As per the existing provisions of Section 194LBB, any payment made by Category-I and Category-II Alternate Investment Funds to its investors shall be subject to mandatory TDS at the rate of 10%. No distinction is made on account of residential status of investor at the time of deduction of TDS. Further, Section 197 does not include Section 194LBB in the list of sections for which an application can be made for lower or no withholding of TDS

-It is proposed to amend Section 194LBB to provide that deduction of TDS in case of resident investor shall be at the rate of 10% and it shall be at rates in force for non-resident investors. By virtue of this amendment, the non-residents shall be in a position to claim the benefit of lower or no TDS envisaged in relevant DTAA.

– Further, it is proposed to amend Section 197 to include Section 194LBB in the list of sections for which the application of lower or no withholding of tax can be made and a certificate can be obtained thereon.

– Consequential amendments are proposed to be made in definition of “rates in force” to accommodate Section 194LLB.

These amendments will take effect from 1st June, 2016.

The existing provision of Section 206AA provides that any person entitled to receive any sum or income or an amount on which tax is deductible under Chapter XIIB shall furnish PAN to the deductor, failing which tax shall be deducted at calculated higher rate. The said provision is also applicable to non – residents except for payment of interest on long-term bonds as referred under Section 194LC.

It is proposed to amend this Section so as to provide that provisions of this Section shall not be applicable to non residents, in respect of payments other than above mentioned interest on bonds, if an alternative acceptable proof is provided.

It shall be noted that the Government is yet to notify the alternate acceptable proofs in this regard.

This amendment will take effect from 1st June, 2016.

With a view to reduce the cash transactions and to bring high value transactions under tax net, it is proposed to provide for collection of tax at source at the rate of 1%:

-on sale of motor vehicle exceeding Rs.10 lakhs irrespective of the payment mode

-sale of any goods and services over and above Rs. 2 lacs for which payment is being made in cash, however, subject to the following:

– Provision shall not apply to transactions on which TDS is being deducted.

– TCS need not be collected from certain notified buyers

The amendment is effective from 1^st June 2016

Sections 115TA to 115TC lay down a special taxation regime for in respect of income of securitisation trusts and its investors.

It is proposed to make the following amendments in the current tax regime:-

– The new regime shall apply to securitisation trust being an SPV defined as per regulations of SEBI or SPV as defined in the guidelines on securitisation of standard assets issued by RBI or securitisation or reconstruction company in accordance with SARFAESI Act

– Any income received by investor from securitisation trust shall be taxable. Further, income accrued or received by securitisation trust shall be taxable in the hands of investors in the same manner and extent assuming the investment in the underlying asset is made directly by the investor and not through trust. Further, if income is not paid on the last day of the previous year by the trust to the investors, it shall be deemed to be paid in the same proportion in which investor would have been entitled to receive the income had it been paid in the previous year.

– Any income, included in the hands of investors, on account of accrual or arisen in a previous year, shall not be charged to tax inthe year when the securitisation trust actually pays to the investor

– The rates for tax deduction at source by securitisation trust shall be as follows:-

The facility to obtain low or nil deduction of tax certificate shall be available for the investors

The trust shall provide breakup regarding nature and proportion of its income to the investors and also to the prescribed income-tax authority

The current regime of distribution tax shall cease to apply in case of distributions made by securitisation trusts with effect from 01.06.2016

These amendments will take effect from 1st June, 2016

It is proposed to insert a new chapter to The Income Tax Act, 1961 with the intention of providing a chance to persons who have undisclosed income, to voluntarily come forward, disclose the income, pay prescribed taxes with applicable penalties and get relieved

The Scheme shall be effective from 01.06.2016 upto the date notified by the Central Government.

Applicability of Scheme

Undisclosed income of any financial year upto AY 2016-17

PROPOSALS OF THE SCHEME

Tax, surcharge and penalty, as envisaged in the Scheme, shall be paid on or before the date notified by the Central Government. Failure to make such payment shall render declaration void under this Scheme.

Declaration made under the Scheme by misrepresentation or suppression of facts, shall be consider as void

Tax and Penalty

The extent of tax and penalty proposed is tabulated below:

Benefits of this Scheme shall not be available to any person other than the person who has given the declaration

If an assessee has declared income under this Scheme, however, has not pay the relevant tax and penalty, the undisclosed income shall be chargeable to tax in the year of declaration

In case any income has been accrued or arisen or received or any asset has been acquired out of such income prior to commencement of this Scheme and further such income has not been declared pursuant to this Scheme, such income shall be deemed to have been accrued, arisen or received or such asset shall be deemed to have been acquired in the year in which notice under Section 142, 143 (2), Section 148, Section 153A or Section 153C is issued and relevant provisions shall apply accordingly. This is explained with the help of a simple example:

Let us assume this Scheme is open from 01.06.2016 to 31.03.2018.

Undisclosed income pertaining to the year 2013 is Rs.1 crore and the same has not been declared by assessee.

Suppose a scrutiny notice under Section 143(2) has been received on 01.06.2017 by the assessee, then the relevant provisions of Income Tax shall apply for A Y 2018-19 and the assessee cannot take shelter under this Scheme for that year.

CASES NOT ELIGIBLE FOR THE SCHEME

– Where notice is issued u/s.142(1), 143(2), 148, 153A, 153C, or

– Where search or survey has been conducted and time period for issue of notice has not been expired, or

– Where information is received under an agreement with foreign countries regarding such undisclosed income, or

– Cases covered under The Black Money Act, 2015, or

– Persons notified under The Special Court Act, 1992, or

– Cases covered under Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act, 1967, the Prevention of Corruption Act, 1988.

BENEFITS OF DECLARATION

-Declarations made under this Scheme shall be exempt from wealth tax in respect of assets declared

– No scrutiny and enquiry under The Income Tax Act and The Wealth Tax Act

– Immunity from prosecutions under The Income Tax Act and The Wealth Tax Act

– Immunity from The Benami Transactions (Prohibition) Act, 1988 if the asset in the name of the Benamidar is transferred to the assessee or his legal representative within the tenure specified by the Central Government.

MEASURES FOR SMOOTH WORKING OF SCHEME

It is proposed that in case any practical difficulty is observed in working of Scheme, the Central Government may, by an order, remove such difficulty, although not after 2 years from the date of applicability of this Scheme and such order shall be laid down before each House of Parliament

The Central Board of Direct Taxes (CBDT) shall, under the direction of the Central Government, be empowered to make rules under this Scheme and such rules shall be laid down before each House of Parliament

The Finance Act, 2016 proposes to provide for an equalization levy of 6% of the amount of consideration for any specific service, received or receivable by a person, being non-resident, not having permanent establishment in India, from

– A person resident in India and carrying on business or profession or

– A non-resident having a permanent Establishment in India

However, such levy shall not be made

– If the service provider has a permanent establishment in India and these services are effectively connected with the permanent establishment

– If the aggregate amount of consideration from such specified services does not exceeds Rs. 1 lakh.

– If the payment is not for the purpose of carrying out business or profession

The provisions of Equalisation Levy shall not apply to the state of Jammu & Kashmir.

Specified Service means:

– online advertisement,

– any provision for digital advertising space or

– any other facility or service for the purpose of online advertisement and

– includes any other service as may be notified by the Central Government in this behalf

Note:

-income arising from providing specified services on which equalisation levy is chargeable is exempt from income tax

– Failure to deduct and deposit the equalisation levy shall lead to disallowance of expenditure (similar to Section 40(a)(ia))

– Where the equalisation levy is paid after the due date of filing returns, corresponding expenditure shall be allowed as deduction only for the previous year in which it was paid.

The provision seems to be a back door mechanism to tax online ads and other possible expenses paid/payable overseas on which TDS cannot be deducted owing to both domestic and DTAA restrictions. Possible expenses like ISP services, server charges and many more could well find their way under this clause in future. This seems to be a concerted effort to prevent base erosion.

-100% FDI shall be allowed in Asset Reconstruction Companies (‘ARC’s’) through automatic route. Corresponding amendments to the SARFESI Act have been proposed.

-Foreign portfolio investors (‘FPIs’) shall be allowed up to 100 per cent of each tranche in securities receipts issued by ARC’s subject to sectoral caps.

-FDI cap in Insurance sector was increased from 26% to 49% in November 2015. In the insurance and pension sectors, the government announced that foreign investment shall be allowed through automatic route for up to 49 per cent subject to the guidelines on Indian management and control, to be verified by the regulators.

-100% FDI, with clearance from the Foreign Investment Promotion Board (‘FIPB’), shall be allowed in marketing of food products produced and manufactured in India.

-Investment limit for foreign entities in Indian stock exchanges shall be increased from 5% to 15% subject to guidelines to be issued by SEBI.

-It is also proposed to provide residential status to foreign investors with investments beyond specified limits, which will go beyond 5 year visas. This is being done to reduce the compliance burden.

-It is further proposed to introduce a Centre-State Investment Agreement. This proposal is in the light of the International Bilateral Investment Treaties signed by India with other countries. Implementation and ratification of the obligations under these treaties would be facilitated by the ‘Centre-State investment agreement’. Further, it will also ensure equal participation of the States and will provide additional impetus to foreign investments.

-Existing 24% limit for investment by FPIs in Central Public Sector Enterprises, other than Banks, listed in stock exchanges, shall be increased to 49%.

Section 47 (xiiib) provides that conversion of private limited or public unlisted company into an LLP shall not be regarded as transfer if the specified conditions are fulfilled.

It is proposed to amend the Section to provide that, in addition to the existing conditions, one more condition which needs to be fulfilled for availing exemption is that the value of the total assets in the books of accounts of the company in any of the 3 previous years preceding the previous year in which the conversion takes place, should not exceed Rs. 5 crores.

By increasing the turnover to Rs 5 crores, the Ministry has now made the scheme practical and applicable to a larger number of companies.

These amendments are proposed to be made effective from the 1st day of April, 2017 and shall accordingly apply in relation to assessment year 2017-18 and subsequent years

Section 50C provides that for transfer of land and building held as capital asset, if consideration is less than stamp duty, full value of consideration shall be the stamp duty value for the purpose of calculation of capital gains

However, it is noted that no relief is provided to the seller when he has entered into an agreement to sell the property much before the actual date of transfer of the immovable property and the sale consideration is fixed in such agreement.

Thus, it is proposed to amend Section 50C to provide that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration.

For example, consider for a property transaction, the date of agreement between buyer and seller for sale of property is 01.04.2017 whereas the actual date of transfer and receipt of consideration is 01.06.2017. Thus, as per amended Section 50C, the stamp duty, for the purpose of computing the full value of consideration, shall be considered as on the date of agreement and not on the actual date of transfer

Further, it is proposed that amount of consideration, in full or part, shall be paid through mode other than cash, on or before the date of the agreement for the transfer of such immovable property.

The provisions of Sec 50C have now been amended along the lines of Sec 43CA

These amendments are proposed to be made effective from the 1st day of April, 2017 and shall accordingly apply in relation to assessment year 2017-18 and subsequent years.

As per the existing provisions of transfer pricing laws, there is requirement for maintenance of prescribed information and document in relation to international and specified domestic transaction.

OECD report on Action Plan 13 of BEPS Action Plan proposed revision in transfer pricing documentation and formulated a three tier structure for the purpose of documentation which is as follows

In order to bring in consensus with global economy, it is proposed to include some elements of CbC and Master file in the current provisions of the Act, which are as follows:

CBC REPORTING

– This reporting shall be applicable if the international group has consolidated revenue of 750 million Euro

– Parent Entity of the international group, if resident in India, shall furnish the required report to the prescribed authority on or before the due date of filing of return

– For the above purpose, the parent entity shall be an entity which is required to prepare consolidated financial statement under the applicable laws or would have been required to prepare such a statement, had equity share of any entity of the group been listed on a recognized stock exchange in India

– Every constituent entity resident in India, of an international group, having parent entity that is not resident in India, shall provide information regarding the country of residence of the parent of the international group to which it belongs before the prescribed date to prescribed authority

– The report shall be furnished in prescribed manner and form which contains all information based on the template provided in OECD BEPS report on Action Plan 13

-The constituent entity in India shall be required to furnish CbC report if the parent entity of the international group is resident of country with which India does not have arrangement or agreement to exchange CbC reports or with a country who is not exchanging information even though there is an agreement and this fact is known to the constituent entity

-If there are more than 1 entities of same group in India, the group shall nominate, in writing to prescribed authority, either of the entity to report on behalf of the group

-In case parent entity is not resident in India and international group has designated an alternate entity to file the report on its behalf, then the entities of such group operating in India shall not be required to do any reporting if Indian tax authorities can obtain reports filed by the alternate entity under the agreement of exchange of reports

-The reports submitted by the entity shall be subject to scrutiny and assessment, through issue of notice, to verify the accuracy. The entity shall be required to make necessary submissions, in case details and information asked, within 30 days or extended period of 60 days from the date of receipt of notice.

Further, for non-submission of information when called by prescribed authority, the penalty shall be Rs.5,000 per day and if the order levying such penalty is serviced, the penalty shall be Rs.50,000 per day for default beyond date of service of such order

MAINTENANCE OF MASTER FILE

The entities, being constituent of international group, shall maintain information and documents as prescribed and the same shall be furnished to the prescribed authority in the manner and form as may be prescribed

Non furnishing of information and document shall attract penalty of Rs. 5 lakhs. However, reasonable cause defence against levy of penalty shall be available to the entity.

These amendments shall apply for the Assessment year 2017-18 and subsequent assessment years.

-Penalty of Rs.5,00,000 shall apply if the entity has provided any inaccurate information in the report and does not inform about the inaccuracy to the prescribed authority or corrects the report within 15 days but fails to inform or furnishes inaccurate information or document in response to notice of prescribed authority. However, reasonable cause defence against levy of penalty shall be available to the entity.

For default in furnishing of the report by an entity, following penalty shall be levied:-