This year’s Budget was different in many ways. While the Finance Minister opted to present it on 1st February and departed from the decades-old tradition of presenting it on the last day of February, it also saw the merger of the rail budget alongside. The changes in this budget have been significant ranging from introduction of new international tax provisions like thin capitalization, secondary adjustments norms to rationalization of period of holding of capital assets, imposition of cash transaction limits and amendment in taxation of joint development agreements.
To add to these, at the time of passing of the Finance Bill, 2017 on 23rd March, a few more amendments to the Income-Tax Act, 1961 (‘the Act’) have been moved in the Lok Sabha (Lower House of the Parliament). This write-up intends to take the readers through a quick sojourn of these amendments.
Indirect Transfer Rules not to apply
For the purposes of providing ample clarity to foreign investors two provisos have been inserted to Explanation 5 of Section 9(1) of the Act. The provisos specify non- applicability of provisions of indirect transfer under Section 9(1)(i) of the Act on certain category of investors like foreign institutional investors (FIIs) and foreign portfolio investors (FPIs). While the first proviso deals with FIIs for investments made between 1st April, 2012 to 31st March, 2015, the second proviso provides exception to assets held by FPIs [as provided under SEBI (Foreign Portfolio Investors) Regulations, 2014]. The inclusion of FIIs and FPIs has been made to provide ample clarity of non-applicability of provisions of indirect transfers since its very inception i.e. from 1st April, 2012.
Income or property received from a trust
The application of newly inserted clause (x) to Section 56(2) of the Act has been restricted and shall not apply in case of receipt of money or property received by a trust from an individual wherein the trust has been created or established solely for the benefit of the relative of the individual. Prior to this amendment, the Finance Bill, 2017, had proposed to bring into tax all cases of money or property received by the trust with no such exception.
Thin Capitalization
A new Section 94B has been proposed to be introduced in the Act vide Finance Bill, 2017. It provides for restriction on interest payout by an Indian company or PE of a foreign company in India as specified percentage of EBITDA. The language of the section has been amended by replacing the word ‘pays interest’ with ‘incur interest’. The term used in the final version of the Finance Bill, 2017, reads as ‘incurs any expenditure by way of interest or of similar nature’. Thus, by doing so it seems to have included the act of accrual of interest expense in the ambit of calculation of specified percentage.
Quoting of Aadhaar Number
A new Section 139AA has been inserted which requires compulsory quoting of Aadhaar number. It provides that from 1-7-2017 every person eligible to obtain Aadhaar number shall quote such Aadhaar number on the (i) application form of PAN; and (ii) Return of Income. However, where the applicant for the PAN or the person filing the return of income does not have Aadhaar number then the Enrolment ID of the Aadhar application form will suffice. Further, persons having PAN as on 1-7-2017 are required to intimate the Aadhaar number on or before the date to be notified by the Central government to the prescribed authority. On failure to do so, the PAN will be deemed invalid as if the person had not applied for allotment of PAN. Further, penal provisions have also been introduced for non-compliance of the same.
TCS not applicable on cash sales of goods including bullion or jewellery and services
In view of insertion of a new section viz., Section 269ST, the Finance Bill, 2017 has omitted sub-section 1D and 1E of Section 206C of the Act. Section 206C(1D) of the Act provided that a seller, who receives any amount in cash as consideration for sale of bullion or jewellery [or any other goods (other than bullion or jewellery) or providing any service], shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to 1% of sale consideration as income tax. Therefore, in view of the new Section 269ST, the compliance under Section 206C(1D) & (1E) of the Act has been done away with.
Ceiling on receipts in cash
The new Section 269ST provides that the maximum amount a person may receive in cash from another person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion from a person should not exceed INR 2 Lakhs. The limit has been revised from proposed Rs 3 Lakhs to Rs 2 Lakhs.
Overall, it appears that the government is intent on making tax avoidance more difficult so as to improve compliance levels which may ultimately result in more revenue from the direct tax side given the uncertainty over the potential revenue that may accrue after introduction of GST on the indirect tax side.
[The authors are respectively Principal Associate and Associate, Lakshmikumaran & Sridharan, New Delhi]