Amendment to Section 9A, Section 72AA, Section 2(13A), Section 119A in Budget 2020

Home   /   Amendment to Section 9A, Section 72AA, Section 2(13A), Section 119A in Budget 2020

1. Amendment to Section 9A towards Modification in Conditions for Offshore Funds

(Applicable from Assessment Year 2020-21]

Section 9A of the Act provides for a special regime in respect of Offshore Funds which provides immunity to the funds created outside India from creating a business connection” in India after fulfilment of certain conditions. The amendment is proposed to section 9A to relax following two conditions for the Offshore Funds:

(a)     Aggregate participation of resident person in the offshore funds shall not exceed 5% of the corpus of fund. It has been proposed to amend that to calculate the aggregate participation or investment in the fund, directly or indirectly, by an Indian resident, the contribution of the eligible fund manager during first 3 years up to Rs. 25 crores shall not be accounted for; and

(b)     Section prescribes that the average corpus of the fund shall not be less than one hundred crore rupees however, if the fund has been established or incorporated during the previous year, the condition of a monthly average of the corpus of the fund of Rs. 100 crores should be fulfilled within 6 months from the last day of the month of its establishment or incorporation. The period of 6 months has been proposed to be increased to 12 months.

The condition specified in point no. (b) was also modified by the Finance (No. 2) Act, 2019 to allow the following time limit (whichever is later) to complete the corpus of the fund:

(a)       6 months from the last day of the month of its establishment; or

(b)     At the end of the previous year in which such fund was established.

2.    Amendment to Section 72AA towards Scope of Allowing Carry Forward of Losses or Depreciation in certain Amalgamations has been widened.

(Applicable from Assessment Year 2020-21]

As a general rule, losses can be carried forward and set-off only by a person who has incurred such losses. Current provision of section 72AA provides that in case of amalgamation of banking company the accumulated losses and unabsorbed depreciation can be claimed by the successor if certain conditions are satisfied. Until now the scope of Section 72AA was limited to Banking companies as specified under section 5 of the Banking Regulation Act, 1949 and Banking Institutions as defined under section 45(15) of the Banking Regulation Act, 1949.

The Finance Bill, 2020 proposes to extend the scope of section 72AA to include amalgamation of one or more corresponding new banks under a scheme brought into force by the Central Government under section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 or section 9 of the Banking Companies (Acquisition and transfer of Undertakings) Act, 1980 and amalgamation of Government Companies under a scheme sanctioned and brought into force by the Central Government under section 16 of the General Insurance Business (Nationalization) Act, 1972.

3.    Amendment to Section 2(13A) No requirement of Listing of Units of Business Trust on Stock Exchange

(Applicable from Assessment Year 2021-22]

The meaning of ‘business trust’ as defined in Section 2(13A) of the Act has been proposed to be amended to remove the mandatory requirement of listing of units of business trust on any recognised stock exchange. Thus, the benefit of pass-through of income as allowed under Section 115UA even if the units of a business trust are not listed on a stock exchange.

4.    Amendment to Section 119A for ‘Introduction of Taxpayer’s Charter’

[Effective from 01-04-2020]

Taxpayer’s Charter enumerates the taxpayer’s rights. Major economies like Australia, UK, USA etc. have their own taxpayers’ charter, which gives some rights to the taxpayers. Some of the taxpayer’s rights as laid down by Australian Tax Department are enumerated below:

Fair and reasonableWe will treat you with courtesy and respect and take your personal circumstances into account where relevant.
HonestWe treat you as being honest and give you an opportunity to explain any discrepancies.
PrivacyWe will respect your privacy and keep your personal information confidential.

As of now, India does not have taxpayer’s charter. The Finance Bill 2020 proposes necessary amendment in the Act by inserting a new Section 119A. This proposes to give a mandate to the CBDT to prepare a charter for the benefit of taxpayers.

The objective of the charter will be to enhance the efficiency of the delivery system of the Income-tax Department and to clearly enumerate the taxpayer’s rights.

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