Domestic and Direct Tax Updates

CBDT issues multiple instructions for selection of cases u/s 148 for income escaping assessment

The Central Board of Direct Taxes (‘CBDT’) issued multiple instructions directing the tax authorities about categories of cases to be considered as ‘potential cases’ for taking action u/s. 148 of the income Tax Act, 1961 (ITA). Some of the categories include (i) cases where there are audit objections (Revenue/Internal), (ii) cases of information from any other Govt. agency/ Law enforcement agency, (iii) Potential cases including – (a) Reports of Directorate of Income Tax (Investigation), (b) Reports of Directorate of Intelligence & Criminal Investigation, (c) Case from Non-filer Management System & other cases as flagged by the Directorate of Income-Tax (Systems) as per risk profiling, (iv) cases where information is arising out of field survey action and (v) cases of information received from any Income-tax authority.

CBDT extends various due dates

CBDT has extended the last date for linking of Aadhaar number with PAN from 31 March 2021 to 30 June 2021, in view of the difficulties arising out of the Covid-19 pandemic. Due-date for issue of notice u/s 148, passing orders pursuant to directions issued by the Dispute Resolution Panel (DRP) & processing of equalisation levy statements have also been extended to 30 April 2021.

Faceless Proceedings

CBDT has passed an order to specify the scope of faceless assessments, states that assessments pending as on 31 March 2021 and initiated on or after 1 April 2021, with an exception of International Tax and Central Charges, shall be completed in a faceless manner u/s 144B.

CBDT has announced Faceless Penalty Scheme, 2021. The Scheme covers all penalty matters imposed under the provisions of Income Tax Act, 1961.

Certain procedural amendments have also been specified in respect of Faceless Assessment Scheme, 2019.

CBDT notifies Rule 29BA and Form 15E to apply for certificate u/s 195 w.e.f. 1 April 2021

CBDT notifies Rule 29BA for making an application for grant of certificate determining appropriate proportion of sum chargeable to tax in case of payment made to non-residents under sub-section (2) and (7) of Sec. 195, w.e.f. 1 April 2021; Notifies Form 15E to be filed electronically to be examined by AO after considering various factors.

Supreme Court of India rules in favour of taxpayers in software taxation case

Taxability of payment for software licenses was a disputed issue, which has finally been settled by Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. [2021] 125 taxmann.com 42 (SC).

Supreme Court of India held that payments made for software are not covered under Art. 12 of DTAAs and Indian payers are not liable to withhold tax under Sect. 195, as no income is chargeable to tax in India. SC referred to the terms of end user licence agreements (EULA) in the cases before it and observed that the said EULAs did not create any interest or right in the Indian distributors or end users, which could amount to right to use any copyright. To know more, read our newsflash on this topic. Read more »

CBDT notifies extension on certain reporting requirements under Form 3CD

In view of the prevailing situation due to Covid-19 pandemic across India, it has been decided by CBDT that the reporting requirement under clause 30C (information in relation to impermissible avoidance arrangement entered by the Assessee) and clause 44 (reporting of various Goods and Service Tax details) of the Tax Audit Report shall be kept in abeyance till 31 March 2022 .

Enhancement of scope of transactions to be reported under Statement of Financial Transaction (‘SFT’)

Scope for transactions to be reported by the Specified entity has been enhanced to include a) Capital gains on transfer of listed securities or units of Mutual Funds, b) Dividend income, and c) Interest income which needs to be reported now while filing the SFT.

Key Amendments to Finance Bill, 2021

Hon’ble Finance Minister (FM) Nirmala Sitharaman had presented the Finance Bill, 2021 (FB 2021 or Bill) on 1 February 2021. In the wake of the representations received from various stakeholders, while moving the Bill for approval by the Lok Sabha on 23 March 2021, the FM introduced amendments to FB 2021 (Amended FB 2021). The same also received Presidential Assent on 28 March 2021 and the Finance Act, 2021 (FA 2021) came in force with effect from 1 April 2021. The changes would be effective from previous year 2020-21, unless any other date is notified. The amendments made while enacting FA 2021 were generally intended to address certain ambiguities arising from the wordings of proposals as contained in the FB 2021. Please refer to the Financial Budget 2021 published on our website. Read more »

Key changes made while enacting the FA 2021 are as follows:

• The term ‘liable to tax’ used in DTAAs was proposed to be defined under Income Tax Act by the FB 2021. The definition which referred to “a liability of tax under any law for the time being in force in any country”, raised an ambiguity on the nature of taxes to be considered i.e. whether liability in respect of indirect taxes or any other taxes (other than income tax) would also result in the satisfaction of the “liable to tax” definition as proposed by FB 2021. It also raised an ambiguity on the country to be referred for the purposes of application of the definition.
• Definition of “liable to tax” thus was modified to specifically provide that persons having an “income-tax liability” under the laws in force in a country shall be considered as liable to tax in such country. Thus, liability in respect of indirect taxes or other taxes (other than income tax) will not be considered as satisfying the definition of “liable to tax”.
• FB 2021, proposed that goodwill of a business or profession will not be considered as a depreciable asset and there would not be any depreciation on goodwill of a business or profession in any situation. FB 2021 also proposed to amend capital gains provisions to provide that cost of acquisition of self-generated goodwill acquired in tax neutral transfer will be NIL.
• FA 2021 has brought an amendment to adjust closing WDV of intangible asset as on 31 March 2020 by reducing the standalone tax WDV of goodwill computed as difference between actual cost of goodwill and depreciation allowable on such goodwill till 31 March 2020. The reduction shall, however, not exceed the closing WDV of intangible assets as on 31 March 2020.
• FB 2021 proposed to withdraw exemption available to interest accruing on employees’ contribution to specified provident fund schemes, on the contributions in excess of INR 0.25 million per annum made on or after 1 April 2021.
• FA 2021 increases the threshold of employees’ contribution, beyond which interest on such excess contribution will be taxable, to INR 0.5 million per annum, where there is no contribution made by employer to such fund.
• Finance Act, 2020 expanded the scope of Equalisation Levy (EL) introduced by Finance Act, 2016. Equalisation Levy at the rate of 2 per cent was levied on the amount of consideration received or receivable by an e-commerce operator from ecommerce supply or services.
• FA 2021 clarifies that, for the purposes of EL, consideration shall not include consideration for sale of goods owned by, or provision of services rendered by a resident in India or Permanent Establishment (PE) of NR in India where such sale/ service is effectively connected to PE in India.
• FB 2021 proposed to increase the time limit for issuance of notice for reassessment to ten years, where income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to INR 0.5M or more..
• For this purpose, FA 2021 has defined the term “asset” to include immovable property, shares and securities, loans and advances, and deposits in bank account.
• Presently, the ITA provides for levy of fee on a taxpayer for belated filing of tax return at INR 5,000, if return is furnished by 31 December following the tax year and INR 10,000, if return is furnished beyond 31 December. But, if the total income of taxpayer does not exceed INR 0.5M, the fee is reduced to INR 1,000.
• From FY 2020-21 onwards, belated return or revised return are to be filed three months before the end of the relevant assessment year (up to December 31) or before the completion of the assessment, whichever is earlier. Accordingly, FA 2021 puts a cap to the fee for delayed furnishing of tax return to INR 5,000. The cap of INR 1,000 for taxpayer whose total income does not exceed INR 0.5M continues as it is.
• The due date for linking Aadhaar and Income Tax PAN has been extended to 30 June 2021. In case of non-linking, your PAN Card would become in­operative and FA 2021 proposes to levy fees as may be prescribed by the CBDT but not exceeding INR 1,000 at the time of intimation of Aadhaar number to tax authority
• FB 2021 proposed to increase the limit for exemption from Tax Audit from erstwhile INR 50 million to INR 100 million, if cash receipt and payment does not exceed 5 per cent of total receipts and total payments respectively
• FA 2021 prescribes payment or receipt by the way of cheque or bank draft other than by account payee to be treated as payment or receipt in cash for computing 5 per cent threshold to claim benefit of the increased monetary limit of INR 100 million to trigger requirement of tax audit.