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moreSIGNIFICANT TAX ANNOUNCEMENTS
Proposal for new Income-tax Bill –
It is proposed to introduce the new Income-tax bill in the next week. The Hon’ble Finance Minister in her speech announced that the new income-tax bill will carry forward the spirit of “Nyaya”. The new bill will be clear and direct in text with close to half of the present law, in terms of both chapters and words. It will be simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation.
Extension of timeline for tax benefits to start-ups –
It is proposed to amend section 80IAC of the IT Act to extend the window of incorporation by 5 years. Thus, the eligible start-ups now incorporated before 1 April 2030 can claim tax benefits under section 80-IAC of the IT Act subject to the compliance with the prescribed conditions. This will provide further boost to start-ups in India
This amendment will take effect from 1 April 2025.
Rationalization of provisions related to carry forward of losses in case of amalgamation –
No evergreening of the losses of the predecessor entity - In order to bring clarity and parity with the provisions of section 72 of the IT Act, it is proposed to amend section 72A and section 72AA of the IT Act to provide that any loss forming part of the accumulated loss of the predecessor entity, which is deemed to be the loss of the successor entity, shall be eligible to be carried forward for not more than 8 AYs immediately succeeding the AY for which such loss was first computed for original predecessor entity. The aforesaid amendments shall apply to any amalgamation or business re-organization which is effected on or after 1 April 2025
Extension of Sunset Dates to IFSC Units for availing Tax Concessions
It is proposed to extend the sunset dates for setting up and commencement of operations of IFSC units for availing various tax concessions and the relocation of funds to IFSC as under:
The above amendment will take affect from 1 April 2025.
IFSC Insurance intermediary office exempted from complying with the conditions with respect to amount of premium or the aggregate amount of premium
Section 10(10D) provides for a maximum limit of Rs. 250,000 with respect to annual amount of premium or aggregate of premiums payable for unit linked insurance policies, and Rs. 500,000 for life insurance policies other than unit linked insurance policies for claiming exemption for any amount including bonus received under life insurance policy other than on death of a person.
It is proposed to amend section 10(10D) to provide that the proceeds received on life insurance policy issued by the IFSC insurance intermediary office including any sum allocated by way of bonus will be exempted from income tax without any condition related to the maximum premium amount payable on such policy.
However, the condition stating that the premium payable for any of the year during the term of policy should not be more than 10% of the actual capital sum assured, will continue.
The above amendment will take affect from 1 April 2025.
Exemption to capital gains and dividend for ship leasing units in IFSC
It is proposed that, on the lines of aircraft leasing, any capital gains income of non residents or a unit of an IFSC engaged in ship leasing, on transfer of equity shares of domestic companies being units of IFSC engaged in ship leasing, will be exempt from tax under section 10(4H) of the IT Act.
Similar to aircraft leasing business, in the ship leasing business too separate special purpose vehicles (SPVs) are created for one or more vessels to safeguard the investors. Therefore, it is proposed that dividend paid by a company being a unit of IFSC engaged in ship leasing, to a unit of IFSC engaged in ship leasing will be exempt from tax under section 10(34B) of the IT Act.
For the purposes of above proposed exemptions from capital gains and dividend, “ship” means a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof.
The above amendment will take affect from 1 April 2025.
Rationalisation of definition of ‘dividend’ for treasury centres in IFSC
Currently, any loan or advance provided by a closely held company to a significant shareholder (holding at least 10% voting power) or to a concern in which such a shareholder has a substantial interest is considered a deemed dividend, subject to the company having accumulated profits.
It is proposed to amend section 2(22) to provide that any advance or loan between 2 group entities, where one of the group entity is a “Finance company” or a “Finance unit” in IFSC set up as a global or regional corporate treasury centre for undertaking treasury activities or treasury services and the ‘parent entity’ or ‘principal entity’ of such ‘group entity’ is listed on stock exchange in a country or territory outside India shall not be treated as ‘dividend’. The conditions for a ‘group entity’, ‘principle entity’ and the ‘parent entity’ shall be prescribed.
The above amendment will take affect from 1 April 2025.
Simplified regime for fund managers based in IFSC
Section 9A of the Act provides that fund management activities carried out through an eligible fund manager in case of eligible investment fund, shall not constitute business connection of the said fund in India. One of the conditions at clause (c) of section 9A(3) requires that the aggregate participation or investment by persons resident in India in the fund must not exceed 5% of the corpus of the fund.
It is proposed that the said condition is relaxed for all the investment funds whether or not its fund manager is located in IFSC, by determining the aggregate participation or investment in the fund as on the 1st day of April and the 1st day of October of the previous year and in case the said condition is not satisfied on either of the said days, it shall be deemed to be satisfied if it is satisfied within 4 months of the said days.
The above amendment will take affect from 1 April 2025.
Exemption to income from Offshore Derivative Instruments of non-residents entered with FPI being unit in IFSC
It is proposed to amend section 10(4E) to provide that the income of a non resident on account of transfer of non-deliverable forward contracts or offshore derivative instruments or over the-counter derivatives, or distribution of income on offshore derivative instruments, entered into with Foreign Portfolio Investors being an IFSC unit shall also not be included in the total income subject to certain conditions as may be prescribed.
Inclusion of retail schemes and Exchange Traded Funds (ETFs) in the existing relocation regime of funds of IFSCA
Section 47(viiad) of the IT Act provides that any transfer by shareholder or unit holder or interest holder in a relocation of share or unit or interest in fund registered outside India for consideration of share or unit or interest in the resultant fund in IFSC shall not be regarded as transfer and will not be taxable.
It is proposed to include retail schemes or Exchange Traded Funds (ETF) within the definition of resultant fund so that relocation of original funds to such funds in the IFSC is also a tax-neutral transaction subject to fulfilment of the conditions mentioned in 47(viiad).
Rationalisation in taxation of Business trusts
Under existing provisions of the IT Act, section 115UA provides business trusts, including REITs and InVITs, with a pass-through status for certain incomes, which are taxed in the hands of unit holders. As per section 115UA(2) of the IT Act, the total income of a business trust is taxed at the maximum marginal rate, subject to income under section 111A and section 112 of the IT Act.
It is proposed to amend 115UA(2) of the IT Act to include section 112A (long term capital gains on listed equity shares) alongside section 111A (short term capital gains on listed equity shares) and section 112 (long term capital gains on others).
Income from transfer of securities by AIFs
Section 2(14) of the IT Act defines the term “capital asset” to include property of any kind held whether connected with its business or profession but does not include any stock-in trade or personal assets as provided in the definition. The securities held by a FII which has invested in such securities in accordance with the applicable SEBI regulations are also defined as capital assets. Thus, there is some uncertainty in characterization of income arising from transaction in securities as to whether it is capital gain or business income for Category I and Category II AIF. Thus, to provide clarity on the same, the below amendment is introduced.
It is proposed to amend section 2(14) of IT Act to include securities held by Category I and Category II AIF as capital asset so that any income arising from transfer of securities held by them will be capital gain and taxable accordingly.
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