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12 May 2020
COVID-19 Impact – Residency rules relaxation, Deferment of Trusts’ Amendment and CBDT’s Interim action plan

At a time when economic activities have come to a standstill on account of the lockdown imposed by the government to tackle COVID-19 pandemic, some leeway in tax laws would provide much-needed relief to taxpayers.

The government has been announcing a slew of income tax measures time and again- first by way of Press Release dated 24 March 2020, followed by its promulgation into ‘The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020’ on 31 March 2020 (Ordinance) and then by providing relaxation in Lower Withholding Tax Certificates for FY 2020-211.

Following the suit, the CBDT has come up again with certain relaxations/clarifications announced vide Circular, Press Releases, and its Interim Action Plan dated 8 May 2020. The measures are discussed briefly below.
Clarifications in respect of individual Taxpayer’s residency in India amid lockdown period
The residential status of a taxpayer assumes significance, as the scope of its taxable income is dependent upon one’s residential status in India.

There have been cases where individuals had come for a visit to India during FY 2019-20 for a particular duration and intended to leave India before 31 March 2020. However, due to the declaration of lockdown and suspension of international flights, they were bound to stay in India. Considering this, the CBDT has announced that following periods of stay of such individuals who had come to India before 22 March 2020 shall not be taken into account for the purposes of determination of their residential status in India for FY 2019-20:

Scenario Period of Stay to be ignored
From To
Departed on an evacuation flight on or before 31 March 2020 22 March 2020 Date of departure- being on or before 31 March 2020
Unable to leave India on or before 31 March 2020 22 March 2020 31 March 2020
Quarantined in India on or after 1 March 2020 and departed on an evacuation flight on or before 31 March 2020 Date of beginning of his quarantine Date of departure- being on or before 31 March 2020
Quarantined in India on or after 1 March 2020 and unable to leave India on or before 31 March 2020 Date of beginning of his quarantine 31 March 2020

Further, the CBDT vide press release of even date has also clarified that for the purpose of determination of residential status for FY 2020-21, another circular excluding the period of stay till normalization of international flight operations, may be issued post such normalization.
Finance Act, 2020 amendment: Registration of trusts deferred to 1 October 2020
Finance Act, 2020, rationalized the procedures with respect to approval, registration, and notification of certain entities, i.e., trusts, entities registered under section 10(23C), 12AA, 35, and 80G of the Income-tax Act, 1961 (the Act). Such provisions were to be effective from 1 June 2020.

CBDT vide press release dated 8 May 2020 has clarified that the above new procedure would now be applicable with effect from 1 October 2020. Consequently, while for new entities, such procedure would be applicable from 1 October 2020, for entities already registered under the respective sections, appropriate intimations would now be required to be filed within 3 months from 1 October 2020, i.e., 31 December 2020. The announcement would be followed by appropriate legislative amendments to the income tax statute.

CBDT’s interim action plan - no ‘adverse’ communication to taxpayers 
CBDT on 8 May 2020 also issued its interim Central Action Plan (Action Plan) for the first quarter (April 2020 to June 2020) of FY 2020-21. Under the action plan, it has been specifically highlighted that no communication that can have an adverse effect on the taxpayers would be released during this period until the issuance of fresh guidelines. 
Additionally, the action plan focuses on the following key areas to be completed by 30 June 2020:
I. Assessment Related Work 
  • Identification and preparedness regarding issuance of notice for assessment/reassessment under section 148 of the Act;
  • Uploading of manual orders issued under section 147 and 263 of the Act on the system.
II. Demand Related Work
  • Preparedness for disposal of rectification applications filed by taxpayers under section 154 of the Act;
  • Passing of appeal effect orders in all eligible cases;
  • Checking PAN wise and year wise demands and removal of duplicate demands.
III. Exemption Units 
  • Disposal of all applications received up to 31 March 2020 for grant of registration under section 12AA or 80G of the Act;
  • Disposal of all petitions filed up to 31 March 2020 seeking condonation of delay in filing Form 10 and 10B and where condonation would be granted, then consequential rectification.
IV. Commissioners/Chief Commissioners/Principal Commissioners/Chief Commissioners
  • Disposal of at least 25% of compounding applications pending as on 1 April 2020;
  • Other internal administrative work.
The main emphasis of the interim action plan is ‘in-house cleaning and preparedness for the work when normalcy returns.’ 
1. Kindly refer our Tax Alerts dated 26 March 2020, 1 April 2020 and then 3 April 2020.

Our Comments
Against the backdrop of the COVID-19 pandemic and the consequent cross-border travel restrictions, relief measures announced by the CBDT to individual taxpayers are in line with similar relief measures provided by the US and UK. While this will significantly reduce the unintended tax impact on globally mobile employees, Permanent Establishment exposures of multinational corporations on account of such individuals’ stay in India would still be there, till further clarifications.
Similarly, while most of the interim action plan is in line with the deferment of deadlines by the Ordinance and similar timeline given to the tax officers for processing of lower withholding certificate applications, the instructions to the field officers for non-issuance of any adverse communication during this period is an unprecedented move on the part of the CBDT and would wholeheartedly be welcomed by the taxpayers.

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