Implications of The Taxation And Other Laws (Relaxation And Amendment Of Certain Provisions) Bill, 2020
29 SEP 2020
A strict lockdown, like the one India witnessed combined with the need for social distancing spelt a death knell for timely adherence with statutory compliances. In order to ease the burden of statutory compliances during these unprecedented times, the government promulgated the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (Ordinance) on March 31, 2020. This ordinance inter alia extended timelines for compliances and henceforth relaxed the application of certain laws such as the Income Tax Act, 1961 and the CGST Act. The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Bill, 2020 (The Bill) was passed by the Parliament in order to replace the Ordinance. The Bill inter alia provides for relaxation of provisions of certain Acts, extension of time limits for compliance requirements, waiver of penalty and prosecution for delay in payment of taxes etc. The Bill has been passed by the Lok Sabha. In this article, we shall discuss the key changes brought about and the implications those changes may have in the longer run.
Relaxation of Certain Provisions of Specified Acts
The Bill talks about certain specified statutes or Acts, whose provisions have been relaxed in order to ensure smooth compliance. These specified Acts include:
Wealth Tax Act, 1957
The Income tax Act, 1961 (IT Act)
The Prohibition of Benami Property Transaction Act, 1988;
Chapter VII of the Finance (No.2) Act, 2004 (viz. Securities Transaction Tax);
Chapter VII of the Finance Act, 2013 (viz. Commodities Transaction Tax);
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015;
Chapter VIII of the Finance Act, 2016 (viz. Equalization Levy);
The Direct Tax Vivad Se Vishwas Act, 2020 (DT VSV Act)
Some of the important time extensions for compliances are:
The timelines for compliances which were due between March 20, 2020 to June 29, 2020 have been extended to June 30, 2020 or such other date as the central government may notify.
Now, the completion of any proceeding or passing of any order or issuance of any notice, intimation, notification, sanction or approval, filing of appeals etc. can be completed up till March 31, 2021.
Income tax returns for AY 2020-2021 can now be filed till November 30, 2020.
Withholding tax certificate for salaried employees were typically to be issued by June 15, 2020. This year the date was extended to August 15, 2020.
The timeline under the Vivad se Vishwas scheme has also been extended to December 31, 2020.
Faceless Tax Assessment
The Bill would insert a new section 144B into the Income Tax Act, 1961 (IT Act). This Section would bring into existence the Faceless Assessment Scheme which was notified on August 13, 2020. The Faceless Assessment Scheme aims at reducing physical contact for tax assessment. It seeks to make the entire tax assessment process faceless through agencies such as the National Faceless Assessment Centre and the Regional Faceless Assessment Centre. Section 144B would contain the manner in which faceless assessments would be conducted.
The cut-off date by which all assessments would become faceless is April 1, 2021. Post this date any assessment which is not done in accordance with Section 144B in a faceless manner would be held invalid.
The Bill has also inserted certain other provisions in the IT Act which give effect to the faceless assessment scheme. These deal with faceless jurisdiction, faceless collection of information, faceless inquiry etc.
Changes in the Direct Taxes Regime
Following changes have been proposed to the IT Act:
Changes proposed for Category-III Alternative Investment Funds (Specified Funds) which are located in the International Financial Services Centre (IFSC)
A Specified Fund would now, not include income from the transfer of a specified capital asset listed on a recognised stock exchange in IFSC in its taxable income.
Certain additional heads of income such as transfer of securities other than shares in a company, resident in India or income from securities issued by a non-resident who does not have a PE in India are also not to be included in the taxable income of the Specified Fund.
The Bill has also introduced Section 10(23FBC) which excludes any income which arises out of or accrues to a unit holder of a Specified Fund or by virtue of transfer of units in a Specified Fund from the total income of such unitholder.
The applicability of Section 115AD(i) and(iv) is now extended to Specified Funds as well, subject to certain exceptions.
The tax rate for income in respect of securities would be amended to 20% for Foreign Institutional Investors and 10% for Specified Funds.
Compliances/Actions Introduced under Finance Act, 2020 to be Deferred
The changes which the Finance Act, 2020 had brought about were to be implemented from June 1, 2020. However, the pandemic and the subsequent lockdown necessitated that the timelines for the applicability be deferred. Hence, the changes brought about by the Finance Act, 2020 would now be applicable from April 1, 2021. One of the most important changes proposed under Finance Act, 2020 was the insertion of Section 12AB which would require all existing trusts and charitable institutions to re-register. Moreover, stringent compliance requirements such as mandating research associations, universities, college or other institutions in order to be entitled to deduction under Section 35 to furnish a statement to the income-tax authorities and a certificate to the donor stating the exact amount of the donation made were also brought about under Finance Act, 2020. The applicability of all these requirements would now be postponed to April 1, 2021.
Donation Made to the PM-CARES FUND eligible for Section 80G deduction
The PM-CARES Fund was constituted in order to create a separate fund to handle the COVID-19 pandemic. The Bill has made donations made to this fund as eligible for deductions under Section 80G. Section 10(23C)(i) has been amended and income received by any person on behalf of PM-CARES Fund would not be included in the total income of a taxpayer. This brings the PM-CARES Fund at par with the PM National Relief Fund, which was enjoying such tax benefits before.
The Bill adds an explanation to Section 6(1A) which states that if an individual is characterized as a resident of India as per Section 6(1), then the concept of deemed residency as contain in Section 6(1A) would not apply to her/him. Explanation to Section 6(6) which defines income from foreign sources has also been amended to now include income which is not deemed to accrue or arise in India. Earlier this definition only included income which accrued or arose outside India.
Clause 10(23C) would now be amended to empower the Central Board of Direct Taxes to prescribe form and manner for application for approval to funds or trust or institution or any university or other educational institutions or any hospital or other medical institutions.
Section 80G(5) is also sought to be amended. This would empower the Central Board of Direct Taxes to provide by rules the statement, time period, form and manner of verification, particulars and time for delivery of correction statement for rectification of any mistake in the information furnished in the said statement.
These changes would come into effect from April 1, 2021.
Compliance requirements of CGST Act have also been extended. An amendment has been brought about which empowers the central government to notify an extension to the time limits of compliances pertaining to GST and other such actions. GST Council is required to make recommendations regarding such extensions. The power of Central government to issue notifications extending time limit also extends to giving retrospective effect to such a notification.
Direct Tax Vivad Se Vishwas Act
The Vivad se Vishwas Act enabled taxpayers to pay taxes without penalty till a certain date. This date has been extended to December 31, 2020. The Central government is empowered to notify dates pertaining to filing and declaration.
Interest and Penalty
The Bill exonerates the taxpayer from the payment of any interest or penalty, if he/she meets the statutory compliances after the due date but before the date so notified by the government. The levy of interest for delay in payment would not exceed 0.75% per month.
Implications of the Proposed Changes
The Bill would have the following implications:
More time for adherence with compliances: The pandemic and the ensuing lockdown brought our lives to a standstill. It was difficult for corporate entities to meet the given deadlines in such unprecedented circumstances. The Bill by extending the timelines to meet the compliances has made compliance easier for corporate entities.
The reduction in the percentage of interest levied would ease out the burden of compliance.
The introduction of the faceless assessment scheme is significant as it would prevent harassment of taxpayers and would ensure a smooth assessment process with minimal intervention.
Tax relaxations such as excluding certain heads from the computation of total income for Category-III Alternative Investment Funds situated in International Financial Services Centre would give an impetus to the creation of more such funds in the IFSC.
Extension of income tax filing returns date to November 30, 2020 has relieved many individual and corporate taxpayers, who can now, file their returns with ease.
CGST Act, an Act, infamous for the multitude of compliances it imposes on those being assessed under it, has also been given the relaxation of extending its timelines. This would come as a huge relief to those who pay the GST.
A contentious issue regarding the Bill, which was also heavily debated in the parliament was the tax incentives given to donations to the PM-CARES Fund. By virtue of the Bill, the PM-CARES Fund has now been brought at par with the PM National Relief Fund. This fund was created to cater specifically to the pandemic and by making the donations eligible for Section 80G deduction, the government has ensured that more and more individuals and corporates are incentivised to donate to the same.
Another significant change, which the Bill has introduced is the amendment of Section 6(1A) and Section 6(6). By specifically excluding those who are already covered under Section 6(1) as residents from the ambit of deemed residency, the amendment, reduces the scope for confusion. Similarly by including income which is not deemed to accrue or arise in India as income from foreign sources, the amendment has widened the ambit of income from foreign sources.
The amendment by extending the timeline for new sections such as section 12AB, wherein trusts and charitable institutions would have to re-apply and re-register, has also given a breather to the non-profit sector.
The Bill, which has now been passed by the Parliament, came at a very opportune time and provided relief to many taxpayers, both individual and corporate. The extension in timelines, faceless assessment scheme, deferment of new procedures etc. helped the Indian taxpayer, worry about one thing less in these testing times. What is to be seen is that whether there would be further extension in any of these timelines or not. It has brought about some novel changes such as the Faceless Assessment Scheme, whose success would depend upon its effective implementation. The extension of the time to make payments without penalty under the Vivad se Vishwas scheme has also helped prevent taxpayer harassment in these unprecedented times. In a nutshell, the Bill is a forward-looking legislation, which aims at assisting the taxpayers in their statutory compliances rather than harassing them for same.
ABOUT THE AUTHOR
CA Maneet has experience in advising companies on corporate tax, inbound & outbound investment and transfer pricing matters. He has provided extensive tax litigation support to various corporates and also has experience in Authority for Advance Rulings.
Disclaimer: The views expressed in this article are personal. The publisher or the author disclaim all, and any liability and responsibility, to any person on any action taken on reliance of it
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