The document summarizes key amendments proposed in the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Bill, 2020 relating to direct tax provisions in India. Some key amendments include providing tax incentives to Category-III Alternative Investment Funds located in International Financial Services Centres, reducing the surcharge on dividend income for Foreign Portfolio Investors, clarifying provisions related to residential status, extending timelines related to the Vivad se Vishwas scheme for settling tax disputes, and introducing faceless assessment schemes for various tax proceedings. The Bill also proposes some other miscellaneous amendments related to exemptions, penalties, and powers of tax authorities.
3. Legends used in the Presentation
ADIA Abu Dhabi Investment Authority
AIF Alternative Investment Fund
AO Assessing Officer
Bill Taxation and Other Laws (Relaxation and Amendment of
Certain Provisions) Bill, 2020
CBDT Central Board of Direct Taxes
CCIT Chief Commissioner of Income Tax
DDT Dividend Distribution Tax
DGIT Director General of Income-tax
FA, 2020 Finance Act, 2020
FPI Foreign Portfolio Investors
IFSC International Financial Services Centre
PY Previous Year
Sec Section
TCS Tax Collected at Source
TDS Tax Deducted at Source
UAE United Arab Emirates
VSVA Vivad Se Vishwas Act
WOS Wholly Owned Subsidiary
6. Rationale
The outbreak of COVID-19 pandemic has necessitated ease of compliance under certain tax and other laws
In view of the urgency, the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020
(“Ordinance”) was promulgated on the 31st March 2020
The Ordinance, inter alia, relaxed certain provisions of the specified Acts relating to direct taxes, indirect
taxes and prohibition of Benami property transactions
In view of numerous stakeholders' representations received for further rationalisation of some provisions of
tax and other laws, Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Bill, 2020
(“Bill”) was passed in Lok Sabha on September 19, 2020
The Bill seeks to replace the Ordinance and provides inter alia, extension of various time limits for
completion or compliance of actions under the specified Acts relating to direct tax, indirect tax, etc. and
reduction in interest, waiver of penalty, etc.
7. Scope
The Bill proposes amendments to the Income-tax Act, 1961 which , inter alia, include the following:
Tax incentive for
Category-III Alternative
Investment Funds
Deferment of new
procedure of registration
and approval
Reduction of surcharge on
dividend income for FPIs
Enabling Faceless
Assessment Scheme
Residential status Vivad se Vishwas Act Other Amendments
In the subsequent slides, amendments relating only to direct tax provisions have been discussed
Further, the provisions which were proposed earlier and have been codified now without change have not been
specifically discussed (TDS rates being reduced to 3/4th of the normal route, lower TCS, etc.)
9. Exemption of Income for AIF – Sec 10(4D)
Sec 10(4D) provides exemption to income earned by Category-III AIFs located in IFSC, whereby all units are
being held by non-residents, from transfer of GDRs, derivates or Rupee Denominated Bonds, where the
consideration for such transaction is paid or payable in convertible foreign exchange
The exemption has now been expanded to cover the following income, to the extent being attributable to units
held by non-resident:-
• income from transfer of any security (other than shares of company resident in India),
• any income from securities issued by non-resident (not including a PE of non-resident in India) where such
income otherwise does not accrue or arise in India; and
• income from a securitisation trust (Special Purpose Vehicle or a special purpose distinct entity) which is
chargeable under the head "profits and gains of business or profession”
For the purpose of exemption, units shall not be held by a PE of a non-resident in India
No TDS or withholding of tax in case of the exempted income above (from 01.11.2020)
The above amendment, except for TDS, shall be effective from F Y 20-21
10. Income Earned from AIF by a Non-
Resident – Sec 10(23FBC)
Any income accruing or arising to a unit holder from a Category-III AIF located in
IFSC or on transfer of units in such AIF is exempt
This shall also apply to unitholders, being sponsor or manager of such fund, who
could be resident in India
This provision will be effective from F Y 20-21
11. Tax on Income of Category-III AIF – Sec
115AD
Income received in respect of securities (other than mutual fund units purchased in foreign
currency or capital gains arising from their transfer) shall be taxed at the rate of 10% (TDS at the
same rate of 10%)
The provision of this section shall apply, in case of Category III AIF, only to the extent of income
that is attributable to units held by non-resident (not being a permanent establishment of a
non-resident in India)
No deduction of expenses or deduction under Chapter VIA shall be granted
STCG from specified equity instruments – 15% (TDS at the same rate of 15% from 01.11.20)
STCG on other securities (not covered above) – 30% (TDS at the same rate of 30% from 01.11.20)
LTCG on securities – 30% (TDS at the same rate of 30% from 01.11.20)
The above amendments, except for TDS, shall be effective from F Y 20-21
12. Non-applicability of AMT
Alternate Minimum Tax (AMT) shall not apply to Category III AIF located in IFSC
This provision is newly inserted and effective from F Y 20-21
AMT is a tax that is levied on persons other than a Company which ensures that such entities pay a
minimum amount tax at the rate of 18.5% of the adjusted total income (after adding back specific
deductions)
For Companies, similar concept of Minimum Alternate Tax is applicable
14. Reduction of Surcharge on Dividends for
FPIs
FA 2020 reintroduced the classical system of dividend taxation in the hands of shareholders by removing DDT
payable by the distributing domestic companies.
Consequently, it also reintroduced withholding obligation on domestic companies on dividend distributed to all
shareholders, including non-residents and FPIs. The proposal, as introduced, would have resulted in higher
surcharge up to 37% applicable to non-corporate shareholders.
But, as a measure of relief to encourage capital market investment, higher surcharge was reduced to 15% on
dividend income at the stage of enactment of FA 2020
However, in respect of non-resident shareholders, the reduction was unintentionally restricted to selective class
of non-residents. FPIs and certain other classes of non-resident investors, like unitholders in Category I/II AIFs,
business trusts etc., were left out from reduction in higher surcharge to 15%.
The Bill proposes to reduce higher surcharge rate to FPIs, being an individual, Hindu Undivided Family (HUF),
Association of Persons, Body of Individuals or Artificial Juridical Person, to 15% on dividend income for the
purposes of both withholding tax and advance tax, effective from tax year 2020-21 onwards.
This addresses the anomaly for one class of non-resident investors, being FPIs.
The above amendment shall be applicable from F Y 20-21
15. Residential Status
Nature Finance Act, 2020 Anomaly / Issues Amendment Proposed by the
Bill
Effecti
ve
date
Indian citizen or
PIO, having total
income > Rs. 15
lakhs (excluding
income from
foreign sources)
Not ordinarily resident if
number of days stayed in
India is 120 days or more
(reduced from 182 days)
Whether such an individual
need not be based outside
India and comes on a visit to
India, to trigger this rule
The Bill clarifies that the new
rule shall apply only to an
Indian citizen or PIO who,
being outside India, visits India
Effecti
ve
from
F Y
20-21
Indian citizen
having Indian
income more
than Rs. 15
lakhs, not liable
to tax in any
other country
Shall be deemed to be
resident in India
Whether individual otherwise
being resident under normal
route, would get covered by
deeming fiction
The Bill has clarified that this
would not be applicable to
individuals who are residents
under normal route
Clarification for
“income from
foreign source”
Meant income which
accrues or arises outside
India except for income
related to business or
profession set up in India
Whether income arising
outside India but deemed to
be accruing in India (examples
royalty, FTS received from
residents) shall get covered
The Bill has clarified that
“income from foreign sources”
shall not include incomes
which are deemed to accrue
or arise in India
16. Vivad se Vishwas Act
For example, if a declaration is filed on 25 September 2020, under the Scheme, Designated Authority is
required to issue certificate by 10 October 2020 (i.e. within 15 days from the date of receipt of such
declaration). As per extended time period, such certificate can be issued till 31 December 2020.
The Bill also proposes to extend the due date for any compliance falling due under the VSVA between 20
March 2020 to 30 December 2020 till 31 December 2020. Thus, any compliance falling due between 20
March 2020 to 30 December 2020 can be made till 31 December 2020
Further, the Bill proposes that any payment made under the second tranche (on or after 1 January 2021 but
before the last date for availing benefit of VSVA(yet to be notified)) shall attract an additional amount of
10%
The Bill proposes to extend last date for making payment under the first tranche under Vivad se Vishwas
Scheme (“VSVA”) (without any additional amount of 10%) till 31 December 2020
17. Faceless Assessment Scheme
Faceless Assessment Scheme shall be in place for various assessment provisions and
tax proceedings under the Income Tax Act, 1961
CG shall formulate the above scheme in relation to proceedings before officers
including transfer pricing assessments, appeal before ITAT, revision and rectification
proceedings, passing of orders, prosecution and compounding, grant and
withdrawal of approvals, transfer of cases, calling of information
The Scheme so introduced shall be placed before each House of Parliament for
approval
18. Miscellaneous Amendments
Section Nature Amendment Effective date
10 (23FE)
Exemption to
Sovereign Wealth
Fund and Pension
Fund
Finance Act, 2020 introduced exemption of income from
investment in specified entities by a WOS of Abu Dhabi
International Authority
01-04-2021
The exemption is available if the WOS is a resident of UAE.
The Bill proposes that instead of UAE, the WOS should be
resident of Abu Dhabi
11, 12A,
12AA,
12AB, 80G
35(1) (ii, iia,
iii), 35(1A),
Charitable entities
and research
institutions claiming
exemptions
New registration requirement by FA, 2020 – w.e.f. from June, 2020
CBDT via Press Release – deferred to 01.10.2020
Bill further defers to 01.04.2021 – old registrations still in effect till
31.03.2021
271K Penalty for failure to
furnish statements
and issue of
certificates by
specified institutions
and entities from Rs.
10,000 to 1 lakh
This Section shall not be applicable for the period 01-06-2020 to 31-03-2021
19. Contd
Section Nature Amendment Effective date
35AC Deduction for
expenditure on
eligible projects or
schemes
Powers vested to National Committee has now been
delegated to Principal Chief Commissioner of Income Tax
(Exemption) or the Chief Commissioner of Income Tax
(Exemption) for the purpose of monitoring the activities of
the institutions and withdrawal of approval
01-11-2020
263 and
264
Revision of orders Powers have now been provided to Principal Chief
Commissioner and Chief Commissioner for examining the
records, modify or cancel or direct a fresh assessment for
orders passed by AO, revision of other orders, etc.
01-11-2020
133A
Action taken by
income tax authority
while conducting
survey
As per FA, 2020, approval has to be obtained from Joint
Director / Joint Commissioner / Director / Commissioner for
taking action against non co-operating persons
The Bill has proposed that approval has to be obtained from
Principal Director General or the Director General or the
Principal Chief Commissioner or the Chief Commissioner
01-11-2020
Scope of Income Tax
Authority
Income tax authority shall now include income tax authorities
only who are subordinate to the Principal DGIT
(Investigation) or the DGIT (Investigation) or the Principal
CCIT (TDS) or the CCIT (TDS) – erstwhile “subordinate” word
was missing
01-11-2020
20. Way Forward
As the ongoing pandemic is affecting the economy at large, relaxation of compliances under
various legislations (especially Income Tax Act) is a need of the hour
Faceless assessments being brought in under various provisions of the Income Tax Act would
simplify the process of assessment and foster greater transparency
Reduction of surcharge on dividend income of FPIs and extension of tax incentives to AIFs are
welcome moves
Further, deferring new registrations and approvals would provide much needed breather for
specified entities and ensure compliance in appropriate manner
