1

Clause 4

Definition of Residence

Section 6

Residence in India.

6. For the purposes of this Act,—

(1) An individual is said to be resident in India in any previous year, if he –

(a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more ; or

(b) [***]

(c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.

Explanation. 1— In the case of an individual,—

(a) being a citizen of India, who leaves India in any previous year as a member of the crew of an Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or for the purposes of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted ;

(b) being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C, who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted.

There is no amendment to Sec 6(1) however amendment is carried out in clause b of the explanation as under

Explanation. 1—In the case of an individual,—

(b) being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C, who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words had been substituted.

A new subsection 1A has been introduced as under

(1A) Notwithstanding anything contained in clause (1), an individual, being a citizen of India, shall be deemed to be resident in India in any previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.

• Citizen of India or POI can visit India for 119 days or lower, else they will be qualify as resident of India, subject to their tax treaty with India.

• If a citizen of India is not a tax resident in any country outside India, then such citizen will be deemed to be a resident in India and their global income will be taxed.

• Even if Citizen of India have not stayed for a single day in India this particular provision ie section 6(1A) will make such a Citizen a Deem Resident if he is not a Tax Resident outside India in any other territory by virtue of his domicile or similar criteria.

• One more view could be whether due to non obstante clause Sub clause 1A could infer that nothing will apply as stated in Sec 6(1) if one is regarded as not a deem resident and hence he /she is Non Resident even if he/ she is visiting India for more than 119 days or irrespective of his/her stay or visit in India.

• To counter above, it can also be argued that once you are not a deem resident does not mean you are regarded as Non Resident, due to the language of section 2(30) which defines Non Resident as person who is not a ‘Resident’.

2

Clause 5

Definition of business connection expanded

Section 9 (1)(i)

Explanation 2A to Section 9(1)(i)

Significant Economic Presence (SEP)

SEP of a non-resident in India shall constitute “business connection” in India and “significant economic presence” for this purpose, shall mean—

(a) transaction in respect of any goods, services or property carried out by a non-resident in India including provision of download of data or software in India, if the aggregate of payments arising from such transaction or transactions during the previous year exceeds such amount as may be prescribed; or

(b) systematic and continuous soliciting of business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means

Author’s Comments:

It may be noted that so far amount under sub clause (a) or number of users in sub clause (b) above have not been notified by CBDT.

Explanation 2A to Section 9(1)(i)

Significant Economic Presence (SEP) – w.e.f 1st

April, 2022 & Explanation 3A w.e.f 1st day of April, 2021

SEP of a non-resident in India shall constitute “business connection” in India and “significant economic presence” for this purpose, shall mean—

(a) transaction in respect of any goods, services or property carried out by a non-resident with any person in India including provision of download of data or software in India, if the aggregate of payments arising from such transaction or transactions during the previous year exceeds such amount as may be prescribed; or

(b) systematic and continuous soliciting of business activities or engaging in interaction with such number of users in India, as may be prescribed,

New Insertion Explanation 3A.–– For the removal of doubts, it is hereby declared that the income attributable to the operations carried out in India, as referred to in Explanation 1 to Sec 9(1)(i)shall include income from––

(i) such advertisement which targets a customer who resides in India or a customer who accesses the advertisement through internet protocol address located in India;

(ii) sale of data collected from a person who resides in India or from a person who uses internet protocol address located in India;

(iii) sale of goods or services using data collected from a person who resides in India or from a person who uses internet protocol address located in India.

• The scope is broadened by deleting the words through digital means which implies that interaction with users in India through any means will constitute SEP .

• Certain operations like purchase of goods for export is excluded from the purview of operations carried out in India. However under Explanation 2A, interactions with prescribed number of users will amount to business connection.

Sec 9(1)(i) – Explanation 3A

• Includes income from sale of data collection by residents and also sale of goods or services to the same customers who are part of the contents of the data collection

• There could be an element of duplication because data is collected for the purpose of sale of goods or services, as income from sale of goods or services is assumed to cover even income from sale of data by use of which goods or services are sold.

3

Clause 5

Income Deemed to Accrue of Arise in India

Section 9(1)(i)

Explanation 1 to Section 9(1)(i)

(a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India

Explanation 1 to Section 9(1)(i) – w.e.f 1st April, 2022

(a) in the case of a business other than the business having business connection in India on account of significant economic presence of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India

4

Clause 5

Income Deemed to Accrue of Arise in India

Section 9(1)(i)

Explanation 5 to Section 9(1)(i)

For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India:

Provided that nothing contained in this Explanation shall apply to an asset or capital asset, which is held by a non-resident by way of investment, directly or indirectly, in a Foreign Institutional Investor as referred to in clause (a) of  the Explanation to section 115AD for an assessment year commencing on or after the 1st day of April, 2012 but before the 1st day of April, 2015:

Provided further that nothing contained in this Explanation shall apply to an asset or capital asset, which is held by a non-resident by way of investment, directly or indirectly, in Category-I or Category-II foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992).

Explanation 5 to Section 9(1)(i)- Second proviso is amended and third proviso has been inserted as under:

Provided further that nothing contained in this Explanation shall apply to an asset or capital asset, which is held by a non-resident by way of investment, directly or indirectly, in Category-I or Category-II foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 prior to their repeal, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992).

“Provided also that nothing contained in this Explanation shall apply to an asset or a capital asset, which is held by a non-resident by way of investment, directly or indirectly, in Category-I foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, made under the Securities and Exchange Board of India Act, 1992

• In view of the new FPI regulations announced in 2019 in supersession of the erstwhile FPI regulations of 2014, it is now proposed to amend the provisions of explanation 5 of section 9(1)(i) to even include the exemption to investments in category-I FPI under the 2019 SEBI FPI Regulations.

• Investment by NRs in category-I and category-II FPIs registered under the 2014 SEBI FPI Regulations are proposed to be grandfathered, provided such investment were made before 23 September 2019.

5

Clause 5

Definition of Royalty expanded

Section 9 (1)(vi)

Explanation 2 to Sec 9(1)(vi)

“Royalty” as defined in Explanation 2(v) of section 9(1)(vi), inter alia, mean the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films.

Explanation 2 to Sec 9(1)(vi)

It is proposed to amend the definition of “Royalty” to even include consideration received from the sale, distribution or exhibition of cinematographic films under its scope.

• The amendment will impact tax required to be deducted under section 194J in addition to existing set of items under the definition of Royalty.

6

Clause 6

Exclusion from Business Connection

Section 9A

Section 9A – Certain activities not to constitute business connection in India

(3) The eligible investment fund referred to in sub-section (1), means a fund established or incorporated or registered outside India, which collects funds from its members for investing it

for their benefit and fulfils the following conditions, namely……

(c) the aggregate participation or investment in the fund, directly or indirectly, by persons resident in India does not exceed five per cent of the corpus of the fund

..

..

..

..

..

(j) the monthly average of the corpus of the fund shall not be less than one hundred crore rupees

Provided that if the fund has been established or incorporated in the previous year, the corpus of fund shall not be less than one hundred crore rupees at the end of a period of six months from the last day of the month of its establishment or incorporation, or at the end of such previous year, whichever is later…..

Proviso to clause inserted after (c) of subsection (3)

For the purposes of calculation of the said aggregate participation or investment in the fund, any contribution made by the eligible fund manager during the first three years of operation of the fund, not exceeding twenty-five crore rupees, shall not be taken into account

First Proviso to clause (j) of subsection (3)

if the fund has been established or incorporated in the previous year, the corpus of fund shall not be less than one hundred crore rupees at the end of a period of twelve months from the last day of the month of its establishment or incorporation or at the end of such previous year, whichever is later…

• Conditions for exemption to offshore funds from ‘business connection’ is relaxed.

• Threshold is provided to the sponsor due to the fact that sponsor contribution received in advance may automatically be found in breach until contributors are still to make their payment towards their commitments.

• This flexibility is provided due to the fact that if there is delay in receipt of the contribution then conditions of average corpus of 100 Crore may not be breached.

7

Clause 41

DTAA & MLI

Section 90

Section 90 – Agreement with foreign countries or specified territories

(1) The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India……..

(b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be

Section 90 (1)(b) is amended as under

For the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in the said agreement for the indirect benefit to residents of any other country or territory)

• Section 90 empowers the Government to enter into DTAA’s for avoidance of double taxation of income under the laws of India and the foreign country / territory.

India has signed and ratified the MLI with many countries as part of measures to prevent base erosion and profit shifting practices.

This amendment has been brought to prevent the granting of DTAA benefits in inappropriate circumstances and to align it with MLI, to tackle situations wherein opportunities arise for non-taxation or reduced taxation through tax evasion or avoidance (including treaty shopping arrangements).

8

Clause 42

DTAA & MLI

Section 90A

Section 90A – Adoption by Central Government of agreement between specified associations for double taxation relief.

(1) Any specified association in India may enter into an agreement with any specified association in the specified territory outside India and the Central Government may, by notification in the Official Gazette, make such provisions as may be necessary for adopting and implementing such agreement—

(b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that specified territory outside India, or

Section 90A (1)(b) is amended as under

For the avoidance of double taxation of income under this Act and under the corresponding law in force in that specified territory outside India, without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in the said agreement for the indirect benefit to residents of any other country or territory)

• Such Amendment is in line with the amendment to Section 90.

9

Clause 43

Safe harbour rules & Permanent Establishment or Business Connection

Section 92CB

Section 92CB – Power of Board to make safe harbour rules

(1) The determination of arm’s length price under section 92C or section 92CA shall be subject to safe harbour rules

Section 92CB (1) is amended as under

The determination of–

(a) income referred to in clause (i) of sub-section (1) of section 9; or

(b) arm’s length price under section 92C or section 92CA, shall be subject to safe harbour rules

• A non resident would now be able to take shelter under the safe harbour rules (to be prescribed) for determining profit attributable to its PE in India.

10

Clause 44

APA & Attribution to PE

Section 92CC

Section 92CC – Advance pricing agreement

(1) The Board, with the approval of the Central Government, may enter into an advance pricing agreement with any person, determining the arm’s length price or specifying the manner in which arm’s length price is to be determined, in relation to an international transaction to be entered into by that person.

(2) The manner of determination of arm’s length price referred to in sub-section (1), may include the methods referred to in sub-section (1) of section 92C or any other method, with such adjustments or variations, as may be necessary or expedient so to do.

(3) Notwithstanding anything contained in section 92C or section 92CA, the arm’s length price of any international transaction, in respect of which the advance pricing agreement has been entered into, shall be determined in accordance with the advance pricing agreement so entered.

………

(9A) The agreement referred to in sub-section (1), may, subject to such conditions, procedure and manner as may be prescribed, provide for determining the arm’s length price or specify the manner in which arm’s length price shall be determined in relation to the international transaction entered into by the person during any period not exceeding four previous years preceding the first of the previous years referred to in sub-section (4), and the arm’s length price of such international transaction shall be determined in accordance with the said agreement.

Section 92CC is amended as under

(1) The Board, with the approval of the Central Government, may enter into an advance pricing agreement

with any person, determining the –

(a) arm’s length price or specifying the manner in which the arm’s length price is to be determined, in relation to an international transaction to be entered into by that person;

(b) income referred to in clause (i) of sub-section (1) of section 9, or specifying the manner in which said income is to be determined, as is reasonably attributable to the operations carried out in India by or on behalf of that person, being a non-resident.

(2) The manner of determination of the arm’s length price referred to in clause (a) or the income referred to in clause (b) of sub-section (1), may include the methods referred to in sub-section (1) of section 92C or the methods provided by rules made under this Act, respectively, with such adjustments or variations, as may be necessary or expedient so to do.

(3) Notwithstanding anything contained in section 92C or section 92CA or the methods provided by rules made under this Act, the arm’s length price of any international transaction or the income referred to in clause (b) of sub-section (1), in respect of which the advance pricing agreement has been entered into, shall be determined in accordance with the advance pricing agreement so entered.

…

(9A) The agreement referred to in sub-section (1), may, subject to such conditions, procedure and manner as may be prescribed, provide for determining the –

(a) arm’s length price or specify the manner in which the arm’s length price shall be determined in relation to the international transaction entered into by the person;

(b) income referred to in clause (i) of sub-section (1) of section 9, or specifying the manner in which the said income is to be determined, as is reasonably attributable to the operations carried out in India by or on behalf of that person, being a non-resident, during any period not exceeding four previous years preceding the first of the previous years referred to in sub-section (4), and the arm’s length price of such international transaction or the income of such person shall be determined in accordance with the said agreement

• A non-resident taxpayer could also approach APA authorities to seek certainty around profit attribution in accordance with Sec 9(1)(i).

11

Clause 45

Date of furnishing TP Report

Section 92F

Section 92F – Definitions of certain terms relevant to computation of arm’s length price, etc.

“specified date” shall have the same meaning as assigned to “due date” in Explanation 2 below sub-section (1) of section 139;

Section 92F

“specified date” means the date one month prior to the due date for furnishing the return of income under sub-section (1) of section 139 for the relevant assessment year

• Presently, due date for furnishing Accountants Report in Form 3CEB is 30th November following the end of relevant fiscal year.

• Now, the Due date for furnishing Accountants Report in Form 3CEB would be 31st October following the end of relevant fiscal year.

• This amendment shall be made effective from 1 April 2020

In view of the change

a. There will be lower time available with the Assessee to prepare the transfer pricing study report

b. Most of the data of the comparable companies may not be found in the public data base used as data available up to 31st

October can only be used as time available to file such data with MCA is 30th November after the financial year is over, consequently this may pose a serious challenge of availability of the contemporaneous and as well as revision in the study during the Revenue Audit/scrutiny of the data.

12

Clause 46

Interest deduction to PE/ AE

Section 94B

Section 94B – Limitation on interest deduction in certain cases

(1) Notwithstanding anything contained in this Act, where an Indian company, or a permanent establishment of a foreign company in India, being the borrower, incurs any expenditure by way of interest or of similar nature exceeding one crore rupees which is deductible in computing income chargeable under the head “Profits and gains of business or profession” in respect of any debt issued by a non-resident, being an associated enterprise of such borrower, the interest shall not be deductible in computation of income under the said head to the extent that it arises from excess interest, as specified in sub-section (2) :

Provided that where the debt is issued by a lender which is not associated but an associated enterprise either provides an implicit or explicit guarantee to such lender or deposits a corresponding and matching amount of funds with the lender, such debt shall be deemed to have been issued by an associated enterprise.

Insertion of subsection (1A)

Nothing contained in sub-section (1) shall apply to interest paid in respect of a debt issued by a lender which is a permanent establishment in India of a non-resident, being a person engaged in the business of banking

• Provisions of section 94B are liberalised to exclude Indian Branches of Foreign Banks from the purview of the rigorous section 94B.

13

Clause 47

Tax on Dividends, Royalty and Technical Service Fees in case of Foreign Companies

Section 115A

Section 115A

Sub Section (5) states that a non-resident is not required to furnish its return of income under sub-section (1) of section 139 of the Act, if its total income, consists only of certain dividend or interest income and the TDS on such income has been deducted according to the provisions of Chapter XVII-B of the Act.

Section 115A

Subsection (5) is amended as under:

A non-resident, shall not be required to file return of income under sub-section (1) of section 139 of the Act if,

(i) his or its total income consists of only dividend or interest income as referred to in clause (a) of sub-section (1) of said section, or royalty or FTS income of the nature specified in clause (b) of sub-section (1) of section 115A; and

(ii) the TDS on such income has been deducted under the provisions of Chapter XVII-B of the Act at the rates which are not lower than the prescribed rates under sub-section (1) of section 115A.

• Relief from filing Income Tax Returns is extended to the NR taxpayers/ foreign companies whose total income consists of royalty or FTS and on which TDS have been deducted u/s 115A(1).

14

Clause 70

Reference to Dispute Resolution Panel

Section 144C

Section 144C- Reference to dispute resolution panel

(1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee

if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee

……

(15)…..

(b) “eligible assessee” means, –

(i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA;

and

(ii) any foreign company

Subsection (1) is amended as under:

(1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee

if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee

…

(15)…..

(b) “eligible assessee” means, –

(i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA;

and

(ii) any non-resident not being a company, or any foreign company

• A taxpayer can approach a DRP against all variations even if they do not impact the returned income or loss. For example, recharacterization of transaction.

• Definition of eligible assessee is widened to include all non resident taxpayer as against only foreign companies at present

15

Clause 82

Income by way of Interest from Indian Company

Section 194LC

Section 194 LC

(1) Where any income by way of interest referred to in sub-section (2) is payable to a non-resident, not being a company or to a foreign company by a specified company or a business trust, the person responsible for making the payment, shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct the income-tax thereon at the rate of five per cent.

(2) The interest referred to in sub-section (1) shall be the income by way of interest payable by the specified company or the business trust,—

(i) in respect of monies borrowed by it in foreign currency from a source outside India,—

(a) under a loan agreement at any time on or after the 1st day of July, 2012 but before the 1st day of July, 2020; or

(b) by way of issue of long-term infrastructure bonds at any time on or after the 1st day of July, 2012 but before the 1st day of October, 2014; or

(c) by way of issue of any long-term bond including long-term infrastructure bond at any time on or after the 1st day of October, 2014 but before the 1st day of July, 2020,

as approved by the Central Government in this behalf; or

(ia)in respect of monies borrowed by it from a source outside India by way of issue of rupee denominated bond before the 1st day of July, 2020, and

(ii) to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan or the bond and its repayment.

Section 194 LC – Proviso to subsection (1) is inserted

(1) Where any income by way of interest referred to in sub-section (2) is payable to a non-resident, not being a company or to a foreign company by a specified company or a business trust, the person responsible for making the payment, shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct the income-tax thereon at the rate of five per cent.

Provided that in case of income by way of interest referred to clause (ib) of sub-section (2), the income-tax shall be deducted at the rate of four per cent.

Subsection (2) is amended as under

(2) The interest referred to in sub-section (1) shall be the income by way of interest payable by the specified company or the business trust,—

(i)in respect of monies borrowed by it in foreign currency from a source outside India,—

(a) under a loan agreement at any time on or after the 1st day of July, 2012 but before the 1st day of July, 2020 2023; or

(b)by way of issue of long-term infrastructure bonds at any time on or after the 1st day of July, 2012 but before the 1st day of October, 2014; or

(c) by way of issue of any long-term bond including long-term infrastructure bond at any time on or after the 1st day of October, 2014 but before the 1st day of July, 2020 2023,

as approved by the Central Government in this behalf; or

(ia)in respect of monies borrowed by it from a source outside India by way of issue of rupee denominated bond before the 1st day of July, 2020 2023, and

(ib) in respect of monies borrowed by it from a source outside India by way of issue of any long-term bond or rupee denominated bond on or after the 1st day of April, 2020 but before the 1st day of July, 2023, which is listed only on a recognised stock exchange located in any International Financial Services Centre, and

(ii) to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan or the bond and its repayment.

Following Explanation is inserted after clause (b)

(c) “International Financial Services Centre” shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005;

(d) “recognised stock exchange” shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause (5) of section 43.

In order to attract fresh investment, create jobs and stimulate the economy the concessional rate of TDS of five percent has been extended for the period upto 1st July 2023.

16

Clause 83

Income by way of Interest on Certain Bonds and Government Securities

Section 194LD

Section 194 LD

(2) The income by way of interest referred to in sub-section (1) shall be the interest payable on or after the 1st day of June, 2013 but before the 1st day of July, 2020 in respect of investment made by the payee in –

(i) a rupee denominated bond of an Indian company ; or

(ii) a Government security:

Provided that the rate of interest in respect of bond referred to in clause (i) shall not exceed the rate as may be notified by the Central Government in this behalf.

Section 194 LD – Subsection (2) is substituted as under

(2) The income by way of interest referred to in sub-section (1) shall be the
interest payable, –

(a) on or after the 1st day of June, 2013 but before the 1st day of July,
2020 2023 in respect of the investment made by the payee in –

(i) a rupee denominated bond of an Indian company; or

(ii) a Government security;

(b) on or after the 1st day of April, 2020 but before the 1st day of July,
2023 in respect of the investment made by the payee in municipal debt
securities:

Provided that the rate of interest in respect of bond referred to in
sub-clause (i) of clause (a) shall not exceed the rate as the Central Government
may, by notification in the Official Gazette, specify.

Following Explanation is inserted after clause (b)

(ba) “municipal debt securities” shall have the meaning assigned to it in
clause (m) of sub-regulation (1) of regulation 2 of the Securities and Exchange
Board of India (Issue and Listing of Municipal Debt Securities) Regulations,
2015 made under the Securities and Exchange Board of India Act, 1992

In order to attract fresh investment, create jobs and stimulate the economy the concessional rate of TDS of five percent has been extended for the period upto 1st July 2023.

17

Clause 103

Power to Make Rules

Section 295

Section 295

(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters;

…

(b)The manner in which and the procedure by which the income shall be arrived at in the case of—

(i) income derived in part from agriculture and in part from business;

(ii) persons residing outside India;

(iii) an individual who is liable to be assessed under the provisions of sub-section (2) of section 64

Clause (b) to subsection 2 of section 295 is amended as under

The manner in which and the procedure by which the income shall be arrived at in the case of—

(i) income derived in part from agriculture and in part from business;

(ii) persons residing outside India;

(iia) operations carried out in India by a non-resident;

(iib) transactions or activities of a non-resident

(iii) an individual who is liable to be assessed under the provisions of sub-section (2) of section 64

CBDT has been empowered to make the necessary rules to determine the income arising out of operations carried out in India and transactions or activities of a non-resident.

1

Clause 59

§

Dividend Distribution Tax levied on companies

Section 115O

Section 115 O – Dividend Distribution Tax levied on companies

Section 115-O provides for levy of additional income tax at the rate of 15% plus surcharge and

cess on any amount declared, distributed or paid by a domestic company by way of dividend, whether out of current or accumulated profits.

Section 115 O – Dividend Distribution Tax levied on companies – 1st April, 2020

It is proposed that no dividend distribution tax shall be paid on the dividend declared,

distributed or paid after 31st March 2020.

Dividend paid by domestic companies will now be taxed in the hands of the recipient

As a consequence of abolishing section 115-O the following sections have been amended accordingly so as to charge the recipient of dividend as per the rates mentioned in the Finance Act:

Sec 115A, 115AC, 115ACA, 115AD, 115C, 195,197

Insertion of new section 80M which permits deduction of inter corporate dividend in the hands of the company receiving the dividend i.e. To the extent dividend is received by the Indian Company, there will be deduction u/s 80M for the payment of dividend out of such dividend received but same will form part of the book profits

Classical system of dividend as introduced may reduce the overall tax liability (corporate + shareholder) in few cases where rate at which dividend is taxed is lower than tax u/s 115-O as hitherto levied e.g. Lower slab income and few multinationals where dividend tax rate under DTAA is lower

2

Clause 60

Tax on Distributed Income to Unit Holders

Section 115R

Consequences of Change in Method of Dividend Taxation

Section 115R – Tax on Distributed Income to Unit Holders

Notwithstanding anything contained in any other provision of this Act, any amount of income distributed by the specified company or a Mutual Fund to its unit holders shall be chargeable to tax and such specified company or Mutual Fund shall be liable to pay additional income-tax on such distributed income at the rate of…..

Subject to above provision Income of the Mutual Fund was exempt from Tax under Section 10(23D) as under.

(23D) subject to the provisions of Chapter XII-E, any income of—

(i) a Mutual Fund registered under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulations made thereunder;

(ii) such other Mutual Fund set up by a public sector bank or a public financial institution or authorised by the Reserve Bank of India and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf.

Explanation.—For the purposes of this clause,—

(a) the expression “public sector bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corres-ponding new Bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Under-takings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Under-takings) Act, 1980 (40 of 1980) and a bank included in the category “other public sector banks” by the Reserve Bank of India;

(b) the expression “public financial institution” shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956);

(c) the expression “Securities and Exchange Board of India” shall have the meaning assigned to it in clause (a) of sub-section (1) of section 2 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

Since Tax was paid by the Mutual Fund on the distributed amount to unit holders such income was then exempt in the hands of the unit holders u/s 10(35)

Section 115 R – Tax on Distributed Income levied on Mutual Funds – discontinued from 1st April, 2020

It is proposed that no tax shall be paid on income distributed by Mutual Funds after 31st March 2020 however Tax will be deducted from the distribution to the unit holders..

Also exemption available to Unit holders u/s 10 (35 ) is also removed as a consequences to change in method of taxing.

(23D) subject to the provisions of Chapter XII-E, any income of—

Mutual fund will not be required to pay any tax on distribution u/s 115R made to the unit holders, such distribution will now be taxable in the hands of the Unit Holders (Resident & Non Resident)

TDS shall be deducted by the Mutual Fund only on the dividend distributed (not the capital gain as clarified by CBDT)

A small change which has a reference to distribution tax on unit holders is now removed from the language of the Section 10 (23D)

3

Clause 62

Tax on income of unit holder and business trust.

Section 115UA

Section 115UA – Tax on income of unit holder and business trust

(1) Notwithstanding anything contained in any other provisions of this Act, any income distributed by a business trust to its unit holders shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder as it had been received by, or accrued to, the business trust.

(2) Subject to the provisions of section 111A and section 112, the total income of a business trust shall be charged to tax at the maximum marginal rate.

(3) If in any previous year, the distributed income or any part thereof, received by a unit holder from the business trust is of the nature as referred to in sub clause (a) of clause (23FC) [or clause (23FCA)] of section 10, then, such distributed income or part thereof shall be deemed to be income of such unit holder and shall be charged to tax as income of the previous year.

(23FC) any income of a business trust by way of—

(a) interest received or receivable from a special purpose vehicle; or

(b) dividend referred to in sub-section (7) of section 115-O.]

Explanation.—For the purposes of this clause, the expression “special purpose vehicle” means an Indian company in which the business trust holds controlling interest and any specific percentage of shareholding or interest, as may be required by the regulations under which such trust is granted registration;

((23FCA) any income of a business trust, being a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by such business trust.

Explanation.—For the purposes of this clause, the expression “real estate asset” shall have the same meaning as assigned to it in clause (zj)of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(23FD) any distributed income, referred to in section 115UA, received by a unit holder from the business trust, not being that proportion of the income which is of the same nature as the income referred to in sub-clause (a) of clause (23FC) or clause (23FCA);

Section 115UA – Tax on income of unit holder and business trust

(1) Notwithstanding anything contained in any other provisions of this Act, any income distributed by a business trust to its unit holders shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder as it had been received by, or accrued to, the business trust.

(2) Subject to the provisions of section 111A and section 112, the total income of a business trust shall be charged to tax at the maximum marginal rate.

(3) If in any previous year, the distributed income or any part thereof, received by a unit holder from the business trust is of the nature as referred to in sub clause (a) of clause (23FC) [or clause (23FCA)] of section 10, then, such distributed income or part thereof shall be deemed to be income of such unit holder and shall be charged to tax as income of the previous year.

(23FC) any income of a business trust by way of—

(a) interest received or receivable from a special purpose vehicle; or

(b) dividend referred to in sub-section (7) of section 115-O.] received or receivable from a special purpose vehicle

Explanation.—For the purposes of this clause, the expression “special purpose vehicle” means an Indian company in which the business trust holds controlling interest and any specific percentage of shareholding or interest, as may be required by the regulations under which such trust is granted registration;

(23FD) any distributed income, referred to in section 115UA, received by a unit holder from the business trust, not being that proportion of the income which is of the same nature as the income referred to in sub-clause (a) of clause (23FC) or clause (23FCA);

Income in nature of Dividend was exempt if it was declared, distributed and paid to a business trust due to specific exemption u/s 115-O(7) and will be still exempt after the amendment in hands of Business Trust due to change in the language of the Sec 10(23FC) and has remained taxable in the hands of Unit Holders.

Income other than the one specified under Section 10(23FC) and 10 (23FCA) is taxable to the Business Trust at the MMR and hence same is exempt from tax to the unit holders under section 10(23FD)