Highlights of
Notice of Amendments to Finance Bill, 2013 as passed by Lok Sabha
1. Reference to FEMA, 1999 in the place of FERA,
1973/ FERA, 1947 under the Income-tax Act, 1961
Even after
repeal of “Foreign Exchange Regulation Act, 1973”, the Income-tax Act, 1961 continued
to make a reference to the said Act in many of its sections, for example,
section 10(4)(ii), 10(4B), etc. In order to correct this apparent mistake, a
new clause (3A) is proposed to be inserted in the Finance Bill, 2013 for
substitution of the expression “Foreign Exchange Management Act, 1999” in place
of “Foreign Exchange Regulation Act, 1973” at all places in the Income-tax Act,
1961.
A specific
amendment has also been made in section 138 to substitute “Foreign Exchange Regulation
Act, 1947” with “Foreign Exchange Management Act, 1999”.
2. “Authorised Person” under FEMA, 1999 to be the
“person responsible for paying” for the purpose of Chapter XVII and section 285
Section 204
provides for the meaning of the term “person responsible for paying” for the purpose
of Chapter XVII and section 285.
Clause (iia) of
section 204 provides that the authorized dealer shall be the person responsible
for remitting the amount of consideration to a non-resident for the transfer of
long term capital asset or crediting such sum to his Non-resident (External)
Account maintained in accordance with FERA, 1973.
Consequent to
the proposed substitution of the expression “FERA, 1973” with “FEMA 1999”, reference
to the term “Authorised dealer” under FERA, 1973 is also proposed to be substituted
with the term “Authorized person” under FEMA, 1999.
3. Scope of exemption of income received in India in
Indian currency by a foreign company to be expanded
Section 10(48)
was inserted by the Finance Act, 2012 w.e.f. A.Y.2012-13 to exempt any income
received in India in Indian currency by a foreign company on account of sale of
crude oil to any person in India.
The scope of
section 10(48) is now proposed to be enlarged w.e.f. A.Y.2014-15 so as to also provide
exemption in respect of income received in India in Indian currency by a
foreign company from the sale of any other goods or rendering of services as
may be notified by the Central Government in this behalf to any person.
4. Trading in commodity derivatives not to be
considered as a speculative transaction
The Commodities
transaction tax is proposed to be introduced in a limited way by insertion of Chapter
VII in the Finance Bill, 2013. The Finance Minister, in his budget speech, had clarified
that trading in commodity derivatives will not be considered as a speculative transaction.
However, no amendment was proposed to this effect by the Finance Bill, 2013 in section
43(5) defining a speculative transaction. Consequently, in the absence of
specific exclusion provision in section 43(5), characterisation of commodity
derivative transactions (including those which are subject to CTT) would be
governed by the existing provisions and they run the risk of being treated as
speculative transactions, unless established by the taxpayer to be for hedging
purpose.
In order to give
effect to the clarification given by the Finance Minister in his budget speech,
section 43(5) is proposed to be amended by inserting sub-clause (e) in its
proviso to exclude an eligible transaction in respect of trading in commodity
derivatives carried out in a recognized stock exchange from the definition of
“speculative transaction”. Explanation 2 is proposed to be inserted to define
the term “eligible transaction” in relation to commodity derivatives.
5. Requirement of TRC to contain “prescribed
particulars” to be dispensed with
Sub-section (4)
of 90 and 90A provides that treaty benefit will not be available to any Non Resident
unless he furnishes TRC from the Government of his country of residence containing
such particulars as may be prescribed. The Finance Bill, 2013 had proposed to insert
sub-section (5) in sections 90 and 90A to provide that TRC shall be a necessary
but not a sufficient condition for claiming any relief under a DTAA.
The Finance
Minister had subsequently clarified, by way of Press Release dated 1st March 2013,
that the TRC issued by the Government of a foreign country would be accepted as
evidence of tax residency and the tax authorities cannot go behind the TRC to
question the residential status.
In order to
incorporate the said clarification in the statute, sub-section (4) of sections
90 and 90A is proposed to be amended to substitute the words “a certificate
containing such particulars as may be prescribed of his being a resident” with
the words “a certificate of his being a resident”. Therefore, a certificate
issued by the Government of a foreign country would constitute proof of tax
residency, without any further conditions regarding furnishing of prescribed
particulars therein.
Also,
sub-section (5) of sections 90 and 90A which provided that TRC shall be a
necessary but not a sufficient condition for claiming any relief under a DTAA
is proposed to be substituted to provide that the assessee referred to under
sub-section (4) of sections 90 and 90Ashall also provide such other documents
and information, as may be prescribed.
6. New time limits for completion of assessment or
reassessment under sections 153 and 153B in cases where reference is made to
TPO to apply irrespective of the date of reference to TPO or the date of
passing of order under section 92CA(3)
Section 153
provides for the time limit for completion of assessments and reassessments. With
respect to income first assessable in the A.Y.2009-10 or any subsequent
assessment year, the Finance Act, 2012 had extended the time limit for
completion of assessment under section 143(3) or section 144 from 33 months to
3 years in case where, during the course of the assessment proceeding,
reference is made to the Transfer Pricing Officer (TPO) under section 92CA(1).
Further, where
notice under section 148 is served on or after 1.4.2010, the Finance Act, 2012 had
extended the time limit for completion of assessment, reassessment or
recomputation under section 147 from 21 months to 2 years from the end of the
financial year in which notice under section 148 was served in a case where
reference under section 92CA(1) is made during the course of the assessment
proceeding to the TPO.
However, in both
the above cases, the extended time limit was applicable only if the reference was
made –
-
on
or after 1st July, 2012 or
-
before
1st July, 2012 but the order of TPO has not been made upto that date.
The said provisions
are now proposed to be amended to provide that the extended time limits of 3
years and 2 years, respectively, will be applicable irrespective of the time of
making reference to TPO and date of passing of order by the TPO.
Section 153B
which deals with the time limit for completion of assessment in case of search or
requisition, is also proposed to be amended on the similar lines.
7. No requirement to obtain TAN by transferee
deducting tax under section 194-IA
Section 194-IA
was proposed to be inserted by the Finance Bill, 2013 to provide for deduction of
tax at source@1% on consideration for transfer of immovable property, other
than agricultural land. However, no tax is to be deducted if the consideration
for transfer of immovable property is less than Rs.50 lakhs.
Since this
provision requires deduction of tax by the transferee, it presupposes that the transferee
should have a TAN. This may cause genuine hardship to those transferees who do not
possess a TAN. Further, it would be an additional burden to require such
persons to apply for and obtain TAN for a single transaction.
To address this
concern, sub-section (3) has now been inserted in section 194-IA to provide that
provisions of section 203A containing the requirement of obtaining TAN, shall
not apply to a person required to deduct tax in accordance with the provisions
of section 194 -IA.
8. Higher TDS under section 206AA not to be
applicable in respect of tax deductible under section 194LC
Section 194LC,
inserted by the Finance Act, 2012, provides for a concessional rate of withholding
tax @ 5% on payments to non-residents in a case where an Indian Company borrows
money in foreign currency from a source outside India either under a loan
agreement or by way of issue of long-term infrastructure bonds.
Though the
provision provides for concessional rate of tax @ 5%, in absence of PAN of the Non
Resident lender, section 206AA mandates withholding at higher rate of 20%. This
is perceived to be onerous considering that section 115A envisages exemption
from filing return for the Non Resident where tax is deducted by the borrower
and paid to the Government. Hence, obtaining PAN for the sole purpose of
avoiding adverse impact of section 206AA results in an empty formality.
To address this
concern, sub-section (7) is proposed to be inserted in section 206AA to provide
that the provisions of section 206AA shall not apply in respect of payment of
interest on long term infrastructure bonds, as referred to in section 194LC, to
a non-corporate nonresident or to a foreign company.
9. Introduction of new section 194LD to provide
concessional rate of TDS in respect of interest income of a non-resident from
rupee-denominated bonds or government securities consequent to the amendment in
section 206AA
The Finance Act,
2012 had amended section 115A to provide that Interest payable by an Indian
company to a foreign company or a non-corporate non-resident in respect of
borrowing made in foreign currency from sources outside India between 1.7.2012
and 30.6.2015 would be subject to tax at a concessional rate of 5% on gross
interest (as against the rate of 20% of gross interest applicable in respect of
other interest received by a non-corporate non-resident or foreign company from
Government or an Indian concern on money borrowed or debt incurred by it in foreign
currency).
To avail this
concessional rate, the borrowing should be from a source outside India under a
loan agreement or by way of issue of long-term infrastructure bonds approved by
the Central Government. Such interest paid by an Indian company to a
non-corporate non-resident or a foreign company would be subject to TDS@5%
under section 194LC.
For enabling
subscription by a non-resident in the long term infrastructure bonds issued by
an Indian company in India (rupee denominated bond), a proviso was proposed to
be inserted in section 194LC(2) by the Finance Bill, 2013 to provide that where
a non-resident deposits foreign currency in a designated bank account and such
money as converted in rupees is utilized for subscription to a long-term
infrastructure bond issue of an Indian company, then, for the purpose of this
section, the borrowing by the company shall be deemed to be in foreign
currency.
Accordingly, as
per the above proposal, tax would be deducted at the lower rate of 5% in respect
of interest income arising to the non-resident from such rupee denominated
long-term infrastructure bonds provided the conditions specified in the section
are fulfilled.
In order to
exempt non-residents and foreign companies from the applicability of higher
rate of TDS on account of non-furnishing of PAN, it is now proposed that the
provisions of section 206AA would not be made applicable to TDS under section
194LC.
Therefore, for
providing a concessional rate of TDS in respect of interest income arising from
rupee denominated bonds or government securities, a separate section 194LD is
proposed to be inserted. This section provides for concessional rate of TDS in
respect of interest on such bonds and government securities payable to FIIs and
QFIs during the period from 1.6.2013 to 31.5.2015. It may be noted that the
provisions of section 206AA would be applicable in respect of TDS under section
194LD.
Consequential
amendments are proposed to be made in section 115A providing for taxability of
certain income of, inter alia, foreign companies and section 195 providing for
deduction of tax at source in respect of payments to, inter alia, foreign
companies.
Likewise,
consequential amendments are also proposed to be made in section 115AD providing
for taxability of certain income of FIIs and section 196D providing for
deduction of tax at source in respect of income payable to FIIs.
10. TCS provisions under section 206C to also be
attracted on sale of gold coins and articles weighing 10 gms
The Finance Act,
2012 had inserted sub-section (1D) in section 206C to provide for collection of
tax at source on sale of bullion or jewellery, if the consideration exceeds
Rs.2 lakh and Rs.5 lakh, respectively.
A coin or article
weighing 10 gms or less was, however, excluded from the applicability of the provisions
of this section.
Since the
exclusion was giving an opportunity for misuse, the same is now proposed to be withdrawn
with effect from 1.6.2013. Consequently, the provisions for tax collection at
source under section 206C would be attracted even in respect of sale of coins
or articles weighing 10 gms or less, if the consideration exceeds Rs. 2 lakh.
11. Sitting or Retired Judge of High Court with at
least 7 years of service eligible for appointment as President of Appellate
Tribunal
Section 252(3)
provides that the Central Government shall appoint the senior Vice –President or
one of the Vice-Presidents of the Appellate Tribunal to be the President
thereof.
Sub-section (3)
of section 252 is proposed to be substituted to provide that a person who is a sitting
or retired judge of a High Court and who has completed not less than 7 years of
service as a judge in a High Court may also be appointed by the Central Government
as a President.
12. Land classified as agricultural land in the
records of the Government and used for agricultural purposes not an asset
chargeable to wealth-tax
Section 2(ea) of
the Wealth-tax Act, 1957 is proposed to be amended to clarify the real intent of
the law, i.e., the agricultural land in the records of the Government and used
for agricultural purposes shall not be considered as urban land even if it
falls within the specified urban limits. Consequently, such land would not be
chargeable to wealth-tax.
