This EY Tax Alert summarises certain significant direct tax amendments to Finance Bill, 2013 (FB 2013) which has now been passed by the Lok Sabha (the lower house of Parliament). As a process, FB 2013 would also need to be approved by the Rajya Sabha (upper house of Parliament) and assented by the President of India before it is enacted as law.
The Indian Finance Minister (FM) had presented Finance Bill, 2013, as part of the Union Budget 2013-14, to Parliament on 28 February 2013. FB 2013 contained a number of far-reaching proposals to amend the Indian Tax Laws (ITL) such as providing that Tax Residency Certificate is necessary but not sufficient for claiming tax treaty benefits, levy of Commodities Transaction Tax, increase in tax rate for royalty and fees for technical services, additional tax on buy back of shares of unlisted company, tax withholding on immovable property etc. Having regard to representations made by various stakeholders on the adverse impact of various proposals and/or to correct certain anomalies, amendments have been made to FB 2013 at the enactment stage.
Immediately after presentation of FB 2013 on 28 February 2013, the Ministry of Finance had clarified, vide a Press Release dated 1 March 2013, that the proposed amendment regarding TRC being necessary but not a sufficient condition did not intend to dilute the existing legal position on validity of TRC and the TRC would continue to be accepted as an evidence of the taxpayer’s residency. It was also clarified that the intent of the provision was to ensure that furnishing of TRC should not preclude the Tax Authority from looking into beneficial ownership of the recipient in the matter of interest, royalty etc. It was also assured that concerns of taxpayers on language can be addressed suitably when FB 2013 is taken up for consideration. While the proposal of TRC being necessary but not sufficient for treaty benefit has not been enacted, one would need to wait for notification of the Rules to ascertain the requirement of additional documents/information which are to be furnished in support of treaty claim.