The government created room to raise the excise duty on petrol and diesel by as much as ₹8 each to take advantage of the low oil price regime and relaxed controversial tax residence proposals in the Finance Bill 2020 approved by Parliament on Monday in a modified form.
The bill was hurriedly passed in the Lok Sabha without the customary discussion or reply by the Union finance minister and duly returned by the Rajya Sabha as the country headed for a lockdown to fight the coronavirus crisis.
Lok Sabha Speaker Om Birla and Rajya Sabha Chairman M. Venkaiah Naidu met political leaders in the first half of Monday to strike a deal to clear the important bill before Parliament was adjourned.
The amendments moved by finance minister Nirmala Sitharaman covered the taxation of petrol and diesel, definition of tax residence and clarifications related to dividend distribution tax (DDT).
They allow the government to raise special additional excise duty, when needed, by up to ₹18 a litre on petrol, up from ₹10 now and up to ₹12 a litre on diesel, up from ₹4 now. These were last raised by ₹2 each on 14 March when, too, global oil prices declined sharply amid fears of a recession. The intention to raise the taxes on auto fuel comes at a time when the government is looking for resources to announce a financial package to fight the impact of the coronavirus crisis.
In direct taxes, a key amendment that Sitharaman introduced on Monday is to relax the provision relating to tax residence. The original Finance Bill had proposed to reduce the time Indian citizens or persons of Indian origin needed to spend in India to qualify as Indian tax resident, from 182 days to 120 days in the previous year. “The amended Bill now provides that the lower 120 day rule will not apply if the Indian-sourced income of such persons is less than ₹15 lakh in the relevant financial year," explained Gouri Puri, partner at law firm Shardul Amarchand Mangaldas and Co.
The bill also gave tax relief to shareholders who receive dividends. The earlier version of the bill had abolished dividend distribution tax on companies and made dividends taxable in the hands of the recipient. The amendments now clarify that dividends received by the shareholders after 1 April shall not be taxed if DDT has been paid as per the earlier law, explained Rakesh Nangia, chairman, Nangia Andersen Consulting.
The Finance Bill also widens the ambit of the “equalisation levy" introduced in 2016 on payments made to non-resident service providers for online advertisements or digital advertising space or facilities, said Ved Jain, former president of Institute of Chartered Accountants of India. This is expanded to include supply of services including online sale of goods, services or both by e-commerce operators.
The Finance Bill also proposed a more progressive personal income tax rate for people who do not avail of any tax incentives.
Anuja contributed to this story.