It is proposed that mere presence of a fund manager in India would not constitute PE of the offshore funds, as this is resulting in adverse tax consequences currently.
In order to facilitate location of fund managers of off-shore funds in India a specific regime has been proposed in the Act in line with international best practices with the objective that, subject to fulfilment of certain conditions by the fund and the fund manager,-
(i) the tax liability in respect of income arising to the Fund from investment in India would be neutral to the fact as to whether the investment is made directly by the fund or through engagement of Fund manager located in India; and
(ii) that income of the fund from the investments outside India would not be taxable in India solely on the basis that the Fund management activity in respect of such investments have been undertaken through a fund manager located in India.
In the case of an eligible investment fund, the fund management activity carried out through an eligible fund manager acting on behalf of such fund shall not constitute business connection in India of the said fund.
Reduction in rate of tax on Income by way of Royalty and Fees for technical services in case of nonresidents –
Proposed Reduction in Royalty / FTS rate to 10% from 25%
It is proposed to reduce the rate of tax provided under section 115A on royalty and FTS payments made to non-residents from 25% to 10%.
Clarity relating to Indirect transfer provisions –
Further clarification to Explanation 5 in section 9(1)(i) Currently The Explanation 5 in section 9(1)(i) clarified that an asset or capital asset, being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be situated in India if the share or interest derives, directly or indirectly, its value substantially from the assets located in India. The share or interest of a foreign company or entity shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India, if on the specified date, the value of Indian assets,-
a) exceeds the amount of ten Crore rupees ; and
b) Represents at least fifty per cent. of the value of all the assets owned by the company or entity. Value of an asset shall mean the fair market value of such asset without reduction of liabilities, if any, in respect of the asset. The specified date of valuation shall be the date on which the accounting period of the company or entity, as the case may be, ends preceding the date of transfer.
Raising the threshold for specified domestic transaction-
Increase in limit of specified domestic transaction from 5 Crores to 20 Crores rupees
It is proposed to amend section 92BA by increasing the limit of specified domestic transactions entered into by the assessee from 5 Crores to 20 Crores rupees.
Enabling the Board to notify rules for giving foreign tax credit –
Rules will be prescribed to claim foreign tax credit u/s 90, 90A and 91
CBDT may make rules to provide the procedure for granting relief or deduction, as the case may be, of any income-tax paid in any country or specified territory outside India, under section 90, or under section 90A, or under section 91, against the income-tax payable under the Act. This amendment will take effect from 1st day of June, 2015.
Clarity regarding source rule in respect of interest received by the non-resident in certain cases
In the case of a non-resident, being a person engaged in the business of banking, the PE in India of such non-resident shall be obligated to deduct tax at source on any interest payable to either the head office or any other branch or PE, etc. of the non-resident outside India. Further, non-deduction would result in disallowance of interest claimed as expenditure by the PE and may also attract levy of interest and penalty in accordance with relevant provisions of the Act.
Amendment to the conditions for determining residency status in respect of Companies
POEM is proposed to be introduced for determining the residential status of company which is in line with DTAA
It is proposed to amend the provisions of section 6 to provide that a person being a company shall be said to be resident in India in any previous year, if-
(i) it is an Indian company; or
(ii) Its place of effective management, at any time in that year, is in India. (Earlier the provision was – during that year, the control and management of its affairs is situated wholly in India)
Further, it is proposed to define the place of effective management to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made.
Rationalisation of provisions relating to Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) –
Penalty of 1 lakh proposed for providing incorrect information or non-providing of information as per 195(6)
It is proposed to amend the provisions of section 195 of the Act to provide that the person responsible for paying any sum, whether chargeable to tax or not, to a non-resident individual or foreign company, shall be required to furnish the information of the prescribed sum in such form and manner as may be prescribed.
It is further proposed to insert a new provision in the Act to provide that in case of non-furnishing of information or furnishing of incorrect information under sub-section (6) of section 195(6) of the Act, a penalty of one lakh rupees shall be levied.
It is also proposed to amend the provisions of section 273B of the Act to provide that no penalty shall be imposable under this new provision if it is proved that there was reasonable cause for non furnishing or incorrect furnishing of information under sub-section (6) of section 195 of the Act. These amendments will take effect from 1st June, 2015.
Power of the Central Board of Direct Taxes to prescribe the manner and procedure for computing period of stay in India
It is proposed to amend the Act to provide that in the case of an Individual, being a citizen of India and a member of the crew of a foreign bound ship leaving India, the period or periods of stay in India shall, in respect of such voyage, be determined in the manner and subject to such conditions as may be prescribed. This amendment will take effect retrospectively from 1st April, 2015.