Page 70 - DHC Budget Book 2021-22 Final
P. 70
INDIA BUDGET 2021-22
5.5 Extension of the benefits of the provisions of DTAA on payments made to FIIs [Sec. 196D]
[w.r.e.f. 01-04-2021]
Existing provisions of Sec. 196D provide that the person responsible for making payment to FIIs on account of income in respect of securities referred to in Sec. 115AD (except interest under Sec. 194LD) shall be liable to withhold tax at a specific rate of 20%.
In order to address the concerns of the FIIs, a proviso to Sec. 196D has been proposed to be inserted to provide that tax shall be deducted at lower of 20% or rates as per DTAA on payments made to FIIs in respect of such income on furnishing of valid TRC.
Comments
Sec. 196D provides for deduction of tax at a specific rate as against ‘rates in force’ prescribed under Sec. 195. The expression ‘rates in force’ in the context of Sec. 195 means the rate or rates of income-tax specified in the Finance Act of the relevant year or the rate or rates of income-tax specified in the applicable DTAA, whichever is beneficial. However, in view of the specific rate of 20% provided in Sec. 196D without any reference to ‘rates in force’, tax was being deducted at
20% only without considering the beneficial provisions of DTAA, if any.
Equalisation Levy was introduced vide Finance Act, 2016 (EL1.0) which provides for deduction @ 6% on payment of consideration to non-resident for specified services (online advertisement, any provision for digital advertising space or facilities/ services for the purpose of online advertisement);
Equalisation Levy was further amended vide Finance Act 2020 to extend its applicability with effect from 1-4-2020, to consideration received or receivable by an e-commerce operator i.e. non-resident who owns, operates or manage digital or electronic facility or platform for online sale of goods or online provision of services or both (EL2.0).Further, vide Finance Act 2020, Sec.
This position was confirmed by Hon’ble Apex Court in the case of PILCOM vs. CIT [2020] 116 taxmann.com 394 which was rendered in the context of Sec. 194E. Sec. 194E, like Sec. 196D, provides for specific rate of tax to be deducted on payments to be made to non-residents. The dispute was whether the payer can deduct tax at the beneficial rates provided under the DTAAs. The Hon’ble Apex Court held that the obligation of the payer to withhold tax at a specific rate under Sec. 194E on payments made to non- residents, is not affected by the provisions of DTAA.
In this regard, various representations were received requesting that the benefit of DTAA may be considered at the time of tax deduction on payments to FIIs. Accordingly, in order to provide clarity and extend the benefit of DTAA to FIIs,
the aforesaid amendment has been proposed. However, the principle affirmed by PILCOM (supra) shall continue to apply for other sections (i.e. Sec. 194E, 194LC, 194LD, etc.) which provide for specific rate of tax deduction on payments made to non-residents as covered therein. A similar amendment should be made in those sections to provide the necessary clarity and extend the DTAA benefits in those cases as well.
10(50) was amended to provide corresponding exemption from applicability of income tax where EL2.0 was leviable for e-commerce supply or services made or provided or facilated on or after 01-04-2021. To remove the ambiguities in the existing provisions of EL 2.0, the following amendments are proposed:
Sec. 163 of Finance Act, 2016 amended
to exclude from the scope of EL 2.0, the consideration received/ receivable in respect of Royalty or Fees for Technical Services income taxable in India. Corresponding amendment in Sec. 10(50) to clarify that exemption shall not be available in respect of such income;
5.6
Rationalization of the provisions of Equalisation Levy [Sec.163, 164 & 165A of the Finance Act, 2016 and Sec. 10(50) of the Act] [w.r.e.f. AY 2021-22]
68 Building a Resilient and Confident India
