The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance 2020 (the Ordinance) was promulgated on 31 March 2020, in order to ease compliance burden on taxpayers due to outbreak of COVID-19.
The Taxation and Other Laws (Relaxations and Amendments of certain Provisions) Bill 2020 (Taxation Bill 2020) passed by Lok Sabha and Rajya Sabha seeks to replace the Ordinance and to further amend the Income-tax Act, 1961, Central Goods and Services Tax Act, 2017, Finance Act, 2019, the Direct Tax Vivad se Vishwas Act, 2020 and the Finance Act, 2020.
Key amendments proposed in the Taxation Bill 2020 are summarised below:
A. Faceless Assessment Scheme
On 13 August 2020, Prime Minister launched the ‘Transparent Taxation’ platform encompassing faceless assessments, faceless appeals, etc. CBDT also issued notifications to amend the E- Assessment Scheme and to implement the Faceless Assessment Scheme under Section 143(3A). The Taxation Bill propose that faceless assessment scheme will be incorporated under the Income Tax Act from April 2021
Enabling provisions have also been inserted to carry out the following functions in a faceless manner, to the extent that it is technologically feasible:
- Reassessments and revisions
- Transfer Pricing Proceedings
- Approvals and registration
- Appeal proceedings before the ITAT
- Appeal Effect
- Initiation of prosecution
- Rectification Proceedings
- Stay and recovery
- Lower/Nil withholding and TDS proceedings
Schemes defining detailed procedure and conduct is yet to be notified.
New mode of communication – It has been proposed to introduce S. 144B(7) which provides that any notice/order or any other communication shall be by way of:
- Placing an authenticated copy thereof in taxpayer’s registered account; or
- Sending an authenticated copy thereof to the registered email address of taxpayer/ his authorised representative; or
- Uploading an authenticated copy on taxpayer’s mobile App of the tax department, followed by a real time alert.
B. Due date of various compliances:
On 31 March 2020, the President had promulgated the Ordinance, to provide relaxation in certain provisions and extension of various due dates. On 24 June 2020, the Central Board of Direct Taxes (CBDT) had issued a Notification and a Press Release to further extend various due dates.
Originally, an extension was provided for due dates falling between 20 March 2020 and 29 June 2020. This was extended to 31 December 2020. Similarly, the time limit for completion or compliance of various actions falling under 20 March to 31 December 2020 was extended to 31 March 2021.
The Taxation Bill proposes to ratify such extensions and reliefs provided through the Ordinance and Notifications. The Taxation Bill does not provide any further relief or extension to taxpayers in relation to timelines for various compliances.
C. Lower tax deduction/collection in certain cases for limited period
CBDT, vide its press release dated May 13, 2020, reduced the rates for Tax Deduction at Source (TDS) by 25% for non-salaried specified payments made to residents during the period from 14 May 2020 to 31 March 2021.
The Taxation Bill proposes to include the aforesaid amendments in the Income Tax Act with retrospective effect from 14 May 2020.
D. Amendments to residency rules for Indian citizen or Person of Indian Origin
One of the conditions to trigger residency in India was that an individual should be present in India for at least 60 days in the relevant financial year and 365 days in past four years. In case of an individual being a citizen of India or Person of Indian Origin (PIO) who, being outside India, comes on a visit to India, the threshold is 182 days.
Finance Act, 2020 reduced this period of stay in India from 182 days to 120 days for an Indian citizen or a PIO having India sourced income exceeding INR1.5m. However, it was not clear whether such an individual need to be based outside India and comes on a visit to India to trigger this rule.
The Taxation Bill proposes to clarify that the new rule will apply to an Indian citizen or PIO who, being outside India, comes on a visit to India.
E. Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM-CARES Fund)
The Taxation Bill seeks to provide tax exemption for contributions made to PM-CARES Fund, which was set up in March in the wake of the coronavirus pandemic. Further, 100% deduction is available of the sum contributed to PM CARES Fund under S. 80G.
F. New registration process applicable to charitable entities and research institutions
Finance Act 2020 had prescribed a new registration process wherein existing registered charitable entities and research institutions registered under various provisions of the Income Tax Act to make an application under new registration regime for continuing their registration.
The Taxation Bill proposes that provisions governing new registration regime for charitable entities and research institutions registered under various provisions of Income Tax Act shall be effective from 1 April 2021 (instead of 1 October 2020) and the old regime of registration will continue till 31 March 2021.
G. Capping of surcharge on dividend income of Foreign Portfolio Investors (FPIs)
The rate of surcharge levied on dividend income derived by FPIs (structured as Trusts, Association of Persons (AOP), Body of Individuals (BOI), individuals) has been capped at 15%, thereby reducing the dividend tax rate to 23.92% opposed to erstwhile tax rate of 28.5%
Changes proposed in the Taxation Bill are a welcome move by the central government. The amendments will enable the taxpayers to adhere to the compliance requirement in this critical situation of Covid-19 pandemic.
We hope you will find the update useful.