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Significant Budget Highlights 2016?17? International Taxation
March, 01st 2016
     Significant Budget Highlights 201617 International Taxation 

1. Increase in Surcharge 
Surcharge is increased from 12% to 15% in case of nonresident individuals 

2. Exemption in respect of certain activity related to diamond trading in "Special Notified 
    Zone".  Exemption  u/s  9(1)(i)  to  Foreign  Mining  Companies  through  or  from  the 
    activities  which  are  confined  to  display  of  uncut  and  unassorted  diamonds  in a  Special 
    Zone notified by the Central Government in the Official Gazette in this behalf 
 


Earlier,  the  activity  of  Foreign  Mining  Companies  (FMC)  of  mere  display  of  rough  diamonds 
even with no actual sale taking place in India may lead to creation of business connection in 
India of the FMC making it taxable u/s 9(1)(i) of the Income Tax Act, 1961. 
 


In  order  to  facilitate  the  FMCs  to  undertake  activity  of  display  of  uncut  diamond  (without 
any sorting or sale) in the special notified zone, it is proposed to amend section 9 of the Act 
to  provide  that  in  the  case  of  a  foreign  company  engaged  in  the  business  of  mining  of 
diamonds,  no  income  shall  be  deemed  to  accrue  or  arise  in  India  to  it  through  or  from  the 
activities  which  are  confined  to  display  of  uncut  and  unassorted  diamonds in a  Special  Zone 
notified by the Central Government in the Official Gazette in this behalf. 
 


This  amendment  will  take  effect  retrospectively  from  1stApril,  2016  and  will  accordingly 
apply in relation to  assessment year 201617 and subsequent assessment years. 
 
3. Exemption u/s 10(48A) in respect of income of Foreign company from storage and sale 
    of crude oil stored as part of strategic reserves. Income accruing or arising to a foreign 
    company  on  account  of  storage  of  crude  oil  in  a  facility  in  India  and  sale  of  crude  oil 
    therefrom  to  any  person  resident  in  India  shall  not  be  included  in  the  total  income  on 
    fulfilment of certain conditions 
 

Exemption  is  to  encourage  foreign  national  oil  companies  (NOCs)  and  multinational 
companies  (MNCs)  storing  and  selling  crude  oil  from  outside  India  to  build  up  strategic  oil 
reserves. 
 






                                                                                                          1 
 
Thus  it  is  proposed  that  any  income  accruing  or  arising  to  a  foreign  company  on  account  of 
storage  of  crude  oil  in  a  facility  in  India  and  sale  of  crude  oil  therefrom  to  any  person 
resident in India shall not be included in the total income, if,  
        i.         such storage and sale by the foreign company is pursuant to an agreement or 
                   an  arrangement  entered  into  by  the  Central  Government  or  approved  by  the 
                   Central Government; and 
        ii.        having  regard  to  the  national  interest,  the  foreign  company  and  the 
                   agreement  or  arrangement  are  notified  by  the  Central  Government  in  this 
                   behalf. 
Since  the  storage  of  oil  is  expected  to  begin  in  the  current  financial  year,  this  exemption 
would be available from the previous year 201516, i.e. assessment year 201617. 
 
4. Implementation of POEM based residence rule deferred for 1 year and applicable from 
    AY  201718  It  is  proposed  to  defer  the  applicability  of  POEM  based  residence  test  by 
    one year It is also proposed to provide a transition mechanism for a company which is 
    incorporated outside India and has not earlier been assessed to tax in India. 
 

Reasons for such deferment 
    -   A  company  may  be  claiming to  be  a  foreign company  not  resident  in  India but  in  the 
        course of assessment, it is held to be resident based on POEM being in fact in India.  
    -   This  determination  would  be  well  after  closure  of  the  previous  year  and  it  may  not 
        be possible for the company to undertake many of procedural requirements relating 
        to  
               o Advance tax payment,  
               o applicability of TDS provisions,  
               o computation of total income,  
               o set off of losses a 
               o  manner of application of transfer pricing regime  
               o issues  of  computation  of  depreciation  also  arise  when  in  earlier  years  it  has 
                   not been subject to computation under the Act. 
    -   This  may  be  due  to  absence  of  above  requirements  under  tax  laws  of  country  of 
        incorporation of such company. 


                                                                                                         2 
 
 
5. Amendment  in  section  206AA    Exemption  from  requirement  of  furnishing  PAN  to 
    certain nonresident No higher withholding tax if nonresident does not have PAN but 
    furnishes an alternative document 
 




It  is  proposed  to  amend  the  said  section  206AA  so  as  to  provide  that  the  provisions  of  this 
section  shall  also  not  apply  to  a  nonresident,  not  being  a  company,  or  to  a  foreign 
company,  in  respect  of  any  other  payment,  other  than  interest  on  bonds,  subject  to  such 
conditions as may be prescribed. 
 


This amendment will take effect from 1st June, 2016. 
 




6. NonApplicability  of  Minimum  Alternate  Tax  (MAT)  on  foreign  companies  for  the 
    period prior to 01.04.2015 subject to conditions 
Vide  Finance  Act,  2015  of  the  provisions  of  section  115JB  were  amended  to  provide  that  in 
case  of  a  foreign  company  any  income  chargeable  at  a  rate  lower  than  the  rate  specified  in 
section 115JB shall be reduced from the book profits and the corresponding expenditure will 
be added back. 
 

However,  since  this  amendment  was  prospective  w.e.f.  assessment  year  201617,  the  issue 
for assessment year prior to 201617 remained to be addressed. 
 

Thus,  it  is  proposed  to  provide  that  with  effect  from  01.04.2001,  the  provisions  of  section 
115JB shall not be applicable to a foreign company if  
 

    (i) the  assessee  is  a  resident  of  a  country  or  a  specified  territory  with  which  India  has 
            DTAA  u/s  90(1)  or  the  Central  Government  has  adopted  any  agreement  u/s 
            90A(1)  and  the  assesse  does  not  have  a  permanent  establishment  in  India  in 
            accordance with the provisions of such Agreement;  
            or 
    (ii) the assessee is a resident of a country with which India does not have DTAA and the 
            assessee  is  not  required  to  seek  registration  under  any  law  for  the  time  being  in 
            force relating to companies. 




                                                                                                           3 
 
This  amendment  is  proposed  to  be  made  effective  retrospectively  from  the  1stday  of  April, 
2001  and  shall  accordingly  apply  in  relation  to  assessment  year  200102  and  subsequent 
years. 
7. Clarification regarding the definition of the term 'unlisted securities' for the purpose of 
    Section  112  (1)  (c)  In  case  of  nonresident  longterm  capital  gains  arising  from  the 
    transfer of a shares of private company, shall be chargeable to tax @ 10 per cent 
 

Earlier,  in  case  of  nonresident  if  unlisted  shares  are  transferred,  the  longterm  capital  gains 
is  taxable  @  10%  from  AY  201314.  A  view  has  been  taken  by  the  courts  that  shares  of  a 
private company are not "securities". 
 

Thus,  with  a  view  to  clarify  the  position  so  far  as  taxability  is  concerned,  it  is  proposed  to 
amend the provisions of secion 112(1)(c) so as to provide that longterm capital gains arising 
from the transfer of shares of private company, shall be chargeable to tax @ 10 per cent. 
 

These  amendments  are  proposed  to  be  made  effective  from  the  1st  day  of  April,  2017  and 
shall accordingly apply in relation to assessment year 201718 and subsequent years. 
 
8. Proposed  Amendment  in  section  92CA(3)  Extension  of  time  limit  to  Transfer  Pricing 
    Officer  (TPO)  in  certain cases  to  60  days  if  the  time  available  to  the  TPO  for  making  an 
    order is less than 60 days 
 


It  is  proposed  to  amend  subsection  (3A)  of  section  92CA  to  provide  that  in  following 
situations,  if  the  time  available  to  the  TPO  for  making  an  order  after  excluding  the  time  for 
which  assessment  proceedings  were  stayed  or  the  time  taken  for  receipt  of  information,  as 
the  case  may  be,  is  less  than  60  days,  then  such  remaining  period  shall  be  extended  to  60 
days. 
    -     where assessment proceedings are stayed by any court or  
    -     where  a  reference  for  exchange  of  information  has  been  made  by  the  competent 
          authority,  
The amendment will take effect from 1st day of June, 2016. 
 
9. Insertion  of  new  section  194LBC  TDS  will  be  deducted  on  any  Income  to  nonresident 
    individual or foreign company in respect of investment in securitisation trust. 
                                                                                                             4 
 
     


Where  any  income  is  payable  to  an  investor,  being  a  nonresident  individual  or  a  foreign 
company,  in  respect  of  an  investment  in  a  securitisation  trust  specified  in  clause  (d)  of  the 
Explanation occurring after section 115TCA, the person responsible for making the payment 
shall,  at  the  time  of  credit  of  such  income  to  the  account  of  the  payee  or  at  the  time  of 
payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is 
earlier, deduct incometax thereon, at the rates in force. 
 
10. Amendment  in  section  194LBB  Tax  is  required  to  be  deducted  at  the  rates  in  force, 
    where the payee is a nonresident (not being a company) or a foreign company 
 

Earlier,  the  tax  was  required  to  be  deducted  @  10%  if  a  business  trust  distributed  any 
income referred to in section 115UB (not being business income of the nature referred to in 
section 10(23FBB)) to its unitholders. 
 

Section 194LBB is proposed to be amended to provide that : 
 


Tax is required to be deducted: 
    (i) 10%., where the payee is a resident; 
    (ii) at  the  rates  in  force,  where  the  payee  is  a  nonresident  (not  being  a  company)  or  a 
            foreign company." 
             
11. Insertion  of  Chapter  VIII   EQUALISATION  LEVY  Equalisation  levy  at  the  rate  of  6%  of 
    the amount for any specified service received by a nonresident from a resident person 
    and nonresident having PE in India 
 


There shall be charged an equalisation levy at the rate of 6% of the amount of consideration 
for any specified service received or receivable by a person, being a nonresident from­­ 
    (i) a person resident in India and carrying on business or profession; or 
    (ii) a nonresident having a permanent establishment in India. 
 




No  such  levy  shall  be  made  if  the  aggregate  amount  of  consideration  for  specified  services 
received  or  receivable  by  a  the  above  mentioned  nonresident  does  not  exceed  1  lakh 
rupees in any previous year. 
 




                                                                                                           5 
 
"Specified service" MEANS  
    a. online advertisement,  
    b. any provision for digital advertising space or  
    c. any other facility or service for the purpose of online advertisement AND INCLUDES  
    d. any other service as may be notified by the Central Government in this behalf; 
 

Key points to be noted: 
    a. Exemption in section 10 In order to avoid double taxation, it is proposed to provide 
        exemption  under  section  10  of  the  Act  for  any  income  arising  from  providing 
        specified services on which equalisation levy is chargeable. 
 

    b. Disallowance  if  Equalisation  levy  not  deducted  and  deposited  u/s  40(a)(ib)    It  is 
        further  proposed  to  provide  that  the  expenses  incurred  by  the  assessee  towards 
        specified services chargeable under this Chapter shall not be allowed as deduction in 
        case  of  failure  of  the  asseseee  to  deduct  and  deposit  the  equalisation  levy  to  the 
        credit of Central government. 
 

    c. Deposit of Equalisation levy  The equalisation levy so deducted during any calendar 
        month  shall  be  paid  by  every  assessee  to  the  credit  of  the  Central  Government  by 
        the 7th day of the month immediately following the said calendar month. 
 
The further provisions in relation to this chapter are provided in detail in Finance Bill 2016. 
This  Chapter  will  take  effect  from  the  date  appointed  in  the  notification  to  be  issued  by 
the Central Government. 
 

12. Amendment in 3rd Proviso to Section 48  
Forex  gain  on  redemption  of  rupee  denominated  bond  of  an  Indian  company  shall  be 
ignored for the purposes of computation of full value of consideration under this section 
 

13. Amendment in Section 92D 
Proviso  to  section  92D(1)  is  inserted  wherein  person,  being  a  constituent  entity  of  an 
international group, shall also keep and maintain such information and document in respect 
of an international group as may be prescribed. 
 




                                                                                                       6 
 
Subsection  4  to  section  92D  inserted  wherein  it  is  provided  that  the  person  referred  in  the 
above mentioned section shall furnish the information and document referred to in the said 
proviso to the authority prescribed under subsection (1) of section 286, in such manner, on 
or before the date, as may be prescribed." 
 


Constituent entity is defined u/s 286 
 

14. Amendment in Section 271AA 
If any person fails to furnish the information and the document as required under 92D(4) 
the prescribed incometax authority referred to in the said subsection may direct that such 
person shall pay, by way of penalty, a sum of 5 lakh rupees. 

15. BEPS action plan  CountryByCountry Report and Master file 
The  OECD  report  on  Action  13  of  BEPS  Action  plan  provides  for  revised  standards  for 
transfer  pricing  documentation  and  a  template  for  countrybycountry  reporting  of  income, 
earnings,  taxes  paid  and  certain  measure  of  economic  activity.  India  has  been  one  of  the 
active members of BEPS initiative and part of international consensus. 
 

In  order  to  implement  the  international  consensus,  it  is  proposed  to  provide  a  specific 
reporting  regime  in  respect  of  country  by  country  reporting  and  also  the  master  file.  It  is 
proposed to include essential elements in the Act while remaining aspects can be detailed in 
rules. 
 
                                                  XXXX 
 




                                                                                                         7 
 

 
 
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