bansi s. mehta & co

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BANSI S. MEHTA & CO. Chartered Accountants Finance Bill, 2021 - Analysis

Preface This e-booklet highlights the key proposals put forth by the Honorable Finance Minister in her Union Budget 2021-22. This e-booklet is for private circulation amongst clients and professional colleagues of Bansi S. Mehta & Co. only. It is not for general circulation and is under no circumstances an offer, invitation or solicitation of any kind. This e-booklet is intended to be a succinct overview of the proposals put forth and is neither to be construed as comprehensive nor as to render taxation, legal, economic or financial advice. This e-booklet should not be relied upon for taking any actions/ decisions on the contents of the e-booklet and proper professional/ legal advice should be sought. Further, this e-booklet contains only the proposals and amendments as given in the Finance Bill, 2021, which may be modified before it receives the approval and assent of the Parliament and the President. The material used in the preparation of this e-booklet has been sourced from various sources including the speech of the Finance Minister, websites of the Government and other publicly available information. While all reasonable care has been taken in preparation of this e-booklet, we accept no responsibility for any errors it may contain or for any omissions or otherwise or for any loss, howsoever caused or sustained, by the person who relies on it.



LIST OF ABBREVIATIONS

ABBREVIATIONS FULL NAME A.Y. Assessment Year AAR Authority for Advance Rulings AO Assessing Officer AOP Association of Persons APA Advanced Pricing Agreement BRA Banking Regulation Act, 1949 BOI Body of Individuals CBDT Central Board of Direct Taxes CGST Central Goods and Service Tax COVID-19 Coronavirus 2019 CIT Commissioner of Income Tax CIT(A) Commissioner of Income Tax (Appeals) DTAA Double Taxation Avoidance Agreement EM / Memorandum Explanatory Memorandum EL Equalisation Levy ESIC Employee State Insurance Corporation FA Finance Act FB-21 Finance Bill, 2021 FTS Fee For Technical Services FY Financial Year GST Goods and Service Tax Hon’ble Honorable HUF Hindu Undivided Family IFSC International Financial Service Centre IGST Integrated Goods and Service Tax ITA Income Tax Act ITAT Income Tax Appellate Tribunal LLP Limited Liability Partnership LTC Leave Travel Concession PAN Permanent Account Number PCIT Principal Commissioner of Income-tax PE Permanent Establishment PGBP Profit and Gains from Business or Profession PPF Public Provident Fund RBI Reserve Bank of India RSE Recognized Stock Exchange



S. Section SEBI Securities and Exchange Board of India SEZ Special Economic Zone TCS Tax Collected at Source TDS Tax Deduction at Source u/s under section WDV Written Down Value



CONTENTS CHAPTER-1 : RATES OF INCOME TAX ........................................................................................... 5 CHAPTER-2 : NON RESIDENT INDIVIDUALS & EQUALISATION LEVY ................................ 9 CHAPTER-3 : TAX DEDUCTED AT SOURCE & TAX COLLECTED AT SOURCE ................ 14 CHAPTER-4 : CHARITABLE AND RESEARCH INSTITUTIONS ............................................... 20 CHAPTER-5 : PROCEDURE FOR ASSESSMENTS, APPEALS AND OTHER RESOLUTION

MECHANISM ................................................................................................................. 23 CHAPTER-6 : START-UPS ................................................................................................................... 32 CHAPTER-7 : BUSINESS REORGANISATIONS ............................................................................. 33 CHAPTER-8 : PROFITS AND GAINS OF BUSINESS ..................................................................... 38 CHAPTER-9 : SALARY EARNERS AND INSURANCE RECEIPTS ............................................. 42 CHAPTER-10 : MINIMUM ALTERNATE TAX (“MAT”) ................................................................ 46 CHAPTER-11 : HOUSING AND REAL ESTATE SECTOR .............................................................. 48 CHAPTER-12 : INTERNATIONAL FINANCIAL SERVICES CENTRE ........................................ 51 CHAPTER-13 : COMPLIANCES, INTEREST AND RECOVERY ................................................... 54 CHAPTER-14 : GOODS AND SERVICE TAX .................................................................................... 61



CHAPTER-1 : RATES OF INCOME TAX 1.1. BASIC TAX RATE

There has been no change in the rates of income tax for all categories of Assessees in comparison to A.Y. 2021-22. The rates of income tax for A.Y. 2022-23 are as follows:-

I. Individuals, HUF, AOP, BOI, Artificial Judicial Person: a) For every individual (other than those mentioned in b and c below) or Hindu

Undivided Family (“HUF”), every association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in section 2(31)(vii) of the Act:

SLAB APPLICABLE RATE OF TAX

Upto Rs. 2,50,000 Nil

Rs. 2,50,001 to Rs. 5,00,000 5%

Rs. 5,00,001 to Rs.10,00,000 20%

Above Rs.10,00,000 30%

b) For resident individual, who is of the age of sixty years or more but less than

eighty years at any time during the previous year:


Upto Rs.3,00,000 Nil

Rs. 3,00,001 to Rs. 5,00,000 5%

Rs. 5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%



c) For resident individual, who is of the age of eighty years or more at any time during the previous year:


Upto Rs. 5,00,000 Nil

Rs. 5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

d) For every individual or HUF exercising the option u/s 115BAC for opting

concessional tax rates (subject to conditions provided therein):

TOTAL INCOME (Rs.) APPLICABLE RATE OF TAX

Upto Rs.2,50,000 NIL

Rs.250,001 to Rs.5,00,000 5%

Rs.5,00,001 to Rs.7,50,000 10%

Rs.7,50,001 to Rs.10,00,000 15%

Rs.10,00,001 to Rs.12,50,000 20%

Rs.12,50,001 to Rs.15,00,000 25%

Above Rs.15,00,000 30%



II. Companies A. Domestic Companies:

There has been no change in tax rates in case of domestic companies. The rates of income-tax in case of domestic companies for A.Y. 2022-23 are as follows:

TURNOVER/GROSS RECEIPTS APPLICABLE

RATE OF TAX (i) where its total turnover or the gross

receipt in the previous year 2019-20 does not exceed Rs. 400 crs;

25%

(ii) Companies covered by the provisions of section 115BA (subject to conditions provided therein)

25%

(iii) Companies covered by the provisions of section 115BAA (subject to conditions provided therein)

22%

(iv) Companies covered by the provisions of section 115BAB (subject to conditions provided)

15%

(v) other than those referred above 30%

B. Foreign Companies:

There has been no change in tax rate of foreign company. The rates of income-tax in case of foreign companies for A.Y. 2022-23 shall be of 40%.

III. Firm and Local Authority: There has been no change in tax rate of Firm and Local Authority. The rates of income-tax in case of firm and local Authority for A.Y. 2022-23 shall be of 30%.

IV. Co-operative society: There has been no change in the rates of income-tax for Co-operative Society. The rates of income-tax in case of Co-operative Society for A.Y. 2022-23 shall be:


Upto Rs. 10,000 10%

Rs. 10,001 to Rs. 20,000 20%

Above Rs. 20,000 30%



Co-operative societies have an option to opt for concessional tax rates of 22% u/s 115BAD provided they satisfy the conditions prescribed in the said section.

1.2. SURCHARGE

There has been no change in the rates of Surcharge for all categories of Assessees liable to pay income-tax for the A.Y. 2022-23.

1.3. HEALTH AND EDUCATION CESS

Health and Education cess remains same at the rate of 4% of the total of Income Tax and Surcharge.



CHAPTER-2 : NON RESIDENT INDIVIDUALS & EQUALISATION LEVY 2.1. “LIABLE TO TAX” - MEANING

Background [Section 6(1A)]: Under section 6(1A) of the Act, an individual who is a citizen of India having Indian source income exceeding Rs. 15 lakhs, is deemed to be a “Resident” in India if he is not “liable to tax” in any other country by reason of his domicile or residence or any other criteria of similar nature. Since the introduction of this provision by the FA 2020, questions have arisen as to whether a person can be regarded as “liable to tax” in another country if: (a) There is no income tax law applicable to that person in that other country; or (b) If there is an income-tax law applicable to him, the said law provides an exemption to all

or relevant income in the hands of the individual. The term “liable to tax”, as used in the international tax treaties, has been a subject matter of judicial intervention in several cases in the past. Its interpretation was set to rest by the decision of the Supreme Court in the case of UOI v. Azadi Bacho Andolan (2003) 263 ITR 706(SC). In that case, in respect of the cases where there is no tax law in the foreign country, it was argued, based on the AAR ruling in the case of Cyril Eugene Pereira, in re (1999) 239 ITR 650 (AAR) that if an individual does not have to pay any tax on the income in the UAE because there is no local tax leviable in the UAE on the income of an individual, no question of granting relief under DTAA can arise as such an individual is not “liable to tax” in the UAE even if he resides there for more than 182 days. The Supreme Court, however, held that “having perused the order of the AAR, we regret we are not persuaded”. Thus, the AAR ruling was impliedly overruled by the Apex Court. Consequently, in view of the Supreme Court ruling, a person residing in the UAE would still be regarded as being “liable to tax” in the UAE, even though there is no local tax leviable in the UAE. Proposed Amendments [Insertion of new S. 2(29A)]: Now, this interpretation is sought to be nullified by FB 2021. New section 2(29A) is inserted to define the term “liable to tax” to mean that there is a liability to tax on such person “under any law for the time being in force” in any country. In other words, if there is no law in force in the relevant country (like the example of UAE), the person who may be a resident of UAE under the India-UAE tax treaty, shall not be regarded as “liable to tax” in the UAE. Consequently, he may fall within the mischief of section 6(1A) and be treated as “Resident” of India thereunder1.

1 This, of course, would be subject to S. 6(6)(d), with which we are presently not concerned.



The new section 2(29A) has another limb under which the definition includes a case where subsequent to imposition of tax liability, an exemption has been provided. In other words, the type of cases mentioned in (b) above, still continue to be regarded as cases where the individual is “liable to tax” in the other country and consequently such individuals shall not fall within the mischief of section 6(1A).

2.2. INCOME OF ERSTWHILE NON RESIDENT INDIVIDUALS (NOW BEING RESIDENT IN INDIA) FROM RETIREMENT BENEFIT ACCOUNTS MAINTAINED ABROAD – ADDRESSING MISMATCH IN TAXATION IN BOTH COUNTRIES Background: Individuals who are presently residents in India, but were non residents earlier, and who had opened fund accounts abroad in respect of their retirement benefits, are ordinarily taxable on income from such fund accounts both, in India (based on residential status), and in the foreign country (based on source). Ordinarily, they would also be eligible to claim relief under the relevant double tax treaties, either by way of exemption in one country or tax credit in the home country. However, there could be cases where, the point of taxation in India could be on accrual basis while the point of taxation abroad would be on receipt basis. On account of this timing mismatch, there could be practical difficulties in claiming double tax relief (either on account of exemption or by way of tax credit as may be admissible under the relevant treaty).

Proposed Amendment [S. 89A]: A new section 89A is inserted so as to address this mismatch of timing. This section provides that income accrued in such account shall be taxable in such manner and in such year as may be prescribed. The section is inserted w.e.f. April 1, 2022 (i.e. AY 2022-23). Thus, this new provision will become effective once the rules are prescribed. The new provision will apply to such accounts maintained in notified countries only.

2.3. EQUALISATION LEVY – AN ANOMALY REMOVED

Background [CH. VIII of FA, 2016, S. 10(50) of ITA]: Chapter VIII of the Finance Act, 2016 makes provisions for levy of Equalisation Levy (“EL”). FA, 2020 inserted a new section therein, namely section 165A. This section provides that on and from the 1st day of April, 2020, equalisation levy is chargeable at the rate of two per cent. of the amount of consideration received or receivable by an e- commerce operator from e-commerce supply or services.



Section 10(50) of the Income-tax Act provides for an exemption in respect of income arising from e-commerce supply or services and chargeable to EL. However, this section provides exemption to e-commerce supply or services provided ‘on or after April 1, 2021’.

There was thus, an anomaly, in as much as, while the EL was leviable for transactions undertaken on or after April 1, 2020, the income tax exemption would apply to transactions undertaken on or after April 1, 2020. Thus, for the financial year 20-21, both the levies were possible if the nature of transaction so demanded. Proposed Amendment [S. 10(50)]: This anomaly is sought to be resolved by amending the exemption section 10(50) which will now apply to e-commerce supply or services provided ‘on or after April 1, 2020’. Consequently, for FY 20-21 also, in cases where EL is leviable, income tax won’t be leviable.

2.4. EQUALISATION LEVY – ON “ROYALTY” OR “FEES FOR TECHNICAL SERVICES” – NOT LEVIABLE Background [S. 10(50)]: Section 10(50) of the Income-tax Act provides for an exemption in respect of income arising from any specified services or e-commerce supply or services and chargeable to EL. There could be instances where a transaction is in the nature of ‘royalty’ or ‘fees for technical services’ and is also liable for EL. In such cases, the present law provides [in S. 10(50)] for exemption from income tax where EL is chargeable. Thus, where income tax could be chargeable at the rate of 10% on royalty or FTS, the exchequer could be a loser if only EL at the rate of 6% or 2% is charged. This situation is sought to be remedied by an amendment. Proposed Amendment [S. 10(50)]: A new Explanation 1 has been added to S. 10(50) to clarify that exemption from income tax shall not apply to income in the nature of royalty or fees for technical services. Correspondingly, in section 163 of the FA, 2016, a proviso is added to say that consideration for specified services or e-commerce supply or services shall not include consideration which is taxable as royalty or fees for technical services under the Income tax Act. These two provisions read together would imply that:

• Where there is an overlap between application of EL and application of income-tax on

either royalty or fees for technical services, then, the relevant income will be taxed as royalty or fees for technical services either under the Act or under the relevant tax treaty; and

• Such income will not be subject to EL.



Our Comments: Thus, whenever there is an overlap of charge of income tax and charge of EL in a given case, one will have to go about deciding which charge would apply in the following manner:

• Is the income in the nature of ‘royalty’ of ‘FTS’? If yes, charge tax under the ITA; • If no: Is the income otherwise chargeable to EL? If yes, charge EL; • If no: Is the income otherwise chargeable under the ITA? If yes, charge tax under the

ITA; • If no: No tax on the transaction.

2.5. EQUALISATION LEVY – MEANING OF “ONLINE SALE OF GOODS” AND

“ONLINE PROVISION OF SERVICES” [CL 159(A)(II), S. 164 OF FA, 2016]

Background [S. 164 of FA, 2016]: Section 165A of the FA, 2016 provides for charge of EL on “e-commerce supply of goods or service”. This term is defined in S. 164(cb) to include, inter alia, “online sale of goods” and “online provision of service”. Questions had arisen in this behalf as to whether the transaction where sale of goods or provision of services were in physical form, but mere orders were placed online or payments were made online, would the provisions of EL be applicable.

Proposed Amendment [S. 10(50)]: This aspect is now sought to be clarified by insertion of new Explanation to S. 164 which states that the expressions “online sale of goods” and “online provision of service” shall include one or more of the following online activities:

(a) Acceptance of offer for sale; or (b) Placing of purchase order; or (c) Acceptance of purchase order; or (d) Payment of consideration; or (e) Supply of goods or provision of services, partly or wholly.

2.6. NEW DEFINITION – “CONSIDERATION RECEIVED OR RECEIVABLE FROM

E-COMMERCE SUPPLY OR SERVICES” [S. 165A(3)]

EL is chargeable u/s. 165A to an e-commerce operator (a non resident who owns, operates or manages digital facility for online sale of goods or services) on “consideration received or receivable from e-commerce supply or services”. The term “e-commerce supply or services” is defined in S. 164(cb).



It is now proposed to insert a new definition of the expression “consideration received or receivable from e-commerce supply or services”. This expression, as per the proposed new definition shall include:

• Consideration for sale of goods irrespective of whether the e-commerce operator owns the goods;

• Consideration for provision of services irrespective of whether service is provided or facilitated by the e-commerce operator.



CHAPTER-3 : TAX DEDUCTED AT SOURCE & TAX COLLECTED AT SOURCE

3.1. EXEMPTION TO BUSINESS TRUST (REIT AND InVIT)

Background [Section 194]: Currently, section 194 of the Act provides for deduction of tax on dividend payable to resident shareholders before making any payment in cash or before issuing any cheque or warrant in respect thereof. However, exemption from deduction of tax is granted to dividend payments made to insurance companies/ insurers. Section 2(13A) defines “business trust” as: - an Infrastructure Investment Trust (‘InVIT’) under the SEBI Act, 1992: or - a Real Estate Investment Trust (‘REIT’) under the SEBI Act, 1992. Proposed Amendment: FB-21 proposes to extend the exemption from deduction of tax in case of dividend paid to business trusts. It is also provided that such exemption will be granted in respect of dividend paid to other persons as may be notified in Official Gazette.

Rationale of the Proposed Amendment: Income by way of dividend paid by an SPV (i.e. an Indian company in which the business trust holds controlling interest and any specific percentage as required under Regulations) is exempt in the hands of the business trust as per section 10(23FC). It appears that this exemption is allowed in view of the fact that such dividend is exempt in the hands of the business trusts. It seems the power to notify more exempt cases is retained to ensure that tax is not deducted where the dividend is exempt.

3.2. HIGHER RATE OF TDS/TCS ON NON-FILERS OF RETURN

Proposed Amendments [New Sections 206AB and 206CCA]: A new provision, Section 206AB, is proposed to be inserted in the Act making certain specified persons, who have not filed their returns of income, liable to TDS at a rate higher of the following: • twice the rates specified under the Act, or • twice the rate or rates in force, or • five percent.



The provisions of this section shall not apply where TDS is required to be deducted under sections 192, 192A, 194B, 194BB, 194LBC or 194N of the Act. In case of a person, who is liable to TDS at a higher rate u/s. 206AA of the Act due to non-furnishing of PAN, the rate of TDS shall be higher of that u/s. 206AA and the proposed section 206AB. A similar provision, section 206CCA, is proposed to be inserted, providing higher rate of TCS on such specified persons. However, the rate of TCS shall be higher of the following: • twice the rates specified under the Act, or • five percent

For purpose of the proposed section 206AB and 206CCA, a “specified person” is defined to mean a person: • who has not filed the returns of income for immediately preceding two previous

years, • time limit u/s 139(1) of the Act for filing returns for both such years has expired,

and • the aggregate of TDS and TCS in hands of such person, in each of these two

previous years, is Rs. 50 thousand or more. However, the specified person shall not include a non-resident who does not have a permanent establishment in India. Consequential amendment is also proposed in section 194-IB (TDS not to exceed the rent paid/payable for the last month). Said provisions shall apply from July 01, 2021.

Rationale of the Proposed Amendment: As per the speech of Hon’ble Finance Minister, the said provisions are introduced to discourage the practice of not filing returns by the persons in whose case substantial amount of tax has been deducted/collected. Our Comments: The new provision would increase the compliance burden on the deductor. Deductor will now be required to ask the deductee to submit the proof of filing of return for preceding 2



financial years and keep a record of the same. Also, the deductees may now have to share their return of income and the Form 26AS with all their payers. Further, it is not clear as to whether the limit of Rs. 50,000/- for TDS and TCS as has to be computed qua the deductor or the deductee.

3.3. TDS ON INCOME AND RELAXATION FROM FILING OF RETURN TO

SPECIFIED SENIOR CITIZENS Proposed Amendments [New Section 194P]: A new provision, Section 194P, is proposed to be inserted in the Act making certain specified banks liable to deduct TDS at the rates in force, on the total income of specified senior citizens. The specified banks are required to compute the total income of the specified senior citizens after giving effect to the deductions allowable in Chapter VI-A and the rebate u/s 87A of the Act, and deduct income tax thereon at the slab rates applicable to such senior citizen. For purpose of such computation, the senior citizen shall be required to furnish declaration to the bank containing such particulars as may be specified in this behalf. Once the specified bank deducts TDS on the total income of such senior citizen, the senior citizen shall not be liable to furnish his return of income u/s 139 of the Act. A “specified bank” is defined to mean a banking company as the Central Government may, by notification in Official Gazette, specify. A “specified senior citizen” is defined to mean a resident individual who: • is of the age of 75 years or more at any time during the previous year, • is having income by way of-

o Pension, o Interest from any bank account maintained with the bank where he is

receiving his pension, and • has furnished the declaration to the bank in specified form and manner.

Said provisions shall apply from April 01, 2021.

Rationale of the Proposed Amendment: As per the Memorandum, the said provision has been introduced in order to ease compliance burden on senior citizen pensioners who are of 75 years of age or above.



Our Comments: The new provision provides relief to the senior citizens who have income only by way of Pension and bank interest from the bank where they receive the pension. Therefore, only a limited class of people will get the benefit, namely those senior citizens who do not have a bank account in two different banks and who do not have any other source of income apart from bank interest and pension. Further, filing of declaration with bank in a specified form and manner, with necessary information pertaining to deductions under Chapter VI-A, may not prove to be a big relaxation to the senior citizens having such limited sources of income.

3.4. TDS ON PAYMENT FOR PURCHASE OF GOODS

Proposed Amendments [New Section 194Q]: It is proposed to insert a new provision i.e., section 194Q to provide for TDS in case of purchase of goods exceeding Rs. 50 lakhs by certain buyers. Under the new provision, a “buyer” whose total sales, gross receipts or turnover from the business carried on by him exceeds Rs. 10 crores during the financial year immediately preceding the financial year in which the purchase of goods is carried out shall be liable to deduct TDS at the rate of 0.1% on any sum paid/payable to a “seller”, who is a resident, in a previous year in excess of Rs. 50 lakhs. The TDS would be deducted at the time of crediting the amount payable by the buyer or at the time of payment of such amount by the said buyer, by any mode, whichever is earlier. The proposed TDS shall not apply if the buyer is liable to deduct TDS under other provision of the Act or the seller is liable to collect TCS u/s 206C of the Act, other than sub-section (1H) thereof, on the said transaction. Also, the Central Government may notify a person to be exempt from the obligation of deducting TDS under this section. Further, the buyer shall be liable to deduct TDS even if the amount payable by him is provided in the books by way of credit to any account, whether called “suspense account” or any other account. Such credit shall be deemed to be the credit of income to the account of payee only. Said provisions shall apply from July 01, 2021.

Our Comments: Under said provision, TDS is to be deducted on purchases in excess of Rs. 50 lakhs from a seller. Hence, where the amount of purchases from a seller in a financial year exceeds Rs. 50 lakhs, TDS is to be deducted on the excess amount only.



The definition of the term ‘buyer’ does not restrict only to residents. Hence, TDS would be applicable even in case of export of goods (unless exempted by a notification). In such a case, the non-resident would be liable to deduct TDS on payments made by them for purchasing goods from India. The definition of the term ‘buyer’ empowers the Central Government to notify such persons who shall not be regarded as buyer for the purpose of this section subject to such conditions as may be specified therein. If a transaction is liable to TCS u/s 206C(1H) of the Act, as well as TDS under this section, then as per second proviso to section 206C(1H) only TDS under this section shall be deducted on such transaction. Hence, now, a payer needs to first check whether TDS is deductible under normal provisions of the Act. If no, then whether TDS is deductible under this new provision. Again, if no, then the seller would need to collect TCS on the same as per the provisions of section 206C(1H). The said provision would increase tremendous compliance burden on the assessees, which would require detailed reconciliation on which provision has been applied to which transaction and would ultimately hamper the ease of doing business. Further, if the seller, fails to provide his PAN or Aadhar, provisions of section 206AA would become applicable. However, the rate of TDS in this case has been amended to be at 5% instead of 20%.

3.5. TDS ON INCOME OF FIIs FROM SECURITIES Background [Section 196D]: Section 196D(1) of the Act provides for deduction of TDS in hands of FIIs at the rate of 20% (plus applicable surcharge and cess) on income in respect of securities other than certain bonds and government securities as specified u/s 194LD of the Act. Unlike section 195 of the Act, which requires TDS to be deducted at ‘rates in force’, the said section directly specified the rate of tax, which resulted in an interpretation that the rates as per DTAA cannot be considered at the time of deduction of TDS u/s. 196D in case of FIIs2.

Proposed Amendments: It is proposed to insert a proviso to section 196D(1) of the Act to provide that in case of FIIs to whom DTAA referred to in section 90(1) or section 90A(1) of the Act applies and who has provided to the deductor, the tax residency certificate u/s. 90(4) or 90A(4) of the Act, the TDS shall be deducted at the lower of: • 20% (plus applicable surcharge and cess), or

2 See Pilcom’s case 116 taxmann.com 394(SC)



• rate or rates of tax provided in such agreement for such income Said provisions shall apply from April 01, 2021.

Rationale of the Proposed Amendment: The current section 196D provides for TDS on income of FIIs at a specific rate of 20% (plus applicable surcharge and cess) and not at rates in force. Therefore, the benefit of a treaty/agreement under section 90 or section 90A of the Act could not be given at the time of tax deduction. Whereas certain other sections including section 195 provide for TDS at the “rate in force”. In those cases, by virtue of the term “rate in force”, as defined u/s 2(37A) of the Act, treaty benefit u/s 90/90A of the Act is allowed. Therefore, section 196D is proposed to be amended in order to provide the FIIs, the similar benefit of reduced rate of TDS as per the tax treaties, subject to fulfilment of certain conditions.

3.6. TDS ON INTEREST PAYABLE BY NOTIFIED INFRASTRUCTURE DEBT FUND Background [Section 2(48), Section 194A] Currently, section 2(48) defines “zero coupon bond” as a bond issued by any infrastructure capital company or infrastructure capital fund or public sector company or scheduled bank, in respect of which no benefit is received or receivable before maturity or redemption and such bonds are notified by the Central Government in the Official Gazette. Section 194A provides for tax to be deducted at source on interest other than interest on securities. Proposed Amendments In order to boost funding for infrastructure, it is proposed to make notified infrastructure debt funds (as notified by Central Government in the Official Gazette u/s 10(47) of the Act) eligible to raise funds by issuing zero coupon bonds alongwith existing eligible issuers of zero coupon bonds. Corresponding provisions of section 194A of the Act pertaining to deduction of tax at source on payment of interest at rates in force, have been amended to exempt deduction of tax at source on the interest paid or payable on bonds issued by “notified infrastructure debt funds”. Rationale of the Proposed Amendment: To enable the infrastructure debt funds (as notified by Central Government in the Official Gazette u/s 10(47) of the Act) to issue zero coupon bonds.



CHAPTER-4 : CHARITABLE AND RESEARCH INSTITUTIONS 4.1. EXEMPTION AND UTILISATION OF CORPUS FUND OF CHARITABLE

INSTITUTIONS

Background [Sections 10(23C), 11]: Any voluntary contribution received by a charitable/religious institution, registered u/s 12AA or 12AB of the Act, with a specific direction that the same shall form part of corpus is exempt from payment of tax under section 11(1)(d) of the Act. Moreover, on utilisation of such corpus on the objects of the trusts, the trusts have been claiming application of income, thereby resulting in excess application and consequently a deficit in its income and expenditure account, which is carried forward to future years for set-off against income of those years.

Proposed Amendments: It is proposed to:

• Amend section 11(1)(d) to provide that any voluntary contribution received towards corpus shall be allowed as exemption only if it is invested in the modes prescribed u/s 11(5) of the Act maintained specifically for such corpus.

• Insert a new Explanation 4 to provide that application out of corpus will not to be

treated as application of income for charitable purposes. The amounts not so treated as application of income shall be treated as application if in any future years the same are invested in the modes prescribed u/s 11(5) from the income of those years.

• Provide that application for charitable purposes from loans shall be treated as

application of income in the year in which the same is repaid out of the income earned in the year of repayment and not in the year in which it is borrowed.

• Further, a new Explanation 5 is proposed to be inserted to provide that no set-off of

any excess application of previous years shall be allowed against the current year’s income.

Similar amendments have also been proposed to be made in section 10(23C) of the Act. The proposed amendment shall come into effect from April 1, 2022.



Rationale of the Proposed Amendment: The rationale behind the proposed amendment as per the Memorandum is to ensure that the there is no double exemption provided on voluntary contribution towards corpus. Till now, such contributions were completely exempt u/s 11(1)(d) and at the same time application for the purposes of trust from such contribution was being claimed as application of income resulting in deficit. Similarly, if any application was made out of loans taken, application was being claimed which could have resulted into deficit. Similarly, it was also noticed that certain charitable trusts were claiming application of income at the time of spending the funds taken on loans as well as at the time of repayment of the loans. Our Comments: The proposed amendment intends to overrule the decision of Hon’ble Supreme Court in the case of CIT (Exemption) vs. Subros Educational Society (M.A. No. 941/2018 in Civil Appeal No. 5171/2016) wherein it upheld that a trust is allowed to carry forward and set-off excess application of previous years against the income of future years. Thus, the above decision would be applicable upto Assessment Year 2021-22 but whatever balance of deficit would remain unutilized, the same would lapse.

4.2. LIMIT ON ANNUAL RECEIPTS OF MEDICAL/EDUCATIONAL INSTITUTIONS

Background [Sections 10(23C)]: Any income received by a person on behalf of educational or medical institution specified under sub-clauses (iiiad) and (iiiae) of section 10(23C) of the Act is exempt from payment of tax subject to the condition that annual receipts of such an institution do not exceed Rs. 1 crore.

Proposed Amendments: It is proposed to increase the current prescribed limit of Rs. 1 crore to Rs. 5 crore by amending sub-clauses (iiiad) and (iiiae). It is also proposed to insert a new Explanation to provide that if a person receives income from one or more medical as well as educational institutions as specified under sub-clauses (iiiad) and (iiiae) then, all such receipts in aggregate will be considered for calculating the above mentioned proposed limit of Rs. 5 crore. The proposed amendment shall come into effect from April 1, 2022.

Rationale of the Proposed Amendment: The rationale behind the proposed amendment as per the Memorandum is to provide benefit to small trust and institutions.



Our Comments: The proposed amendment by way of a new Explanation intends to overrule the decision of Hon’ble Karnataka HC in the case of CIT vs. Children's Education Society (358 ITR 373) wherein it was held that limit on receipts under these sub-sections is to be considered separately for each such institution.



CHAPTER-5 : PROCEDURE FOR ASSESSMENTS, APPEALS AND OTHER RESOLUTION MECHANISM 5.1. ISSUANCE OF NOTICE U/S 142(1)

Background [Section 142]: Section 142 of the Act provides for conduct of inquiry before assessment. Clause (i) of sub section (1) of the said section gives the AO the authority to issue notice to an assessee, who has not submitted a return of income, asking for submission of return. Proposed Amendments: It is proposed to amend Section 142(1)(i) to empower prescribed income-tax authority besides the AO to issue notice for filing return under the said clause. This amendment will take effect from April 1, 2021 and will accordingly apply in relation to the Assessment Year 2021-22 and subsequent assessment years.

Rationale of the Proposed Amendment: In order to achieve the objective of the Central Government to automate centralized issuance of notices it is proposed to amend the provisions of section 142(1)(i) to empower prescribed income tax authority besides the AO to issue notice under the said clause. Such prescribed income tax authorities are yet to be notified.

5.2. ASSESSMENT PROCEEDINGS Background [Section 143 & 153]: Section 143(1)(a) of the Act provides that at the time of processing of return of income made u/s 139, or in response to a notice under sub section (1) of section 142, the total income or loss shall be computed after making the specified adjustments in clause (i) to (vi). Further the time limit for issuance of intimation u/s 143(1) is prescribed as one year from the end of the financial year in which the return is filed and the time limit for sending notice u/s 143(2) is six months from the end of the year in which the return is furnished. Proposed Amendments: It is proposed to amend the following provisions of sub-section (1) of section 143 of the Act,-



• Amend section 143(1)(a)(iv) of the Act, to allow for the adjustment on account of increase in income indicated in the audit report but not taken into account in computing the total income.

• Amend section 143(1)(a)(v) of the Act, so as to provide that any deduction admissible under section 10AA or under any of the provisions of Chapter-VIA under the heading “C-Deductions in respect of certain incomes” shall be allowed, if the return of income is furnished on or before the due date specified under section 139(1) of the Act.

• Amend provisions of section 143 to reduce the time limit for sending intimation under sub section (1) of section 143 of the Act from one year to nine months from the end of the FY in which the return was furnished.

• Amend provisions of sub-section (2) of section 143 of the Act by reducing the time limit for issue of notice from six months to three months from the end of FY in which the return is furnished.

Section 153 is proposed to be amended to reduce time limit for passing assessment order relating to AY 2021-22 within nine months from the end of the AY in which the income was first assessable. These amendments will take effect from April 1, 2021 and will accordingly apply in relation to the Assessment Year 2021-22 and subsequent assessment years. Our Comments: Bird’s eye view of the proposed revised time limits:

Particulars Existing Time Limits Proposed Time Limits

Time limit for sending intimation u/s.143(1)

One year from the end of the FY in which the return is furnished.

Nine months from the end of the FY in which the return is furnished.

Time limit for issuance of notice u/s.143(2)

Six months from the end of the FY in which the return is furnished.

Three months from the end of the FY in which the return is furnished.

Time limit for passing Assessment Order u/s. 143(3) or 144

Twenty-one months from the end of the AY in which income was first assessable.

Nine months from the end of the AY in which the income was first assessable.



5.3. REASSESSMENT & SEARCH PROCEEDINGS Background [Section 147, Section 148, Section 149, Section 153A and Section 153C]: Section 147 empowers the AO to assess/reassess the income of the assessee in a case where he has reason to believe that the income has escaped amendment. Section 148 provides that before making assessment, reassessment or computation u/s 147, the AO shall issue a notice to the assessee to furnish his return of income in the specified time limit. Further Section 149 mandates the following time limits for issue of notice u/s.148 from the end of the relevant assessment year:

• Within four years if escaped income is less than Rs.1,00,000/- and if the assessee has not failed to file his return of income or has not failed to disclose fully and truly all material facts necessary for the assessment of that AY;

• Beyond four years but within six years if unless income escaping tax is likely to amount to Rs.1,00,000/- or more;

• Within sixteen years in case of a foreign asset

Section 153A deals with the assessment procedure in search cases in case of a person where a search is initiated u/s 132 or books of accounts or other documents are requisitioned u/s. 132A after May 31, 2003. Similarly, Section 153C deals with assessment procedure in case where the books of accounts or documents seized during a search belong to some other person than the person who is searched. In both the cases, the AO would then assess or reassess the total income of 6 years preceding the AY in which the search is conducted or requisition made. Proposed Amendments: The provisions relating to reassessment and search assessments are proposed to be completely substituted as under:

• Provisions of Section 153A and Section 153C to be applicable only on search initiated u/s 132 or requisition made u/s 132A on or before March 31, 2021.

• Common new procedure to be followed in case of assessments, reassessments or re-computations in search initiated u/s 132 or requisition made u/s.132A after March 31, 2021 which are prescribed in substituted Section 147,148,148A of the Act.

• Section 147 to allow AO to assess/reassess or re-compute any income escaping assessment in any AY.

• Notice under substituted section 148 to be issued before assessment/reassessment/re-computation when the AO has “information” that income chargeable to tax has



escaped assessment and after following procedure specified in proposed section 148A of the Act.

• “Information” which suggests that income is said to have escaped assessment has been defined to mean:

i. Information flagged by a computer based system in accordance with the risk management strategy formulated by CBDT.

ii. Final objection raised by CAG to the effect that assessment/ reassessment has not been in accordance with the provisions of the Act.

iii. In case of search, survey, requisition or seizure after on or after April 1, 2021, the AO shall be deemed to have information which suggests that income has escaped assessment for 3 AY’s prior to year of search, seizure survey or requisition.

• Section 148A to be inserted to empower the AO to conduct inquires, if required, with prior approval of specified authority and give the Assessee an opportunity of being heard before issuance of notice u/s.148 and after obtaining due approval of “specified authority”. After considering the Assessee’s reply, the AO shall decide by passing an order whether it is a fit case for issuance of notice u/s 148 and serve a copy of such order along with the notice to the assesse. Aforementioned procedure of conducting enquiry, providing opportunity and passing order before issuing notice u/s 148 not applicable in search cases.

• Time limit for issuance of notice u/s.148: i. Normally, three years from the end of the relevant AY;

ii. If AO has in his possession evidence, that income chargeable to tax, represented in the form of an asset, which has escaped assessment amounts to or is likely to amount to Rs.50,00,000/- or more for that year, then ten years from the end of the relevant AY.

• Section 151 is proposed to substituted to define the “specified authority” for the purpose of section 148 and 148A to mean as under

TIME PERIOD DESIGNATION OF OFFICER

If less than 3 years Principal Commissioner or Principal Director or Commissioner or Director

If more than 3 years Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General

• Under the proposed amendments, once assessment/reassessment/ re-computation has

started the AO is empowered to assess/reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this procedure notwithstanding that the procedure



prescribed in section 148A was not followed before issuing such notice for such income.

These amendments will take effect from April 1, 2021 and will accordingly apply in relation to the Assessment Year 2021-22 and subsequent assessment years.

Rationale of the Proposed Amendment: Since assessment/reassessment/ re-computation is to be large-extent information driven, there was a need to reform the system of assessment/reassessment/ re-computation of income escaping assessment and assessment of search related cases. The new proposed system is expected to reduce litigation and provide ease of doing business to taxpayers as there is a reduction in the time limit by which a notice can be issued. Our Comments: While it is appreciated that the time limit for reopening, search, survey, seizure and requisitioning has been reduced in normal cases to three years thereby reducing uncertainty, it is also critical to note that the substituted provisions propose to unsettle several settled norms of reopening as under: • Whether the requirement of “incriminating material” in unabated assessments is no longer

“necessary”? • Whether “change of opinion” can be argued under new provisions? • Information flagged would also cover information/material available on record. Whether

in such case can one argue that it is not information for the purpose of Section 148? • Whether the proposed provisions enable the AO to conduct fishing and roving enquiries,

once a notice is issued as in view of the proposed Explanation to section 147, the AO may proceed to reassess any income which comes to his notice subsequently even though the issuance of notice is invalid or it can lead to a situation where the AO does not assess/reassess the income for which he had originally obtained information/issued notice but proceeds to reassess some other income?

5.4. CONSTITUTION OF DISPUTE RESOLUTION COMMITTEE (‘DRC’) FOR SMALL AND MEDIUM TAX PAYERS Insertion of New Section [Section 245MA]: FB-21 proposes to incorporate new section 245MA to provide early tax certainty to small and medium taxpayers by preventing new disputes and providing them option of settling the issues at the earlier stage. The salient features of the said scheme are as under: • Central Government shall constitute one or more DRC; • To resolve disputes of such person or class of person as specified by the Board;



• Dispute to be resolved – where returned income is less than or equal to Rs.50 lakhs and aggregate amount of variation proposed in specified order (includes draft order too) is less than or equal to Rs.10 lakhs;

• The DRC shall be faceless; • The DRC will have powers to reduce or waive penalty or grant immunity from

prosecution where the disputes are resolved at DRC; • Cases not eligible under DRC:

o Where an order is based on search initiated under section 132; o Where an order is based on requisition is made under section 132A; o Where an order is based on survey under section 133A; o Where an order is based on information received under DTAA; o Where any proceeding of detention, prosecution or conviction is pending under

following laws: § Foreign Exchange and Prevention of Smuggling Activities Act, 1974; § Indian Penal Code; § Unlawful Activities (Prevention) Act, 1967; § Narcotic Drugs and Psychotropic Substances Act, 1985; § Prohibition of Benami Transactions Act, 1988; § Prevention of Money Laundering Act, 2002; § Prosecution initiated under Income-tax

These amendments will take effect from April 1, 2021. Rationale of the Proposed Amendments: The Memorandum provides that provide early tax certainty to small and medium taxpayers by preventing new disputes and settling the issues at the earlier stage. Our Comments: The amendment would apply to any order by income-tax authority passed after April 01, 2021

5.5. CONSTITUTION OF THE BOARD FOR ADVANCE RULING:

Background [Section 245OB and 245W]: Under the existing provisions of the Act, an Authority of Advance Rulings (AAR) was constituted to pronounce rulings on applications of non-resident/resident which were binding on both the applicants. The AAR bench consist of one Chairman or Vice Chairman, one revenue member and one law member. The bench cannot function if post of Chairman or Vice Chairman is vacant. The posts of Chairman and Vice Chairman have remained vacant for a long time which has hampered for working of AAR and large number of applications are pending for adjudication. Earlier, the ruling of AAR was not appealable.



Proposed Amendment: It is proposed to constitute one or more Board of Advance Ruling in place of the AAR and the work of AAR shall be carried out by the Board for Advance Rulings on and after the notified date. Sections 245N to section 245W are proposed to be amended to incorporate the provisions relating to constitution of the Board of Advance Rulings, notified date, Member of the Board of Advance Rulings and change in the definition of Authority to include the Board for Advance Rulings. The Board of Advance Ruling shall consist of two members, each being a Chief Commissioner. The pending applications with the AAR as on the notified date shall be transferred to the Board of Advance Ruling along with all records, documents or material. The ruling of the Board shall neither be binding on the applicant nor the Department. The party aggrieved by the ruling of the Board may appeal against the ruling to High Court within 60 days from the date of the communication of ruling or order (the time of 60 days would be further extended by 30 days if party can show that there was sufficient cause which prevented them from filing appeal). This amendment will take effect from April 1, 2021. Rationale of the Proposed Amendment: The proposed section is introduced to provide ruling to taxpayers in timely manner. Our Comments: • No time limit has been provided for the Board to pass orders; • Orders of the Board being appealable by the Department, renders the entire scheme of

Advance Ruling redundant; • Filing of appeal may not be by Jurisdictional AO but through Dynamic Jurisdiction;

5.6. DISCONTINUANCE OF INCOME-TAX SETTLEMENT COMMISSION (‘ITSC’)

Background [Insertion of Section 245AA and 245M]: ITSC was set-up to settle tax liabilities in complicated cases to avoid endless prolonged litigation.



Proposed Amendment: Now, ITSC shall cease to operate on or after February 01, 2021 and accordingly, no application under section 245C can now be made. Instead, now an Interim Board meaning Interim Board for Settlement to be constituted under section 245AA. The members of the Board shall consist of 3 members, each being rank of Chief Commissioner. In case of difference in any point, the same shall be decided by majority. All pending applications pending applications filed on or before January 31, 2021, may now be heard by Interim Board for settlement. The Board may also allow the assessee the option of withdrawal. If the assessee exercises the option of withdrawal, the proceedings with respect to application shall abate and the Assessing Officer or authority before whom the proceeding at time of making application was pending shall dispose of the same The time-limit for making assessment or reassessment, the period commencing from date of application to date on which application is withdrawn shall be excluded. The Assessee would be allowed to withdraw the pending application within the period of 3 months from date of commencement of Finance Act, 2021 and is also required to intimate the AO of the same. The consequential amendments are also carried out in section 245A, 245B, 245BC, 245BD, 245C, 245D, 245DD, 245F, 245G, 245H. This amendment will take effect from April 1, 2021.

5.7. PROVISION FOR FACELESS PROCEEDINGS BEFORE THE INCOME-TAX

APPELLATE TRIBUNAL (ITAT) IN A JURISDICTION LESS MANNER

Background [Section 255]: Section 255 of the Act provides for procedure of functioning of ITAT. The previous Finance Acts had introduced the faceless proceedings for assessments as well as for appeals before the Commissioner of Income-tax (Appeal). Now, by the proposed amendment it seeks to extend the proceedings of faceless appeal before the ITAT. Proposed Amendment: The proposed amendment seeks to introduce faceless appeal before the ITAT. The Central Government is empowered to frame rules in this behalf. Rationale of the Proposed Amendment: The EM provides that proposed amendment shall reduce cost of compliances for taxpayers, increase transparency in disposal of appeals and help in achieving even distribution of work between benches and result in best utilisation of resource.



Our Comments: Right of being heard is one of the basic pillars of natural justice now with the faceless regime how far it will be valid or workable one has to see. Further, there may be a challenge in demonstrating factual cases virtually before ITAT say for instance, Transfer pricing issues, search and seizures and factually driven cases. Whether Judicial Independence can be said to be disturbed when Dynamic Jurisdiction and manner of disposal is notified by Central Government (‘Ministry of Finance’)?



CHAPTER-6 : START-UPS 6.1. DEDUCTION OF PROFITS OF ELIGIBLE START-UPS

Background [Section 80-IAC]: Section 80-IAC of the Act, relating to special provision in respect of start-ups, provide for a deduction of an amount equal to 100% of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of seven years beginning from the assessment year in which the start-up is incorporated at the option of the assessee. One of the conditions for availing benefit under this section is that the eligible start-up is required to be incorporated on or after 1st day of April, 2016 but before 1st day of April, 2021.

Proposed Amendment: It is proposed to amend the said section so as to extend the sunset date of incorporation of Start-up to April 1, 2022.

Rationale of the Proposed Amendment: Section 80-IAC was introduced in order to provide an incentive for start-ups and aid their growth in the early phase of their business. The proposed amendment extends the applicability of the section to Start-ups incorporated during FY 2021-2022.

6.2. ROLL OVER BENEFIT ON LTCG FOR INVESTMENT IN START-UPS

Background [Section 54GB]: Section 54GB provides for roll-over benefit where the long-term capital gains arises from transfer of a residential property (a house or a plot of land) and the assessee before filing its return of income under section 139(1) of the Act utilises the net consideration for subscription/investment in eligible start-ups and satisfies various other conditions provided therein. Proposed Amendments: Presently, for claiming exemption under section 54GB the residential unit must be transferred before March 31, 2021. It is proposed to extend the benefit under this section for transfer of residential unit up to March 31, 2022. Rationale of the Proposed Amendment: This is to incentivise investments in start-ups and encourage their growth in present pandemic scenario.



CHAPTER-7 : BUSINESS REORGANISATIONS 7.1. TAX NEUTRAL CONVERSION OF URBAN CO-OP BANKS INTO BANKING

COMPANY

Background [Section 44DB, Section 47(vica) and Section 47(vicb)]: Sections 47(vica) and 47(vicb) provide exemption from Capital Gains in case of business re-organisation of co-operative banks. Further, section 44DB of the Act provides for the manner of computing deduction under sections 32, 35D, 35DD and 35DDA of the Act in the hands of the predecessor and successor co-operative banks, in case of business reorganisation of a co-operative bank. Proposed Amendments: FB-21 proposes to expand the scope of the said sections to include conversion of a primary co-operative bank into a banking company.

Rationale of the Proposed Amendment: The amendment is proposed in view of RBI Circular No. DCBR.CO.LS.PCB.Cir.No.5/07.01.000/2018-19 dated September 27, 2018 wherein RBI has permitted voluntary transition of primary co-operative bank [urban co-operative banks (UCB)] into a banking company by way of transfer of Assets and Liabilities.

7.2. WIDENING OF DEFINITION OF SLUMP SALE

Background [Section 50B, Section 50C, Section 2(42C) and Section 2(47)]: Section 2(42C) of the Act defines “slump sale” as transfer of one or more undertakings ‘as a result of sale’ for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. Profits arising from the transfer under slump sale are taxed as per the provisions under section 50B of the Act. Hence, under current provision, transactions such as ‘slump exchange’ were held as not subject to tax in absence of any computation mechanism3.

Proposed Amendment: FB-21 proposes to amend the definition of “slump sale” under section 2(42C) of the Act to include all types of transfers, by any means, as covered under section 2(47) of the Act. As a result, all types of slump transfers would now be governed by section 50B of the Act.

3 See e.g. Bharat Bijlee’s case (46 taxmann.com 257)(Bom)



Our Comments: The said amendment intends to nullify the effect of the decision in ACIT v. Bharat Bijlee Ltd. (46 taxmann.com 257) (Bom), etc. wherein it has been held that section 50B of the Act would not apply to transactions other than slump ‘sale’ and accordingly, transactions such as ‘slump exchange’ would not be taxable under the Act. This amendment is effective from April 1, 2021 and would therefore apply to A.Y. 2021-22.

7.3. DEMERGER IN CASE OF PUBLIC SECTOR UNDERTAKINGS AND CARRY FORWARD OF LOSSES

Background [Section 2(19AA), Section 2(1B) and Section 72A]: Section 2(19AA) of the Act defines “demerger” in relation to companies as: - a transfer, pursuant to an arrangement prescribed under Companies Act, 1956; and - provides certain conditions to qualify as a demerger of an undertaking.

Section 2(1B) of the Act defines “amalgamation” in relation to companies as: - merger of one or more companies with another company; or - merger of two or more companies to form one company: and - provides certain conditions to qualify as an amalgamation of a company.

Upon satisfaction of the requirements under the foregoing definitions of demerger/ amalgamation, such transactions attain, generally speaking, a tax neutral status in the hands of the companies/ shareholders. Section 72A(1) of the Act provides for carry forward and set off of accumulated loss and unabsorbed depreciation in the case of amalgamation of : - a company owning an industrial undertaking or a ship or a hotel with another company;

or - a banking company with a specified bank; or - a public sector company engaged in the business of operation of aircraft with another

company engaged in similar business. The loss of the amalgamating company would become the loss of the previous year in which the scheme of amalgamation is brought into force.

Proposed Amendment: FB-21 proposes to amend section 2(19AA) of the Act to extend the benefit of tax neutral demerger in case of reconstruction or splitting up of a public sector company, provided the following conditions are satisfied:

• such reconstruction or splitting up has been made to transfer any asset; and



• the resultant company is a public sector company on the appointed date indicated in the approved scheme.

FB-21 proposes to amend section 72A(1) of the Act by extending the benefit of carry forward of losses to all public sector companies, on satisfaction of following conditions:

• the share purchase agreement entered in to under strategic disinvestment restricts immediate amalgamation of the said public sector company; and

• the amalgamation is carried out within five year from the end of the previous year in which the restriction on amalgamation in the share purchase agreement ends.

The loss/ unabsorbed depreciation of the amalgamating company would become the loss/ unabsorbed depreciation of the amalgamated company, restricted to the loss/ unabsorbed depreciation as on the date on which the amalgamating company ceases to be a public sector company. Rationale of the Proposed Amendment: The amendment aims to facilitate the strategic disinvestment by the Government in public sector undertakings.

7.4. TAX ON TRANSFER OF CAPITAL ASSET TO PARTNER ON DISSOLUTION OR RECONSTITUTION

Background [Section 45(4)]: Section 45(4) of the Act was inserted vide Finance Act, 1987 which provides for capital gains in the hands of the firm/AOP/BOI on transfer of capital asset by way of distribution of capital assets on the dissolution of a firm/AOP/BOI or otherwise. Prior to the said insertion, there was clause (ii) of section 47 which exempted the distribution of capital assets on the dissolution of a firm, body of individuals or other association of persons from the scope of “transfer” u/s. 2(47) of the Act. The said insertion was made to overrule the decision of the Apex Court's decision in the case of Malabar Fisheries v. CIT [1979] 120 ITR 49 (SC) wherein it was held that a partnership firm is not a distinct legal entity apart from the partners constituting it and as such has no separate rights of its own in the partnership assets. Further, it was also held that the consequence of the distribution of assets to the partners which flows upon dissolution is nothing but a mutual adjustment of rights between the partners and there is no question of any extinguishment of the firm's rights in the partnership assets amounting to a transfer of assets within the meaning of section 2(47) of the Act. The Act, as it stands today, does not provide for any tax liability in the hands of the partners, in a case where upon dissolution of a firm or on retirement of partner, goodwill is computed



based on the underlying assets and liabilities of the firm and the balance standing in the partner’s account along with partner’s share in such goodwill is paid in cash to the partner. Courts have held that in such cases, what a partner receives his share in the partnership which is worked out and realised and does not represent consideration as a result of any extinguishment of interest in the partnership assets. Eg. CIT Vs. Mohanbhai Pamabhai (91 ITR 393)(Guj).

Proposed Amendment: FB 21 proposes to amend section 45 to bring even such cases within the ambit of tax. However, the tax incidence is provided in the hands of firm and not the partners. Accordingly, it is proposed to amend sub-section (4) of section 45 of the Act to provide for taxation of the profits and gains arising to the partner of a firm or member of AOP/BOI from receipt of capital asset at the time of dissolution or reconstitution representing their capital balance in the books of account of the firm/AOP/BOI. The said profit shall be deemed to be the income of the firm/AOP/BOI and be chargeable under the head ‘Capital Gains’. The calculation prescribed for computing the same is as under: Full Value of Consideration Fair Market Value of the capital asset as on the date of

receipt of such capital asset Cost of Acquisition Determined in accordance with provisions of

“Chapter IV – Computation of Income from Capital Gains”

Further, it is also proposed to insert sub-section (4A) wherein it is proposed to tax the profits and gains arising to the partner or member from receipt of any ‘money’ or ‘other asset’ at the time of dissolution or reconstruction which represents the excess over their capital in the books of account of the firm/AOP/BOI. The said income too shall be deemed to be the income of the firm/AOP/BOI and be chargeable under the head ‘Capital Gains’. The calculation prescribed for computing the same is as under: Full Value of Consideration a. Value of Money

b. Fair Market Value of the other asset as on the date of receipt of such other asset

Cost of Acquisition Balance in capital account of partner/member at the time of dissolution or reconstruction

Further, it is proposed to insert clause (iii) in section 48 of the Act to allow deduction while computing capital gains u/s. 45(4A) of the amount included in the total income of the firm



u/s. 45(4A), which is attributable to the capital asset being transferred, to be calculated in the prescribed manner. Rationale of Proposed Amendment: As per the Memorandum, the rationale behind these amendments is to address the uncertainty regarding applicability of provisions of section 45(4) to a situation where assets are revalued or self-generated assets are recorded in the books of accounts and payment is made to partner or member which is in excess of his capital contribution. Our Comments: The above provisions leaves us with more questions than answers. Some of these are:

• Why are two provisions made, i.e. sub-section (4) and (4A) when under both these provisions the taxable entity is the firm/AOP/BOI and the full value of consideration under both the sub-sections include the fair market value of the asset transferred to the partner/member?

• If sub-section (4) is intended to tax the firm on the difference between the fair market value of the asset given to the partners and the cost of acquisition of such asset, then, what is the significance of the reference to the ‘balance in his capital account’ mentioned in that sub-section?

• Is there an overlap between the profits includible under sub-section (4) and (4A)? If yes, is there a double taxation?

• If section 48 is meant to address such double taxation, then, why is it mentioned in the Memorandum that it is to mitigate double taxation when the asset “is transferred subsequently by the specified entity”?

These and many more questions that may arise on further discussion need to be clarified.



CHAPTER-8 : PROFITS AND GAINS OF BUSINESS 8.1. CONTRIBUTION TO PF

Background [Section 36(1)(va) & Section 43B]: Section 2(24)(x) includes any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of ESIC or any other fund for the welfare of such employees as income of the employer. Section 36(1)(va) grants deduction in computing the income chargeable under the head ‘profits and gains of business or profession’ of such sum received by the employer from any of his employees as contributions to such funds, if such sum is credited by the employer to the employee’s account in the relevant fund on or before the ‘due date’. ‘Due date’ for the purposes of this clause has been defined in the Explanation to the said clause to mean the date by which the employer is required to credit the contribution to the employee’s account in the relevant fund under any Act, rule, order or notification issued thereunder or any standing order, award, contract of service or otherwise. Section 43B, inter alia, provides that deduction in respect of sum payable by the employer by way of contribution to any such employees’ funds shall be allowed in the previous year in which the liability to pay such sum was incurred if the said sum is paid on or before the the due date for furnishing the return of income under section 139(1) for that year.

Courts in various decisions4 have held that the provisions of section 43B of the Act apply to the employees’ contribution as well and have accordingly held that even where the employees’ contribution has been paid beyond the due date specified in the relevant statute, it is allowable as deduction if it is paid within the due date of furnishing the return of income under section 139(1). Proposed Amendments: It is proposed to insert a new Explanation to S. 36(1)(va), to clarify that the provisions of section 43B shall not apply and shall be deemed to have never applied for the purposes of determining the ‘Due date’.

Further, it is proposed to insert a new Explanation 5 to S. 43B, to clarify that the provisions of section 43B shall not apply and shall be deemed to have never applied to any sum received by employer from his employee as contributions to the employee’s account in any of the employees welfare funds as referred in section 2(24)(x).

4 CIT v. Vinay Cements Limited [313 ITR (st.) 1 (SC); CIT vs. Aimil Ltd. (321 ITR 508)(Delhi HC); Essae Teraoka (P) Ltd. vs. DCIT (366 ITR 408) (Kar HC); Bihar State Warehousing Corporation Ltd. v CIT (386 ITR 410)(Patna HC); CIT v. Ghatge Patil Transport (368 ITR 749) (Bom. HC); PCIT Vs. Hind Filter Ltd. (2018) 90 taxmann.com 51 (Bom. HC); etc.



Rationale of the Proposed Amendments: The proposed amendment has been inserted to clarify that the provisions of section 43B(b) cover only employer’s contribution and not employees’ contribution referred in section 2(24)(x). It is explained in the Memorandum that Employee’s contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. It is further stated that S. 36(1)(va) was inserted to the Act vide Finance Act 1987 as a measure of penalizing employers who mis-utilize employee’s contributions. Our Comments: By virtue of the aforesaid amendments, Employee’s Contribution paid beyond the due date under the relevant statute for depositing the same will not be allowed at all irrespective of the actual payment made subsequently. The proposed amendment seeks to overrule the decisions of various courts wherein it is held that provisions of section 43B override the provisions of section 36(1)(va) and thereby apply to employee’s contributions as well. The proposed amendment is stated to take effect from April 1, 2021 to apply to AY 2021-22 and subsequent AYs. Thus, the amendment becomes retrospective to the extent of liability for employee’s contribution incurred in FY 2020-21 till date. Further, the proposed amendments are worded such that they are inserted to provide clarification and thus, the Revenue might argue that the provisions should have retrospective operation.

8.2. DEPRECIATION ON GOODWILL

Background [Section 2(11), Section 32(1), Section 50 and Section 55(2)(a)]: Section 32(1) of the Act provides for deduction on account of depreciation on block of assets at prescribed percentage on the written down value. Further, Explanation 3 to sub-section (1) therein defines the term ‘assets’, which does not specifically contain goodwill. However, due to the presence of the words, “any other business or commercial rights of similar nature”, it was a general understanding so far that ‘goodwill’ is also a depreciable asset. His view was upheld by the Hon’ble Supreme Court in the case of Smiff Securities Limited (2012) 348 ITR 302 (SC) wherein the Apex Court has held ‘goodwill’ as depreciable asset u/s. 32 of the Act.



Proposed Amendments: It is proposed to amend the definition of “block of assets” u/s. 2(11) of the Act and the definition of asset in Explanation 1 to S. 32 (1) of the Act to specifically exclude “goodwill of a business or profession” from the scope of depreciable assets. Further, it is proposed to insert a proviso in section 50 of the Act to provide the manner of determination of WDV of a block of asset and short-term capital gains where the block of asset for A.Y. 2020-21 includes goodwill and on which depreciation has been claimed by the Assessee in preceding A.Ys. It is also proposed to substitute the provisions of section 55(2)(a) of the Act which deals with cost of acquisition of goodwill wherein a proviso shall be inserted to reduce the cost of acquired goodwill with the value of depreciation already claimed thereon. Rationale of the Proposed Amendment: As per the Memorandum, though the decision of the Hon’ble Supreme Court in the case of Smiff Securities (supra) has held that Goodwill of a business or profession is a depreciable asset, the actual calculation of depreciation on goodwill is required to be carried out in accordance with various other provisions of the Act as under: a. Sixth proviso the section 32 of the Act (Depreciation in case of succession) b. Explanation 2 of sub-section (1) of section 32 of the Act r.w. clause (c) of sub-section

(6) of section 43 of the Act (definition of “written down value”) c. Sub-section (1) of section 43 of the Act (definition of “actual cost”) d. Explanation 2 of clause (c) of sub-section (6) of section 43 of the Act (Actual Cost in

case of amalgamation) Once the aforesaid provisions are applied, in some situations like that of business reorganisation, there could be no depreciation on account of actual cost being zero and the written down value of that assets in the hand of predecessor/amalgamating company being zero. Our Comments: In view of the proposed amendment, the Government proposes to nullify the effect of the decision of the Hon’ble Apex Court in the case of Smiff Securities (supra) and therefore, no Assessee can claim depreciation on account of goodwill in any circumstances, whether arising in case of slump sale or amalgamation, beginning from April 1, 2021 i.e. A.Y. 2021-22. In cases where the Assessee has already capitalised goodwill into the block of assets and claimed depreciation thereon, the said amount of depreciation will have to be deducted from



the cost of acquisition in terms of section 55(2)(a) of the Act and for computing short term capital gains under section 50. However, interestingly, no similar provision has not been proposed for reduction of written down value as defined u/s. 43(6) of the Act. This would give arise to some anomalous situations.



CHAPTER-9 : SALARY EARNERS AND INSURANCE RECEIPTS

9.1. EXEMPTION FOR LTC CASH BALANCE Background [Section 10(5)]: S. 10(5) of the Act provides for exemption in respect of Leave Travel Concession (“LTC”) received by an employee from his employer for himself and his family for proceeding on leave to any place in India. The COVID-19 pandemic and the consequent nationwide lockdown disrupted people's travel plans. This has meant that many are not able to utilise the LTC available in their salary structures. The Government allowed payment of cash allowance equivalent to LTC fare to Central Government employees subject to fulfilment of certain conditions vide OM No F. No 12(2)/2020-EII (A) dated 12th October 2020. Similar income-tax exemption for the payment of cash equivalent of LTC fare to the non-Central Government employees also was announced vide Press Release dated October 29, 2020. The Bill proposes to bring the announcement in to the tax legislation. Proposed Amendments: The proposed amendment provides that for AY 2021-22, the value in lieu of LTC received by, or due to, an individual shall also be exempt under Section 10(5) subject to fulfilment of conditions to be prescribed. The Memorandum states that the conditions for this purpose shall be prescribed in the Income-tax Rules in due course and shall include the following: • the employee exercises an option for the deemed LTC fare in lieu of the applicable

LTC in the Block year 2018-21; • the amount of exemption shall not exceed INR 36,000 per person or one-third of

‘specified expenditure’, whichever is less. Specified expenditure means expenditure incurred by an individual or a member of his family during the period October 12, 2020 to March 31, 2021 on goods or services which are liable to GST at an aggregate rate of 12% or above under various GST laws and goods are purchased or services procured from GST registered vendors/service providers.

• in case a higher amount is received by an individual from his employer in relation to himself and his family, the exemption under proposed amendment would be restricted as aforesaid.

This amendment will take effect from 1st April, 2021 and will, apply in relation to the AY 2021-22 only.



It is also proposed to clarify by way of an Explanation that two individuals cannot claim exemption for the same specified expenditure. Rationale of the Proposed Amendment: In view of the COVID-19 pandemic and resultant nationwide lockdown as well as disruption of transport and hospitality sector, as also the need for observing social distancing, a number of employees were not able to avail of LTC in the current Block of 2018-21. The amendment proposes to compensate the employees and incentivize them. Issues for consideration: While the above amendment is intended to boost the economy by encouraging spending during the Covid-19 period, there are quite a few open questions that lacks clarity and may have different views. Some of these are:

• The Rules allow LTC exemption in respect of two visits in a block of four years. Whether a person who has already availed LTC exemption for one visit in 2018-21 block, will he be entitled to this benefit?

• If a person has not availed any LTC benefit during the 2018-21 block, will he be eligible for twice the amount of benefit?

• If a family comprise of a working couple, and if they have spent, say Rs. 4,20,000 on one TV set, one of them will be eligible for benefit upto Rs. 72,000. Will the other be eligible for the benefit of the balance Rs. 68,000?

9.2. TAXABILITY OF INTEREST ON VARIOUS FUNDS IN CASE OF LARGE

CONTRIBUTIONS Background [Section 10(11) and 10(12)]: S. 10(11) of the Act provides for exemption with respect to any payment from a provident fund to which the Provident Funds Act, 1925 applies or from any other notified provident fund (e.g. PPF). Similarly, S. 10(12) provides for exemption with respect to the accumulated balance due and becoming payable to an employee participating in a recognised provident fund, to the extent provided in Rule 8 of Part A of the Fourth Schedule. Proposed Amendment: The proposed amendment provides that exemption under these sections shall not apply in respect of interest income accrued during a previous year in the account of the person to the extent it relates to contribution made by the assessee (i.e. in case of employees, the employer’s contribution is not included) exceeding INR 2,50,000 in a previous year in that



fund, on or after April 1, 2021. In other words, interest attributable to assessee’s / employee’s own contribution in excess of INR 2,50,000 on or after April 1, 2021 shall be taxable.

These amendments will take effect from 1st April, 2022 and shall apply to AY 2022-23 and subsequent assessment years. Rationale of the Proposed Amendment: The proposed amendment is made ostensibly because ‘exemption without any threshold benefits only those who can contribute a large amount to these funds as their share’.

9.3. TAXATION OF PROCEEDS OF HIGH PREMIUM UNIT LINKED INSURANCE POLICY (ULIP) Background [Section 10(10D)] Presently, section 10(10D) of the Act exempts any sum received under a life insurance policy (including sum allocated by way of bonus) provided that the premium payable for any of the years during the term of the policy does not exceed 10% of the actual capital sum assured. The present provisions restrict the exemption when the amount of premium exceeds the specified percentage of sum assured but does not have any monetary cap on the premium amount to claim the exemption. Proposed Amendment It is now proposed to provide for the following by way of insertion of provisos to section 10(10D) of the Act:

• exemption will not be available in respect of ULIP issued on or after February 1, 2021 if the premium payable for any previous year during the term of the policy exceeds Rs. 2.50 lakhs.

• where there are more than one ULIP, exemption under section 10(10D) of the Act shall apply to only those ULIPs where the aggregate amount of premium does mot exceed Rs. 2.50 lakhs in any previous year during the term of any ULIPs.

• the sum received under ULIP on death of a person will be exempt under section 10(10D) of the Act without any restrictions.

• empower CBDT (with the approval of Central Government) to issue guidelines for the purpose of removing difficulty. Also, such guidelines will have to be laid before both the House of Parliament and it will be binding on both the tax authorities and the assessee.

Further, Explanation 3 is proposed to be inserted to define ULIP to mean a life insurance policy which has components of both investment and insurance and is linked to a unit defined in IRDA(ULIP) Regulations, 2019.



It is further proposed to include ULIP [to which exemption under section 10(10D) does not apply] in the definition of ‘capital asset’ under section 2(14) of the Act. It is further proposed to insert sub-section (1B) to section 45 of the Act to provide that profits and gains arising from any amount received in respect of such ULIP will be chargeable to income-tax as “Capital Gains” and will be deemed to be income of the previous year in which the amount was received. The manner of computation of taxable income will be prescribed, by the Board. Further, it is also proposed to amend the definition of equity-oriented fund in clause (a) of the Explanation to section 112A to include for unit linked insurance policies to which the exemption u/s. 10(10D) of the Act does not apply. Rationale of the Proposed Amendment The rationale for the proposed amendments as per the EM is that the legislative intent of section 10(10D) was not to provide exemption to sums received under policy/policies with huge premia. Our Comments The proposed amendments will cast additional burden on the Assessees of maintaining policy wise data every year, identifying and maintaining a record of policies which are eligible for exemption under section 10(10D) and policies which will attract capital gain tax. Assessees will now have to be careful while investing in new ULIPs as one will have to factor in the foregoing proposed tax amendments before buying the ULIPs. With the amendment in section 45 of the Act, ULIP which are of huge premia and are not exempt u/s. 10(10D) of the Act will be chargeable to tax under the head “Capital Gains” and necessary amendments have been proposed in section 112A (by reference of section 112A in section 111A, also in section 111A) to provide for rate of tax of such capital gains. The proposed amendments will be effective from AY 2021-22.



CHAPTER-10 : MINIMUM ALTERNATE TAX (“MAT”) 10.1. RELIEF FROM APPLICABILITY OF MAT PROVISIONS ON DIVIDEND

INCOME EARNED BY FOREIGN COMPANIES Background [Section 115JB]: The present provisions of section 115JB provide that the amount of income from (i) capital gains arising on transactions in securities; or (ii) interest, royalty or fees for technical services chargeable to tax at the rates specified in Chapter XII, accruing or arising to a foreign company shall not be liable to MAT if such income is credited to the profit and loss account and the income-tax payable in accordance with the other provisions of the Income-tax Act, is less than the rate specified in section 115JB. The expenditures, if any, debited to the profit loss account, corresponding to such income (which is to be excluded from the MAT liability) shall also be added back to the book profit for the purpose of computation of MAT. Proposed Amendments: It is proposed to extend the above relief from applicability of MAT provisions to dividend income accruing or arising to a foreign company and credited to its profit and loss account. Correspondingly, provision is also made requiring the adding back of expenditure related to such dividend income if debited to the profit and loss account. This amendment will take effect from 1st April, 2021 and will accordingly apply to the A.Y. 2021-22 and subsequent assessment years. Rationale of the Proposed Amendment: Based on representations received post abolishment of section 115-O vide Finance Act, 2020 thereby bringing dividend income to tax in the hands of shareholders, it is proposed to extend relief from applicability of MAT to dividend income received by foreign companies in cases where the tax payable on such dividend income is less than MAT liability on account of concessional tax rate provided in the tax treaty. Our Comments: This is a welcome amendment and puts to rest uncertainties that would have arisen on interplay between MAT provisions and section 90(2) r.w. treaty provisions.

10.2. ADJUSTMENT OF BOOK PROFIT OF PAST YEARS ON ACCOUNT OF APA

AND SECONDARY ADJUSTMENTS Background [Section 115JB]: At present the computation of book profit u/s. 115JB does not provide for any adjustment on account of additional income of past year(s) included in books of account of current year on



account of secondary adjustment u/s. 92CE or on account of an Advance Pricing Agreement (“APA”) entered with the taxpayer under section 92CC. This results in the taxpayer paying additional tax on the current income, which also includes prior period income that has already been subjected to tax under normal provisions. Proposed Amendments: It is proposed to insert new sub-section (2D) u/s. 115JB to provide that in cases where past year income is included in books of account during the previous year on account of an APA or a secondary adjustment, the Assessing Officer shall, on an application made to him in this behalf by the assessee, recompute the book profit of the past year(s) and tax payable, if any, during the previous year, in the prescribed manner. Further, the provision of section 154 of the Act shall apply so far as possible and the period of four years specified in sub-section (7) of section 154 shall be reckoned from the end of the financial year in which the said application is received by the Assessing Officer. This amendment will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years. Rationale of the Proposed Amendment: The amendment is proposed based on representations received on this issue. Our Comments: This is a welcome amendment addressing the issue of additional taxes resulting from APA and secondary adjustments.



CHAPTER-11 : HOUSING AND REAL ESTATE SECTOR 11.1. DEDUCTION IN RESPECT OF INTEREST ON LOAN TAKEN FOR CERTAIN

HOUSE PROPERTY Background [Section 80EEA]: Section 80EEA of the Act provides deduction of Rs. 1.50 lakhs in respect of interest on loan taken from a financial institution during the period April 1, 2019 to March 31, 2021 to an assessee who does not own any residential house property on the date of sanction of loan for acquisition of a residential house property the stamp duty value of which does not exceed Rs. 45.00 lakhs. Proposed Amendment: It is now proposed to extend the period within which loan must be sanctioned for being eligible to claim deduction under section 80EEA of the Act by one more year. In other words, now interest on loan taken from the financial institutions during the period April 1, 2019 to March 31, 2022 will be eligible for deduction under section 80EEA of the Act subject to fulfilment of other conditions. Rationale of the Proposed Amendments: The proposed amendment is to incentivise first home buyers and to boost demand for affordable housing. Our Comments: The proposed amendment is beneficial to first time home buyers as it grants one more year to acquire residential house property. It will also boost demand for affordable residential houses and help the real estate industry which is adversely hit by the Covid-19 pandemic.

11.2. DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM HOUSING

PROJECTS Background [Section 80IBA]: Section 80IBA of the Act provides deduction of 100% of the profits and gains derived from developing and building housing projects subject to fulfilment of certain conditions mentioned therein. Proposed Amendment: Under the existing provision of section 80IBA of the Act, one of the conditions to be satisfied for claiming deduction is that the housing project should be approved by the competent authority during the period April 1, 2016 to March 31, 2021. It is now proposed to extend the period within which the housing project should be approved by the competent authority



by one year. In other words, now housing project approved during the period April 1, 2016 to March 31, 2022 will be eligible for deduction under section 80IBA of the Act subject to fulfilment of other conditions. Further it is also proposed to expand the scope of section 80IBA to allow deduction of 100% of the profits and gains derived from developing and building notified rental housing project subject to certain conditions to be notified by the Central Government. Rationale of the Proposed Amendment: The proposed amendment is to help migrant labourers and promote rental housing. Our Comments: The proposed amendment is beneficial as real estate developer will be eligible for deduction even for affordable housing projects approved during FY 2021-22. The proposed amendment is to incentivise the real estate developers to develop and build rental housing project which will also benefit migrant labourers.

11.3. INCREASE IN SAFE HARBOUR LIMIT IN RELATION TO TRANSFER OF LAND OR BUILDING OR BOTH TO 20% Background [Section 43CA / 56]: Section 43CA of the Act provides for substitution of actual consideration received / accrued on transfer of land or building or both with ‘stamp duty value’ of such asset in a case where such consideration is less than the ‘stamp duty value’. Similarly, section 56(2)(x) provides that where any person receives any land or building or both for a consideration which is less than the ‘stamp duty value’ of such asset and in case the difference between the ‘stamp duty value’ and the consideration paid exceeds Rs. 50,000 then such difference will be taxed as ‘Income from Other Sources’. Sections 43CA / 56(2)(x) of the Act were amended by Finance Act, 2020 to provide a safe harbour limit of 10% (from earlier 5%) i.e. where the ‘stamp duty value’ was within 110% of the actual consideration, the transaction would be accepted as such by the tax department and no addition would be made under any of said sections. Further the Government had announced as a part of the Atma Nirbhar Bharat Package 3.0 on November 12, 2020 an increase in the aforesaid threshold to 20% for primary sale of residential units. Proposed Amendments: The proposed amendment is to bring the aforesaid announcement into the legislature.



Sections 43CA/56(2)(x) of the Act are now proposed to be amended from A.Y. 2021-22 onwards to raise the safe harbour limit for assets, being a residential unit, from 10% to 20% i.e. where the ‘stamp duty value’ is within 120% of the actual consideration, the transaction would be accepted as such by the tax department subject to the fulfilment of conditions as mentioned hereunder:

• the transfer of residential unit takes place during the period November 12, 2020 to June 30, 2021;

• such transfer is by way of first allotment of the residential unit to any person; • the consideration received or accruing as a result of such transfer does not exceed

two crore rupees; Rationale of the Proposed Amendment: In order to boost the demand in the real-estate sector and to enable the real-estate developers to liquidate their unsold inventory at a lower rate to home buyers, it is proposed to increase the safe harbour threshold from the existing 10% to 20% Our Comments: Though the proposed amendment is a beneficial amendment, the same could have had a larger window to provide relief to taxpayers in respect of past/future transactions. A short period of eight months may be insufficient to provide the necessary boost to the real estate sector. Further, as the transfer only by way of first allotment is covered under the proposed amendment, it covers only the real estate developers. In order to provide a boost to the real estate sector, all the assesses and even secondary transfers could have been covered.



CHAPTER-12 : INTERNATIONAL FINANCIAL SERVICES CENTRE 12.1. EXEMPTION OF CERTAIN INCOME EARNED FROM UNITS IN IFSC

Background [Section 10(4D)]: Presently, under clause (4D) to Section 10, exemption is available on certain incomes earned by a specified fund by way of capital gains or income from securities issued by a non-resident or income from a securitisation trust chargeable under the head “profits and gains of business or profession” subject to certain conditions.

Proposed Amendments: It is proposed that the “specified fund” shall also include an “investment decision of an offshore banking unit” which is a Category III Alternative Investment Fund (AIF) regulated by SEBI which has commenced its operations on or before March 31, 2024 and which fulfils the prescribed conditions. Correspondingly, it is proposed to amend clause (4D) of section 10 to include income attributable to the “investment division of offshore banking unit”.

The “investment division of offshore banking unit” is defined as an investment division of a banking unit of a non-resident located in IFSC and which has commenced operations on or before March 31, 2024;

It is proposed to insert a new clause (4E) to section 10 to exempt any income to a non-resident as a result of transfer of non-deliverable forward contracts entered into with an offshore banking unit in IFSC and which has commenced its operations on or before March 31, 2024;

Further it is proposed to insert a new clause (4F) to section 10 to exempt any income of a non-resident by way of “royalty” on account of lease of an aircraft in a previous year paid by5 a unit of an IFSC, if such unit is eligible for deduction under section 80LA and has commenced its operations on or before March 31, 2024;

The proposed amendments will be from AY 2022-23.

Rationale of the Proposed Amendment: As per the EM, this provision is inserted to incentivise and make location in the IFSC more attractive. Our comments: There appears to be a typographical error in inserting the word “by” in the proposed new clause (4F) in section 10. We read this as “to” instead of “by” so as to make this section read with section 80LA meaningful. This is because the amendment in section 80LA,

5 See Our Comments



discussed subsequently, grants deduction to a Unit (of the non-resident lessor) in the IFSC from transfer of an aircraft or air-engines, previously leased by such Unit to a domestic company in the aviation business. This is also supported by the Budget speech of Hon’ble FM which states that the Government is committed to make IFSC in Gujarat International Finance Tec (“GIFT City”) a global financial hub.

12.2. TAX HOLIDAY U/S. 80LA OF THE ACT

Background [Section 80LA]: Presently, section 80LA of the Act grants to a Unit in the IFSC (“the assessee”) profit linked deduction of an amount equal to hundred per cent of income for ten consecutive AYs at the option of the Assessee out of the fifteen years, beginning with the assessment year relevant to the previous year in which the permission u/s 23 of the BRA or SEBI or any other relevant law was obtained.

Proposed Amendments: It is proposed to substitute “any other relevant laws” with the expression “permission or registration under the International Financial Services Centre Authority Act, 2019 was obtained” It is also proposed to insert clause (d) to sub-section (2) to Section 80LA under which, hundred per cent deduction will be available from income from transfer of an aircraft or an air-craft engine, which was leased by an approved Unit in the IFSC to a domestic company engaged in the business of operation of aircraft before such transfer, subject to the condition that the unit has commenced its operation on or before the March 31, 2024; The proposed amendments will be applicable from AY 2022-23. Rationale of the Proposed Amendment: As per the EM, the proposed amendment is made to further incentivise operations in the IFSC.

12.3. EXEMPTION ON RELOCATION OF OFFSHORE FUNDS Background [Section 115UB, 10(23FBA)]: As per the existing provisions, investors (both resident as well as non-resident) of AIF – CAT I & II, are taxable on income received from such fund other than income chargeable under the head profits and gains of business or profession.

Proposed Amendments (Section 10(23FF), 47(viiac)/(viiad)]:



1. It is proposed to insert a new clause (23FF) in section 10 of the Act, to exempt capital gains in the hands of a non-resident investor, arising or received on transfer of share of a company resident in India by the “resultant fund”. However, the capital gains would be exempt if:-

i) The shares were acquired by the resultant fund by way of transfer from the Offshore6 Fund to the resultant fund located in IFSC under relocation; and

ii) In case, the Offshore fund was not relocated i.e. it continued to be Offshore Fund, then the capital gains on transfer of the shares held by such Offshore Fund was not chargeable to capital gains in the country of residence of the Offshore Funds

2. It is proposed to insert new clause (viiac) u/s 47 of the Act to provide that any transfer, in

relocation, of a capital asset an offshore fund to the resultant fund shall not be considered as “transfer” for the purpose of capital gains.

3. Similarly, it is proposed to insert new clause (viiad) u/s 47 of the Act, to state that any

transfer by a non-resident shareholder/interest holder/ unit holder of shares/units/interest held in Offshore Funds in consideration of shares/units/interest of the resultant fund would not be regarded as transfer for the purpose of capital gains.

The expressions “Original Fund”, “relocation” and “resultant fund” have been defined in these provisions. Corresponding amendments have been made in sections 49, 56 and 79 on account of such relocation. These amendments will take effect from April 1, 2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years.

Rationale of the Proposed Amendment: As per the Speech of the Finance Minister, it appears that the government is committed to make the IFSC in GIFT City a global financial hub. Thus for promoting IFSC, it is proposing to provide tax incentives which includes tax holiday for capital gains incomes of aircraft leasing company, tax exemptions for aircraft lease rental paid to foreign lessor, tax incentive for re-location of foreign funds in IFSC etc. As also to promote investments in funds by exempting income in the hands of the non-residents as well as to encourage Indian funds registered in jurisdictions known for their tax-friendly regime, to transfer investments to Indian entities set up at IFSC.

6 Please note that these funds are termed as “Original Fund” in the FB, 2021, but for sake of convenience we have termed them as Offshore Funds.



CHAPTER-13 : COMPLIANCES, INTEREST AND RECOVERY 13.1. AMENDMENTS IN PROVISIONS OF TAX AUDIT

Background [Section 44AB]: As per the provisions of section 44AB of the Act, Assessee carrying on business and having total sales, turnover or gross receipts over Rs. 1 crore in the previous year are required to get the accounts audited. Further, in Finance Act 2020, in order to reduce tax burden of on small and medium enterprises proviso to section 44AB(a) was inserted increasing the threshold from Rs. 1 crore to Rs. 5 crores. However, such increased threshold can be availed only where the aggregate cash receipts/payments made during the year do not exceed 5% of total receipt/ payment. Proposed Amendments: It is proposed to increase the threshold of Rs. 5 crores to Rs. 10 crores for the purpose of audit u/s 44AB in case of assessees carrying on business and where the aggregate cash receipts/payments made during the year do not exceed 5% of total receipts/ payments. Rationale of the Proposed Amendment: The proposed amendment in section 44AB is to incentivise non-cash transactions encouraging digital economy and to further reduce compliance burden of small and medium enterprises. Our Comments: It is a welcome move which will substantially reduce the compliance for small and medium enterprises. The benefit of enhanced threshold introduced by Finance Bill, 2020 did not apply to assessees carrying on profession. Even in the amendment proposed, the benefit is not extended to the professionals meeting the criteria of more than 95% of electronic payments/receipts. These amendments shall be effective from April 1, 2021 and will accordingly apply for AY 2021-22 and subsequent AYs.

13.2. PRESUMPTIVE TAXATION FOR PROFESSIONALS UNDER SECTION 44ADA Background [Section 44ADA]: Section 44ADA provides for presumptive taxation mechanism for resident professionals deriving income from eligible profession, not having gross receipts exceeding Rs.



50,00,000/- wherein 50% of such gross receipts are deemed to be the net profit of such assesses under the head ‘Profits and gains of business or profession’ and taxed accordingly.

Proposed Amendments: It is proposed to amend the sub-section (1) to specify that the said section is applicable to an assessee, being an individual, Hindu undivided family or a partnership firm other than a limited liability partnership as defined under clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008, who is a resident in India as against the existing provision which provided that the section applies to any assessee being a resident in India.

Rationale of the Proposed Amendments: It is stated in the Memorandum that the provisions of section 44ADA were made applicable to individual, HUF and Partnership firm but not to a LLP for the reason that LLP is required to maintain books of accounts in any case under LLP Act. It is also stated that the proposed amendment is to make this position clear in the law. Our Comments: Section 44ADA providing for a presumptive taxation regime for resident professionals was introduced by Finance Act, 2016. The Memorandum to Finance Bill, 2016 stated that the provision is applicable only to Individuals, HUF and Partnership Firms and not to LLPs. However, the language of the section did not specifically provide for the same. The proposed amendment is stated to take effect from April 1, 2021 and will, accordingly apply in relation to AY 2021-22 and subsequent AYs. However, given the specific mention in the Memorandum to Finance Bill, 2016 and the intention to clarify the position, the revenue might argue that the provisions shall have retrospective operation.

13.3. EXTENSION OF DUE DATE FOR FILING RETURN OF INCOME IN SOME CASES, REDUCING TIME TO FILE BELATED RETURN AND TO REVISE ORIGINAL RETURN AND ALSO TO REMOVE DIFFICULTY IN CASES OF DEFECTIVE RETURNS

Background [Section 139]: Section 139 deals with furnishing of returns by different persons or class of persons. As per the extant provisions the due date for filing the Original Return of Income have been provided in Explanation 2 to sub-section (1) for:

(a) the partner of a firm whose accounts are required to be audited under the Act or under any other law for the time being in force as October 31 of the AY;

(b) the assessee who is required to furnish a report as referred in section 92E as November 30 of the AY.



Sub-section (4) and (5) provides for the due date for furnishing the Belated and Revised Return of Income before the end of the assessment year or before the completion of the assessment whichever is earlier.

Sub-section (9) lays down the procedure for curing the defective return. The Explanation thereto lists the conditions in which certain return of income shall be regarded as defective.

Section 5A of the Act provides for taxation of assessees governed by Portuguese Civil Code and it requires the income earned to be apportioned between the husband and the wife. On account of this provision any income earned by a partner of a firm, whose accounts are required to be audited, governed by Portuguese Civil Code shall be apportioned between such partner and his spouse and accordingly included in their respective total incomes. Proposed Amendments: It is proposed to provide relaxation in filing the Original Return of Income to the spouse of a partner of a firm whose accounts are required to be audited under this Act or under any other law for the time being force to whom section 5A applies by October 31 of the said AY. It is proposed to amend clause (aa) of Explanation 2 to section 139(1) to include partners of the firm which enter into international transaction or specified domestic transaction and require furnishing of report from an accountant as referred in section 92E for such transactions for defining the due date for filing the Original Return of Income as November 31 of the said AY. It is proposed that the time limit for filing of Belated and Revised return of Income, as the case may be, be reduced by three months. Thus, the belated return or revised return could now be filed within three months before the end of the relevant AY or before the completion of the assessment, whichever is earlier. It is also proposed to insert a proviso to the Explanation to sub-section (9) empowering the board to specify vide notification that any of the above conditions shall not apply for a class of assessee or shall apply with modifications. Rationale of the Proposed Amendments: The existing provisions of the Act align the due date for filing Original Return of Income for a partner and the firm. However, to the cases where the provisions of section 5A apply, the due date for filing the return of income of the spouse was not aligned in cases of the spouse of the partner of a firm whose books are liable to be audited. This is now sought to be aligned by way of the proposed amendment.



In respect of the amendment in clause (aa) of the Explanation 2 to section 139(1), it is explained that since the total income of a partner of a firm that enters into international transaction or specified domestic transaction and which is required to furnish report from an accountant as referred in section 92E for such transactions can be determined only after the books of accounts of the firm have been finalized, it is proposed to align the due date of the partner with that of the firm. In respect of the amendment in sub section (4) and (5), it is stated in the Memorandum that with massive technological upgrade in the Department where the processes under the Act are moving towards becoming faceless and jurisdiction-less, the time taken to conduct and complete such processes has greatly reduced, thus it is proposed to reduce the last date for filing of the belated and revised returns of income by three months. In respect of the amendment in sub section (9), it is stated in the Memorandum that the representations received asserting that large number of returns become defective by application of the conditions (in which a return of income becomes defective) in the Explanation thereby creating difficulties for both taxpayer and Department have been considered and accordingly the amendments are proposed to relax the conditions in genuine cases. Our Comments: While clause (a) of Explanation 2 to section 139(1) is amended to align the due date of the spouse of the partner of a firm whose accounts are liable to be audited to whom section 5A applies with such partner, while amending clause (aa) of Explanation 2 to section 139(1) to align the due date of the partner of a firm requiring to furnish report u/s 92E with the firm, the reference to the spouse referred in section 5A is not taken care of. As far as the reduction in the time limit for filing the Belated and Revised Return of Income brought by FB, the rationale for the amendment proposes the technological upgrade in the Department and the reduction in the time taken for conducting and completing faceless and jurisdiction-less processes. By virtue of such an amendment, the provisions of the said sections may be nugatory for assessees required to file Original Return of Income by October 31 or November 31 of the AY. The amendments proposed in sub section (9) appear to be beneficial to the assessees. However, one has to examine the notification issued by the Board in this regard. The amendments will take effect from April 1, 2021 and will accordingly apply to the AY 2021-22 and subsequent AYs.



13.4. ADVANCE TAX INSTALMENT FOR DIVIDEND INCOME

Background [Section 234C]: Section 208 of the Act, inter alia, requires the Assessee to estimate tax liability and pay advance tax thereon. In case where the Assessee fails to pay advance tax instalments, he shall be liable to pay simple interest under section 234C of the Act. Such interest is calculated at the rate of 1% per month for the period of three months on the amount of shortfall calculated with respect to the due dates for advance tax instalments. However, first proviso to section 234C of the Act provides that nothing contained in the said section applies if shortfall of advance tax payment is on account of under estimation or failure to estimate the amount of capital gains, winnings as defined under section 2(24)(ix) of the Act, first time income accrued under the head of ‘Profit and Gains of business or profession’ and dividend income as referred under section 115BBDA(1) of the Act and the Assessee has duly considered the same in instalments due subsequent to earning of such income or where no such instalment is due, by 31st March of financial year. Proposed Amendments: The existing proviso only provided relief in respect of dividend referred to in sub section (1) of section 115BBDA of the Act. It is proposed to amend the first proviso to section 234C of the Act, in order to widen the scope and include all dividend income. However, it is also proposed that the existing Explanation under section 234C shall be numbered as Explanation 1 and a new Explanation 2 be inserted to define the term ‘dividend’ which states that dividend for this sub section shall have the meaning assigned to it in section 2(22) of the Act excluding clause (e) thereof.

Rationale of the Proposed Amendment: The Memorandum states that the aforesaid proposed amendment is to insulate the taxpayers from payment of interest under section 234C of the Act in cases where accurate determination of advance tax liability is not possible due to the intrinsic nature of the income. It also states that various representations are considered favourably and accordingly it is proposed to include dividend income in the above exclusion but not deemed dividend according to section 2(22)(e) of the Act.

Our Comments: This is a welcome provision wherein it is acknowledged that, by the very nature of dividend, it is difficult for the Assessee to estimate and pay advance tax liability and accordingly dispensation from interest under section 234C of the Act has been given on dividend income by treating it at par with capital gains, winnings and the like.



Further, proposed Explanation 2 specifically provides that the benefit of the proviso shall not be applicable to deemed dividend under section 2(22)(e). The benefit was never available to such deemed dividend and the position has been retained the same even after the amendment.

These amendments shall be effective from April 1, 2021 and will accordingly apply to AY 2021-22 and subsequent AYs.

13.5. PROVISIONAL ATTACHMENT IN FAKE INVOICE CASES Background [Section 281B]: Section 281B of the Act falls under Chapter XXIII – Provisional attachment to protect revenue in certain cases. The provisions of Section 281B allows the Assessing officer to attach provisionally any property belonging to the assessee after taking requisite approvals from the higher authority. The provisional attachment of property can only be done by the Assessing officer if any proceeding for assessment of income or assessment/ reassessment of any income which has escaped assessment is pending. Proposed amendment: It is proposed to amend the provisions of Section 281B of the Act and accordingly allow the Assessing officer to provisionally attach the property of assessee even when penalty under section 271AAD is imposed/ likely to be imposed and such penalty exceeds/ is likely to exceed two crore rupees during the pendency of proceedings for imposition of penalty. Rationale for the proposed amendment: Section 271AAD was inserted vide Finance Act, 2020 to impose penalty on a person who causes another person to make a false entry or omit an entry from his books of accounts to evade tax liability. It is stated in the Memorandum that upon initiation of penalty, it is highly likely that such a person shall also evade the payment of such penalty, hence in order to protect the interests of revenue, section 281B is amended to enable the AO to provisionally attach the property of the assessee towards the penalty u/s 271AAD during the pendency of proceedings for imposition of penalty. Our Comments: The proposed amendment seeks to apply the provisions of provisional attachment during the pendency of the proceedings for imposition of penalty u/s 271AAD. Penalty u/s 271AAD is levied if during any proceedings it is found that there are some false entries or omission of entries in the books of accounts of the assessee. By using the words ‘pendency of proceedings for imposition of penalty u/s 271AAD’, the proposed amendment would enable the AO to provisionally attach the property of the assessee for recovery of penalty, that may



be levied, even before any such penalty is initiated, if any proceedings are pending and false entries/omission of entries are found.

It is not clear whether the provisions of provisional attachment shall also extend to the person other than the assessee to whom the AO directs to pay the penalty under sub section (2) where the penalty u/s 271AAD is not yet initiated but the proceedings are pending in case of the assessee. The Memorandum states that it is likely that the taxpayer may also evade the payment of penalty, if imposed. Whether the same rationale can be extended in case the penalty is directed to be paid by a person other than the assessee? This amendment is stated to come into effect from April 1, 2021. Being procedural in nature, the provisional attachment in respect of penalty u/s 271AAD imposed or likely to be imposed can be made on or after April 1, 2021.



CHAPTER-14 : GOODS AND SERVICE TAX 14.1. DEFINITION OF SUPPLY

Background [Section 7(1) of CGST Act, 2017]: As per section 7, sub-section (1), the term supply includes (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration whether or not in the course or furtherance of business; and (c) the activities specified in Schedule I, made or agreed to be made without a consideration; Proposed Amendments: It is proposed to insert clause (aa) after clause (a) of section 7 sub-section (1) with effect from July 1,2017 namely: “(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice versa, for cash, deferred payment or other valuable consideration. Explanation.––For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another.” Rationale of the Proposed Amendment: New clause is introduced to ensure levy of tax on activities or transactions involving supply of goods or services by any clubs/associations to its members or constituents or vice versa for cash, deferred payment or other value considerations. Our Comments: In the case of State of West Bengal v. Calcutta Club Ltd. (2019) 110 taxmann.com 47 (SC), Hon’ble Supreme Court in the context of the pre-GST era held that transactions between the clubs/associations and its members cannot be taxed due to principal of mutuality. By way of explanation to the newly inserted clause, it has been clarified that the person other than an individual and its members shall be deemed to be two separate persons. Aforesaid provision have been made effective w.e.f July 1, 2017 (to be effective from notification in the official gazette).



As a consequential change, para 7 of Schedule II to CGST Act,2017 treating supply of goods by any unincorporated association or body of person to a member thereof for cash, deferred payment or other valuable consideration, such supply is a supply of goods has been omitted w.e.f July 1, 2017.

14.2. INPUT TAX CREDIT

Background [Section 16(2) of CGST Act, 2017]: At present, a registered person is entitled to avail the input tax credit on fulfilment of certain specified conditions: • he is in possession of tax invoice or debit note by a supplier registered under this Act,

or such other tax paying documents as may be prescribed; • he has received the goods or services or both; • the tax has been actually paid to the government either in cash or through utilisation of

credit; • has furnished the return under section 39

Proposed Amendments: It is proposed to insert clause (aa) after clause (a) of section 16 sub-section (2) namely: “(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;” Rationale of the Proposed Amendment: The proposed condition is currently covered under Rule 36(4) of the CGST Rules, 2017 which allows unmatched credit of up to 5% of the amount of matched credit. However, the same is not supported by the provisions of the Act. Our Comments: With the proposed amendment, Rule 36(4) of the CGST Rules, 2017 would be redundant as credit in respect of invoices or debit notes which are not uploaded by supplier in GSTR-1 and which in turn does not get reflected in GSTR-2A of the registered person cannot be claimed at all. This amendment seeks to address the issue of rules being ultra vires of the provisions for which writ petitions are filed before various High Courts.



14.3. ANNUAL RETURN AND AUDIT BY SPECIFIED PROFESSIONAL Background [Section 35(5) and section 44 of CGST Act, 2017]: As per section 35, sub-section (5), a registered person whose turnover during the financial year exceeds the prescribed limit is required get his accounts audited by a chartered accountant or a cost accountant. As per section 44, a registered person other than an Input Service Distributor, a person paying tax under section 51 or section 52, a casual taxable person and a non-resident taxable person, shall furnish an annual return for every financial year electronically in such form and manner as may be prescribed along with copy of audited annual accounts and a reconciliation statement duly certified by specified professional. Proposed Amendments: The section 35, sub-section (5) shall be omitted. The section 44 shall be substituted namely: “44. Every registered person, other than an Input Service Distributor, a person paying tax under section 51 or section 52, a casual taxable person and a non-resident taxable person shall furnish an annual return which may include a self-certified reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year, with the audited annual financial statement for every financial year electronically, within such time and in such form and in such manner as may be prescribed: Provided that the Commissioner may, on the recommendations of the Council, by notification, exempt any class of registered persons from filing annual return under this section: Provided further that nothing contained in this section shall apply to any department of the Central Government or a State Government or a local authority, whose books of account are subject to audit by the Comptroller and Auditor-General of India or an auditor appointed for auditing the accounts of local authorities under any law for the time being in force.”

Rationale of the Proposed Amendment: To remove the mandatory requirement of getting reconciliation statement duly certified by specified professional and to provide for filing of the annual return on self-certification basis. It further provides for the Commissioner to exempt a class of taxpayers from the requirement of filing the annual return. Our Comments: As the registered person has to furnish annual return on self-certification basis, the onus of computing liability correctly has been shifted from GST auditors to the taxpayer.



14.4. INTEREST ON DELAYED PAYMENT OF TAX

Background [Section 50(1) of CGST Act, 2017]: At present, the proviso to Section 50 sub-section (1) says: “Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.”

Proposed Amendments: The word “shall be levied” has been substituted to “shall be payable”

Rationale of the Proposed Amendment: To give retrospective effect to the proviso. Our Comments: Originally, the said proviso to section 50 sub-section (1) was inserted by The Finance Act, 2019. Though, GST Council had recommended retrospective amendment, Notification No.63/2020-CT, dated August 25,2020 made it effective prospectively from September 1,2020. Though CBIC issued a press release dated August 26, 2020 clarifying no recovery of interest for the past period shall be done by the department, amendment in the law was required to make it retrospective to finally settle the issue.

14.5. GOODS AND CONVEYANCE IN TRANSIT

Background [Section 74 of CGST Act, 2017]: At present, explanation 1 to section 74 says: “(i) the expression "all proceedings in respect of the said notice" shall not include proceedings under section 132; (ii) where the notice under the same proceedings is issued to the main person liable to pay tax and some other persons, and such proceedings against the main person have been concluded under section 73 or section 74, the proceedings against all the persons liable to pay penalty under sections 122, 125, 129 and 130 are deemed to be concluded.” Proposed Amendments: The words “sections 122,125,129 and 130 shall be substituted by “sections 122 and 125”.



Rationale of the Proposed Amendment: The amendment is done to make seizure and confiscation of goods and conveyances in transit a separate proceeding from recovery of tax.

14.6. GENERAL PROVISIONS RELATING TO DETERMINATION OF TAX

Background [Section 75(12) of CGST Act, 2017]: At present section 75(12) states that “notwithstanding anything contained in section 73 or section 74, where any amount of self-assessed tax in accordance with a return furnished under section 39 remains unpaid, either wholly or partly, or any amount of interest payable on such tax remains unpaid, the same shall be recovered under the provisions of section 79.” Proposed Amendments: The following explanation has been inserted: “Explanation - For the purpose of this sub-section, the expression “self-assessed tax” shall include the tax payable in respect of details of outward supplies furnished under section 37, but not included in the return furnished under section 39.” Rationale of the Proposed Amendment: To allow the taxpayer to pay the liability on invoices which are furnished in GSTR 1 but not included in GSTR 3B. Since GSTR 3B cannot be revised, the taxpayer can now pay the liability due to mismatch in GSTR 1 and GSTR 3B voluntarily.

Our Comments: The ambit of the term “self-assessed tax” is proposed to be widened. Though this amendment provides facility to make voluntary payment for invoices inadvertently missed while making payment as per GSTR 3B, it also implies that now recovery can be initiated even for the outward supply liability shown even erroneously in GSTR 1 filled under Section 37.

A new tab “Liability Mismatch – GSTR 1 to GSTR 3B” has already been provided in recent past under voluntary payments to pay off the liability on GST portal.

14.7. PROVISIONAL ATTACHMENT

Background [Section 83(1) of CGST Act, 2017]: At present, during the pendency of any proceedings under section 62, section 63, section 64, section 67, section 73 and section 74 the Commissioner may attach provisionally any



property, including bank account, belonging to the taxable person in such manner as may be prescribed. Proposed Amendments: The sub-section (1) of section 83 has been substituted namely: “(1) Where after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue it is necessary so to do, he may, by order in writing attach provisionally any property, including bank account, belonging to the taxable person or any person specified in sub-section (1A) of section 122, in such manner as may be prescribed.” Rationale of the Proposed Amendment: To widen the scope of this provisions to cover persons specified in section 122(1A) and also to all type of proceedings which currently are restricted to limited types of assessments (non-filers, unregistered, summary) and demands and recovery proceedings u/s 73 or 74.

Our Comments: Provisional attachment provisions are extended to cover persons specified in Section 122(1A) of the CGST Act,2017 (i.e., person who causes to commit specified offences and retains the benefit arising out of such offences and at whose instance the specified offences are committed). Further, such attachment shall remain valid for the entire period starting from the initiation of any proceeding under Chapter XII- Assessment, Chapter XIV- Inspection, Search, Seizure & Arrest, Chapter XV- Demand and Recovery, till the expiry of a period of one year from the date of provisional order made under Section 83(1) of the CGST Act,2017.

14.8. APPEALS TO APPELLATE AUTHORITY

Background [Section 107(6) of CGST Act, 2017]: At present section 107 sub-section 6 requires pre-deposit of a sum equal to 10% of the disputed amount subject to maximum of 25 crore.

Proposed Amendments: The proviso to section 107(6) is inserted: “Provided that no appeal shall be filed against an order under sub-section (3) of section 129, unless a sum equal to twenty-five per cent of the penalty has been paid by the appellant.”



Our Comments: For preferring an appeal against order passed under sub-section (3) of section 129, relating to detention and seizure of goods and conveyance during transit, pre-deposit of 25% of penalty would be required to be made as against pre-deposit of 10% of disputed tax (subject to maximum limit of 25 crore) in other cases.

14.9. DETENTION, SEIZURE AND RELEASE OF GOODS AND CONVEYANCE IN

TRANSIT Background [Section 129 of CGST Act, 2017]: At present where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of this Act or the rules made thereunder, all such goods and conveyance shall be liable to detention or seizure and the same shall be released only on payment of tax and penalty equal to 100% of the tax payable where the owner of the goods comes forward for payment. The penalty shall be equal to 50% of value of goods reduced by tax where the owner of the goods does not come forward for payment. Proposed Amendments: The penalty has been doubled to 200% of the tax where the owner of the goods comes forward for payment. The penalty shall be equal to 50% of value of goods or 200% of tax whichever is higher where the owner of the goods does not come forward for payment. The sub-section (2) of section 129 which said “the goods so seized under sub-section (2) shall be released, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum, respectively, as may be prescribed or on payment of applicable tax, interest and penalty payable, as the case may be” is now omitted. The proper officer shall issue the notice specifying the penalty payable within seven days of such detention or seizure. The proper officer is also required to pass an order within a period of seven days from the date of service of such notice, for payment of penalty. However, no order of penalty can be passed without giving an opportunity of being heard. If the person fails to pay the penalty within 15 days of receipt of order, the goods or conveyance shall be sold or disposed of in such manner as maybe prescribed. Rationale of the Proposed Amendment: The amendment seeks to increase the penalty. Also provides that goods seized shall now not be released even on provisional basis upon execution of a bond and furnishing of a security, as was prescribed earlier.



Our Comments: After the amendment, tax and interest shall not be demanded for release of goods and conveyance. Post amendment penalty imposed by the officer under this clause will have to be paid in cash by the taxpayer and mere execution of bond or furnishing security for provisional release would not suffice.

14.10. CONFISCATION OF GOODS OR CONVEYANCES AND LEVY OF PENALTY Background [Section 130 of CGST Act, 2017]: At present section 130 relates to confiscation of goods or conveyance and penalty was leviable as per sub-section (1) of section 129.

Proposed Amendments: The penalty equal to 100% of the tax payable on such goods shall be leviable.

Rationale of the Proposed Amendment: The amendment is brought to delink the proceedings under that section relating to confiscation of goods or conveyances and levy of penalty from the proceedings under section 129 relating to detention, seizure and release of goods and conveyances in transit. Our Comments: The provisions relating to confiscation of goods or conveyance are made more stringent with higher penalties.

14.11. POWER TO COLLECT STATISTICS

Background [Section 151 of CGST Act, 2017]: At present as per section 151, the Commissioner, or any person authorised by him in this behalf, may call upon the concerned persons to furnish such information or returns, in such form and manner as may be prescribed vide notification, relating to any matter in respect of which statistics is to be collected.

Proposed Amendments: The Commissioner or an officer authorised by him may, by an order, direct any person to furnish information relating to any matter dealt with in connection with this Act, within such time, in such form, and in such manner, as specified therein.”



Our Comments: Proposed amendment seeks to empower Jurisdictional Commissioner to call for information from any person relating to any matter concerned with the Act.

14.12. BAR ON DISCLOSURE OF INFORMATION Background [Section 152 of CGST Act, 2017]: At present as per section 152, no information of any individual return with respect to any matter given for the purposes of section 150 or section 151 shall, without the previous consent in writing of the concerned person or his authorised representative, be published or no such information shall be used for the purpose of any proceedings under this Act.

Proposed Amendments: Section 152 of the CGST Act, 2017 is sought to be amended so as to provide that no information obtained under sections 150 and 151 shall be used for the purposes of any proceedings under the Act without giving an opportunity of being heard to the person concerned.

Our Comments: Proposed amendment seeks to empower Jurisdictional Commissioner to use the information obtained under sections 150 and 151 for the purpose of any proceedings under this Act after giving an opportunity of being heard. Currently, such information is not allowed to be used for the purpose of any proceedings under this Act.

14.13. ZERO RATED SUPPLY

Background: In terms of section 16(1) of IGST Act, 2017, "zero rated supply" means export of goods or services or both or supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit. Further, a registered person making zero rated supply shall be eligible to claim refund by supplying goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied. Proposed Amendments: Zero rated supply of goods or services means supply to a Special Economic Zone developer or a Special Economic Zone unit only when the said supply is for authorised operations.



In case of non-realisation of sales proceeds in case of supply of goods, the person shall be liable to deposit the refund along with interest within 30 days after expiry of time limit prescribed under FEMA, 1999. Only notified class of taxpayers or notified supplies of goods or services shall be eligible to claim refund by supplying goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied. Rationale of the Proposed Amendment: To restrict the benefit of zero rated supply of goods and services to SEZ unit or developer only when such supply is used for authorised operations and restrict the zero-rated supply on payment of integrated tax only to a notified class of taxpayers or notified supplies of goods or services. Further, to link non-realization of sales proceeds of goods exported liable for refund and in case of non-realisation of sale proceeds, be liable to deposit the refund received along with the applicable interest under section 50 of the CGST Act, 2017 within thirty days after the expiry of the time limit prescribed under the Foreign Exchange Management Act, 1999 for receipt of foreign exchange remittances.

Our Comments: Benefit of zero rated supply is restricted, now only notified class of taxpayer or notified class of goods/services will be eligible for claiming refund of IGST paid on zero-rated supplies, unlike present provision which allows both the options to all persons. Other class of taxpayer and class of goods/services not notified will be left with only one option to claim refund of unutilized ITC.

bansi s. mehta & co

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