Page 18 - Budget_2020

Union Budget 2020
International Taxation
Amendment for Concessional TDS rate
 Sec 194LC provides for deduction of TDS at 5% for interest payments in respect of borrowings through
Rupee Denominated Bond (“RDB”) from outside India
 Sec 194LD provides for TDS @ 5% for interest payments to FIIs and Qualified Foreign Investors
(“QFIs”) on investment made in Government securities and RDBs of Indian Company
 Amend Sec 194LC to:
o Extend the above benefit upto 1st July, 2023 and
o TDS @ 4% on payments against borrowings through issue of specified bonds which are listed only
on a recognized stock exchange located in any IFSC
 Amend Sec 194LD to:
o Extend the above benefits upto 1st July, 2023 and
o TDS @ 5% shall apply on the interest payable to FIIs or QFIs for investments made in municipal
debt security
AY 2020-21 and subsequent AYs

This is a welcome step to extend the concessional tax regime till 2023. This makes India one of the lowest cost
jurisdictions for investment and repatriation.

Exclusion of Interest to PE of Non-resident Bank u/s 94B
Interest paid with respect to loan borrowed from a branch of a foreign bank in India, being a deemed associated
enterprise, is restricted to 30% of EBITDA of the borrowing party as per Sec 94B (thin capitalization).
There were contentions for the above provisions as a branch of a foreign bank was non-resident of India and

was not taxable in India
To amend Sec 94B, to provide that provisions of interest limitation would not apply to interest paid or payable
for a debt issued in India by a lender which is branch of a foreign bank

AY 2021-22 and subsequent AYs

Even though the head office operations of foreign banks were not taxable they were indirectly taxed through
this provision. The amendment is a welcome relief to the sector.

Exempting Non-resident from Filing Tax Returns
A non-resident is not required to furnish return of income, if the total income, consists only of specified
dividend or interest income and the TDS on such income has been deducted

Amend Sec 115A to extend the above relief to non-residents for royalty and FTS.

AY 2020-21 and subsequent AYs

This would reduce the compliance burden of many non-resident taxpayers such as foreign IT companies
outsourcing business processes to India and earning only the aforementioned incomes

Attribution of Profit to PE to be Included in Safe Harbour Rules (SHR) and Advance Pricing Agreement (APA)
Attribution of profits to the Permanent Establishment (PE) of a non-resident results in avoidable disputes as
there is no certainty

To amend Sec 92CB (referring to safe harbour rules) and 92CC (referring to Advance Pricing Agreements -
APAs) to cover determination of attribution to PE within the scope of safe harbour rules and APAs

AY 2020-21 and subsequent AYs

Attribution of profits is one of the contentious areas in international taxation and making it within the scope
of Safe Harbour Rules and APAs makes the taxing regime all the more predictable for an overseas business.
The practical implementation of the scheme, given the extent of subjectivity, needs to stand the test of fairness.

16