Further the additional tax is proposed to be increased by a surcharge of 12%.

b. 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;

c. 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

d. 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.

The amendment at point no 5 above is effective from 1st September 2019

7. Rationalisation of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015(BM Act) [Section 2 of BM Act]

In order to clarify the legislative intent behind enacting the BM Act, which was to tax such foreign income and assets, which were not charged to tax under the Income-tax Act, it is proposed:

  • to amend the said section so as to provide that the “assessee” shall mean a person being a resident in India within the meaning of section 6 of the Income- tax Act, in the previous year, ora person being a non-resident or not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income- tax Act, in the previous year, who was resident in India either in the previous year to which the income referred to in section 4 relates, or in the previous year in which the undisclosed asset located outside India was acquired.
  • to provide that the previous year of acquisition of the undisclosed asset located outside India shall be determined without giving effect to the provisions of section 72(c) of the BM Act.
  • to amend section 10 of the BM Act so as to include the expressions “re-assess” and “reassessment” in sub-section (3) and (4) of the said section.

These amendments will take effect retrospectively from 1st July, 2015.

  • to amend section 10 of the BM Act so as to provide that the provisions of section 144A of the Income-tax Act shall be applicable to the BM Act with necessary modifications.
  • to amend section 17 of the BM Act to clarify that the Commissioner (Appeals) may also vary the penalty order so as to enhance or reduce the penalty.

8. Rationalisation of provision relating recovery of tax in pursuance of agreements with foreign countries [Section 228A]

In order to provide assistance in recovery of tax as per treaty obligation with the other country, it is proposed to amend the said section so as to provide for tax recovery where details of property of the persons are not available but the said person is a resident in India.

It is also proposed to amend the said section so as to provide for tax recovery, where details of property of an assessee in default under the Act are not available but the said assessee is a resident in a foreign country.

These amendments will take effect from 1st September 2019.

9. Rationalisation of provisions relating to maintenance, keeping and furnishing of information and documents by certain persons [Section 92D]

It is proposed to substitute section 92D of the Act, in order to provide that the information and document to be kept and maintained by a constituent entity of an international group, and filing of required form, shall be applicable even when there is no international transaction undertaken by such constituent entity.

It is also proposed to provide that information shall be furnished by the constituent entity of an international group to the prescribed authority.

These amendments will take effect from 1st September 2019.

10. Clarification regarding definition of the “accounting year” in section 286 of the Act [Section 286]

To bring clarity in law, it is proposed to amend section 286 so as to provide that the “accounting year” for filing Country-by-Country Report (CbCR),in case of the alternate reporting entity (ARE) of an international group, the parent entity of which is not resident in India, the reporting accounting year shall be the one applicable to such parent entity.

These amendments will take effect from AY 2017-18.

Source- Institute of Chartered Accountants of India (ICAI)

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