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Partner, Direct Tax
The Finance Bill 2023 was presented on 1 February 2023 by the Hon’ble Finance Minister, Nirmala Sitharaman. Recently, the Finance Minister announced certain amendments to the originally proposed Finance Bill and the amended Bill was then passed by Parliament. In a surprise move, the Government amended the Section 206C(1G) of the Income Tax Act, 1961 in which it enhanced the tax rate for tax to be collected at source in case of payments made for international credit cards from 5% to 20% with effect from July 01, 2023.
In this edition of Taxation Times for FY 2023-2024, we will understand the amendment made to Section 206C(1G) and its impact on tax payers.
In this month’s Taxation Times, we cover:
We hope that you find this month’s edition of the Taxation Times useful. In case you have any feedback or need us to include any information to make this issue more informative, please feel free to write to us at info@uja.in
Happy Reading!
Best Regards,
UJA Tax Team
The Income Tax Act of 1961 (“the Act” or “the Section”), Section 206C(1), provides for the collection of TCS alcoholic beverages, tendu leaves, scrap, etc.
Additionally, the Act’s Section 206C(1G) allows for the collection of TCS on payments made through the Reserve Bank of India’s (RBI’s) Liberalised Remittance Scheme (commonly known as the “LRS”) and on the selling of packages for international travel.
Additionally, the rate of TCS for the specified remittances under LRS and the abroad trip programme package was increased by the Finance Act of 2023 to 20%, effective as of July 1, 2023, from the previous 5%, which is valid till June 30, 2023.
Effective rates of TCS from July 1, 2023 will be as follows: –
| Particulars | TCS rate till 30.06.2023 | TCS rate with effect from 01.07.2023 | ||
| Threshold | Rate | Threshold | Rate | |
| LRS – Remittance is from Education loan obtained from any financial institution as defined u/s 80E | 7 Lacs | 0.50% | 7 Lacs | 0.50% |
| LRS – Remittance is from Edu cation loan obtained other than from Sr. No. 1 | 7 Lacs | 5% | 7 Lacs | 5% |
| LRS – Remittance for medical treatment | 7 Lacs | 5% | 7 Lacs | 5% |
| LRS – Any other remittance | 7 Lacs | 5% | Nil | 20% |
| Sale of overseas tour program package | Nil | 5% | Nil | 20% |
The RBI introduced the “Liberalised Remittance Scheme” to make it simple for people to send money outside of India for personal use without obtaining RBI authorisation.
Remittances under LRS are permitted up to 2,50,000 USD every financial year for an individual since there must be some upper limit when a scheme is implemented for the convenience of the people in order to prevent misuse of the same.
Additionally, it should be noted that the LRS is only for personal use; therefore, if someone were to establish a new company abroad with USD 1000 or more, they would be subject to separate regulation under the Overseas Direct Investment (commonly known as the ODI) guidelines of the RBI, would need RBI approval, and would not be covered by the LRS.
According to Rule 5 of the FEM (CAT) Rules, 2000, persons may use a foreign exchange facility up to a maximum of USD 2,50,000 per financial year for the reasons listed in Schedule III of the Rules. Remittances above the authorised limits would need the Reserve Bank’s prior approval.
– Private Visits to any country (Except Nepal and Bhutan)
– Gift of Donation
– Going aboard for employment
– Emigration
– Maintenance of close relatives abroad
– Travelling for business
– Medical treatment
– Studies abroad
– Any other current account transaction
While on a visit abroad, a person could use international debit cards, international credit cards or other methods for undertaking the current account transactions (for easy understanding, consider it as the LRS transactions at present).
Payments by international debit cards is covered under LRS. FEMA Rules exempted the use of international credit cards from the LRS payments however, the Government amended the FEMA Rules and withdrawn the exemption related to use of credit cards.
Thus, now payment through ‘international debit card’ and ‘international credit card’ is made at par.
With this TCS was applicable @20% on usage of international credit cards.
With all the hype that is created regarding the usage of international credit cards and collection of TCS on the same, Ministry of Finance has come out with a clarification in the form of relaxation on 19th May 2023.
In the clarification, it is stated that ‘to avoid procedural ambiguity, it has been decided that any payments by an individual using their international debit or credit cards up to Rs. 7 Lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS.’
There will not be any collection of TCS on the spending through international credit / debit card while visiting abroad provided it doesn’t exceed Rs. 7 Lakh per financial year. |
Further, this TCS is liable to be collected while incurring expenses on a visit to abroad and thus will not be applicable on domestic spending. |
It is further to be noted that when an employee is being deputed by an entity and the expenses are borne by latter, such expense will be treated as resident current account transactions outside LRS and may be permitted by the AD without any limit, subject to verifying the bona fide of the transaction. |
Facts: The assessee is the national body for Cricket in India and is a society registered under Tamil Nadu Societies Registration Act. The assessee was founded in the year 1929 with the object of promoting and developing Cricket in India and fostering the spirit of sportsmanship. The assessee is also a member of the International Cricket Council (“ICC”), the international regulatory body for Cricket. The assessee derives substantial income from the conduct of Cricket tournaments and matches and is regularly assessed to tax in India. In the year 2008, the assessee commenced the conduct of a Cricket tournament, namely, the Champions League T20 (“CLT20”). The participants in the CLT20 Tournament included the winners and/or runners-up of the domestic 20-over leagues of India, Australia, South Africa, etc. It was agreed between the assessee and CSA that the assessee would pay a quantified participation fee to CSA each year towards the participation of teams from its jurisdiction for the duration of the CLT20 term.
The learned CIT(A) vide impugned order held that CSA received compensation by way of annual price fees and non-compete fees from the assessee. Further, the situs of the entire cause of action arises in India as the head office of the assessee is in India. The learned CIT(A) also held that the assessee constitutes the Dependent Agent Permanent Establishment (“DAPE”) of CSA on the basis that the Governing Council of CLT20 comprises representatives from the assessee, CSA and Cricket Australia (“CA”) and the assessee acted as an agent not only for CA and CSA, but also for other teams which participated in CLT20 as per the terms and conditions of the agreement. Accordingly, the learned CIT(A) held that the income of the CSA accrued and arose in India.
Against the contention of the Ld. CIT(A) the assessee filed an appeal before Hon. ITAT.
Held: Section 9, read with section 195, of the Income-tax Act, 1961, read with article 5 of the DTAA between India and South Africa – Income – Deemed to accrue or arise in India (Permanent Establishment – DAPE) – Assessment year 2016–17 – Assessee a national body for Cricket in India derived substantial income from conduct of Cricket tournaments and matches and was regularly assessed to tax in India – In year 2008, assessee commenced conduct of a Cricket tournament, namely, Champions League T20 (CLT20) – Assessee arrived at an arrangement, inter-alia, with Cricket South Africa (CSA), and CSA ensured that winning and, where appropriate, runner-up Cricket team(s) involved in domestic Cricket competition administered by CSA would be participating in CLT20 and it was agreed between assessee and CSA that assessee would pay a quantified participation fee to CSA each year towards participation of teams from its jurisdiction for duration of CLT20 term and on same TDS under section 194E was also deducted – Said arrangement which existed between CSA and assessee was terminated vide Termination Agreement dated 25-6-2015 and assessee agreed to make payment to CSA as compensation and no Cricket match of Champions League was played anywhere in world in year consideration – Whether in view of above, assessee could not be said to be DAPE of CSA in India under article 5(5) of India-South Africa DTAA – Held, yes – Whether thus, payment of compensation to CSA under Termination Agreement was also not taxable under provisions of India-South Africa DTAA – Held, yes – Whether since payment was not chargeable to tax in India in hands of CSA, therefore, there was no obligation on assessee to deduct tax at source under section 195.
In Favour of: The Assessee.
Facts: The brief facts and the background of the case are that the assessee is an individual who is married to a British citizen and is settled in London. Undisputedly, she has been outside India since F.Y.1999-2000 to till date and had status of non-resident or not ordinarily resident of India. Even prior to that, from F.Y. 1989-90 to 1998-99, she was a non-resident or not ordinarily resident. As a non-resident, the assessee has been maintaining NRE account & NRO account in India. However, the assessee was filing the return of income in India in the status of nonresident in respect of income chargeable to tax in India in accordance with the provisions of Income Tax Act, which generally comprises of capital gains and income from other sources like dividend, interest, etc.
Prior to the issuance of notice u/s.148 and recording of the “reasons”, ADIT (Investigation), Mumbai had issued summons u/s.131 to the assessee on the basis of certain information received from Government of India in the form of “Base Note” from French Government from which it was gathered that, assessee was the beneficial owner of HSBC bank account in Geneva and there is lying a balance in USD.
Based on the above facts, the Ld. AO issued the notice under section 148 of the Income Tax Act, 1961 and assessment proceedings were completed by adding to the income of the assessee an amount lying in the HSBC Bank.
Aggrieved by the order passed by the Ld. AO; the assessee filed an appeal before CIT(A) which upheld the additions made by the Ld. AO. Finally, the assessee filed an appeal before Hon. ITAT.
Held: Assessee was a non-resident Indian who was maintaining NRE and NRO accounts in India – Assessee filed income-tax return for relevant assessment year declaring income chargeable to tax in India – Assessing Officer also received another information from Investigation Wing that large number of individuals had admitted to holding accounts in HSBC bank and disclosed balance for tax – Thereafter, Assessing Officer received information from French Government that assessee was a beneficial owner of HSBC account in Geneva – He, thus, held that balance lying in HSBC accounts of assessee was taxable in India and issued reopening notice on ground that income had escaped assessment – It was noted from bank statements of assessee that all entire statement was in foreign currency and nowhere it could be inferred that amount had been deposited from income earned in India – Whether fourth proviso to section 139(1) requires that a person who is resident of India to disclose the details of foreign assets in return of income, thus assessee being a non-resident was not required to disclose any asset held outside India in the return of income to be filed in India – Held, yes – Whether section 149(1)(c) and period of 16 years is only applicable for reopening assessment of assessees who are residents and are required to disclose the assets outside India – Held, yes – Whether since reopening was based on general information without recording any specific reasons on how deposits in HSBC was from income accrued or arising in India, reopening proceedings were to be quashed.
In Favour of: The Assessee
Facts: The assessee is a Limited Liability Partnership, which is incorporated and registered with the Registrar of Companies for England and Wales under the Limited Liability Partnership Act 2000 of the United Kingdom (“UK”). The assessee is engaged in providing legal services to its clients. For the year under consideration the assessee filed its return of income as non-resident assessee declaring income of Rs. Nil.
Case was selected for scrutiny and during the assessment proceedings it was noticed that the assessee has been held not to be a resident in the UK for the purpose of the India-UK DTAA, as per Tax Residency Certificate issued by HMRC. As a result, the Ld. AO treated invoiced by the assessee as income from sources in India, which had accrued or arisen or deemed to accrue or arisen in India.
The assessee filed its objections against the draft assessment order passed by the Ld. AO before Dispute Resolution Panel (DRP) and DRP rejected the objections filed by the assessee and directed the Ld. AO passed the final assessment order.
Against the final assessment order, the assessee filed an appeal before Hon. ITAT.
Held: Assessee was a Limited Liability Partnership incorporated under Laws of United Kingdom (UK) – It provided legal advisory services to its clients worldwide including India – Whether since assessee rendered services in nature of purely legal advisory, wherein it could not be said that any technical knowledge, experience, skill, know-how, or processes could be utilised by client in future without aid of assessee, services rendered by assessee could not be said to have “made available” technical knowledge, skill, experience, know-how or process, etc. to recipient of services – Held, yes – Whether, therefore, income received by assessee was not in nature of “fees for technical services.
In Favour of: The Assessee
Due date for deposit of Tax deducted/collected for the month of May, 2023. However, all sum deducted/collected by an office of the government shall be paid to the credit of the Central Government on the same day where tax is paid without production of an Income-tax Challan.
Due date for issue of TDS Certificate for tax deducted under section 194-IA/194-IB /194M/194S in the month of April, 2023
First instalment of advance tax for the assessment year 2024-2025.
Certificate of tax deducted at source to employees in respect of salary paid and tax deducted during Financial Year 2022-23.
Due date for furnishing of challan-cum statement in respect of tax deducted under section 194-IA/194-IB /194M in the month of May, 2023.
Furnishing of Equilisation Levy statement for the Financial Year 2022-2023.
Deadline to link PAN with Aaadhar to avoid PAN becoming inoperative.
