Amendments to Direct Tax provisions
The COVID-19 pandemic and the resultant nationwide lockdown has caused more heartburn than expected. Not only have human lives suffered immensely, the economic and financial status of the country has seen a major setback. The Government has been taking major steps, from time to time, to boost the economy and make life easier for the taxpayers, traders, businesspersons, etc. The lockdown and mandatory social distancing norms have called for more relaxed compliance procedures and deadlines when it comes to payment of taxes by individuals or entities. Considering the current economic and socio conditions prevailing not only in India, but across the world, the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (“the Ordinance”) was promulgated in March, 2020 to provide certain relaxations in the provisions of the specified acts with respect to the time limits, compliances, waiving of penalties etc.
Thereafter, the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Bill, 2020 (hereinafter referred as “the Bill”) was introduced in the Lower House of Parliament, Lok Sabha on 18.09.2020 by Finance Minister Nirmala Sitharaman. The Bill was introduced to replace the Ordinance, 2020 and provide for the newly introduced Faceless Assessment Scheme, extending due dates of compliances and granting relief in certain circumstances w.r.t the specified acts like Income Tax Act, 1961 (“IT Act”), Direct Tax Vivad se Vishwas Act, 2020 and some other Acts. The Bill was passed by the Lok Sabha on 19.09.2020, Rajya Sabha on 22.09.2020 and received assent of the President on 29.09.2020 and is now called the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (“the Amendment Act”).
Salient features of the Amendment Act are discussed below:
Residency Test under Section 6:
As per Section 6 of the IT Act, a person is said to be resident in India if he is in India for 182 days or more in a Financial Year (FY), or has been in India for a total of 365 days or more in the past 4 FYs and is in India for a period amounting to 60 days or more in that year. However, for the purposes of Section 6 (1) (c), the 60 days period changes on the basis of income thresholds, for persons who are “non resident in India (as defined in Section 115C (e)). Therefore, the 60 days period is expanded for an Indian non-resident who comes to visit India and is read as:
- For the citizen or PIO having total income other than income from foreign sources of Rs 15 lakhs – 120 days or more (Amendment by Finance Act, 2020 (“the Finance Act”);
- Otherwise– 182 days or more.
If the non-resident were to fulfil the above criteria, they would, by virtue of Section 6, be treated as a resident of India for the purposes of such previous year.
- Further, the Amendment Act by replacing the words “the citizen or person of Indian origin” with the words “such person” in Explanation 1(b) of Section 6 clarifies that the provision has to be applied in a case of a person who is a Citizen of India or PIO, who being outside India, comes on a visit in any previous year, and having total income, other than the income from foreign sources, exceeding Rs. 15 Lacs during the previous year.
- Further, the Finance Act inserted clause (1A) in Section 6 which is notwithstanding clause (1), providing that an Indian citizen, having total income other than income from foreign sources exceeding Rupees 15 Lacs, shall be deemed to be an Indian tax resident for a FY, notwithstanding his period of stay in India during such FY, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria. Now, the Amendment Act has inserted an explanation after clause (1A) and clarified that the said clause does not apply to an individual who is considered as a resident under clause (1) of Section 6 in the previous year.
- Therefore, the recent amendments have tried to carve out two separate instances for determining the residency of a person:
- By number of days of stay (120 or 182 days, depending on the total income, other than income from foreign sources);or
- Monetary limit i.e., total income, other than income from foreign sources exceeding Rs.15 Lacs, if such person is not liable to tax in any other country or territory.
Therefore, if a person fails to qualify as a resident on the basis of numbers of days of stay as provided under Section 6(1), the total income of a person, other than income from foreign sources exceeds Rs.15 Lacs, and if the person 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, then irrespective of number of days of stay in India, the person will be treated as resident of India for tax purposes. The Finance Act, vide an explanation in clause (6), explained the meaning of expression ‘income from foreign sources’ to include income which accrues or arises outside India except income derived from a business controlled in or a profession set up in India. The Amendment Act further clarifies the meaning by including words ‘and which is not deemed to accrue or arise in India’, at the end of the explanation.
All the above amendments are effective from April, 2021.
Incentives for Category III Alternative Investment Fund located in any International Financial Services Centre
Clause (4D) of Section 10 of the IT Act provides tax exemption to Category III Alternative Investment Fund (AIF) located in any International Financial Services Centre (IFSC). The Amendment Act seeks to expand the incentives provided to Category III AIFs located in IFSC to further include in the consideration, any income from:
- Transfer of securities (other than shares in a company resident in India);
- Securities issued by a non-resident (not being a permanent establishment (PE) of a non-resident in India) and where such income otherwise does not accrue or arise in India;
- Securitisation trust which is chargeable under the head “profits and gains of business or profession”.
- Further, the said exemption under the Section 10 (4D) is applicable only for the income attributable to the units held by the non-resident (not being a PE of a non-resident in India). The amendments are effective April, 2021.
- The Amendment Act further inserted a new clause (23FBC) effective from FY 2020-21 i.e. AY 2021-22, under Section 10, wherein incentive is to provided to the unit holders from the income accruing or arising either from the specified funds i.e., Category III AIFs located in IFSC or from transfer of such units.
- Also, the income in the nature of dividend, interest or long-term capital gains arising from the investment made by the wholly owned subsidiary of the Abu Dhabi Investment Authority is exempted under clause (23FE) of Section 10. The Amendment Act limits the said exemption only to the funds owned by the government of Abu Dhabi instead of United Arab Emirates effective from April, 2021.
- Section 115AD which deals with taxes on income of Foreign Institutional Investors (FII) from securities or capital gains arising from their transfer is proposed to be amended to include income of specified fund or FII while calculating the taxes. With effect from 01.04.2021, the tax @ of 20% will be levied on the income of FII and @10% on the income of specified fund as per the Amendment Act. An addition in the form of clarification is made w.r.t specified funds that said provision is applicable only to the income from the units held by the non-resident (not being a PE of a non-resident in India).
- Also, with the insertion of sub-section (2A) to Section 115JEE by the Amendment Act, the Alternative Minimum Tax provisions are not applicable to the Category III AIFs.
Considering the prevailing conditions, the Government had proposed to extend the faceless scheme to maximum proceedings undertaken by the department under the IT Act. The Amendment Act makes additions and amends the existing provisions to make proceedings faceless and more compliant for the assessees. Following are some of the additions made with effect from 01.11.2020:
- Sub-sections (8) and (9) to Section 92CA introduced to extend the faceless scheme to transfer pricing proceedings and determination of arms length price.
- Section 130 has been inserted to expand the faceless jurisdiction of income tax authorities, vesting jurisdictions to assessing officers, power to transfer cases etc.
- Power envisaged under Section 133A cannot be exercised by any authority without approval from Principal Director General of the Director General of the Principal Chief Commissioner of the Chief Commissioner as per the newly inserted proviso.
- Section 135A is inserted to facilitate faceless collection of information and inspection as required under Sections 133, 133B, 133C, 134 and 135.
- Section 142B is inserted to enable the auditing of accounts under Section 142 (2A) and valuation process under Section 142A to be done without any human interface and with complete transparency.
- Insertion of Section 151A to facilitate faceless assessment , re-assessment, or re-computation of income escaping assessment.
- Insertion of Section 157A to facilitate faceless rectification of mistake apparent from record u/s. 154, amendments u/s. 155 of issuance or intimation of notice.
- Insertion of Section 231 to enable the issuance of certificate, collection and recovery of taxes through faceless scheme.
- Further, to enable faceless revision of orders u/s. 263 and 264 of the IT Act and for the faceless giving effect to order u/s. 250,254.260, 262, 263 or 264, the Amendment Act introduced new Sections 264A and 264B, respectively.
- Insertion of sub-section (8) to Section 253 to introduce the faceless scheme in the appeal mechanism before the Appellate Tribunal.
- Introduction of sub-section (4) to Section 279 to enable faceless prosecution and compounding of offences.
- To enable faceless approval or registration by the income-tax authorities, the Amendment Act introduced Section 293D.
The Amendment Act makes certain additions and alteration with the provisions of assessment proceedings under the IT Act effective from April, 2021.The amendments are listed below:
- The Amendment Act inserted sub-section (3D) to Section 143 stating that the provisions of Sec. 143(3A) and (3B) of the IT Act which provides for scheme for making assessment, shall not apply to the assessment made u/s. 143(3) & 144 on or after the 01.04.2021.
- New Section 144B is inserted to achieve the purpose of faceless scheme with defined roles of National Faceless Assessment Centre (“NFAC”) like serving notice, intimation, filing replied with NFAC, assignment of selected cases to specific assessment units in any one Regional Faceless Assessment Centre (RFAC) through an automated allocation system, issuing notices to assessee to obtain information, documents, evidences etc., draft assessment order by assessment units and finalisation of assessment by NFAC, assigning the draft assessment order to review unit in any RFAC, acting as bridge between assessee and the assessment unit and finalisation of draft assessment order after giving reasonable opportunity to the assessee. Where a reference is made to Dispute Resolution Panel (DRP) under Section 144C of the IT Act, the newly inserted provisions provides for procedures as mentioned in clauses (xxvii) to (xxxi) of Section 144B to be followed. The NFAC shall transfer all the electronic records to the assessing officer having jurisdiction for actions to be taken, once the assessment is completed.
- Further, the Section specifies that the faceless assessment is to be made with respect to territorial area or class of person or income or cases, as specified by the Board. The sub-section 3 proposes to set up National Faceless Assessment Centre, Regional Faceless Assessment Centre and other units (Assessment Unit, Verification Unit, Technical Unit and Review Unit) and defines their authorities.
- The new Section also clarifies that any communication between the units mentioned above or with the assessee or any other concerned person or authority will be completely through electronic mode.
- Further, sub-section 7 of Section 144B provides for the modes of delivering notice or order in electronic form to the assessee by placing the authenticated copy in assessee’s registered account, sending it to the registered mail and uploading it to the assessee’s mobile app of income tax department, followed by real-time alerts.
- The Section further states that the assessee is not required to appear in-person or through authorised representative before tax authority or NFAC or RFAC or any other unit mentioned under this section. Although, the same can be provided through video conferencing or telephony if a request for personal hearing has been made by the assessee.
- NFAC may, if it deems fit, at any stage transfer the case of assessee to the assessing officer having jurisdiction with prior approvals from the Board.
- Sub-section (14B) to Section 144C is added to cover the reference to DRP under the faceless scheme.
Amendments to Direct Tax Vivad Se Vishwas Act
The Amendment Act also amended Section 3 of the Direct Tax Vivad Se Vishwas Act, 2020 (DTVSV Act) to grant power to the government to notify dates for the purposes of filing of declaration and making of payment. Further, the Amendment Act extended the date of payment without any additional payment till 31.12.2020 and with additional payment at certain percentage to 01.01.2021.
- The Amendment Act further enables 100% deduction from the income of the person making donations to the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) under Section 80G effective from April 2020.
- The procedure for fresh registration of charitable trusts or institutions as provided under Section 12AB, inserted by the Finance Act is to be effective from 01.04.2021 instead of 01.06.2020. Therefore, the trusts or such institutions can carry on with the older procedure of registration for the FY 2020-21.
- The deduction on expenditure on scientific research as available under Section 35 of the IT Act is with respect to the research association or companies as provided in clause (iia) of the Section 35 (1) and as per the Explanation of Section 35, where the payment has already been made to such associations or companies, deduction cannot be disallowed on the ground of approval being withdrawn subsequently. The effective date of above provision has been changed from 01.06.2020 to 01.04.2021.
- Under Section 35AC, the power to approve the expenditure incurred on eligible projects or schemes by the assessee is vested with National Committee. The Amendment Act amended the provision and granted such powers to the Principal Chief Commissioner of Income Tax (Exemption) or the Chief Commissioner of Income Tax (Exemption), effective from 01.11.2020.
- Inserted Section 197B and 206(10A) to the IT Act to enable the reduction of TDS/TCS rates at three-fourth rate i.e., by 25% effective from 14.05.2020 to 31.03.2021.
- Provision levying penalty for failure to furnish statement etc., u/s. 271K to be effective from 01.04.2021.
Few Changes in Due Dates
- All due dates for various compliances like completion of proceedings, issuance of notices, intimations, approvals or sanctions, notifications, filing of appeals, replies, applications, furnishing of reports, return or documents etc., falling between 20.03.2020 to 31.12.2020 have been extended to 31.03.2021.
- New due date for filing belated or revised return u/s. 139(4) of the IT Act for Assessment Year (“AY”) 2019-20 is 30.09.2020 and w.r.t filing of original return of income for all assessees for AY 2020-21 is 30.11.2020.
- Date for furnishing of audit report under the provisions of the IT Act for AY 2020-21 is now 31.10.2020.
S. 6 determines the residential status of an assessee. Expl 1(b) deals with residency test of Citizen of India or PIO . ↑
S. 6(6) deals with residency test of person “not ordinarily resident” in India. ↑
S. 10 deals with Incomes which are not to be included in calculating total income. Clause 4(D) deals with treatment of income arising or accruing to specified funds i.e., Category II AIFs located in IFSC. ↑
S. 92CA deals with reference to Transfer Pricing Officer. ↑
S. 133A deals with power tax authorities to survey. ↑
S. 143 deals with assessment procedure. ↑
Cite As: Rachana Yadav, ‘Breaking Down the Taxation and Other Laws (Relaxation And Amendment Of Certain Provisions) Act, 2020‘ (The Contemporary Law Forum, 6 October 2020) <https://tclf.in/2020/10/06/breaking-down-the-taxation-and-other-laws-relaxation-and-amendment-of-certain-provisions-act-2020> date of access.