India: Amendments Made To The Finance Bill

Last Updated: 11 April 2017
Article by SKP  

Union Budget 2017-18 was presented by the Finance Minister in the Parliament of India on 1 February 2017. The Finance Minister subsequently proposed certain amendments to the Finance Bill and the amended Finance Bill has received the President's assent on 31 March 2017. The amendments made to the Finance Bill are given below.

Clarifications regarding capital gains on indirect transfer provisions for non-resident investors

  • The original Finance Bill proposed to insert an explanation stating that non-resident investors holding an asset in Category I or Category II Foreign Portfolio Investors (FPI) will not be subject to tax in India under the 'indirect transfer' provisions. This amendment was proposed retrospectively from Financial Year (FY) 2011-12 onwards.
  • However, since the FPI regime was introduced in 2014 (thereby replacing the erstwhile Foreign Institutional Investor (FII) regime), the amended Finance Bill seeks to provide clarity for an exemption to investors of both FIIs and FPIs (depending on the time period of their investment). Accordingly, the amendment now provides that 'indirect transfer' provisions will not apply to assets held by an investor in:
    • An FII from FY 2011-12 to FY 2013-14; and
    • A category I or II FPI from FY 2014-15 onwards.

Tax relief for contributions made by an individual to a trust set-up for the benefit of his relative

  • The original Finance Bill provided that where a person receives a property without any consideration or receives it for a consideration less than its Fair Market Value (FMV) by INR 50,000 or more, the FMV or the inadequate consideration (as the case may be) would be taxable in the hands of the receiver as income from other sources. This results in taxability in hands of the trust, created for the benefit of close relatives, on receipt of the settlement amount from the settlor.
  • The amended Bill now provides that tax shall not be attracted where a trust receives any property from an individual, which is created solely for the benefit of a relative of such individual. The term 'relative' has already been defined in the provisions of the Income Tax Act.

Clarification regarding the interest deduction limitation provision

  • The original Finance Bill inserted an interest deduction limitation provision through Section 94B. This provision provided for the limitation of interest deduction in excess of 30% of the EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), where an Indian borrower pays the interest or similar consideration to a non-resident associated enterprise. The expression 'pays' gave the impression that this provisions would apply only to actual payment and not to the provision.
  • In order to remove this anomaly, the expression 'pays interest or similar consideration' has been proposed to be replaced by the expression 'incurs any expenditure by way of interest or of similar nature'.

Clarification regarding the computation of Minimum Alternate Tax under the Indian Accounting Standards

  • The original Finance Bill stated that for a company adopting the Indian Accounting Standards (Ind AS) for the first time, the transition amount shall be charged to Minimum Alternate Tax (MAT) equally over a period of five years, from the date of convergence.
  • The transition amount did not include the equity component of compound financial instruments adjusted in 'other equity' and was therefore not liable to MAT.
  • The amended Bill now seeks to include the equity component of compound financial instruments as a part of the transition amount and charge the same to tax.

Mandatory quoting of Aadhaar Number

  • The Bill proposes that every person who is eligible to obtain an Aadhaar number shall quote the Aadhaar number in his tax returns and in the application form for the allotment of a Permanent Account Number (PAN).
  • Persons who are holding a PAN at present are also required to intimate their Aadhaar number to an authority which will be notified by the Central government.
  • Where a person fails to intimate the Aadhaar number to the notified authority, the PAN allotted to the person shall be considered invalid.
  • The Central government may notify certain persons or classes of persons who will be exempted from these requirements.
  • This provisions will be effective from 1 July 2017.

'Tax Collection at Source' for cash sale of goods and services removed

  • The law presently requires Tax Collection at Source (TCS) on the sale of goods and services in cash for a consideration of more than INR 200,000.
  • The amended Bill proposes to remove the applicability of TCS on the sale of goods and services for a cash consideration.
  • This provision will apply with effect from 1 April 2017 and shall cover sales made on or after 1 April 2017.

Reduction in monetary limit for imposing a penalty for receiving cash consideration

  • The original Finance Bill proposed a penalty of the equivalent amount of the cash received in excess of INR 300,000.
  • The amended Bill proposes to reduce the limit of INR 300,000 to INR 200,000.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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