The Finance bill has been passed by the Lok Sabha, with various key amendments impacting individual taxation, which include relaxation in deemed residency provision, modification to the various TDS sections, etc.

The amendment to the residency provision provides that a non-resident who is a Indian citizen or person of Indian origin occasionally visiting India shall not be considered a resident if his stay in India doesn’t exceed 120 days and provided his income in India doesn’t exceed Rs 15 lakhs. It is emphasized that such income should not be foreign source income, which has been further clarified that such income derived from a business controlled in or profession set up in India. Further, it also provided that such a person shall be considered Not Ordinary Resident.

TDS for withdrawal from banks has been made stringent to provide that if a person hasn’t filed tax return for the last three years, TDS shall be deducted at the rate of 2 per cent if the withdrawal exceeds Rs 20 Lakh annually. If the withdrawal exceeds Rs 1 Crore, TDS at the rate of 5 per cent shall apply.

In the Finance Bill 2020, the proposal made for abolishment of DDT (dividend distribution tax) on Dividend has had the impact of making it taxable in the hands of the shareholder. Now, in furtherance of that it has been provided that the rate of TDS on dividend income to non-residents (including companies other than domestic companies) is 20 per cent. Further, the maximum surcharge has been limited to 15 percent in the case of dividend income.

Other amendments

Further, the reduced rate of 2 per cent on technical services (other than professional services) has been extended to cover royalty. However, the royalty that is in the nature of consideration for sale, distribution or exhibition of cinematographic films shall be covered under the reduced rate. In all other cases covered under section 194J, a rate of 10 per cent shall be applicable. Also, the provisions of Section 194K have been made limited after the amendment. This section excludes from its ambit any payments received from units of a mutual fund, administrator of the specified undertaking/company that constitutes income in the nature of capital gains.

The government has amended the provisions of Section 194LBA and excluded from its ambit any dividend income paid by a business trust to unit holders in respect of income of the nature referred to in Sec 10(23FC)(b) [i.e. dividend received or receivable by SPV], if the SPV referred to in the said clause has not exercised the option u/s 115BAA, i.e., doesn’t opt for the reduced tax rate of 22 per cent. Hence, this will impact the dividend in the hands of the unitholders of such a business trust.

Moreover, an amendment has been made to section 115BAC and this amendment has the impact of excluding professionals as well as businessmen (as per the earlier amendment, only income from business was taken) to exercise the new personal tax regime for individuals & HUFs. The section clearly states that individuals or HUFs shall not be eligible for the concessional rate (i.e. optional personal tax regime) unless the option is exercised in the form and manner as may be prescribed. The anomaly of denying this benefit only to businessmen and not to professionals seems to have gotten corrected.