Amendments Proposed in Income Tax via Finance Bill, 2024

[Manoj Gupta]

1. Exemption under section 10(4D)

Section 10(4D) provides that any income accrued or arisen to, or received by a specified fund as a result of transfer of capital asset referred to in clause (viiab) of section 47, on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in convertible foreign exchange or as a result of transfer of securities (other than shares in a company resident in India) or any income from securities issued by a non-resident (not being a permanent establishment of a non-resident in India) and where such income otherwise does not accrue or arise in India or any income from a securitisation trust which is chargeable under the head "Profits and gains of business or profession", shall be exempt to the extent such income accrued or arisen to, or is received, is attributable to units held by non-resident (not being the permanent establishment of a non-resident in India)  or is attributable to the investment division of offshore banking unit, as the case may be, computed in the prescribed manner.

"investment division of offshore banking unit" is defined to mean an investment division of a banking unit of a non-resident located in an International Financial Services Centre, as referred to in sub-section (1A) of section 80LA and which has commenced its operations on or before the 31st day of March, 2024. 

The Finance Bill, 2024 proposes that "investment division of offshore banking unit" can commence its operations on or before 31.03.2025.

2. Exemption under section 10(4F)

Section 10(4F) provides that any income of a non-resident by way of royalty or interest , on account of lease of an aircraft or a ship in a previous year, paid by a unit of an International Financial Services Centre as referred to in sub-section (1A) of section 80LA, if the unit has commenced its operations on or before the 31st day of March, 2024 shall be exempt.

The Finance Bill, 2024 proposes that unit of an International Financial Services Centre as referred to in sub-section (1A) of section 80LA   can commence its operations on or before 31.03.2025.

3. Exemption under section 10(23FE)

Section 10(23FE) provides exemption to any income of a specified person in the nature of dividend, interest , any sum referred to in clause (xii) of sub-section (2) of section 56 or long-term capital gains arising from an investment made by it in India, whether in the form of debt or share capital or unit. One of the conditions of exemption is that the investment has to be made on or after the 1st day of April, 2020 but on or before the 31st day of March, 2024.

The Finance Bill, 2024 proposes that investment   can be made on or before 31.03.2025.

4. Allowability of one more year to incorporate start-up

The existing provisions of section 80-IAC of the Act provide for a deduction of an amount equal to one hundred per cent of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years, at the option of the assessee, subject to the condition that the eligible start-up is incorporated on or after 1-4-2016 but before 1-4-2024  and the total turnover of its business does not exceed one hundred crore rupees.

“Eligible start-up” means a company or limited liability partnership engaged in eligible business which fulfills the following conditions, namely:—

(i) it is incorporated on or after the 1-4- 2016 but before 1-4- 2024;

(ii) the total turnover of its business does not exceed 100 crore rupees in any of the previous years relevant to the assessment year for which deduction under section 80-IAC(1) is claimed [Deduction can be claimed, at the option of the assessee, for any three consecutive assessment years out of ten years beginning from the year in which the eligible start-up is incorporated]; and

(iii) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government.

The Finance Bill, 2024 proposes to extend the terminal year to 2025. Accordingly, “Eligible start-up” may be incorporated before 1-4-2025.

5. Unit in International Financial Services Centre can begin operation upto 31.03.2025 for the purposes of section 80LA

Under section 80LA, in case of a Unit of the International Financial Services Centre, income from business for which it has been approved for setting up in such a Centre in a Special Economic Zoneis eligible for deduction under section 80LA(1A).

 Any income arising from the transfer of an asset, being an aircraft or ship , which was leased by a unit of an Unit of the International Financial Services Centre to a person subject to condition that the unit has commenced operation on or before the 31st day of March, 2024 shall also be eligible for deduction.

The Finance Bill, 2024 proposes that unit of an International Financial Services Centre as referred to in sub-section (1A) of section 80LA   can commence its operations on or before 31.03.2025.

6. Time limit for notification regarding faceless transfer pricing proposed to be extended to 31-3-2025

The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 has inserted a new sub-section (8) in section 92CA from 1-11-2020 so as to provide that the Central Government may make a scheme, by notification in the Official Gazette, for the purposes of determination of the arm's length price under section 92CA(3), so as to impart greater efficiency, transparency and accountability by —

(a) eliminating the interface between the Transfer Pricing Officer and the assessee or any other person to the extent technologically feasible;

(b) optimising utilisation of the resources through economies of scale and functional specialisation;

(c) introducing a team-based determination of arm's length price with dynamic jurisdiction.

The Central Government may, for the purpose of giving effect to the scheme made under sub-section (8), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification.

It is provided that no direction shall be issued after the 31st day of March, 2024.

The above date is proposed to be extended to 31-3-2025 and thus now the Central Government may, for the purpose of giving effect to the scheme made under sub-section (8), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification issue notification upto 31-3-2025.

7. Faceless direction by DRP

The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 has inserted a new sub-section (14B) in section 144C from 1-11-2020 so as to provide that the Central Government may make a scheme, by notification in the Official Gazette, for the purposes of issuance of directions by the dispute resolution panel, so as to impart greater efficiency, transparency and accountability by —

(a) eliminating the interface between the dispute resolution panel and the eligible assessee or any other person to the extent technologically feasible;

(b) optimising utilisation of the resources through economies of scale and functional specialisation;

(c) introducing a mechanism with dynamic jurisdiction for issuance of directions by dispute resolution panel.

The Central Government may, for the purpose of giving effect to the scheme made as above by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification.

It is provided that no direction shall be issued after the 31st day of March, 2024.

Proviso to section 144C(14C) is proposed to be amended so as to provide that direction shall be issued after the 31^st day of March 2025.

8. TCS on foreign remittances under LRS

Amendments were carried out in sub-section (1G) of section 206C of the Act by the Finance Act, 2023.

These amendments increased the rate of TCS from 5% to 20% for remittance under Liberalised Remittance Scheme (LRS)  as well as for purchase of overseas tour programme package and removed the threshold of Rs. 7 lakhs for triggering TCS on LRS. These two changes were not applicable when the remittance is for education or medical purpose. These amendments were to take effect from 1st July 2023.

CBDT vide Circular No. 10/2023, dt. 30-6-2023 as amended by Circular No. 11/2023, dt. 6-7-2023 has clarified that the practical difficulties that may arise from the removal of the threshold for LRS payments other than for education and medical treatment.

In order to address these issues, a Press Release dated 28-6-2023 was issued by Ministry of Finance wherein the certain decisions relating to TCS on foreign remittance have been taken.

In order to provide legislative back-up to above Press Release the Finance Bill, 2024 proposes to amend sub-section (1G) of section 206C as under:

(i) Threshold of ₹ 7 lakhs per financial year per individual in clause (a) and clause (b) of sub-section (1G) of section 206C is proposed to be  restored for TCS on all categories of LRS pavments through all modes of payment regardless of the purpose. Thus, for first Rs. 7 lakhs remittance under LRS there shall be no TCS. Beyond this Rs. 7 lakhs threshold, TCS shall be at the rate of —

(a) 0.5% (if remittance for education is financed by loan taken from a financial institution);

(b) 5% (in case of remittance for education/medical treatment);

(c) 20% for others.

There is a departure from Press Release in the sense that as per Press Release for purchase of overseas tour programme package under clause (b) of sub-section (1G) of section 206C, the TCS shall continue to apply at the rate of 5% for the first Rs. 7 lakhs per individual per annum, the 20% rate will only apply for expenditure above this limit.

But the Finance Bill, 2024 proposes that there shall be no TCS for purchase of overseas tour programme package for first Rs. 7 lakhs. And thereafter TCS will be at 20%.

It is proposed that the sum to be collected under on or after the 1st day of July, 2023 and before the 1st day of October, 2023, shall be collected in accordance with the provisions of this sub-section as they stood on the 1st day of April, 2023.

The increase in TCS rates; which were to come into effect from 1st July, 2023 shall now come into effect from 1st October, 2023 with the modification as above. Till 30th September, 2023, earlier rates (prior to amendment by the Finance Act, 2023) shall continue to apply.

Earlier and new TCS rates are summarised as under:

Nature of payment	Earlier rate before Finance Act, 2023 (Applicable upto 30-9-2023)	Proposed rate w.e.f. 1st October, 2023
(1)	(2)	(3)
LRS for education, financed by loan from financial institution	Nil upto ₹ 7 lakhs 0.5% above ₹ 7 lakhs	Nil upto ₹ 7 lakhs 0.5% above ₹ 7 lakhs
LRS for Medical treatment/ education (other than financed by loan)	Nil upto ₹ 7 lakhs 5% above ₹ 7 lakhs	Nil upto ₹ 7 lakhs 5% above ₹ 7 lakhs
LRS for other purposes	Nil upto ₹ 7 lakhs 5% above ₹ 7 lakhs	Nil upto ₹ 7 lakhs 20% above ₹ 7 lakhs
Purchase of Overseas tour programme package	5% (without threshold)	Nil upto ₹ 7 lakhs 20% thereafter

*Note: (i) TCS rate mentioned in column 2 shall continue to apply till 30st September, 2023.

(ii) There shall be no TCS on expenditure under LRS under clause (a) of sub-section (1G) of section 206C upto Rs. 7 lakhs, irrespective of purpose.

9. Faceless appeals before ITAT

Section 253(8) provides that the Central Government may make a scheme, by notification in the Official Gazette, for the purposes of appeal to the Appellate Tribunal, so as to impart greater efficiency, transparency and accountability by —

(a) optimising utilisation of the resources through economies of scale and functional specialisation;

(b) introducing a team-based mechanism for appeal to the Appellate Tribunal, with dynamic jurisdiction.

Section 253(9) provides that   the Central Government may, for the purpose of giving effect to the scheme made under sub-section (8), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification.

It is provided that no direction shall be issued after the 31st day of March, 2024.

The Finance Bill, 2024 proposes that now the Central Government may issue direction upto 31-3-2025.

Section 255(7) provides that the Central Government may make a scheme, by notification in the Official Gazette, for the purposes of disposal of appeals by the Appellate Tribunal so as to impart greater efficiency, transparency and accountability by —

(a) eliminating the interface between the Appellate Tribunal and parties to the appeal in the course of appellate proceedings to the extent technologically feasible;

(b) optimizing utilisation of the resources through economies of scale and functional specialisation;

(c) introducing an appellate system with dynamic jurisdiction.

Section 255(8) provides that the Central Government may, for the purposes of giving effect to the scheme made under sub-section (7), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply to such scheme or shall apply with such exceptions, modifications and adaptations as may be specified in the said notification.

It is provided that no such direction shall be issued after the 31st day of March, 2024.

The Finance Bill, 2024 proposes that now the Central Government may issue direction upto 31-3-2025.