Proposed Amendments in International Tax By Union Budget 2017— Synopsis
- Clarity relating to Indirect transfer provisions[Section 9(1)(i)]
Explanation 5A has been proposed to be inserted in section 9(1)(i) to clarify that Explanation 5 shall not apply to any asset or capital assetmentioned therein being
— investment held by non-resident, directly or indirectly,
— in a Foreign Institutional Investor, as referred to in clause (a) of the Explanation to section 115AD, and registered as Category-I or Category II Foreign Portfolio Investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992,
— as these entities are regulated and broad based.
- Modification in conditions of special taxation regime for off shore funds [Section 9A(3)(j)]
Further proviso to Section 9A(3)(j) has been proposed to be inserted to provide that in the previous year in which the fund is being wound up, one of the conditions for eligible investment fund that the monthly average of the corpus of the fund shall not be less than one hundred crore rupees, shall not apply.
- Exemption of income of Foreign Company from sale of leftover stock of crude oil from strategic reserves at the expiry of agreement or arrangement[Section 10(48B)]
It is proposed to insert a new clause (48B) in section 10 so as to provide that any income accruing or arising to a foreign company on account of sale of leftover stock of crude oil, if any, from a facility in India after the expiry of an agreement or an arrangement referred to in clause (48A) of section 10 of the Act shall also be exempt subject to such conditions as may be notified by the Central Government in this behalf.
- Scope of section 92BA of the Income-tax Act relating to Specified Domestic Transactions[Section 92BA]
It is proposed to omit clause (i) to section 92BA to provide that expenditure in respect of which payment has been made by the assessee to a person referred to in under section 40A(2)(b) are to be excluded from the scope of section 92BA of the Act.
- Limitation of interest deduction in certain cases [New insertion of section 94B]
It is proposed to insert a new section 94B, in line with the recommendations of OECD BEPS Action Plan 4, to provide that interest expenses exceeding 1 crore claimed by an Indian Company or PE of Foreign Company in India being the borrower in respect of any debt issued by a non-resident, being an associated enterprise of such borrower shall be restricted to
— 30% of its earnings before interest, taxes, depreciation and amortisation (EBITDA)
— interest paid or payable to associated enterprise, whichever is less.
- Secondary Adjustment in Certain cases [New insertion of section 92CE]
— In order to align the transfer pricing provisions in line with OECD transfer pricing guidelines and international best practices , it is proposed to insert a new section 92CE to provide that the assessee shall be required to carry out secondary adjustment where the primary adjustment to transfer price,
— has been made suo motu by the assessee in his return of income; or
— made by the Assessing Officer has been accepted by the assessee; or
— is determined by an advance pricing agreement entered into by the assessee under section 92CC; or
— is made as per the safe harbour rules framed under section 92CB; or
— is arising as a result of resolution of an assessment by way of the mutual agreement procedure under an agreement entered into under section 90 or 90A.
— The secondary adjustment shall not be carried out if,
— the amount of primary adjustment made in the case of an assessee in any previous year does not exceed one crore rupees and
— the primary adjustment is made in respect of an assessment year commencing on or before 1st April,2016
- Definition of ‘person responsible for paying’ in case of payments covered under sub-section (6) of section 195[Amendment in section 204 (i.e. insertion of clause iib)]
It is proposed to amend section 204 of the Act to provide that in the case offurnishing of information relating to payment to a non-resident, not being a company, or to a foreign company, of any sum, whetheror not chargeable under the provisions of this Act, ‘person responsible for paying’ shall be the payer himself, or, if the payer is acompany, the company itself including the principal officer thereof.
- Clarification with regard to interpretation of ‘terms’ used in an agreement entered into under section 90 and 90A [Insertion of Explanation 4 in Section 90 and 90A]
It is proposed to amend the sections 90 and 90A of the Act, to provide that
— where any ‘term’ used in an agreement entered into under Section 90(1) and 90A(1) of the Act, is defined under the said agreement, the said term shall be assigned the meaning as provided in the said agreement and
— where the term is not defined in the agreement, but is defined in the Act, it shall be assigned the meaning as definition in the Act or any explanation issued by the Central Government.
- Correct reference to FEMA instead of FERA[Amendment in proviso to section 10(4)(ii)]
— The proviso to the said sub-clause refers individual to be a person resident outside India, as defined in clause (q) of section 2 of Act 46 of 1973, i.e., Foreign Exchange Regulation Act, 1973, (FERA) which stands repealed and re-enacted as Act 42 of 1999, i.e., the Foreign Exchange Management Act, 1999 (FEMA). The definition of person outside India is occurring in clause (w) of FEMA.
— With a view to reflect the correct definition of the expression “person resident outside India”, it is proposed to amend the said proviso. The amendment is clarificatory in nature.
10. Extension of eligible period of concessional tax rate on interest in case of External Commercial Borrowing and Extension of benefit to Rupee Denominated Bonds[Section 194LC]
— It is proposed to amend section 194LC to provide that the concessional rate of 5% TDS on interest payment under this section will now be available in respect of borrowings under a loan agreement or by way of any long-term bond including long-term infrastructure bond respectively made before the 1st July, 2020.
— It is further proposed to extend the benefit of section 194LC to rupee denominated bond issued outside India before the 1st July, 2020.
11. Extension of eligible period of concessional tax rate under section 194LD
It is proposed to amend section 194LD to provide that the concessional rate of 5% TDS on interest will now be available on interest payable before the 1st July, 2020.