Amendment of section 10.
5. In section 10 of the Income-tax Act,––
(a) with effect from the 1st day of April, 2022,––
(i) in clause (4D),––
(I) after the words “attributable to units held by non-resident (not being the permanent establishment of a non-resident in India)”, the words “or is attributable to the investment division of offshore banking unit, as the case may be,” shall be inserted;
(II) in the Explanation,––
(A) after clause (a), the following clause shall be inserted, namely:––
(aa) “investment division of offshore banking unit” means 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’;
(B) for clause (c), the following clause shall be substituted, namely:––
‘(c) “specified fund” means,––
(i) a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate,––
(I) which has been granted a certificate of registration as a Category III Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(II) which is located in any International Financial Services Centre; and
(III) of which all the units other than unit held by a sponsor or manager are held by non-residents; or
(ii) investment division of an offshore banking unit, which has been––
(I) granted a certificate of registration as a Category III Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or which has commenced its operations on or before the 31st day of March, 2024; and .
(II) fulfils such conditions including maintenance of separate accounts for its investment division, as may be prescribed;’;
(ii) after clause (4D), the following clauses shall be inserted, namely:––
“(4E) any income accrued or arisen to, or received by a non-resident as a result of transfer of non-deliverable forward contracts entered into with an offshore banking unit of an International Financial Services Centre as referred to in sub-section (1A) of section 80LA, which fulfils such conditions as may be prescribed;
(4F) any income of a non-resident by way of royalty, on account of lease of an aircraft 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––
(i) is eligible for deduction under the said section for that previous year; and
(ii) has commenced its operationson or before the 31st day of March, 2024.”;
(b) in clause (5),––
(i) after the proviso and before the Explanation, the following proviso shall be inserted, namely:––
“Provided further that for the assessment year beginning on the 1st day of April, 2021, the value in lieu of any travel concession or assistance received by, or due to, such individual shall also be exempt under this clause subject to the fulfillment of such conditions (including the condition of incurring such amount of such expenditure within such period), as may be prescribed.”;
(ii) the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted, namely:––
“Explanation 2.- For the removal of doubts, it is hereby clarified that where an individual claims exemption and the exemption is allowed under the second proviso in connection with the prescribed expenditure, no exemption shall be allowed under this clause in respect of such prescribed expenditure to any other individual.”;
(c) in clause (10D),––
(i) after the third proviso and before Explanation 1, the following provisos shall be inserted, namely:––
“Provided also that nothing contained in this clause shall apply with respect to any unit linked insurance policy, issued on or after the 1st day of February, 2021, if the amount of premium payable for any of the previous year during the term of such policy exceeds two lakh and fifty thousand rupees:
Provided also that if the premium is payable, by a person, for more than one unit linked insurance policies, issued on or after the 1st day of February, 2021, the provisions of this clause shall apply only with respect to those unit linked insurance policies, where the aggregate amount of premium does not exceed the amount referred to in fourth proviso in any of the previous year during the term of any of those policies:
Provided also that the provisions of the fourth and fifth provisos shall not apply to any sum received on the death of a person:
Provided also that if any difficulty arises in giving effect to the provisions of this clause, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty and every guideline issued by the Board under this proviso shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and the assessee.”;
(ii) after Explanation 2, the following Explanation shall be inserted, namely:––
‘Explanation 3.- For the purposes of this clause, “unit linked insurance policy” means a life insurance policy which has components of both investment and insurance and is linked to a unit as defined in clause (ee) of regulation 3 of the Insurance Regulatory and Development Authority of India (Unit Linked Insurance Products) Regulations, 2019 issued by the Insurance Regulatory and Development Authority under the Insurance Act, 1938 (4 of 1938) and the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999).’;
(d) with effect from the 1st day of April, 2022,––
(i) in clause (11), the following proviso shall be inserted, namely:––
“Provided that the provisions of this clause shall not apply to the income by way of interest accrued during the previous year in the account of a person to the extent it relates to the amount or the aggregate of amounts of contribution made by that person exceeding two lakh and fifty thousand rupees in any previous year in that fund, on or after the 1st day of April, 2021 and computed in such manner as may be prescribed;”;
(ii) in clause (12), the following proviso shall be inserted, namely:––
“Provided that the provisions of this clause shall not apply to the income by way of interest accrued during the previous year in the account of a person to the extent it relates to the amount or the aggregate of amounts of contribution made by that person exceeding two lakh and fifty thousand rupees in any previous year in that fund, on or after the 1st day of April, 2021 and computed in such manner as may be prescribed;”;
(iii) in clause (23C),––
(I) in sub-clause (iiiad), for the words “receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed”, the words “receipts of the person from such university or universities or educational institution or educational institutions do not exceed five crore rupees” shall be substituted;
(II) in sub-clause (iiiae),––
(A) for the words “receipts of such hospital or institution do not exceed the amount of annual receipts as may be prescribed; or”, the words “receipts of the person from such hospital or hospitals or institution or institutions do not exceed five crore rupees.” shall be substituted;
(B) after sub-clause (iiiae), the following Explanation shall be inserted, namely:––
“Explanation.––For the purposes of sub-clauses (iiiad) and (iiiae), it is hereby clarified that if the person has receipts from university or universities or educational institution or institutions as referred to in sub-clause (iiiad), as well as from hospital or hospitals or institution or institutions as referred to in sub-clause (iiiae), the exemptions under these clauses shall not apply, if the aggregate of annual receipts of the person from such university or universities or educational institution or institutions or hospital or hospitals or institution or institutions, exceed five crore rupees; or”;
(III) in the third proviso,––
(A) the Explanation shall be numbered as Explanation 1 thereof and in Explanation 1 as so numbered, after the words “medical institution:” occurring at the end, the words, brackets and figures “subject to the condition that such voluntary contributions are invested or deposited in one or more of the forms or modes specified in sub-section (5) of section 11 maintained specifically for such corpus.” shall be inserted;
(B) after Explanation 1 as so numbered, the following Explanation shall be inserted, namely:––
“Explanation 2.–– For the purposes of determining the amount of application under this proviso,-
(i) application for charitable or religious purposes from the corpus as referred to in Explanation 1, shall not be treated as application of income for charitable or religious purposes:
Provided that the amount not so treated as application or part thereof, shall be treated as application for charitable or religious purposes in the previous year in which the amount, or part thereof, is invested or deposited back, into one or more of the forms or modes specified in sub-section (5) of section 11 maintained specifically for such corpus, from the income of that year and to the extent of such investment or deposit; and
(ii) application for charitable or religious purposes, from any loan or borrowing, shall not be treated as application of income for charitable or religious purposes:
Provided that the amount not so treated as application or part thereof, shall be treated as application for charitable or religious purposes in the previous year in which the loan or borrowing, or part thereof, is repaid from the income of that year and to the extent of such repayment:”;
(IV) in the fourteenth proviso, after the figures and letters “12AA”, the words, figures and letters “or section 12AB” shall be inserted;
(V) after the twentieth proviso, the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted, namely:––
“Explanation 2.––For the purposes of this clause, it is clarified that the calculation of income required to be applied or accumulated during the previous year shall be made without any set off or deduction or allowance of any excess application of any of the year preceding to the previous year;”;
(e) in clause (23FE),––
(A) in sub-clause (iii),––
(i) in item (c),––
(I) for the words “hundred per cent.”, the words “not less than fifty per cent.” shall be substituted;
(II) after the word, brackets and letter “item (b)”, the words, brackets, figures and letter “or in an Infrastructure Investment Trust referred to in sub-clause (i) of clause (13A) of section 2; or” shall be inserted;
(ii) after item (c), the following items shall be inserted, namely:––
“(d) a domestic company, set up and registered on or after the 1st day of April, 2021, having minimum seventy-five per cent. investments in one or more of the companies or enterprises or entities referred to in item (b); or
(e) a non-banking financial company registered as an Infrastructure Finance Company as referred to in notification number RBI/2009-10/316 issued by the Reserve Bank of India or in an Infrastructure Debt Fund, a non-banking finance company, as referred to in the Infrastructure Debt Fund-Non-Banking Financial Companies (Reserve Bank) Directions, 2011, issued by the Reserve Bank of India, having minimum ninety per cent. lending to one or more of the companies or enterprises or entities referred to in item (b):”;
(B) after the third proviso, the following provisos shall be inserted, namely:––
“Provided also that in case a Category-I or Category-II Alternative Investment Fund referred to in item (c) of sub-clause (iii) has investment of less than one hundred per cent. in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause or in an Infrastructure Investment Trust referred to in item (c) of the said sub-clause, income accrued or arisen or received or attributable to such investment, directly or indirectly, which is exempt under this clause shall be calculated proportionately to that investment made in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause or in the Infrastructure Investment Trust referred to in item (c) of the said sub-clause, in such manner as may be prescribed:
Provided also that in case a domestic company referred to in item (d) of sub-clause (iii) has investment of less than one hundred per cent. in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause, income accrued or arisen or received or attributable to such investments, directly or indirectly, which is exempt under this clause shall be calculated proportionately to the investment made in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause, in such manner as may be prescribed:
Provided also that in case a non-banking finance company registered as an Infrastructure Finance Company or Infrastructure Debt Fund, referred to in item (e) of sub-clause (iii), has lending of less than one hundred per cent. in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause, income accrued or arisen or received or attributable to such lending, directly or indirectly, which is exempt under this clause shall be calculated proportionately to the lending made in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause, in such manner as may be prescribed:
Provided also that in case a sovereign wealth fund or pension fund has loans or borrowings, directly or indirectly, for the purposes of making investment in India, such fund shall be deemed to be not eligible for exemption under this clause.”;
(C) the Explanation shall be numbered as Explanation 1 thereof, and in Explanation 1 as so numbered,––
(i) in clause (b),––
(I) after sub-clause (iv), the following proviso shall be inserted, namely:––
“Provided that the provisions of sub-clause (iii) and (iv) shall not apply to any payment made to creditors or depositors for loan taken or borrowing for the purposes other than for making investment in India;”;
(II) in sub-clause (v), for the words “undertake any commercial activity whether within or outside India”, the words “participate in the day to day operations of investee but the monitoring mechanism to protect the investment with the investee including the right to appoint directors or executive director shall not be considered as participation in the day to day operations of the investee” shall be substituted;
(ii) in clause (c),––
(I) in sub-clause (ii), after the word “country”, the words “or if liable to tax, exemption from taxation for all its income has been provided by such foreign country” shall be inserted;
(II) in sub-clause (iii), for the words “prescribed; and”, the word “prescribed;”, shall be substituted;
(III) after sub-clause (iii), the following sub-clause shall be inserted, namely:––
“(iiia) it does not participate in the day to day operations of investee but the monitoring mechanism to protect the investment with the investee including the right to appoint directors or executive director shall not be considered as participation in day to day operations of the investee; and”;
(D) after Explanation 1, the following Explanations shall be inserted, namely:––
‘Explanation 2.- For the purposes of this clause,––
(i) “investee” means a business trust, or a company, or an enterprise, or an entity, or a Category I or Category II Alternative Investment Fund, or an Infrastructure Investment Trust or a domestic company, or an Infrastructure Finance Company or an Infrastructure Debt Fund referred to in item (e) of sub-clause (iii), in which the sovereign wealth fund or the pension fund, as the case may be, has made the investment, directly or indirectly, under the provisions of this clause;
(ii) “loan and borrowing” means-
(a) any loan taken or borrowing by a sovereign wealth fund from, or any deposit or investment made in a sovereign wealth fund by, any person other than the Government of the country in which the sovereign wealth fund is set up;
(b) any loan taken or borrowing by a pension fund from or any deposit or investment made in a pension fund by, any person but shall not include the deposit or investment which represents statutory obligations and defined contributions of one or more funds or plans established for providing retirement, social security, employment, disability, death benefits or any similar compensation to the participants or beneficiaries of such funds or plans, as the case may be.
Explanation 3.––For the purposes of this clause, the Central Government may prescribe that the method of calculation of “fifty per cent.” referred to in item (c) or “seventy-five per cent.” referred to in item (d) or “ninety per cent.” referred to in item (e), of sub-clause (iii) shall be such as may be prescribed;’;
(f) after clause(23FE), the following clause shall be inserted with effect from the 1st day of April, 2022, namely:––
‘(23FF) any income of the nature of capital gains, arising or received by a non-resident, which is on account of transfer of share of a company resident in India, by the resultant fund and such shares were transferred from the original fund to the resultant fund in relocation, and where capital gains on such shares were not chargeable to tax if that relocation had not taken place.
Explanation.––For the purposes of this clause, the expressions “original fund”, “relocation” and “resultant fund” shall have the meanings respectively assigned to them in the Explanation to clause (viiac) and clause (viiad) of section 47;’;
(g) in clause (50),––
(I) for the figures “2021”, the figures “2020” shall be substituted;
(II) for the Explanation, the following Explanations shall be substituted, namely:––
‘Explanation 1.––For the removal of doubts it is hereby clarified that the income referred to in this clause shall not include and shall be deemed never to have been included any income which is chargeable to tax as royalty or fees for technical services in India under this Act read with the agreement notified by the Central Government under section 90 or section 90A.
Explanation 2.-For the purposes of this clause,––
(i) “e-commerce supply or services” shall have the meaning assigned to it in clause (cb) of section 164 of the Finance Act, 2016 (28 of 2016);.
(ii) "specified service" shall have the meaning assigned to it in clause (i) of section 164 of the Finance Act, 2016 (28 of 2016).’.
Notes on Clauses:
Clause 5 of the Bill seeks to amend section 10 of the Income-tax Act relating to incomes not included in total income.
The said section provides that in computing the total income of a previous year of any person, certain categories of income shall not be included in the total income.
Clause 4D of said section provides exemption for 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”, 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).
It is proposed to amend the said clause so as to provide that the said exemption shall also be available in case of any income accrued or arisen to, or received to the investment division of offshore banking unit to the extent attributable, and computed in the manner as may be provided by rules.
It is further proposed to insert a new clause (4E) in the said section so as to exempt any income accrued or arisen to, or received by a non-resident as a result of transfer of nondeliverable forward contracts entered into with an offshore banking unit of an International Financial Services Centre as referred to in sub-section (1A) of section 80LA, which fulfills such conditions as may be provided by rules.
It is also proposed to insert a new clause (4F) in the said section so as to exempt any income of a non-resident by way of royalty, on account of lease of an aircraft 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 is eligible for deduction under section 80LA for that previous year and has commenced its operations on or before 31st March, 2024.
These amendments will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-2023 and subsequent assessment years.
Clause (5) of the said section provides for exemption in respect of the value of travel concession or assistance received by or due to an employee from his employer or former employer for himself and his family, in connection with his proceeding on leave to any place in India.
It is proposed to insert a second proviso in the said clause so as to provide that for the assessment year beginning on the 1st day of April, 2021, in the case of an individual, the value in lieu of any travel concession or assistance received by, or due to, such individual shall also be exempted, subject to fulfillment of such conditions (including the condition of incurring such amount of such expenditure within such period), as may be provided by rules.
It is further proposed to insert Explanation 2 so as to clarify that where an individual claims such exemption and the same is allowed under the second proviso in connection with the expenditure provided by rules, no exemption shall be allowed under the said clause in respect of the same expenditure to any other individual.
These amendments will take effect from 1st April, 2021.
Clause (10D) of the said section provides for the exemption for the sum received under a life insurance policy in respect of which the premium payable for any of the years during the terms of the policy does not exceed ten percent of the actual capital sum assured.
It is proposed to insert fourth, fifth, sixth and seventh proviso to the clause. Proposed fourth proviso seeks to provide that the exemption under this clause shall not apply with respect to any unit linked insurance policy, issued on or after the 1st day of February, 2021, if the amount of premium payable for any of the previous year during the term of such policy exceeds two lakh fifty thousand rupees.
Proposed fifth proviso seeks to provide that if the premium is payable, by a person, for more than one unit linked insurance policies, issued on or after the 1st day of February, 2021, the provisions of this clause shall apply only with respect to those insurance policies, where the aggregate amount of premium does not exceed the amount referred to in fourth proviso in any of the previous year during the term of any of those policies.
Proposed sixth proviso seeks to provide that the provisions of the fourth and fifth provisos shall not apply to any sum received on the death of a person.
Proposed seventh proviso seeks to provide that if any difficulty arises in giving effect to the provisions of this clause, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty and every guideline issued by the Board under this proviso shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and the assessee.
It is further proposed to insert Explanation 3 to the said clause so as to define the expression “unit linked insurance policy” as a life insurance policy which has components of both investment and insurance and is linked to a unit as defined in clause (ee) of regulation (3) of the Insurance Regulatory and Development Authority of India (Unit Linked Insurance Products) Regulations, 2019 issued by Insurance Regulatory and Development Authority under the Insurance Regulatory Act, 1938 and the Insurance Regulatory and Development Authority Act, 1999.
These amendments will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.
Clause (11) of the said section provides for exemption with respect to any payment from a provident fund to which the Provident Funds Act, 1925 applies or from any other provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette.
Clause (12) of the said section provides for exemption with respect to the accumulated balance due and becoming payable to an employee participating in a recognised provident fund, to the extent provided in rule 8 of Part A of the Fourth Schedule.
It is proposed to insert a proviso to such of the aforesaid clauses so as to provide that the provisions of these clauses shall not apply to the income by way of interest accrued during the previous year in the account of a person to the extent it relates to the amount or the aggregate of amounts of contribution made by that person exceeding two lakh and fifty thousand rupees in any previous year in that fund, on or after the 1st day of April, 2021 and computed in such manner as may be provided by rules.
These amendments will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-2023 and subsequent assessment years.
Sub-clause (iiiad) of clause (23C) of the said section provides for exemption for the income received by any person on behalf of university or educational institution as referred to in that sub-clause. The exemptions under the clause are available subject to the condition that the annual receipts of such university or educational institution do not exceed the annual receipts as may be prescribed.
Similarly, sub-clause (iiiae) of the said clause provides for exemption for the income received by any person on behalf of hospital or institution as referred to in that sub-clause.
The exemptions under the clause are available subject to the condition that the annual receipts of such hospital or institution do not exceed the annual receipts as may be prescribed.
Presently, the amount prescribed for sub-clause (iiiad) as well as (iiiae) is one crore rupees. It is proposed to increase the limit of annual receipts, for exemption under sub-clause (iiiad) and (iiiae), to five crore rupees and provide that such limit shall be applicable for an assessee with respect to the aggregate receipts from university or universities or educational institution or institutions as referred to in sub-clause (iiiad) as well as from hospital or hospitals or institution or institutions as referred to in sub-clause (iiiae).
Explanation to the third proviso to the said clause provides that income of the funds or trust or institution or any university or other educational institution or any hospital or other medical institution, shall not include income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus.
It is proposed to number the said Explanation as Explanation 1 thereof and to provide that such voluntary contributions should be invested or deposited in one or more of the forms or modes specified in sub-section (5) of section 11 maintained specifically for such corpus.
It is further proposed to insert Explanation 2 in the said proviso so as to provide that,––
(a) application out of such corpus shall not be considered as application for charitable or religious purposes for the purposes of third proviso of clause (23C), provided when it is invested or deposited back, into one or more of the forms or modes specified in sub-section (5) of section 11 maintained specifically for such corpus from the income of the previous year, such amount shall be allowed as application in the previous year in which it is deposited back to corpus and to the extent it is deposited back;
(b) application from loans and borrowings shall not be considered as application for charitable or religious purposes for the purposes of third proviso of clause (23C) provided when loan or borrowing is repaid from the income of the previous year, such repayment shall be allowed as application in the previous year in which it is repaid and to the extent it is repaid.
Fourteenth proviso of the said clause provides that if any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of said clause of said section accumulates its income, then payment or credit out of such accumulation, to exempt entities as prescribed in the proviso, shall not be treated as application.
It is proposed to amend the said proviso to make a reference of section 12AB which provides for the procedure of registration.
It is also proposed to number the Explanation as Explanation 1 thereof the twentieth proviso to the said clause and to insert a new Explanation 2 therein so as to provide that for the computation of income required to be applied or accumulated during the previous year, no set off or deduction or allowance of any excess application, of any of the year preceding the previous year, shall be allowed.
These amendments will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-2023 and subsequent assessment years.
Clause (23FE) of the said section provides for the exemption to specified person from the income in the nature of dividend, interest or long-term capital gains arising from an investment made by it in India.
Item (c) of sub-clause (iii) of the said clause provides that the specified person may invest in a Category-I or Category-II Alternative Investment Fund regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992, having hundred per cent. investment in one or more of the company or enterprise or entity referred to in item (b).
It is proposed to relax the said condition of “hundred per cent.” to “not less than fifty per cent”. It is further proposed to allow the investment by such Category-I or Category-II Alternative Investment Fund in an Infrastructure Investment Trust referred to in sub-clause (i) of clause (13A) of section 2.
It is also proposed to insert item (d) in sub-clause (iii) of the said clause allowing the investment by specified person in a domestic company set up and registered on or after 1st April, 2021, having minimum seventy-five per cent. investments in one or more of the company or enterprise or entity referred to in item (b).
It is also proposed to insert item (e) in the said sub-clause allowing the investment by specified person in a non-banking financial company registered as an Infrastructure Finance Company, as referred to in the notification number RBI/2009-10/316 issued by the Reserve Bank of India or in an Infrastructure Debt Fund, a non banking finance company as referred to in the master circular, namely, the Infrastructure Debt Fund-Non Banking Financial Companies (Reserve Bank) Directions, 2011, issued by the Reserve Bank of India, having minimum ninety per cent. investment in one or more of the companies or enterprises or entities referred to in item (b).
It is also proposed to insert fourth proviso to the said clause so as to provide that in case a Category-I or Category-II Alternative Investment Fund referred to in item (c) of sub-clause (iii) has investment of less than one hundred per cent. in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause or in an Infrastructure Investment Trust referred to in item (c) of that sub-clause, income, accrued or arisen to or received or attributable to such investment, directly or indirectly, which is exempt under the said clause shall be calculated proportionately to the investment made in one or more of the companies or enterprises or entities referred to in item (b) of that sub-clause or in the Infrastructure Investment Trust referred to in item (c) of that sub-clause, in such manner as may be provided by rules.
It is also proposed to insert fifth proviso to the said clause so as to provide that in case a domestic company referred to in item (d) of sub-clause (iii) has investment of less than one hundred per cent. in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause, income, accrued or arisen to or received or attributable to such investments, directly or indirectly, which is exempt under the said clause shall be calculated proportionately to the investment made in one or more of the companies or enterprises or entities referred to in item (b) of that sub-clause (iii), in such manner as may be provided by rules.
It is also proposed to insert sixth proviso to the said clause so as to provide that in case a non-banking financial company registered as an Infrastructure Finance Company or Infrastructure Debt Fund referred to in item (e) of sub-clause(iii), has lending of less than one hundred per cent. in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause, income, accrued or arisen to or received or attributable to such lending, directly or indirectly, which is exempt under the said clause shall be calculated proportionately to the lending made in one or more of the companies or enterprises or entities referred to in item (b) of that sub-clause, in such manner as may be provided by rules.
It is also proposed to insert seventh proviso to the said clause so as to provide that in case a sovereign wealth fund or pension fund has loan or borrowing, directly or indirectly, for the purposes of making investment in India, such fund shall be deemed to be not eligible for exemption under this clause.
It is also proposed to number the Explanation as Explanation 1 thereof.
It is also proposed to insert a proviso to the sub-clauses (iii) and (iv) of clause (b) of the said Explanation 1 so as to provide that the provisions of sub-clauses (iii) and (iv) shall not apply to any payment made to creditors or depositors for loan taken or borrowing for purposes other than for making investment in India.
It is also proposed to amend sub-clause (v) of clause (b) of the said Explanation 1 so as to provide that the sovereign wealth fund does not participate in the day to day operations of investee but the monitoring mechanism to protect the investment with the investee including the right to appoint directors or executive director shall not be considered as participation in day to day operations of the investee.
It is also proposed to amend sub-clause (ii) of clause (c) of the said Explanation 1 so as to provide that if pension fund is liable to tax but exemption from taxation for all its income has been provided, by the foreign country under whose laws it is created or established, then such pension fund also would satisfy the condition mentioned in sub-clause (ii). It is also proposed to insert sub-clause (iiia) to the clause to provide that the pension fund does not participate in the day to day operations of investee but the monitoring mechanism to protect the investment with the investee including the right to appoint directors or executive director shall not be considered as participation in day to day operations of investee.
It is also proposed to insert a new Explanation 2 in the said clause to define the expressions “loan and borrowing” and “investee”.
It is also proposed to insert a new Explanation 3 so as to provide that the Central Government may, by rules, provide the method of calculation of “fifty per cent.” referred to in item (c) or “seventy-five per cent.” referred to in item (d) or “ninety per cent.” referred to in item (e), of sub-clause (iii) of the said clause.
These amendments will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.
It is also proposed to insert a new clause (23FF) in the said section so as to exempt any income of the nature of capital gains, arising or received by a non-resident, which is on account of transfer of share of a company resident in India, by the resultant fund and such shares were transferred from the original fund to the resultant fund in relocation, and where capital gains on such shares were not chargeable to tax if that relocation had not taken place.
It is also proposed to refer to the definitions of the expressions “investment division of offshore banking unit”, “original fund”, “relocation” and “resultant fund” as defined in the Explantion to clause (viiac) and clause (viiad) of section 47.
These amendments will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-2023 and subsequent assessment years.
Clause (50) of the said section provides for the exemption for the income arising from any specified service provided on or after the date on which the provisions of Chapter VIII of the Finance Act, 2016 comes into force or arising from any e-commerce supply or services made or provided or facilitated on or after 1st April, 2021 and chargeable to equalisation levy under the provisions of that Chapter. It is proposed to change the said year to 2020.
It is proposed to substitute the Explanation to the said clause with Explanations 1 and 2.
Explanation 1 proposes to clarify that the income referred to in this clause shall not include and shall never be deemed to have included any income which is chargeable to tax as royalty or fees for technical services in India under the said Act read with the agreement notified by the Central Government under section 90 or section 90A.
Explanation 2 proposes to define the expressions “e-commerce supply or services” and “specified service” for the purposes of the said clause.
These amendments will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.
