The Foreign Investors India Forum has urged the government to relax tax provisions for foreign nationals working in India and align them with similar provisions in countries like Singapore and China, in a bid to attract investment and encourage high-flying corporate executives and fund managers having overseas incomes to stay in the country.
Under the current income tax (I-T) provisions, the global income of foreigners is taxed if they stay in India for more than 182 days in a year, thus increasing their personal tax liability in the country. This provision acts as disincentive for foreign nationals, having global income, to stay in India for longer periods.

Finance Minister Nirmala Sitharaman on Friday indicated the government’s intent to appeal against an arbitration panel asking India to return USD 1.4 billion to UK’s Cairn Energy Plc, saying it is her “duty” to appeal in cases where the nation’s sovereign authority to tax is questioned.

Last year, the government lost two high-profile arbitrations over the levy of taxes on British firms, using legislation that gave it the power to levy taxes with retrospective effect.
While the government has already challenged in a Singapore court an international arbitration tribunal verdict that overturned its demand for Rs 22,100 crore in back taxes from Vodafone Group Plc, it hasn’t yet done so against a December 21 award asking India to return the value of shares seized and sold, divided, confiscated and tax refund stopped to adjust a Rs 10,247 crore tax demand on Cairn.

The revenue-starved government will have to cough up tens of thousands of crores of rupees over the next few months towards honouring the claims of refunds of the 10% ‘royalty tax’ to scores of non-resident software suppliers to Indian companies, following Tuesday’s Supreme Court (SC) ruling, tax experts said.

Companies importing software for sale have since 1998 been required to deduct the tax payable by the foreign software provider without a permanent establishment in India. While a sections of these importers have complied with the TDS obligation, others have been contesting the tax notices in various forums including tax tribunals and courts. Tax experts said that while a precise estimate of the aggregate TDS amount is not immediately available, they said the refunds, including interest accrued, could add up to Rs 50,000 crore or more.

The Central Board of Direct Taxes (CBDT) has received various representations requesting for relaxation in the determination of residential status for the previous year 2020-21 from individuals who had come on a visit to India during the previous year 2019-20 and intended to leave India but could not do so due to the suspension of international flights.

In this context, CBDT has issued a circular where it has been provided that if any individual is facing double taxation even after taking into account the relief provided by the relevant Double Taxation Avoidance Agreement (DTAA), he/she may furnish the specified information by 31st March, 2021. The information has to be submitted in Form –NR and is to be submitted electronically to the Principal Chief Commissioner of Income-tax (International Taxation).

The Supreme Court on Tuesday ruled that payments made to non-residents for software purchase can’t be taxed as royalty, setting at rest a long-standing row. This means tax liability of foreign software seller without a permanent establishment in India would reduce to the 2% equalisation levy introduced via Finance Act 2020, from the 10% royalty tax, which the Indian buyer has hitherto been liable to withhold.

The ruling will lower the cost of software purchases for Indian firms as the overseas sellers may chose to lower prices, taking advantage of the tax relief. Software firms such as IBM India, Samsung Electronics, GE India, Hewlett Packard India, Mphasis and others, which import software for sale in India, are among the principal beneficiaries.
After the SC ruling, such software firms have now been exempted from deducting TDS for purchase of software from foreign software suppliers.

The government has extended the last date for availing of the direct tax Vivaad Se Vishwas dispute resolution scheme to March 31, 2021, from the earlier date of February 28. This is the fifth extension of the scheme.

Those willing to settle their tax disputes under the Direct Tax Vivad Se Vishwas Act can file their declarations till March 31 and pay the settled tax amount by April 30, 2021, the Central Board of Direct Taxes said in a notification Friday.
“CBDT further extends the date for filing of declarations under the Vivaad Se Vishwas Act, 2020 to March 31, 2021. Date for payment without additional amount under VsV extended to 30th April, 2021,” the income tax department said in a Twitter post.

The Income Tax Department on Wednesday said it has issued over Rs 1.95 lakh crore worth refunds to over 1.93 crore taxpayers so far this fiscal.

Of this, personal income tax refunds of Rs 69,653 crore have been issued to over 1.90 crore taxpayers and corporate tax refunds of Rs 1.26 lakh crore have been issued in 2.17 lakh cases. “CBDT issues refunds of over Rs 1,95,736 crore to more than 1.93 crore taxpayers between 1st April, 2020 to 22nd February, 2021,” the I-T Department tweeted.

Discussions between finance ministry officials and Cairn Energy CEO Simon Thomson – and his team – continued for the second day on Friday, but it appears the government wants Cairn to settle the dispute using the Vivad se Vishwas scheme; under the scheme, the company will have to pay around half the amount due sans interest and penalties in cases where the tax department has lost a case in a forum and filed an appeal, as the instant one.

Simultaneously, the government has also decided that it will challenge the arbitration award.
While Cairn has filed a case in a US court to enforce the $1.4-billion arbitration award ($1.2 billion plus interest and penalties) that it has just won and this can, eventually, even lead to Indian assets – properties of Indian embassies, even possibly Air India’s planes – being attached, finance ministry sources feel that this is not going to be easy either and can be a long-drawn process. In which case, their hope is that Cairn recognises that the value of its money will keep declining and so its best bet is pay part of the taxes and then move on.

It is not clear whether, while challenging the arbitration award, the government will also approach the Supreme Court (SC) to reject the award on grounds that it is antithetical to India’s policy. The government has done this for most awards that have gone against it, such as the Antrix-Devas one, but the response of the SC has been mixed.

Last year, the apex court turned down a government appeal to stop a $476-mn award that Vedanta and Videocon had won way back in January 2011. And while hearing the government appeal against the $672-mn arbitration award that Devas Multimedia won in 2016 against Isro-arm Antrix Corporation, the fact that the SC asked Devas whether it would be willing to waive off the interest component of the money owed to it suggests the challenge may not hold.

There are, on the other hand, also cases where SC has ruled against enforcing arbitration awards on grounds that they ran contrary to India’s public policy; this was the argument the government made in SC while asking for the award to be set aside.

The government is in no mood to relent in its fight to recover $1.2 billion in tax claims from Cairn and is looking to appeal against the international tribunal’s verdict or get the British company to seek a settlement under ‘Vivad Se Vishwas’ scheme.
The tough posture comes despite Cairn approaching a US district court to press for the arbitration award, which sources dismissed as posturing given that the government has time until the third week of March to appeal against the order. By all accounts, the government is set to follow the Vodafone example, where its case has been admitted in the Singapore high court.

Although the government is still “studying the order”, its stance is clear and officials, who are due to meet a team led by Cairn CEO Simon Thomson, are expected to articulate the position.

Sources said that the stance was not just the finance ministry’s alone but even the ministry of external affairs has been engaged in the deliberations given that British authorities have taken up the case on behalf of Cairn with their Indian counterparts, including PM Narendra Modi and the late Arun Jaitley, when he was finance minister.

The arbitration ruling by the Permanent Court of Arbitration (PCA) in the Cairn Energy case, coming just three months after the Vodafone ruling, is testimony that jurisdiction is and will remain the primary issue of contention in international tax law. The applicability of withholding tax on capital gains arising from the transfer of underlying capital assets in offshore transactions, in particular, has been a matter of continuing controversy in India ever since Vodafone first challenged Revenue’s stand before the Bombay High Court in 2007. It eventually culminated in a historic decision by the Supreme Court of India in January 2012. What followed thereafter was retrospective amendments to various sections of the law to overturn the apex court’s verdict, resulting in both Vodafone and Cairn seeking protection under India’s Bilateral Investment Treaties (BIT) with the Netherlands and the UK, respectively.

With the Cairn ruling, the same set of questions, barring the jurisdiction for appeal, that arose after Vodafone will have to be reviewed and re-examined: Will India yield to/accept the tribunal’s ruling and restore the equilibrium arising out of the Supreme Court’s 2012 judgement, having legislated a retrospective law with a validation clause or will it continue with its assertion that tax is a sovereign entitlement and the Indian Parliament does not concur with the Supreme Court’s view, which it had reversed retrospectively? The government is already on record that it is beyond the arbitration panel’s prerogative to adjudge the scope of national tax laws. In the wake of recent awards, the government would additionally scrutinise the repercussions of accepting the tribunal’s order and its implications on other arbitrations.

Suddenly, there has been a surge in reopening of returns of small-time tax evaders, with income tax authorities deploying investigation units to search and survey suspect cases of tax evasion of up to Rs 50 lakh. Cases are being reopened for assessment years 2015-16, 2016 -17 and 2017-18 as no action will be possible beyond March 31 for these three years. Changes proposed in the budget conconfined reopening of tax assessment to three years from the earlier six years. However, assessment can be re-opened for up to 10 years if there is concrete evidence of concealed income of Rs 50 lakh and above. The amendments are yet to be notified. Tax officials, however, say the burden of reopening smaller tax evasion cases may lead to lack of focus on bigger evasions. Instructions have been issued to in vestigation units across the country to collate and disseminate all information related to suspect tax evasion cases flagged by assessing officers, particularly those getting time barred by March 31.

The Central Board of Direct Taxes (CBDT) may tweak the equalisation levy imposed on the sale of goods or services carried out using a non-resident e-commerce operator.

Currently, a levy of 2 percent is paid by non-resident e-commerce operators on the gross amount of the transaction. However, experts believe the imposition of a levy results in double taxation in cases where the buyer and the seller are both resident Indians but carry out a transaction using a non-resident e-commerce platform like Amazon.

According to a report by The Economic Times, Kamlesh Varshney CBDT joint secretary has acknowledged that it is a "valid point."

"(There) may be situations where e-commerce participants are Indians and their gross consideration gets into the consideration of the e-commerce operators... There are issues and the government is not saying that all issues have been handled by the proposal in the Finance Bill,” Varshney had said. He said the issue will be considered at an "appropriate time."

Amid the perception that the various schemes for resolution of tax disputes run in recent years have yielded only moderate results in reducing the load of tax litigation, finance secretary Ajay Bhushan Pandey on Friday said the new system of faceless assessment and appeal would ‘strike at the root of the problem’ and help bring down the disputes substantially.

Speaking at the Indian Express Idea Exchange programme, he said the revised estimates of revenue and expenditure for the current financial year were realistic. If gross direct tax collections were down 6.7% on year by January, the gap would be much narrower by the end of the year, as the slump was partly due to liberal refunds of around Rs 1.91 lakh crore. He also said tax buoyancy of 1.16 estimated for FY22 was neither conservative or unduly optimistic (buoyancy has been in the negative territory in FY20 and FY21).

The income tax department on Wednesday said it has issued over Rs 1.91 lakh crore worth refunds to over 1.87 crore taxpayers so far this fiscal.

Of this, personal income tax refunds of Rs 67,334 crore have been issued to over 1.84 crore taxpayers and corporate tax refunds of Rs 1.23 lakh crore have been made in 2.14 lakh cases.

“CBDT issues refunds of over Rs. 1,91,015 crore to more than 1.87 crore taxpayers between 1st April,2020 to 08th February, 2021,” the income tax department tweeted.

“Starting from December 2021-22, I will ask him if he has filed returns for the last two years or not. For years 2018-19 and 2019-20. If he has filed for any of these, I will continue to deduct 2%. But, if he has not filed returns of the last two years, then I need to deduct at 5%,” he said.
This provision has been brought in by Finance Minister Nirmala Sitharaman in the latest budget to tighten the leash on those who haven’t filed their income tax returns. This new provision comes into effect from 1 July 2021.

India has challenged in the Singapore High Court an international arbitration tribunal’s verdict that overturned its demand for Rs 22,100 crore in back taxes from Vodafone Group Plc, and the order passed in Cairn Group’s case is under consideration of the government, Parliament was informed on Monday.

An international arbitration court had in September last year rejected tax authorities’ demand for Rs 22,100 crore in back taxes and penalties relating to British telecom giant Vodafone’s 2007 acquisition of an Indian operator.

The demand pertained to Vodafone’s USD 11-billion acquisition of 67 per cent stake in the mobile phone business owned by Hutchison Whampoa.

In December last year, an arbitration tribunal in Hague unanimously overturned a Rs 10,247 crore retrospective tax demand on British oil and gas company Cairn Energy Plc and asked the government to return shares it sold, dividend it seized and tax refunds it stopped to enforce the tax.

A quarter of all direct case disputes have opted for resolution under the Vivad se Vishwas scheme which involves Rs 97,000 crore in tax demands, sources in the department of revenue said on Friday. They added that the scheme is an overwhelming success compared with similar offers launched in 1998 and 2016.

Although the quantum of the final revenue proceeds to the government is not clear, the Centre will not receive the entire amount as the scheme offered attractive discounts. Besides, a part of tax demands is required to be deposited with the government when an assessee challenges the verdict in higher appellate forum and this amount would already have been accounted for in various years in the past.

About 2 lakh cases are presently being evaluated under the faceless assessment scheme of income tax cases, out of which finality has been achieved in an estimated 35,000 cases, CBDT chief P C Mody has said. He said that the government is undertaking steps that bring more certainty for taxpayers while undertaking income tax-related works, adding the latest Budget announcement of providing more pre-filled financial details in the return filing forms is a step in that direction.

The Income Tax Department is working on ways to change general perception about the department to being “tax facilitators” rather than just “tax enforcers”, CBDT chief P C Mody said on Thursday. He also said the department is scaling up the capacity of tax officers to better facilitate taxpayers.

Central Board of Direct Taxes (CBDT), the apex decision making body in matters of income tax, has taken up various taxpayer-friendly moves, including introduction of faceless assessment and appeals, reducing time limit for reopening of assessment cases and setting up of a dispute resolution committee.

The Finance ministry will issue a circular to provide clarity on the residency status of NRIs and foreign nationals stuck in India in the current fiscal due to the coronavirus pandemic. For the fiscal ended on March 31, 2020, the ministry, in May last year, clarified that the period of stay of Non-Resident Indians (NRIs) and foreign nationals in India during the lockdown period would not be counted for the purpose of determining their residency status for the purpose of taxation.