Parliament on Monday passed the Finance Bill, 2020, clearing the way for significant changes in the tax laws, including a new monetary threshold for taxing India income of non-resident Indians (NRIs), a broadening of the ambit of ‘equalisation levy’ to cover non-resident e-commerce operators (like Alibaba) supplying goods and services and reduction in the rate of tax collected at source (TCS) for remitting education loan money overseas.
The government also used the Finance Bill 2020 to create room for increasing the taxes on auto fuels by up to Rs 8 per litre. If it opts to fully use the facility, it could raise an additional Rs 1.15 lakh crore or so annually from these products as specific taxes and reduce the revenue gap it is facing. The additional mop-up could come in handy for it to finance the Covid-19 package being firmed up. The latest amendment proposes to raise the upper limit of special excise duty on petrol to Rs 18 a litre and Rs 12 a litre on diesel. Currently, the special excise duty levied on petrol and diesel stands at Rs 10 per litre and Rs 4 per litre, respectively.
While the Budget provided to make NRIs’ Indian income taxable if the person qualified as a resident by virtue of staying in India for 120 days or more, the Finance Bill has narrowed the scope of taxability to only those Indian citizens with total income exceeding Rs 15 lakh per annum. “The liability to pay tax on such deemed resident will be only in respect of business controlled in India or profession set up in India and that too when such income exceeds the threshold of Rs 15 lakh,” Rakesh Nangia, chairman at Nangia Andersen Consulting, said.
In what is a brand new addition to the Finance Bill, the government brought in equalisation levy of 2% for non-resident e-commerceoperators involved in supply of services including online sale of goods and provision of services.
Equilisation levy at 6% has been in force since 2016 on payment exceeding `1 lakh a year to a non-resident service provider for online advertisements. “As has been widely expected, the scope of equalisation levy will only increase with time till a global consensus is reached. Interestingly, the applicability is also on supply by non-resident operators to non-residents provided that the sale of advertisement or sale of data has nexus in India. This would pose practical difficulties in compliance,” Amit Maheshwari, partner at AKM Global said.
Citing instances where Indian citizens and PIOs with the non-resident tag misusing a facility for them to visit the country for longer periods to avoid having to pay tax in India on income arising from their activities here, the Budget reduced the India stay period for such non-residents. More importantly, the memorandum also said, “any person not liable to tax in any other country or territory shall be deemed to be resident in India”, stoking fears that bona fide Indian citizens working in other countries such as the UAE would have to pay tax in India for income generated in their country of employment/business or other foreign countries.
Such taxation, it was feared, could hit Indian diaspora hard and undermined employment opportunities for Indians in various low or no tax countries. The government clarified after the Budget that, “In order to avoid any misinterpretation, it is clarified that in case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession. Necessary clarification, if required, shall be incorporated in the relevant provision of the law”. It added, “The new provision is not intended to include in tax net those Indian citizens who are bonafide workers in other countries.”
On March 14, the Centre hiked the special additional excise duty and road and infrastructure cess on petrol and diesel by a total of `3 per litre, seizing the opportunity afforded by the fall in crude prices. Brent crude fell 58% since January 6, when it had peaked this year. On Monday, it ruled at $28.7 per barrel.
Every one rupee duty on petrol and diesel translates to revenue of Rs 14,000 crore annually for the Centre. Since states levy VAT/sales tax on the price inclusive of the central duties, duty hikes by the Centre boosts their revenue as well.
After the latest hike in duty/cess, the central tax on petrol is Rs 22.98 per litre, while that on diesel is Rs 18.83 per litre. The taxes include basic excise duty, special additional excise duty and Rs 10 per litre road and infrastructure cess. As pointed out by Care Ratings, after the latest levy, the government collects around 134% taxes (excise duty and VAT) on the base price of petrol and 88% in the case of diesel.
Further, the Finance Act 2020 also cut the TCS rate to 0.5% from 5% on sending money overseas through Liberalised Remittance Scheme (LRS) if the fund is borrowed from banks and specified institutions to fund education.
Additionally, the government amended that section governing 2% TDS on cash withdrawal over Rs 1 crore to make it more expensive for non-compliant taxpayers to withdraw money. The amendment lays out that a person who has not filed income tax return for three preceding years would be liable for a 2% TDS on cash withdrawal for Rs 20 lakh to Rs 1 crore, and the rate would be 5% for amount exceeding Rs 1 crore “The amendments bring about a lot of clarity on various disputed issues and also seek to address the concerns of various stakeholders. Further, the amendments also propose to widen the tax net and is rightly harsh on tax evaders who abuse the tax provisions and twist the same to their advantage,” Nangia said.
The government has also withdrawn 0.1% TCS from being applicable to exporters. The provision was proposed in the Budget as an anti-evasion measure in the form of TCS on sale of goods over `50 lakh in a year. And 1% if the seller doesn’t not have PAN or Aadhaar.