MEMORANDUM ON ENACTMENT STAGE CHANGES IN FINANCE BILL 2020 : DIRECT TAXES

INDEX
Sr.No. Particulars Page No.
A. Personal taxation

1. Clarification with respect to threshold computation for applicability of amended provisions of extended residency 4
rule and deemed residency rule
2. Double whammy under S.17(1)(viii) and new S.17(2)(vii) 6
B. Issues related to TDS on dividends

3. Dividend surcharge mismatch for different classes of non-resident taxpayers and mismatch with income from 8
mutual funds and units of business trusts
4. Dividend vs. mutual fund income & income from units of business trusts (ReITs/InvITs) 11
5. Clarify person whose PAN should be considered in case of dividend payment on GDRs 11
C. TDS and TCS provisions

6. Exempt SPVs from carrying out withholding obligation u/s. 194 on distribution of dividend to business trust 12
7. Reduce TDS rate on fees for professional services to 2% or provide guidance on classification between ‘Fees for 13
technical services’ liable to TDS @ 2% and ‘Fees for professional services’ liable to TDS @ 10%
8. Representations on tightening of TDS provisions on cash withdrawals u/s. 194N 14
9. Eliminate S.194-O(6) which deems e-commerce operator as person responsible for paying to e-commerce 18
participant
10. Certain issues w.r.t implementation of s. 194-O which can be addressed by CBDT Guidelines
 Clarify that amount liable for TDS under S. 194-O is net amount of sales and not gross sales receipts 19
 Clarify that TDS is not to be withheld on the GST/ indirect tax portion 20
 Exclude shares, securities, actionable claims, money, etc. from the scope of “goods” and “services” 21
 Clarification on person liable to withhold tax where multiple e-commerce operators are involved in the 22
transaction chain
 Exclusion of payment aggregator or payment gateways (covered under RBI Guidelines 2020 dated 17 March 23
2020) from S.194-O
 In case of sales by consignment agent on behalf of principal, it may be clarified that obligation to collect TCS 23
shall be on Principal
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 Clarify that if TDS is made by e-commerce operator u/s. 194-O, no TCS is required by seller (e-commerce 24
participant) of goods
 Defer date of applicability of new TDS provision to 1 April 2021 25
11. Carve out B2B transactions from the ambit of TCS provision u/s. 206C(1H) as it will lead to multiple level of tax 26
collection
12. Clarify the scope of the term “goods” used in s. 206C(1H) i.e. TCS on sale of goods 28
13. Clarify whether TCS obligation u/s 206C(1H) triggers on actual receipt of sales consideration, irrespective of 28
mercantile method of accounting followed by the seller
14. Benefit of lower TCS rate should also be extended to remittances for medical treatment similar to benefit granted 30
for remittances out of education loan
15. Relaxation of provisions for assessee-in-default to be also extended to sub-sections (1F)/(1G)/(1H) of s. 206C 31
16. Benefit of lower/ NIL tax collection certificate u/s. 206C(9) should also be extended to TCS on LRS remittances, 32
overseas tour package, sale of goods and motor vehicles
D. Equalisation levy

17. Defer Equalisation levy (EL) on ‘E-commerce Supply or Services’ (ESS) in view of unprecedented circumstances 33
involving COVID-19
18. Clarify explicitly that EL is a temporary measure while global consensus on taxation of e-commerce is achieved 34
under BEPS 2.0 Pillar One. Accordingly, once India adopts direct tax measures pursuant to OECD BEPS agenda in
which India is participating actively and on equal footing, EL will be abolished
19. Need to provide for Explanatory Memorandum and object and purpose of the amendment 35

20. Clarify that ESS EL is restricted to highly digitalised products and services and do not extend to goods and services 36
which are physical in nature and where e-commerce merely facilitates communication, placement or conclusion of
order
21. Clarify that the amount of consideration received or receivable by the e-commerce operator facilitating online sale 37
of goods or online provision of services is restricted to convenience fees or facilitation fees received or receivable
by the e-commerce operator in his own right

22. Clarify that for each of the e-commerce operator, consideration excludes statutory levies such as GST, service tax 39

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or alike
23. Explicitly clarify that ESS EL is to be levied with reference to actual consideration received and accordingly, 39
consideration attributable to sales returns or credit notes given to the customers on account of claims will be
deducted to determine the base which will be subject to ESS EL
24. Mismatch in applicability of effective date of ESS EL provisions and s.10(50) of ITA be rectified to state that s.10(50) 40
also applies from FY 2020-21
25. For ESS EL, scope of “goods” and “services” to exclude financial instruments, insurance, forex derivatives, 41
actionable claims, shares, securities, bonds, debentures, etc.
26. Measurement/ attribution issue 41
27. Scope of s.163 under the ITA to be curtailed with regard to EL 42
28. Guidance and clarity on determination of use of IP address in India 42
29. Clarity in cases where there is overlap between provisions of Equalisation Levy and incomes taxable under source 42
rules of ITA
30. Where NR e-commerce operator has paid EL @ 2% and claimed exemption u/s. 10(50) but Tax Department 43
disputes it to be royalty/FTS liable to income tax @ 10%, allow adjustment of EL tax as credit or set off against the
income tax payable in India by non-resident in case of litigation on such characterisation
31. Compliance burden on NR e-commerce operator to be eased 44
32. Eligibility to claim ESS EL as a foreign tax credit in the country of residence 44

E. Change in tax registration norms for charities

33. Defer the new registration requirements to 1 April 2021 46

BOMBAY CHAMBER OF COMMERCE AND INDUSTRY

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MEMORANDUM ON ENACTMENT STAGE CHANGES IN FINANCE BILL 2020 : DIRECT TAXES

DIRECT TAXATION

Sr. Subject Comments / Recommendations

A. Personal taxation

1. Clarification with  Rationale

respect to
threshold o The extended residency rule as contained in clause (b) of Explanation 1 to s. 6(1) of the ITA provides that an
computation for Indian citizen or a Person of Indian Origin, coming on a visit to India in the relevant previous year and having
applicability of “total income, other than income from foreign sources” exceeding INR 15 lakh (threshold condition) shall be
amended considered as a resident, inter alia, if he is present in India for at least 365 days in the 4 years preceding the
provisions of relevant previous year and is present in India for 120 days in the relevant previous year.
extended
residency rule o The deemed residency provisions contained in S. 6(1A) of the ITA provide that an Indian citizen, having “total
and deemed income, other than income from foreign sources“ exceeding INR 15 lakh, will be deemed to be a resident in
residency rule India in the previous year, if he is not liable to tax in any other country or territory by reason of his domicile or
residence or any other criteria of similar nature.
o Further, a new Explanation is added to the provisions of s. 6 which provides that “income from foreign
sources” shall mean income which accrues or arises outside India (except income derived from a business
controlled in or a profession set up in India).
o There is no further guidance available as regards the computation of the threshold condition. There are certain
technical issues which emerge in computation of the threshold condition as enumerated below.
 Issue:
o The issue may arise with respect to the computation of “total income”.
o The term “total income” is defined u/s. 2(45) of the ITA as total amount of income referred to in s. 5 and
computed in the manner laid down in ITA i.e. the income figure arrived at post application of all the provisions
of ITA.

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o Thus, an issue arises whether the “total income” required for the purpose of computation of threshold
condition is to be understood as per s. 2(45) of ITA or whether in general sense of the term.
o Considerable issues may arise if total income is understood as per S. 2(45). For e.g.
- The determination of the residential status is followed by computation of the taxable income of the
taxpayer. Accordingly, until the residential status of the taxpayer is determined, total income as per s.
2(45) cannot be computed.
- Computation of total income under S. 2(45) would entail application of all the provisions of ITA, such
as deductions, exemptions, clubbing provisions, transfer pricing, GAAR, treaty implications etc. The
legislative intent may not be to complicate the process of mere determination of residential status
- There isn’t any necessity to carry out double computation of income – one for determination of
residential status and the other for computation of chargeable income under ITA.
o On the other hand, S. 2 states that the terms defined therein shall have such meaning under ITA “unless the
context otherwise requires...”. Hence, total income term should be given a contextual interpretation and may
not always be linked to s. 2(45) of ITA.
 Recommendation:
o Suitable clarifications be issued to clarify that the term “total income” is to be understood contextually and
determined by application of conventional principles, independent of provisions of ITA.
o Alternatively, to avoid confusion due to the use of a predefined term of ITA in s. 6, the term “total income”
may be substituted with “income” [to be understood in general sense and not as per s. 2(24) of ITA] or
“surplus”.

2. Double whammy  Rationale

under S.17(1)(viii)
and new  Existing provisions

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S.17(2)(vii) o S.17(1)(viii) provides that the employer’s contribution to national pension scheme (NPS) shall be taxable as
salary income of the employee. However, s. 80CCD(2) grants deduction for such contribution upto 10% of
salary [subject to gross total income (GTI) limit]. Hence, to the extent of 10% of salary, employer’s contribution
to NPS is not effectively taxed in the hands of the employee.
 Amendment by FA 2020
o FA 2020 has substituted S.17(2)(vii) to provide that, to the extent employer’s contribution to provident fund,
NPS and approved superannuation fund in the aggregate exceeds Rs. 7,50,000, the excess shall be taxable in
hands of the employee in the year of contribution.
o Further, a new clause (viia) has been added to s.17(2) to provide that the annual accretion by way of interest,
dividend or any other amount of similar nature during the previous year to the balance of the credit of the
fund or scheme referred in s.17(2)(vii) to the extent it relates to contributions in excess of Rs. 7.50 lakhs which
is taxed u/s. 17(2)(vii) shall also be treated as perquisite and added to taxable income for which the accretion
shall be computed in a manner to be prescribed by rules.
 Issue
o As per Explanatory Memorandum to Finance Bill 2020, the intent of introducing the amendment is to withdraw
undue tax benefit accruing to high salary income earning employees. However, in case of such high salaried
individuals, there arises a risk of double taxation of employer’s contribution to NPS under S.17(1)(viii) and
S.17(2)(vii).
o Firstly, employer’s contribution to NPS is taxable in the hands of employee as “salary” under S.17(1) due to
specific provision in clause (viii). Secondly, the definition of “salary” also includes perquisite. Hence, employer’s
contribution to PF, NPS etc. in excess of the threshold of Rs.7,50,000 u/s 17(2)(vii) is again considered as salary
income in hands of the employee. This results in inclusion of same income twice in GTI of the employee.
o Thereafter, the employee may be able to claim deduction of such employer’s contribution to NPS, but, the
relief is available only upto 10% of salary income.
o The aforesaid results in unintended hardship in hands of the high salary earning employees. It also acts as

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disincentive for the employees to invest in NPS and lowers the retirement corpus of the employees.
o Also, it is not clear how the annual accretion in respect of excess contribution over Rs. 7.50 lakhs will be
computed since the rules are yet to be prescribed. It may be noted in case of NPS and approved
superannuation fund, the accretion is not in the nature of interest like in case of provident fund. The accretion
is by way of increase in net asset value of the corpus (like mutual fund units) and it will not be easy to identify
the accretion in respect of excess contributions. Further, the net asset value may also go down if the stock
market value falls. It is not clear whether the employee will be allowed deduction in case of such fall in value
during the year – which is a likely scenario considering the adverse impact of Covid 19 pandemic. If the rules
are not prescribed in time, there will be salary TDS shortfall making it difficult for the employer to recover and
pay the TDS – more particularly, in cases where the employees have left the organisation
 Recommendation
o It is recommended that the provisions of S.17 should be suitably amended to address the issue of double
taxation by amending provisions of S.17(2)(vii) to exclude income taxable under S.17(1)(viii).
o Alternatively, the CBDT may issue a circular or notification to address the issue of unintended double taxation.
o Further, the rules for computing the annual accretion on excess contributions may be notified at the earliest.
The feature of NAV based accretion to NPS and approved superannuation fund and possibility of decline in
value in a particular year may be duly considered while framing such rules.

B. Issues related to TDS on dividends

3. Dividend  Rationale
surcharge o Background and Issue
mismatch for

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different classes - The amendments at enactment stage to FB 2020 have reduced surcharge rates on dividend for
of non-resident individuals, HUFs, AOP, BOI and AJP to maximum 15% (as compared to highest surcharge of 37%) as
taxpayers and per original budget proposal.
mismatch with
- The amendments carried out to FB 2020 at enactment stage are at Parts II and Part III of First Schedule
income from
to FB 2020 which are linked to ‘rates in force’ referred in s.2(5) of FB 2020. Thus, wherever the
mutual funds and
relevant final rate or TDS provision refers to ‘rates in force’, the maximum surcharge on dividends
units of business
stands reduced to 15%.
trusts
- However, many final rate and TDS provisions provide for specific rates of tax on dividend income. They
are covered by s.2(6) and s.2(9) of FB 2020. Unfortunately, s.2(6) and s.2(9) of FB 2020 have not been
amended at enactment stage to reduce maximum surcharge to 15% for dividend income
- This has resulted in mismatch between (a) surcharge on dividends between different classes of non-
resident taxpayers and (b) TDS rates and final rates on dividend income for some non-resident
taxpayers. This is summarised in Table on the next page.
- The most significant impact is on FPIs (assessed in the status of individual or AOP or BOI) who will be
liable to higher rate of surcharge on dividend income.
- The other class of non-resident taxpayers impacted by higher surcharge are unit holders in REIT/Invits.
Incidentally, they also face mismatch between TDS rate (10%) and final rate (20%) as indicated in Table
on next page.
- It may be recollected that similar issue was encountered when surcharge rate on capital markets
transactions were reduced through Taxation Laws Amendment Ordinance promulgated in September
2019 but FPIs assessed in the status of individual or AOP or BOI were left out in view of absence of
corresponding amendment. This was subsequently covered up in the Taxations Laws Amendment Act
enacted in December 2019. Similar corrective action may be required for lowering of surcharge rate on
dividends.
 Recommendation

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o It is suggested that CBDT may clarify whether the mismatches are intentional. If they are unintentional, CBDT
may clarify how they shall be addressed through legislative amendments and what rates can be adopted by
taxpayers in the intervening period.
 Table summarising dividend surcharge rate mismatch for different classes of non-resident taxpayers.
Section Nature of TDS rate Whether covered by Whether TDS Whether final tax liability
payment to prescribed s.2(5) r.w Part II of at higher or for advance tax purposes
non-resident (rates in force First Schedule or lower at higher or lower
or specified s.2(6) of Finance Bill surcharge? surcharge?
rate) 2020?

194LBA Dividend Rate specified - s. 2(6) of Finance Bill, Higher Higher surcharge
income from section 2020 surcharge
Rate – 20%
business trust 194LBA(2) –
S.115A(1)(a)(i)r.w. clause
10%
(a) of third proviso to
s.2(9) of Finance Bill 2020
194LBB Dividend Rates in force - s. 2(5) of Finance Bill, Lower Higher surcharge
income from section 2020 surcharge
S.115A(1)(a)(i)r.w. clause
Alternative 194LBB(ii)
(a) of third proviso to
Investment
s.2(9) of Finance Bill 2020
Fund
194LBC Dividend Rates in force - s. 2(5) of Finance Bill, Lower Higher surcharge
income from section 2020 surcharge
S.115A(1)(a)(i)r.w. clause
Securitisation 194LBC(2)
(a) of third proviso to
Trust
s.2(9) of Finance Bill 2020
(Practically
possibility of

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dividend from
securitisation
trust is less
likely but
cannot be
completely
ruled out)

195 Dividend Rates in force s. 2(5) of Finance Bill, Lower Higher surcharge
income 2020 surcharge
S.115A(1)(a)(i)r.w. clause
(a) of third proviso to
s.2(9) of Finance Bill 2020
196D Dividend Rate specified - s. 2(6) of Finance Bill, Higher Higher surcharge
income paid section 196D – 2020 surcharge
S.115AD(1)(a) r.w. clause
to FPI 20%
(aa) of third proviso to
s.2(9) of Finance Bill 2020
although lower surcharge
is provided for capital
gains incomes from
securities

4. Dividend vs.  Background and Issue

mutual fund
o While maximum surcharge on dividend income is reduced to 15%, there is no corresponding reduction in
income & income
surcharge for income from mutual fund units and units of business trusts (REIT/Invits). This creates mismatch
from units of
between different classes of capital market equity instruments.
business trusts

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(ReITs/InvITs) o It may be noted that the capital gains income from equity oriented mutual funds and units of business trust are
subjected to lower surcharge upto 15%. Similarly, there should be parity between surcharge on dividend
income and income from mutual fund units/units of business trust.
 Recommendation
o Income from mutual funds and business trusts may be put at par with dividend income by restricting maximum
surcharge to 15%.

5. Clarify person  Background and Issue

whose PAN
o The TDS rate on dividend payment on GDR is 10% u/s. 196C. Following extracts from the erstwhile Issue of
should be
Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme,
considered in
1993 made it clear that dividend paying company can rely on PAN of overseas depository for making TDS
case of dividend
compliance in India
payment on
GDRs “Taxation on shares issued under Global Depositary Receipt Mechanism.
9. (1) Under the provisions of the Income-tax Act, income by way of dividend on shares will be taxed at the
rate of 10 per cent. The issuing company shall transfer the dividend payments net after deduct tax at
source to the Overseas Depositary Bank.
(2) On receipt of these payments of dividend after taxation, the Overseas Depositary Bank shall distribute
them to the non-resident investors proportionate to their holdings of Global Depositary Receipts evidencing
the relevant shares. The holders of the Depositary Receipts may take credit of the tax deducted at source on
the basis of the certification by the Overseas Depositary Bank, if permitted by the country of their
residence.”
o Similar provision is not present in extant Depository Receipts Scheme, 2014. The issue was not relevant earlier
since dividend was exempt u/s. 10(34). But now since dividend income is taxable in hands of shareholder, issue
will arise in whose PAN is the dividend paying company supposed to do TDS compliance in India such that
provisions of s.206AA requiring higher TDS @ 20% are not triggered
 Recommendation

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o It may be clarified through a Circular or through express amendment in s.206AA or s.196C, that TDS
compliance on dividend payment on GDRs will need to be made under PAN of overseas depository

C. TDS and TCS provisions

6. Exempt SPVs  Rationale

from carrying out
o Post withdrawal of s. 115-O(7) of ITA, company is no more required to discharge DDT. Consequently, dividend
withholding
income received by a shareholder is taxable in the hands of shareholders.
obligation u/s.
194 on o Business Trust (ReIT/InvIT) receives dividend income from its investment in SPVs. Such dividend income is not
distribution of taxable in the hands of business trust in view exemption to the business trust u/s. 10(23FC)(b) of ITA. Under
dividend to the pass through system of taxation and based on amendment to s.10(23FD) at enactment stage of FB 2020,
business trust the dividend so distributed by the Business Trust is either taxable in the hands of unitholders (if SPV has opted
for lower tax regime u/s. 115BAA) or exempt in the hands of unitholders (if SPV has not opted for lower tax
regime u/s. 115BAA). Further, SEBI regulations mandate Business Trust to distribute 90% of its incomes
received to its unitholders in the same year.
o S. 194 of ITA imposes obligation on domestic company to withhold taxes on distribution / payment of dividend
income at the rate of 10% before making payment by any mode. This section was not amended by FA 2020 to
carve out exemption for dividend paid by SPV to Business Trust.
 Issue
o S. 194 of ITA does not provide any exception from withholding when SPV makes payment of dividend to
business trust. In absence of any exception, even when the dividend income received by business trust from
SPVs is exempt, SPV will require to withhold taxes. This will lead to cash trap for Business Trust and deferred
distribution of dividend income to unit holders.
o To avoid such cash trap, Business Trust will need to administratively obtain NIL TDS certificate every year u/s.
197 which increases compliance burden on the Business Trust. It is practically not feasible for Business Trust to
give declaration as per Rule 37BA(2) to SPV to deduct tax directly in the name of unit holders for the reason

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that the composition of unit holders may change between the record date for paying dividend and actual
distribution by Business Trust since the units are freely transferable (more particularly in case of listed
ReITs/InvITs)
o In case of distribution of income to Securitisation Trusts and Alternative Investment Funds which are also
investment pooling vehicles like Business Trust, the CBDT has issued notifications u/s. 197A(1F) which exempt
the payers from deducting tax on incomes distributed to such vehicles on which the vehicles themselves are
not liable to tax.
 Recommendation
o Suitable amendment in s. 194 of ITA may be made to provide carve out when the SPV distributes the dividend
income to business trust.
o A notification may be issued u/s. 197A(1F) of ITA to provide exemption to SPV from withholding on dividend
income paid by SPV to business trust. The Notification may be on similar lines of Notification No. 51/2015
dated 25 June 2015 or Notification No. SO 2142(E) dated 17 June 2016 in the context of person making
payment to Alternative Investment Fund and Securitisation Trust of incomes which are exempt in the hands of
Alternate Investment Fund or Securitisation Trust.

7. Reduce TDS rate  Rationale

on fees for
o The FA 2020 has reduced the TDS rate u/s 194J to 2% (from existing 10%) in case of FTS payments but retained
professional
TDS rate at 10% for fees for professional services.
services to 2% or
provide guidance o The Explanatory Memorandum clarifies that the amendment is proposed since there are large number of
on classification litigations on the issue of short deduction arising out of characterisation dispute between s. 194C and s 194J.
between ‘Fees o While provision of 2% rate for FTS payments is a welcome change, the proposed amendment will give rise to a
for technical new litigation in the form of distinction between professional services and technical service. Thus, such
services’ liable to selective amendment for providing lower rate only for FTS payments is in direct conflict with the rationale in
TDS @ 2% and the Explanatory Memorandum that it is intended to avoid litigation on short deduction issues.
‘Fees for

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professional o There is significant overlap between scope of FTS which covers managerial, technical or consultancy services
services’ liable to and fees for professional services which, inter alia, includes profession of technical consultancy, engineering
TDS @ 10% services, information technology, etc. Hence, disputes will arise whether payments for such services will be
liable for TDS @ 2% or TDS @ 10%.
 Recommendation
o Hence, it is recommended that TDS rate on professional services should also be reduced to 2% to avoid
characterization disputes between fees for technical services and fees for professional services.
o Alternatively, CBDT should issue proper guidance with illustrations for uniform implementation of revised TDS
rates by the payers and avoidance of characterization disputes.
o As a broader measure to simplify TDS compliance, the disparity in TDS rates for payments to residents under
different provisions like s.194, 194A, 194C, 194H, 194J, etc should be eliminated and a uniform TDS rate should
be provided for all payments to residents to avoid characterization disputes.

8. Tightening of TDS  Rationale

provisions on
o Finance (No. 2) Act, 2019 inserted S. 194N in ITA providing for withholding of tax by a bank (including a co-
cash withdrawals
operative bank) or a post-office, where the aggregate withdrawals in cash in a year exceeds INR 1 Crore. Such
u/s. 194N
deduction is to be carried out at 2% on the amount of withdrawal in cash exceeding INR 1 Crore.
o S. 194N, as inserted, read as follows:
Every person, being,—
(a) banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or
banking institution referred to in section 51 of that Act);
(b) a co-operative society engaged in carrying on the business of banking; or
(c) a post office,
who is responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of one

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crore rupees during the previous year, to any person (herein referred to as the recipient) from one or more
accounts maintained by the recipient with it shall, at the time of payment of such sum, deducts an amount
equal to two per cent of sum exceeding one crore rupees, as income-tax”
 Amendment by FA 2020
o FA 2020 substitutes the existing S. 194N with a revised provision. The newly inserted S. 194N now reads as
follows:
‘‘194N. Every person, being,—
(d) a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking
institution referred to in section 51 of that Act);
(e) a co-operative society engaged in carrying on the business of banking; or
(f) a post office,
who is responsible for paying any sum, being the amount or the aggregate of amounts, as the case may be, in
cash exceeding one crore rupees during the previous year, to any person (herein referred to as the recipient)
from one or more accounts maintained by the recipient with it shall, at the time of payment of such sum,
deduct an amount equal to two per cent of such sum, as income-tax:”
o In addition, a new first proviso has been inserted to provide a lower threshold of cash withdrawals in case of
specified Taxpayers. The first proviso reads as follows:
Provided that in case of a recipient who has not filed the returns of income for all of the three assessment years
relevant to the three previous years, for which the time limit of file return of income under sub-section (1) of
section 139 has expired, immediately preceding the previous year in which the payment of the sum is made
to him, the provision of this section
shall apply with the modification that—
(i) the sum shall be the amount or the aggregate of amounts, as the case may be, in cash exceeding twenty

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lakh rupees during the previous year; and

(ii) the deduction shall be—
 an amount equal to two per cent. of the sum where the amount or aggregate of amounts, as the case
may be, being paid in cash exceeds twenty lakh rupees during the previous year but does not exceed
one crore rupees; or
 an amount equal to five per cent. of the sum where the amount or aggregate of amounts, as the case
may be, being paid in cash exceeds one crore rupees during the previous year.
 Issue
o Withholding whether applicable on entire withdrawal or only on withdrawal exceeding INR 1 Crore in case
of non-specified Taxpayers
- The newly substituted S. 194N is ambiguously worded. The phrase “sum exceeding one crore rupees”
which existed in the erstwhile provision has been deleted and hence it gives rise to an ambiguity of
whether deduction of tax needs to be made only on the sum exceeding INR 1 Crore or on the entire
amount of withdrawal inclusive of INR 1 Crore.
- The intent of the amendment does not appear to be to change the existing provisions but merely to
provide a lower threshold for specified Taxpayers. In fact, in case of cash withdrawals by specified
Taxpayers, the first proviso clearly indicates that the withholding would apply only on withdrawals
exceeding INR 20 lakhs.
o The determination of three years for which the return filing compliance needs to be checked for applicability
of the lower threshold prescribed in first proviso
- Further, the newly introduced first proviso can result in more than one interpretation on which of the
three years are to be considered for the purpose of determining the applicability of the lower
threshold. The two possible interpretations of the first proviso are as follows:
 View 1: Three years refer to the three financial years (FY) immediately preceding the year for

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which the due date for filing return of income u/s 139(1) has already expired as on the first day of
year in which cash withdrawal is made. For e.g.: For cash withdrawals in the year FY 2021-22, the
three years in which the compliance of return filing is to be checked for would be FY 2017-18,
2018-19 and 2019-20 (i.e. AY 2018-19, AY 2019-20 and 2020-21).
 View 2: Three years refer to the three financial years immediately preceding the year for which the
due date for filing ROI has expired as on the date of cash withdrawal. Since the applicability of
lower threshold depends on filing of return of income in such three years, withholding in FY 2021-
22 would be a rolling period. For instance, consider a case where the person who is withdrawing
cash is an individual. In the case of an individual, the return filing due date u/s 139(1) falls on 31
July 2021. Thus, for withdrawals till 31 July 2021, the three years would be FY 2017-18, 2018-19
and 2019-20 (i.e. AY 2018-19, AY 2019-20 and AY 2020-21). Subsequent to 31 July 2021, the three
years would be FY 2018-19, 2019-20 and 2020-21 (i.e. AY 2019-20, 2020-21 and 2021-22).
 Recommendation
o It is recommended that either the language of S. 194N is replaced with the erstwhile language or a circular be
issued to clarify that the withholding would apply only in respect of withdrawals exceeding Rs 1 Crore in case
of non-specified Taxpayers.
o It may be clarified that View 1 as described above i.e. a fixed period of three financial years for which the
return filing due date u/s 139(1) has expired prior to commencement of the relevant financial year in which
cash is withdrawn, is to be considered for the purpose of determination of applicability of the lower threshold
under the first proviso. This will provide ease of compliance and certainty for the banks for applying the lower
threshold throughout the financial year and avoid complications of position of applicability of first proviso
changing in the middle of the year.

9. Eliminate S.194-  Rationale:

O(6) which
o S.194-O of ITA, as introduced by FB 2020, defined “e-commerce operator” as “a person who owns, operates or
deems e-
manages a digital platform and is responsible for paying to e-commerce participant” which indicated that one
commerce
of the conditions to qualify as “e-commerce operator” was the contractual obligation of such e-commerce

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operator as operator to pay to e-commerce participant.

person
o However, at enactment stage, such definition was amended to exclude the condition of contractual
responsible for
requirement of paying sum to e-commerce participant. Further, S.194-O(6) was introduced wherein the e-
paying to e-
commerce operator is deemed as person responsible for paying to the e-commerce participant. Thus, as per
commerce
the amended provision, irrespective of contractual obligation of payment, e-commerce operator is required to
participant
deduct TDS u/s.194-O.
o On similar lines, Explanation to S.194-O(1) provides for trigger of TDS liability on e-commerce operator even
where payments are directly made by customers to e-commerce participant.
 Issue
o E-commerce operators may face difficulties to comply with the provisions where customers make payments
directly to e-commerce participant or through some other party and the money does not flow through e-
commerce operator.
o Furthermore, the recent RBI Guidelines dated 17 March 2020 applicable to payment aggregators and payment
gateways require e-commerce marketplaces to disintegrate their business of sale of goods or service and
business of collection and payment intermediary between merchants and customers. The Guidelines require
the payment aggregators to deposit money in a separate escrow account wherein restrictive list of debits and
credits are allowed and such list does not permit deduction of TDS from amount payable to e-commerce
participants.
o Such RBI restrictions and absence of cashflow creates difficulty in undertaking TDS compliance u/s.194-O and
e-commerce operator will face hardship in collection of TDS from vendors
o Even under CGST Act, 2017, e-commerce operator is required to collect TCS on goods or services sold through
its platform provided that the e-commerce operator collects consideration for goods or services.
 Recommendations
o It is recommended that the provisions creating deeming fiction for responsibility of payment should be

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withdrawn and TDS obligation should be imposed on e-commerce operator only if the e-commerce operator is
contractually responsible for paying.

10. Certain issues At the enactment stage, FA 2020 has introduced S.194-O(4) and (5) which empowers CBDT to issue binding guidelines in
w.r.t relation to S.194-O. While this is a welcome move, it is recommended that the CBDT should follow consultative approach
implementation for issuing guidelines (similar approach was adopted for issue of POEM Guidelines, Notification u/s.115JH, Rule 11UA). It is
of s. 194-O which recommended that in order to ease implementation of S.194-O, CBDT should issue, inter-alia, the following clarifications:
can be addressed
 Clarify that amount liable for TDS under S. 194-O is net amount of sales and not gross sales receipts
by CBDT
Guidelines o Amendment by FA 2020
- S.194-O(1) provides that the e-commerce operator shall be required to deduct tax at source on credit
or payment made to e-commerce participants. The tax is to be withheld on “gross amount of such
sales or services or both”.
o Issue
- In marketplace models and e-commerce industry, the “gross” amount of sale price of goods or services
is not always recovered from the customer. It is common for marketplace to provide features of
discount, guaranteed returns etc. The actual sale price after allowing discount is significantly lower
than the gross value of sale of goods or services. Further, there is usually a 15 day window period for
the buyers to return goods purchased through its platform. In such case, use of the term ”gross” may
result in difficulty for undertaking TDS compliance as the e-commerce operator becomes liable to pay
tax on gross amount of sale price rather than the actual sale price.
- Even under GST law, TCS at the rate of 1% is collected by e-commerce operator on net taxable value of
supplies which excludes sales return.
o Recommendation
- In order to avoid ambiguity and cascading effect, it is recommended that the CBDT Guidelines should
explicitly clarify that the gross amount of sale of goods or services for S.194-O should be computed

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after deducting discounts, sales return etc.

 Clarify that TDS is not to be withheld on the GST/ indirect tax portion
o Amendment by FA 2020
- S.194-O(1) provides that the e-commerce operator shall be required to deduct tax at source on credit
or payment made to e-commerce participants. The tax is to be withheld on “gross amount of such
sales or services or both”.
o Issue
- Further, under GST provisions, e-commerce operators charge and collect GST along with base sale
price of goods or services. The use “gross amount” implies that the e-commerce operator is required
to collect TDS even on the value of GST charged on goods or services.
- However, the CBDT has time and again clarified vide various circulars that TDS is not required to be
deducted on service tax or GST component where the agreement/ contract or invoice specifies the
amount of indirect taxes separately.
o Recommendation
- Similar to clarifications issued under other TDS provisions, it should be clarified that e-commerce
operator is not required to withhold tax on the amount of GST/ indirect tax that is collected from the
customer.
 Exclude shares, securities, actionable claims, money, etc. from the scope of “goods” and “services”
o Amendment by FA 2020
- The definition of electronic commerce under clause (a) of Explanation to S.194-O is provided to mean
supply of goods or services or both, including digital products, over digital or electronic network.
o Issue
- The definition of “electronic commerce”, “e-commerce operator” under S. 194-O seems wide enough

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to cover conventional and well-regulated platforms/ markets such as stock exchange or power
exchange. Considering the intent of S. 194-O is to tax e-commerce transactions and tax evaders, if any;
it may not be correct to levy such obligation on stock exchange or power exchange which are
conventional and well-regulated sectors.
- Further, there is ambiguity on whether sale of actionable claims like gift cards are covered within the
scope of S. 194-O.
- It is also not clear whether the definition of “goods” needs to be interpreted as per the Sale of Goods
Act or the GST Act or some other legislation. For instance, whether the term “goods” includes shares,
securities, money/ foreign currency, electricity etc. within its scope is not clear since there are
different inclusions and exclusions within scope of ‘goods’ under various laws.
- For instance, under GST law, items like share, securities, money, actionable claims are specifically
excluded from definition of goods but under the Sale of Goods Act, goods include stock and shares.
o Recommendation
- It is recommended to introduce suitable clarification in the CBDT Guidelines to exclude certain terms
like shares, securities, power units, money, actionable claims from scope of “goods” under provisions
of S. 194-O.
 Clarification on person liable to withhold tax where multiple e-commerce operators are involved in the transaction
chain
o Amendment by FA 2020
- S. 194-O requires an e-commerce operator to withhold taxes on transaction of sale or service that is
facilitated by such e-commerce operator.
o Issue
- The digital business models are highly integrated with multiple e-commerce operators being involved
in the transaction chain.

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- For instance, consider business models where there is one e-commerce operator (ACo) which merely
lists the products of various other online sellers/ e-commerce operators (say BCo). In such case, where
customer gets search results on ACo’s platform and wants to buy a particular product, he will be
redirected to BCo’s platform. The customer can buy the product only on BCo’s platform.
- In such case, there is a concern whether both ACo and BCo will be liable to withhold tax under S. 194-O
specially since this may create duplicated levy of TDS on the same transaction. It also creates
misperception on person who is actually liable to deduct TDS.
o Recommendations
- It is recommended that CBDT Guidelines should clarify that the e-commerce operator which enters
into contract for sale or service with e-commerce participant and has privity with the e-commerce
participant for such transaction shall be covered u/s.194-O. Similar provisions are also present under
GST law which required e-commerce operator to collect TCS.
 Exclusion of payment aggregator or payment gateways (covered under RBI Guidelines 2020 dated 17 March 2020)
from S.194-O:
o Amendment by FA 2020
- S. 194-O requires an e-commerce operator to withhold taxes on transaction of sale or service that is
facilitated by such e-commerce operator.
o Issue
- The broad scope of S. 194-O may also cover payment aggregators or payment gateways which act as
intermediary by facilitating collection and settlement of payments between customers and e-
commerce participants. As aforesaid, the RBI Guidelines also require that the payment function should
be undertaken through a separate entity as against the marketplace function. This will further reduce
the visibility of payment systems over the transaction. The payment entities merely assist in
completion of payment arm of the transaction and are not involved in selling of goods or services.

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o Recommendation
- It is recommended that the CBDT Guideline should specifically clarify that the payment aggregators
and payment gateways which are governed by RBI Guidelines are not covered under S.194-O.

 In case of sales by consignment agent on behalf of principal, it may be clarified that obligation to collect TCS shall be
on Principal
o Amendment by FA 2020
- S. 206C(1H) requires every person being seller to collect TCS from the buyer of goods on receipt of sale
consideration exceeding in aggregate Rs. 50L in any previous year. The section excludes particular class
of persons from the scope of buyer and seller
o Issue
- The provision of s. 206C(1H) provides that every person being a seller shall collect TCS from the buyer.
In case of sales by consignment agent on behalf of principal, question may arise whether TCS
obligation is on the principal (who is the legal seller) or the agent who receives sales consideration
from the buyer
o Recommendation
- It may be clarified that the legal obligation to collect TCS is on Principal and not on the agent
undertaking sales activity on behalf of Principal. Hence the primary obligation to comply with TCS is on
the principal being the legal seller of goods
- But since, practically, the sales consideration is first received by the agent, it may also be clarified that
where agent collects TCS from the buyer and deposits with Government using his own TAN and issues
TCS certificate to the buyer, there shall be no adverse consequences for principal for non-collection of
TCS
- Further, it may also be clarified that credit of TCS to the buyer would be available in all cases even in

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case where the TCS is collected by agent and not the principal on whose behalf sales are undertaken
 Clarify that if TDS is made by e-commerce operator u/s. 194-O, no TCS is required by seller (e-commerce participant)
of goods
o Amendment by FA 2020
- Second proviso to s.206C(1H) provides that TCS on sale of goods will not apply, if the buyer is liable to
deduct tax at source under any other provisions of this Act on the goods purchased by him from the
seller and has deducted such amount.
o Issue
- In e-commerce transactions, it is proposed to cast responsibility of TDS on e-commerce operator and
buyer is relieved from any TDS obligation. (Refer, s.194-O(3)). However, on a conjoint reading of both
provisions, it is not clear whether the seller/e-commerce participant (seller) is relieved from TCS
obligation if e-commerce operator has deducted tax u/s. 194-O. This is because e-commerce operator
is not the ‘buyer’ in the e-commerce transaction. He merely ‘facilitates’ the sale between e-commerce
participant (seller) and the buyer. This can potentially lead to same transaction being subject to TCS by
the seller and TDS by the e-commerce operator.
o Recommendation
- It may be clarified that where e-commerce transaction is subject to TDS u/s. 194-O by e-commerce
operator, TCS on sale of goods shall not apply to the e-commerce participant/seller.

Defer date of applicability of new TDS provision to 1 April 2021

o The outbreak of Novel Corona Virus (COVID-19) across many countries of the world has caused immense loss
to the lives of people, and accordingly, it has been termed as pandemic by the World Health Organisation and
various Governments including Government of India. The COVID-19 pandemic has caused disruptions across
the world, including India. This has resulted in a rapidly slowing economy, which some believe is showing

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recessionary trends. Social distancing has been unequivocally accepted to be the best way to contain its
spread, leading to announcement of complete lockdown in the country and difficulty faced by the taxpayers in
complying with statutory and regulatory requirements.
o Rightfully acknowledging such challenging time and difficulties faced by the taxpayers, the Finance Minister of
India, Nirmala Sitharaman, announced certain measures on 24 March 2020 to ease the statutory and
compliance burden. The relaxation measures included extension of various due dates from 31 March 2020 to
30 June 2020 including due date of filing belated and revised tax returns for tax year 2018 -2019, specified date
under “The Direct Tax Vivad Se Vishwas Act, 2020”.
o The effective date of new TDS u/s. 194-O has also been deferred till 1 October 2020 at enactment stage of
Finance Bill 2020.
o But e-commerce industry will require longer time to implement the new TDS requirement considering the
disruption caused by Covid-19 pandemic and hence it is recommended that the effective date of the new TDS
provision u/s. 194-O may be further deferred till 1 April 2021.

11. Carve out B2B  Rationale

transactions from
o In order to widen and deepen the tax net, FA 2020 extended the TCS provisions to cover a seller of “goods”
the ambit of TCS
other than the goods exported outside India or goods specified u/s. 206C(1)/ (1F)/ (1G) of ITA such as alcohol,
provision u/s.
motor vehicles, forest produce, scrap etc. The provision applicable w.e.f 1 October 2020.
206C(1H) as it
will lead to o TCS provisions would apply only to a seller whose sales, turnover or gross receipts in the business carried on by
multiple level of him exceeds INR 10 Crores during the immediately preceding financial year, and who receives, in any previous
tax collection year, any amount as consideration for sale of goods aggregating to INR 50 lakh or more, from a single buyer.
o Further, the definition of ‘buyer’ excludes from its scope Central Government, State Government, various
other authorities, person importing goods into India and also empowers the Central Government to notify

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class of persons for further exclusion.

 Issue
o The provisions of TCS for sale of goods u/s. 206C(1H) do not specifically make distinction between sales made
to the intermediate customers (B2B transactions) and sales made to the final customers (B2C transactions).
o In absence of specific exclusion for B2B transactions, the provision appears to apply for all types of sale
transactions, irrespective of whether the transaction involves sales to intermediate entities/ customers or it is
sale to final customers.
o Applicability of TCS provisions to B2B transactions as well may result in tax being collected at multiple levels, in
turn, may lead to cash blockage at entity level. In a supply chain structure consisting of manifold entities (as is
usually prevalent in the retail sector), this would result in tax being collected multiple times on the same
transaction. Collection of tax at multiple entity levels increases the administrative compliance burden,
transaction costs and results in cash flow trap Since B2B transactions are made with multiple vendors, it is
administratively burdensome to apply for lower/ NIL TCS for all vendors. Further, benefit of lower/ Nil TCS has
not been extended to s. 206C(1H) by FA 2020.
o Further, such transactions being subject to GST, there is already an audit trail available with the GST
Department which can be easily leveraged by the Income tax Department through electronic sharing of data
on automated basis and making use of Artificial Intelligence to mine the data to detect tax evasion. TCS on
sales results in multiple levy of tax on same transaction.
 Recommendation
o Given the administrative inconvenience the provision is likely to cause due to tax collection at multiple entity
levels, it is recommended to provide exclusion for sellers from collection of tax under section 206C(1H) selling
goods to intermediate persons/ dealers (B2B transactions).
o It may be noted that in the context of TCS on motor vehicles, CBDT provided clarification vide Circular No.22/
2016 dated 8 June 2016 that TCS u/s. 206C(1F) on motor vehicles of value more than INR 10 lakhs does not
apply to sale of motor vehicles by manufacturers to dealers/ distributors since the intent of the provision was

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to bring high value transaction within tax net to cover transactions of retail sales. Carve out may be provided
for sale of goods covered under section 206C(1H) for B2B transactions on similar lines as in case of sale of
motor vehicles.

12. Clarify the scope  Rationale

of the term
o FA 2020 extended the TCS provisions to cover a seller of “goods” other than the goods exported outside India
“goods” used in
or goods specified u/s. 206C(1)/ (1F)/ (1G) of ITA such as alcohol, motor vehicles, forest produce, scrap etc.
s. 206C(1H) i.e.
TCS on sale of  Issue
goods o S. 206C(1H) triggers TCS on sale of all goods except goods which are being exported outside India or goods
covered by other TCS provisions of s. 206C(1)/ (1F)/ (1G) such as tendu leaves, alcohol, motor vehicles etc.
o The term “goods” covered by s. 206C(1H) is not defined in the ITA which creates ambiguity on scope of the said
TCS provision. It is also not clear whether the definition of goods needs to be interpreted as per the Sale of
Goods Act 1930 (SOGA) or the Central Goods and Services Tax Act 2017 (CGST Act) or some other legislation.
For instance, whether the term “goods” includes shares, securities, money/ foreign currency, electricity etc.
within its scope is not clear since there are different inclusions and exclusions within scope of ‘goods’ under
various laws. For instance, definition of goods under SOGA includes stock and shares but definition of goods
under CGST Act excludes securities.
 Recommendation
o It is therefore recommended that the term “goods” should be defined clearly in the ITA for the purpose of TCS
u/s. 206C(1H) and it should specifically exclude items such as shares, securities, money/ foreign currency,
power, etc. from its scope.

13. Clarify whether  Rationale

TCS obligation
o FA 2020 introduced u/s. 206C(1H) of ITA to cover sale of “goods” under the ambit of TCS provisions. It is

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u/s 206C(1H) provided that the tax is to be collected by the seller @ 0.1% (1% in absence of PAN/ Aadhaar) at the time of
triggers on actual “receipt” of sales consideration exceeding INR 50 lakhs.
receipt of sales
 Issue
consideration,
irrespective of o TCS obligation u/s. 206C(1H) on sale of goods triggers at the time of “receipt” of amount as consideration for
mercantile sale of goods exceeding INR 50 lakhs in any previous year.
method of o Unlike s. 206C(1H), TCS obligation u/s 206C(1G) in relation to Liberalised Remittance Scheme and overseas tour
accounting program package triggers at the time of debiting the amount payable by the buyer or at the time of receipt of
followed by the such amount from the said buyer, by any mode, whichever is earlier.
seller
o Both the sub-sections are introduced by the same Finance Act with effect from 1 October 2020.
o Thus, the Legislature seems to have made a conscious departure in the trigger point for TCS collection u/s
206C(1H) at the time of receipt of amount towards sales consideration. In this regard, as per the plain reading
of the provision, it appears that TCS needs to be collected strictly on actual receipt basis, irrespective of the
method of accounting followed by the seller. Thus, TCS is to be collected on receipt of each amount towards
sales consideration, whether received in advance or after completion of the sale by way of deferred payment.
o If such is the correct reading, since the provision applies with effect from 1 October 2020, it can be inferred
that TCS needs to be collected on all amounts received by the seller on or after 1 October 2020, irrespective of
the fact whether the sale has been concluded prior to or post 1 October 2020. As a corollary, no TCS needs to
be collected on amounts received upto 30 September 2020 even if sale is concluded on or after 1 October
2020. Further, no TCS is required on sales consideration written off as irrecoverable bad debts in books.
o The same interpretation applies in all the years, and not restricted merely to transitional year. For instance, if
the sale is concluded in May, but consideration is received in August, TCS needs to be collected by the seller in
August.
o If it is correct to state that TCS obligation u/s 206C(1H) triggers strictly on actual receipt basis, it will lead to
mismatch between books of accounts of the sellers following mercantile method of accounting and TCS
obligation. While it is true that casting TCS obligation at the time of receipt of sales consideration is beneficial

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to the seller from cash flow perspective since he is required to discharge TCS only on actual receipt, but
practically reconciling the sales as per GST and financial reporting recognised on mercantile method of
accounting and actual sales realisations for TCS purposes may lead to litigation and disputes.
 Recommendation
o In light of above referred considerations, it may be clarified by the CBDT whether the TCS obligation on sale of
goods u/s 206C(1H) triggers strictly on actual receipt basis or receipt needs to be understood as per the
method of accounting followed by the seller.

14. Benefit of lower  Rationale

TCS rate should
o As per the amendment by FA 2020 to s. 206C(1G)(a), Authorised Dealer (AD) is not required to collect TCS
also be extended
where the amount or aggregate amount of remittances outside India under LRS, other than for purchase of
to remittances
overseas tour package, is less than INR 7 lakh in a FY. Further, TCS is required to be collected at the rate of 5%
for medical
on the amount which is in excess of INR 7 lakh.
treatment similar
to benefit o However, in case where the remittance is out of the loan obtained from any financial institution (as defined in
granted for s. 80E of ITA) for the purpose of pursuing any education, AD is liable to collect TCS at the rate of 0.5% (instead
remittances out of 5%) on the amount or aggregate of the amounts in excess of INR 7 lakh remitted by the buyer in a financial
of education loan year. This beneficial provision was introduced during the enactment stage of FB 2020.
 Issue
o Amendment providing for lower rate of TCS @ 0.5% on remittances out of education loan availed from a
qualifying financial institution is a welcome move by the Government.
o However, considering the importance of education and medical sectors, it is not clear why similar benefit is not
extended to remittances made for medical expenses/ assistance, subject to suitable safeguards as the
Government may impose.
o In many cases, remittances are made to foreign hospital for advanced medical treatment. Just as in case of
foreign education, the remittance is made for genuine purpose. Imposing TCS at high rate of 5% results in cash

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trap for the remitter at a time he is facing distress due to medical emergency. In fact, it is a better case for
lower TCS on unplanned expenditure than foreign education which is a planned expenditure.
 Recommendation
o Considering the importance of education and medical sectors, it is recommended that the TCS provisions
should not apply in case of remittances made outside India under LRS for study/ education abroad or for
availing medical treatment or incurring medical expenses abroad, with suitable safeguards as the Government
may deem fit.
o Alternatively, akin to lower rate of TCS for remittances out of education loan, benefit of lower TCS rate @ 0.5%
should also be extended for remittances made in relation to medical expenses/ relief.

15. Relaxation of  Rationale

provisions for
o S. 206C(6A) provides that if the person responsible for collecting tax (say, seller) does not collect whole or part
assessee-in-
of the tax amount or fails to pay after collecting, he shall be deemed to be an assessee-in-default.
default to be also
extended to sub- o The proviso to s. 206C(6A) provides that such person/ seller responsible for collecting tax u/s 206C shall not be
sections deemed to be assessee-in-default if the buyer has:
(1F)/(1G)/(1H) of - Furnished his return of income u/s 139(1)
s. 206C
- Taken into such amount (on which TCS was collectible) for computing income in his return of income,
and
- Paid tax due on income declared by him in the return of income
 Amendment by FA 2020
o FA 2020 has restricted the benefit of the above proviso only to sub-section (1) and (1C) of s. 206C. In other
words, the relaxation has not been extended to expanded scope of TCS such as sub-section (1F)/(1G)/(1H) of
section 206C in relation to sale of motor cars, LRS, overseas tour program package and sale of goods.
 Issue

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o The underlying rationale of proviso to s. 206C(6A) is statutory recognition of legal position clarified by CBDT
vide its Circular No. 275 dated 29 Jan 1997 upheld by Supreme Court in the case of Hindustan Coca Cola
Beverages (P) Ltd v. CIT (293 ITR 226) and Ely Lilly & Co(I) Pvt. Ltd (312 ITR 225) viz. once the payee/ buyer has
paid tax and filed return, the purpose of TDS/ TCS of ensuring tax collection is achieved and hence, the payer/
seller should no more be considered as an assessee-in-default. Hence, the rationale of not extending the
relaxation granted by the proviso to other sub-sections is not clear.
o In case where the buyer has already done the compliance as stated in the proviso to s. 206C(6A), not extending
the benefit to the sellers/ persons responsible for collecting tax u/s 206C(1F)/ (1G)/ (1H) will lead to double
whammy and create unnecessary administrative and tax compliances for the seller/ buyer.
 Recommendation
o Accordingly, it is recommended that the relaxation provided by the proviso to s. 206C(6A) may be extended to
the other provisions of TCS such as sub-section (1F)/(1G)/(1H) of section 206C also, since once the buyer has
already done the necessary compliance, not extending the benefit of the proviso will lead to double whammy
and create unnecessary administrative and tax compliances for the seller/ buyer.

16. Benefit of lower/  Rationale

NIL tax collection
o S. 206C(9) provides for collection of tax at lower rate as against relevant rate provided in the respective sub-
certificate u/s.
section (1) of s. 206C for items such as alcohol, scrap etc. or sub-section (1C) of s. 206C for items such as
206C(9) should
parking lot, toll plaza etc. in case where the Assessing Officer is satisfied that the total income of the buyer/
also be extended
licensee justifies collection of tax at a lower rate. Such certificate remains valid till the time it is cancelled by
to TCS on LRS
the Assessing Officer.
remittances,
overseas tour  Amendment by FA 2020
package, sale of o In order to widen and deepen the tax net, the FA 2020 extended the TCS obligation to authorised dealers who
goods and motor receive money for remittance outside under LRS u/s 206C(1G)(a) and to sellers of overseas tour package u/s
vehicles 206C(1G)(b). In both the cases, TCS applies at the rate of 5% at the time of receipt or debit whichever is earlier,
and in case of no PAN/ Aadhaar, the TCS rate is increased to 10%. Further, it is also not extended to sale of

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goods by s.206C(1H).
 Issue
o The benefit of availing lower tax collection certificate as provided for transactions covered under section
206C(1)/(1C) is neither provided in sub-section (1G)/(1H) nor sub-section (9) of s. 206C.
o The policy rationale for non-extension of lower TCS benefit to transactions of LRS, overseas tour package and
sale of goods as distinguished from other TCS provisions is not clear.
o Further, apart from the above newly introduced provisions, such benefit is also not extended to s. 206C(1F)
dealing with TCS on sale of motor vehicles.
 Recommendation
o It is recommended that the benefit of availing lower tax certificate may also be extended to TCS u/s. 206C(1G)
charged @ 5% on remittances outside India through LRS and overseas tour package, TCS u/s. 206C(1H) on sale
of goods as also u/s. 206C(1F) on sale of motor vehicles.
Defer date of applicability of new TCS provision to 1 April 2021
o For the reasons elaborated earlier for deferring applicable date of new TDS provision u/s. 194-O, it is
recommended that the effective date of the new TCS provision u/s. 206C(1G)/(1H) may also be further
deferred till 1 April 2021.

D. Equalisation levy

17. Defer  Background and Issue

Equalisation levy
o The outbreak of Novel Corona Virus (COVID-19) across many countries of the world has caused immense loss
(EL) on ‘E-
to the lives of people, and accordingly, it has been termed as pandemic by the World Health Organisation and
commerce Supply
various Governments including Government of India. The COVID-19 pandemic has caused disruptions across

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or Services’ in the world, including India. This has resulted in a rapidly slowing economy, which some believe is showing
view of recessionary trends. Social distancing has been unequivocally accepted to be the best way to contain its
unprecedented spread, leading to announcement of complete lockdown in the country and difficulty faced by the taxpayers in
circumstances complying with statutory and regulatory requirements.
involving COVID-
o Rightfully acknowledging such challenging time and difficulties faced by the taxpayers, the Finance Minister of
19
India, Nirmala Sitharaman, announced certain measures on 24 March 2020 to ease the statutory and
compliance burden. The relaxation measures included extension of various due dates from 31 March 2020 to
30 June 2020 including due date of filing belated and revised tax returns for tax year 2018 -2019, specified date
under “The Direct Tax Vivad Se Vishwas Act, 2020”.
o Amidst such situation, the intent of Government in expanding scope of EL at enactment stage as a surprise
package is not clear.
 Recommendation
o Keeping the severity of the circumstances in mind, it is represented that the EL on e-commerce supply and
services (ESS EL) be deferred till 1 April 2021.
o Further, India is wedded to the consultative and transparent process of formulating its tax policy. This has been
widely appreciated. It would, therefore, be desirable that the levy is introduced after proper consultation and
after ensuring that taxpayers are ready with the understanding and implementation of the levy. Without
prejudice, to begin with, the text of levy may be restricted to avoid those items which are perceived to be
highly controversial.
o Such step will help all stakeholders to comply with the newly introduced provisions once the global economy
will be on the path of revival and also boost confidence of non-residents digital players to operate and
undertake business with India elevating Indian economy as well after having faced the impact of pandemic.

18. Clarify explicitly  Background

that EL is a
o As part of Action Plan 1 of BEPS and in furtherance of global efforts, it is expected that concerns arising from
temporary
new form of digital businesses particularly in the area of nexus, data and characterisation will be addressed. As

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measure while part of BEPS 2.0 Pillar 1, a framework has been agreed and work is in progress to allocate taxing rights to
global consensus market jurisdictions.
on taxation of e-
o The above work is expected to achieve global consensus by the end of 2020. The efficacy of such global
commerce is
measure is highly dependent on uniform approach to be adopted by each member country. Any unilateral
achieved under
measure is not only inconsistent with global agenda but is also likely to result in undesirable multiple taxation
BEPS 2.0 Pillar
without even the effective opportunity of eliminating such multi taxation.
One. Accordingly,
once India adopts o Recognising India’s commitment to global consensus, the provisions of Significant Economic Presence as a
direct tax nexus for taxing business profits has been deferred by Finance Act 2020 to 1 April 2021 from the earlier
measures scheduled date of 1 April 2020.
pursuant to OECD  Recommendation
BEPS agenda in
o In tandem with the above spirit, we understand that EL is a transit measure and will be abolished once global
which India is
consensus is achieved. In our informal discussion with Government official, we understand such is the view or
participating
thought process of Government. This may kindly be followed up with an official communication for clarity.
actively and on
equal footing, EL o An explicit statement to the above effect will send assuring signals to the investors particularly as the scope of
will be abolished EL as now applicable is fairly wide.

19. Need to provide  Background and Issue

for Explanatory
o ESS EL came to be inserted under unprecedented circumstances. Customary Explanatory Memorandum and
Memorandum
object statement supporting the levy are not available.
and object and
purpose of the o The language of the provisions as can be seen from the subsequent paras are susceptible to alternative
amendment interpretations and are likely to create significant uncertainty on scope and magnitude of the levy.
o As we understand basis informal view expressed by a Government official, there is an acknowledgement of the
need to provide for clarifications, FAQs and illustrations. Since ESS EL is likely to be cost of doing business
without ability of claiming credit in home country, it is likely to have significant impact for the businesses
where the margins are slender, or the businesses are operating under losses. Since the levy can have

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significant impact on businesses particularly during the current scenario, it is utmost advisable for the
businesses to have clarity on scope of their obligation and cost.
 Recommendation
o Hence, it is urged that a guidance or a clarificatory statement be issued which will reflect the intention of
Government at this juncture and also serve as an aid to the industry stakeholders and the consultants/ advisers
while interpreting the new provisions.
o Since the levy has already trickled in, the clarifications may be provided at the earliest. Alternatively, this may
also be the basis for deferral of the levy.

20. Clarify that ESS EL  Background and Issue

is restricted to
o Till 31 March 2020, the Chapter VIII of Finance Act 2016 levied EL in respect of online advertisement and
highly digitalised
provisioning of digital advertising space. The levy was with an understanding that targeted online
products and
advertisement primarily generate revenue based on user data collected by social networking platforms.
services and do
not extend to o Comparable to the above, there are businesses which are able to operate virtually since the products or
goods and services are themselves digitalised. The examples of this include online content streaming, online music, online
services which games, online support services, etc. These businesses are location agnostic and may sought to be covered as
are physical in comparable with EL on online advertisement. The provision makes this aspect clear when it refers to “e-
nature and commerce supply or sale” and seeks to cover “online provision of services” and “online sale of goods” along
where e- with the facilitation of such sale or provisioning through an electronic or digital platform.
commerce o There are apprehensions raised about applicability of ESS EL to pure Brick and Mortar structure where digital
merely facilitates or electronic facility is utilised not for availing the service but merely for seeking information or for confirming
communication, the booking. There is an apprehension that mere use of email or telephone or use of corporate website of the
placement or non-resident for placing order or for booking of services may also get captured by ESS EL.
conclusion of
 Recommendation
order
o It may be appropriate that the coverage of digitalised business aligns with global discussion, which intends to

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capture highly digitalised businesses. Thus, there is a strong and urgent need to clarify that such incidental or
trivial role played by electronic or digital facility is not sought to be covered. The primary object of such
business continues to be purchase of physical goods or availment of physical services. To illustrate, it may be
clarified that services of overseas hotels, amusement parks, overseas hospitals for critical illness, etc. are not
covered merely because booking is done with the help of email or with the help of interactive website
maintained by the service provider or the seller of goods.
o Reference may be made to definition of Online Information Data Base Access and Retrieval (OIDAR) under GST
Act which covers services provided through the medium of internet and received by the recipient online
without having any physical interface with the supplier of such services. e.g. downloading of an e-book online
for a payment would amount to receipt of OIDAR services by the consumer downloading the e-book and
making payment.
o Without prejudice, comparable digital taxes such as UK DST make an exception for physical retailers using
online medium as incremental sales channel.
o Separately, it may also be prudent to delete reference to “telecommunication network” in the definition of
“online” in s.164(f) of FA 2016, so as to avoid chances of litigation and unintended coverage of transactions
concluded on telephones or emails.

21. Clarify that the  Consider the following example:

amount of
o BCo is e-commerce operator and owns, operates or manages BCo App. Drivers, resident individuals, are
consideration
rendering cab services through digital platform of BCo, i.e. B Co App
received or
receivable by the o Customers avail cab services online through B Co App and payment is made directly to B Co (say 100). B Co
e-commerce retains its service charges (say 30) and remits the balance amount to Drivers (i.e. 70).
operator o The facts are schematically represented in the diagram below:
facilitating online
sale of goods or
online provision

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of services is
restricted to
convenience fees
or facilitation
fees received or
receivable by the
e-commerce
operator in his
own right.

 In such scenario, there are concerns that ESS EL will be levied on entire cab fare of 100 which is received by the e-
commerce operator but on behalf of the resident drivers.
 Thus, it should be clarified that in such cases, the “consideration received or receivable” by the e-commerce operator
on its own account is only 30. Such consideration is received in the form of facilitation or service charge and NR should
be obligated to pay EL only on such consideration of 30 received/ receivable by NR e-commerce operator. Amount of
100 which is collected by the operator in the capacity of an agent or trustee or a fiduciary or intermediary should not
be reckoned as “consideration”.
 Alternatively, in order to ensure that nothing more than facilitation fees is covered, the clause (iii) of definition of ESS
u/s. 164(cb) of FA 2016 may be deleted or modified. It can be so modified that it covers the facilitation part of the
service but is not allowed to cover the third-party segment of the entire transaction merely because some small area
of the transaction is enabled by facilitator.
 It is worthwhile to note that if the levy is extended to the entire consideration of 100, the resident sellers or service
providers (say, drivers in above example) may claim exemption under s.10(50) of ITA with regard to income arising

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from 100 on the premise that the same has been subjected to ESS EL @ 2%. Such attempt of taxing gross consideration
may have unintended litigation on the taxpayers insisting on EL and asking for exemption u/s. 10(50). Any such
consequence may be counterproductive to the extent that the new provision will add to litigation in an enormous
measure.
 Further, in certain cases, online sale transaction takes place through multiple e-commerce operators. Charging EL @
2% to each e-commerce operator on total consideration of value of goods or services will result into multiple taxation
with cascading effect and will increase the overall cost of entire transaction. For instance, in above example if even
payment gateway is involved and subjected to EL on 100, it may lead to double taxation. This also supports that it is
fair to restrict the levy only to the extent of service charge or facilitation fee in case of facilitation of online sale of
goods or online provision of services.

22. Clarify that for  Background and Issue

each of the e-
o ESS EL is levied with reference to the amount of consideration received or receivable by e-commerce operator
commerce
from the specified services. As stated above, consideration is the amount which a person receives in lieu of his
operator,
discharge of contractual obligations. It is a part of quid pro quo of the contract.
consideration
excludes o In the context of various TDS provisions, CBDT has clarified that consideration for a given service is to be
statutory levies calculated without taking into account statutory levies which are collected for handing over to the
such as GST, Government. Refer CBDT Circular No. 1/2014 for service tax on rent and professional services and CBDT
service tax or Circular No. 23/2017 on GST.
alike  Recommendation
o In view of the foregoing, a suitable clarification may be provided that ESS EL will be levied with reference to
consideration flowing to the operator and will exclude collections on behalf of Government such as GST.

23. Explicitly clarify  Background and Issue

that ESS EL is to
o In case of sales of goods, sales returns are very common in both retail and wholesale scenarios. In certain
be levied with
categories like fashion merchandise, the returns can be as high as 25% of the sales.
reference to

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actual o TCS under CGST Act 2017 also calculated with reference to net value of taxable supplies” after reducing he
consideration aggregate value of taxable supplies returned to the suppliers during the month.
received and
 Recommendation
accordingly,
consideration o Accordingly, without prejudice to our representation at para 18 above, it would be fair to restrict levy to
attributable to consideration towards net sales. Also, the e-commerce operator should be permitted to make adjustment of
sales returns or sales returns and credit notes in the quarter of the financial year to which it pertains while doing quarterly
credit notes given compliance u/s. 166A of FA 2016. The fact that the related sale may pertain to earlier quarter may not be
to the customers relevant consideration while granting reduction so long as such sale was considered for ESS EL in the earlier
on account of quarter.
claims will be
deducted to
determine the
base which will
be subject to ESS
EL

24. Mismatch in  Background and Issue

applicability of
o As a consequential amendment to expansion of scope of EL, s.10(50) of ITA has been amended to state that
effective date of
income arising from any “e-commerce supply or services” made or provided or facilitated on or after 1 April
ESS EL provisions
2021 and chargeable under EL chapter shall be exempt from income tax.
and s.10(50) of
ITA be rectified o While exemption u/s. 10(50) of ITA is applicable to income arising on or after 1 April 2021; on other hand, the
to state that ESS EL provisions apply from 1 April 2020. For consideration which is subjected to ESS EL for the period 1 April
s.10(50) also 2020 to 31 March 2021, there is no corresponding exemption to income arising from such consideration. In
applies from FY other words, while the charge of EL will apply w.e.f. 1 April 2020, the exemption from income tax will apply for
2020-21 ESS made or provided or facilitated on or after the 1 April 2021.
 Recommendation

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o Such date mismatch appears to be inadvertent error and it is urged that suitable amendment should be made
to s.10(50) to make it effective from 1 April 2020 i.e. FY 2020-21. Needless to state, where provisions of ESS EL
are deferred (as requested in para 15 above), the consequential amendment be made to s.10(50) as well to
bring it at par with effective date of ESS EL.

25. For ESS EL, scope  Background and Issue

of “goods” and
o ESS EL applies to online sale of goods or online provision of services or facilitation thereof. The terms “goods”
“services” to
or “services” are not defined. Reference can be made to definitions under CGST which exclude share,
exclude financial
securities, money, actionable claims from scope of TCS.
instruments,
insurance, forex  Recommendation
derivatives, o Thus, it is recommended to introduce suitable definition to exclude certain items like shares, securities,
actionable money, actionable claims from scope of “goods” and “services”.
claims, shares,
securities, bonds,
debentures, etc.

26. Measurement/  Basis the guidance provided under Report of the Committee on Taxation of E-Commerce, it appears that basis of 2%
attribution issue tax effectively is derived based on 5% margin attributable to India operations, which is taxable at 40%. For MNC groups
already present in India through their local subsidiaries, this is an incremental tax on 5 % margin in addition to what
the local subsidiaries are already paying on a transfer pricing basis.
 Further, where global audited financials of e-commerce operator report losses for immediately preceding fiscal year,
such companies should be exempt from EL. As per draft “CBDT proposal for amendment of rules for profit attribution
to permanent establishment” dated 18 April 2019, loss making companies were supposed to be 2% and even if that
guidance were to be accepted, the rate of tax for loss making companies cannot be in excess of 0.8% and such EL paid
should be allowed to be credited in future.
 With the scope of EL, and the low threshold of 2Cr, companies at various levels of growth maturity – right from start-
ups to unicorns to large MNC would get covered. Equally, the products and services they deal with, will have very

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different margin scenarios. This problem is also recognised by BEPS Pillar 1.

 Therefore, to tax every company at such a high attribution % may not be fair. Accordingly, it is urged that provisions
similar to s.197 of ITA can be introduced in EL chapter such that business models with lower or no profits can apply for
a lower tax certificate and EOP can pay EL at such lower % on consideration.

27. Scope of s.163  S.178 of the FA 2016 states that the provisions of Chapter XV of the ITA shall so far as may be, apply in relation to
under the ITA to equalisation levy, as they apply in relation to income-tax. Chapter XV of the ITA provides liability in special cases and
be curtailed with includes provisions with regard to representative assessee as well. S.163 of the ITA which provides meaning of agent
regard to EL with respect to NR provides various limbs and one such limb covers a person in India from or through whom the non-
resident is in receipt of any income, whether directly or indirectly (S.163(1)(c) of the ITA).
 It may be noted here that the reason for shifting the compliance burden on NR for ESS EL is due to the fact that it
captures even B2C transactions and making every customer who is in receipt of online sale or supply of services as
agent of NR can become clumsy and non-feasible. On similar basis, it is prayed that limb (c) can be deleted or modified
in a manner that liability of representative assessee is not cast on the customers in case of B2C transactions.

28. Guidance and  As per s.165A(1), a person using IP address in India is reckoned as a proxy to trigger ESS EL.
clarity on
 It may be impractical for companies to keep track of the IP address of every user and data flows. It also raises
determination of
questions regarding whether the IP address requirement is sufficient, reliable and verifiable indicator of nexus in all
use of IP address
cases.
in India
 Thus, it is imperative that a guidance about determination of IP address is provide

29. Clarity in cases  Background and Issue

where there is
o Based on the wide language of provisions of ESS EL, there can be situations where an underlying consideration
overlap between
can be subject matter of ESS EL and can also be taxable under the ITA.
provisions of
Equalisation Levy o For example, a licence granted by a NR to a resident to access a software application can fall within the ambit
and income of definition of ESS under s. 164(cb)(ii) read with s. 165A(1)(i) of FA 2016 and can also be regarded as royalty
taxable under u/s. 9(1)(vi)(b) of the ITA.

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source rules of  Recommendation

ITA
o There is no clarity on what should be the course of action in case of overlap between ITA and ESS EL provisions.
o Hence, it is prayed that suitable clarification is introduced in line with S 165A(2), wherein certain transactions
are outside the ambit of ESS EL, specifying how will the interplay between the transactions having an overlap
between ITA and ESS EL be dealt with.

30. Where NR e-  Background and Issue

commerce
o As stated above, there can be overlap between provisions of FA 2016 and the provisions of ITA. Further, there
operator has paid
can also be a situation where the NR e-commerce operator pays EL on the basis that there exists no permanent
EL @2% and
establishment (PE) in India, however in appellate proceedings, it is finally concluded that e-commerce operator
claimed
has a PE in India and hence the income is taxable under the provisions of ITA and not under FA 2016 due to S
exemption u/s.
165A(2)(i).
10(50) but Tax
Department o In such cases, an issue arises as to how should the EL tax which has been paid initially by the e-commerce
disputes it to be operator be treated? Whether e-commerce operator can claim a refund of the same or whether the EL tax can
royalty/FTS liable be adjusted/set off against the tax payable under the ITA?
to income tax @  Recommendation
10%, allow
o It is prayed that in the absence of any clear directions in this regard, the amount paid as EL should be treated
adjustment of EL
as advance tax for ITA purposes and accordingly, the amount should be available for set off/adjustment against
tax as credit or
the income tax payable under the ITA.
set off against
the income tax
payable in India
by non-resident
in case of
litigation on such
characterisation

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31. Compliance  Background and Issue

burden on NR e-
o Under the ESS EL provisions, the compliance burden is cast on the NR e-commerce operator as compared to
commerce
the EL provisions of 2016, wherein the compliance burden was cast on the payer (being resident in India or NR
operator to be
having a PE in India).
eased
o The scope of ESS EL is very wide and charge is created even in cases where the consumption of goods/ services
is pursuant to an IP address located in India.
o Considering that the levy is broad and can include NRs who do not have nexus in terms of business in India,
imposing compliance burden in terms of filing quarterly returns, obtaining PAN, digital signatures certificates
(DSC), etc can go against the basic principles of ease of doing business in India and can have an impact on how
India is pursued by non-residents.
 Recommendation
o It is prayed that a mechanism can be adopted for compliance whereby an authorised representative in India
can do the compliance without saddling the NR with compliances in terms of PAN, DSC, returns etc. or there
can also be a mechanism wherein certain thresholds are specified which exempts the NR from undertaking
compliances in India on similar lines as found under ITA, say S.115A wherein return obligation is done away
with subject to conditions.

32. Eligibility to claim  Background and Issue

ESS EL as a
o As per s.165A, ESS EL is a charge on consideration received or receivable by e-commerce operator from ESS
foreign tax credit
made or provided or facilitated to specified persons. The charge of ESS EL is on the e-commerce operator.
(FTC) in the
country of o Further, the income from ESS operations are likely to be taxed in the hands of the e-commerce operator in its
residence resident country as well.
o There is no clarity on whether ESS EL can be claimed as a credit against taxes payable in respective resident
countries and whether ESS EL can fall within the ambit of ‘tax’ as defined under the respective tax treaties.
o In cases where ESS EL paid in India is not allowed as credit (FTC) against taxes on the concerned income

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payable by such NR in its resident country, the same would result in double taxation and this will go against
intent of the legislature as well as against the spirit of tax treaties.
o The fact that tax is levied as part of a separate chapter (Chapter VIII under FA 2016) or independent of Income-
tax laws, or that it is levied on consideration received/receivable rather than taxable profits is no justification
for its exclusion from the meaning of income tax.
o Also, the fact that the administration and implementation of EL is by tax authorities under ITA also support this
view.
o Levy of EL without benefit of tax credit in resident country would result into an additional tax cost in the hands
of NR service providers doing business in India. This will also discourage Foreign Service providers to enter into
Indian markets.
 Recommendation
o Hence, to avoid double taxation and additional cost, it is recommended that it may be clarified that EL is a tax
on income and this clarification will mitigate double taxation for taxpayers.
o Similar concerns arise in case of resident vendors/ operators as well. It is worthwhile to note that a lot of
countries are also taking unilateral measures to levy tax on digital transactions. Thus, Indian exporter selling
online goods or providing online services may be subjected to such levy in the other country and also suffer
taxation in India, being a resident state. Suitable credit mechanism may also need to be developed in order to
eliminate double taxation.

E. Change in tax registration norms for charities

33. Defer the new  Rationale

registration
o FA 2020 has revamped the entire process of obtaining and continuing registration under s. 12A / s. 12AA of the
requirements to

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1 April 2021 ITA for existing registered trusts as well as new trusts.
o As explained in the Explanatory Memorandum to FB 2020, the intention of such proposal is to ensure that the
conditions of registration are adhered to ensure continuance of exemption. This is also for having a non-
adversarial regime and not conducting roving inquiry by the tax authority in the affairs of the exempt entities
on day to day basis.
o The proposed provision provides for different period of limitation for making an application of registration for
different classes of trusts for the purposes of claiming benefit of s. 11 and 12 of the ITA. For example, an
existing charitable trust registered as on 1 June 2020 will have to make an application for fresh registration
under the new provisions within a period of 3 months, for renewal of registration earlier granted under s. 12AB
of the ITA, the trust is required to approach the tax authority at least 6 months prior to the expiry of
registration etc.
o Also, the trust will be granted either provisional registration or final registration depending on the respective
clause of s. 12A(1)(ac) under which the registration was sought.
o However, there is no change in the powers of the tax authority for cancelling the registration. In other words,
the powers of tax authority enabling cancellation of registration are not modified and it may be cancelled by
the tax authority at any point of time subject to certain conditions.
o The proposed provision is very complex and bifurcated into multiple scenarios. Some of the scenarios
contemplated under s. 12A(1)(ac) are even overlapping which will create further confusion and ambiguity.
o Also, there are different time limits depending upon specific fact pattern under which the trust falls and even
delay of one day in adhering to such strict time limits is prone to adverse consequences such as loss of
exemption for the year in which delay took place.
o The new provisions propose to convert the present system of ‘rule of exception’ to new system of ‘rule of
compulsion’. Presently, the trust’s registration can be cancelled only if it is found that the trust’s activity is not
carried on in required manner. Otherwise, there is no adverse impact on such registration. Separately, the
Assessing Officer has independent power to verify the claim of the taxpayer on year on year basis as per the

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Sr. Subject Comments / Recommendations

provisions of s. 11 to 13 of the ITA.

o Therefore, there are enough safeguards in the present statute for keeping check on the activities of the
charitable trust and hence, presently there is no need for any change in the process of registration.
o Assumption in the Explanatory Memorandum that the trusts are being harassed on day to day basis by
conducting roving inquiries doesn’t appear to be correct. Assuming that is true, the solution should be to insert
a provision which is deterrent to erring officials, alternative of the new registration regime is to push the
taxpayer to the Tax Authority who are privy to such alleged harassment. Thus, the remedy is counter-
productive and will create greater harassment for the trusts.
o It does not appear to be logical that, at the end of 5 years, each trust automatically loses exemption even if it
might have conducted its activities without any blemish. It would put a vast and predominant number of trusts
to regular hardship in an effort to find out a handful wrong doers.
o As per amended s. 12A(1)(ac)(i), the existing charitable trusts, who are registered as on 1 June 2020, are
required to make an application for obtaining registration under s. 12AB within a period of 3 months from the
effective date of the new provision (i.e. 1 June 2020).
o In view of the above, all the existing charitable trusts registered under s. 12A / 12AA of the ITA are required to
make an application on or before 31 August 2020 without default. The registration process is likely to be
extensive requiring furnishing of lot of information which will be an onerous requirement for charitable trusts
o Also, there is no back-up provision for cases where there is genuine delay by such trusts. As per amended
provision, if there is delay even of one day (for any reason), the case of such trust will fall in the residuary
clause of s. 12A(1)(ac)(vi). Consequently, the registration of the trust will be granted provisionally effective
from the next financial year and not from the financial year in which the application was made
 Recommendation
o The provisions require a thorough rethink of problems arising for charitable trusts. In any case, implementing
the new law during current Covid 19 pandemic period will pose immense challenges for charitable trusts as
also the Tax Department. The current priority for both charities and Government is to tackle the human and

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economic impact of Covid 19.

o Since the Government has already extended several tax compliances falling due during the period from 20
March 2020 to 29 June 2020 and also reserved power to extend it further in the Ordinance promulgated on 31
March 2020, it is recommended that the new registration related provisions for charities may be further
postponed till 1 April 2021.

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