Amendments in Direct Taxes

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Home > Articles > Union Budget 2012 > Overview of Amendment in Direct Taxes(Budget 2012-13)

Ravi Agarwa l on 19 Ma r c h 2 0 12

I n t r o d u c t i o n

The provisions of the Finance Bill,

2012 relating to direct taxes seek

to amend the Income-tax Act, inter

alia, in order to provide for-

A. Tax rates

B. Widening of tax base

C. Measures to prevent generation

and circulation of unaccounted

money

D. Tax incentives and reliefs

E. Rationalization of Tax Deduction at Source (TDS) provisions

F. Rationalization of international taxation provisions

G. Rationalization of transfer pricing provisions

H. General Anti-Avoidance Rule

I. Other clarifications

A. RATES OF I NCOME-TAX

I . R at e s o f i n c o m e - t a x i n r e s p ec t o f i n c o m e l i a b le t o t a x f o r t h e a s se ss m e n t y e a r

2 0 1 2 - 1 3 .

(1 ) Su rcharge on i ncome- tax

Surcharge shall be levied in respect of income liable to tax for the assessment year

2012-13, in the following cases:

(a) in the case of a domestic company having total income exceed ing one c ro re rupees ,

the amount of income-tax computed shall be increased by a surcharge for the purposes of

the Union calculated at the ra te o f f i ve pe r cen t . of such income tax.

(b) in the case of a company, other than a domestic company, having total income

exceed ing on e c ro re r upees, the amount of income-tax computed shall be increased by a

surcharge for the purposes of the Union calculated at the r a t e o f t w o p e r c e n t . of such

income tax.

However, marg ina l r e l i e f sha l l be a l l owed in all these cases to ensure that the additional

amount of income-tax payable, including surcharge, on the excess of income over one crore

rupees is limited to the amount by which the income is more than one crore rupees.

Also, in the case of every company having total income chargeable to tax under sec t i on

115JB of the Income Tax Act, 1961 (hereinafter referred to as Income-tax Act) and where

such income e x ce ed s o n e c r o r e r u p e e s, s u r c h a r g e a t t h e r a t e s m e n t i o n e d a b o v e

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sha l l be l ev ied and marg ina l r e l i e f shal l a l so be p rov ided .

(2) Educat ion Cess

No Change.

I I . R at e s f o r d e d u c t i o n o f i n c o m e - t a x a t s o u r c e d u r i n g t h e f i n a n ci a l y e ar 2 0 1 2 - 1 3

f rom ce r ta in i ncomes o the r than Sala r i es .

The rates for deduction of income-tax at source during the financial year 2012-13 from

certain incomes other than Salaries have been specified in Part II of the First Schedule to

the Bill. The rates for all the categories of persons will remain the same as those specified in

Part II of the First Schedule to the Finance Act, 2011, for the purposes of deduction of

incometax at source during the financial year 2011-12, e x ce p t t h a t i n c as e o f c er t a i n

in te res t paymen t s made to a non- res iden ts by a speci f i ed Ind ian com pany engaged

in p resc r ibed bus iness o f i n f ras t ruc tu r e deve lopment , t he ra tes fo r deduc t i on have

been now p rov ided i n t he p roposed new sect i on 194LC.

I I I . R at e s f o r d e d u ct i o n o f i n c o m e - t a x a t s o u r c e f r o m Sa l ar i e s , c o m p u t a t i o n o f

advance tax and cha rg ing o f i ncom e- tax i n spec ia l cases du r ing the f i nanc ia l yea r

2 0 1 2 - 1 3 .

The rates for deduction of income-tax at source from Salaries during the financial year

2012-13 and also for computation of advance tax payable during the said year in the caseof all categories of assessees have been specified in Part III of the First Schedule to the Bill.

These rates are also applicable for charging income-tax during the financial year 2012-13

on current incomes in cases where accelerated assessments have to be made , for instance,

provisional assessment of shipping profits arising in India to nonresidents, assessment of

persons leaving India for good during the financial year, assessment of persons who are

likely to transfer property to avoid tax, assessment of bodies formed for a short duration,

etc.

The salient features of the rates specified in the said Part III are indicated in the following

paragraphs

A. In d i v idua l , H indu und iv ided fam i l y , assoc ia t i on o f pe rsons , body o f i nd i v idu a ls ,

a r t i f i c i a l j u r i d i ca l pe rson

Paragraph A of Part-III of First Schedule to the Bill provides following rates of income-tax:-

(i) The rates of income-tax in the case of every i n d i v i d u al ( o t h e r t h a n t h o s e m e n t i o n e d

i n ( i i ) a n d ( i i i ) b e l o w ) o r H i n d u u n d i v i d e d f a m i l y o r e v e r y a s so c i at i o n o f p e r s o n s o r

b o d y o f i n d i v i d u al s , whether incorporated or not, or every artificial juridical person

referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act (not being a

case to which any other Paragraph of Part III applies) are as under :

Upto Rs. 2 ,00,000 Ni l .

Rs. 2 ,00,001 t o Rs. 5 ,00,000 10 p er cent .

Rs . 5 ,00 ,001 to Rs . 10 ,00 ,000 20 p e r cen t .

Above Rs . 10 ,00 ,000 30 pe r cen t .

(ii) In the case of every individual, being a resident in India, who i s o f t h e a g e o f s i x t yyears o r mor e bu t l ess than eigh ty yea rs at any time during the previous year,

Upto Rs. 2 ,50,000 Ni l .

Rs. 2 ,50,001 t o Rs. 5 ,00,000 10 p er cent .

Rs . 5 ,00 ,001 to Rs .10 ,00 ,000 20 pe r cen t .

Above Rs . 10 ,00 ,000 30 pe r cen t .

(iii) in the case of every individual, being a resident in India, who is of the age o f e igh ty

y e ar s o r m o r e a t a n y t i m e during the previous year, -

Upto Rs. 5 ,00,000 Ni l .

Rs . 5 ,00 ,001 to Rs . 10 ,00 ,000 20 p e r cen t .

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Above Rs . 10 ,00 ,000 30 pe r cen t .

No surcharge shall be levied in the cases of persons covered under paragraph-A of part-III

of the First Schedule.

B. Co-o perat ive Societ ies

In the case of co-operative societies, the rates of income-tax have been specified in

Paragraph B of Part III of the First Schedule to the Bill. These rates will continue to be the

same as those specified for assessment year 2012-13.No su rcharge w i l l b e l ev ied .

C. Firm s

In the case of firms, the rate of income-tax has been specified in Paragraph C of Part III of

the First Schedule to the Bill. This rate will continue to be the same as that specified for

assessment year 2012-13. No su rcharge sha l l be l ev ied .

D. Local au tho r i t i es

The rate of income-tax in the case of every local authority is specified in Paragraph D of Part

III of the First Schedule to the Bill. This rate will continue to be the same as that specified

for the assessment year 2012-13. No su rcharge w i l l b e l ev ied.

B. WI DENIN G OF TAX BASE

Al te rna te M in imum Tax (AMT) on a l l pe rsons o the r than compan ies

Under the existing provisions of the Income-tax Act, M i n i m u m A l t e r n at e T a x ( M A T ) a n d

A l t er n a t e M i n im u m T ax ( A M T) a r e l e v ie d o n c o m p an i es a nd l i m i t ed l i ab i li t y

pa r tne rsh ips ( LLPs) r espect i ve l y . However, no such tax is levied on the other form of

business organisations such as partnership firms, sole proprietorship, association of persons,

etc.

In order to widen the tax base vis--vis profit linked deductions, it is proposed to amend

provisions regarding AMT contained in Chapter XII-BA in the Income-tax Act to provide that

a person other than a company, who has c la imed deduc t i on under any sec t i on (o the r

t h a n s e ct i o n 8 0 P ) i n c l ud e d i n C h ap t e r V I - A u n d e r t h e h e a d in g C D e d u ct i o n s i n

respec t o f ce r ta in i ncomes o r under sect i on 10 AA, sha ll be l i ab le to pay AMT

Under the proposed amendments, where the regular income-tax payable for a previous year

by a person (other than a company) is less than the alternate minimum tax payable for

such previous year, the adjusted total income shall be deemed to be the total income of

such person and he shall be liable to pay income-tax on such total income at t h e r a t e o f

e igh teen and oneha l f pe r cen t .

For the pu rpose o f t h e above ,

( i ) a d j u s t ed t o t a l i n c om e s h al l b e t h e t o t a l i n c o m e b e f o r e g i v in g e ff ec t t o

p r o v i s i o n s o f Ch a p t er X I I - B A a s i n c r e as ed b y t h e d e d u c t i o n s c l ai m e d u n d e r a n y

s ec t i o n ( o t h e r t h a n s ec t i o n 8 0 P ) i n c l u d e d i n C h ap t e r V I - A u n d e r t h e h e a d i ng C

D e d u ct i o n s i n r e s p ec t o f c er t a i n i n c o m e s a n d d e d u c t i o n c l a im e d u n d e r s e c t i o n

1 0 A A ;

(ii) alternate minimum tax: shall be the amount of tax computed on adjusted total income

at a rate of eighteen and one-half per cent; and

(iii) regular income-tax shall be the income-tax payable for a previous year by a person

other than a company on his total income in accordance with the provisions of the Act other

than the provisions of Chapter XII-BA. It is further provided that the provisions of AMT

under Chapter XII-BA shall not apply to an individual or a Hindu undivided family or an

association of persons or a body of individuals (whether incorporated or not) or an artificial

juridical person referred to in section 2(31)(vii) i f the adjusted total income of such person

does not exceed twenty lakh rupees.


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It is also provided that the credit for tax (tax credit) paid by a person on account of AMT

under Chapter XII-BA shall be allowed to the extent of the excess of the AMT paid over the

regular income-tax. T h i s t ax c r e d i t s h a ll b e a l l o w e d t o b e c ar r i e d f o r w a r d u p t o t h e

ten th assessmen t yea r immediately succeeding the assessment year for which such credit

becomes allowable. It shall be allowed to be set off for an assessment year in which the

regular income-tax exceeds the AMT to the extent of the excess of the regular income-tax

over the AMT.

Consequential amendments are also proposed to the provisions of section 140A relating to

self-assessment, section 234A relating to interest for defaults in furnishing return of

income, section 234B relating to interest for defaults in payment of advance tax and section

234C relating to interest for deferment of advance tax.

These amendm ents w i l l t ake e f fec t f rom 1s t Ap r i l , 2013 and w i l l , acco rd ing l y , app ly

in re la t i on t o the assessmen t y ea r 2013-14 and subsequen t assessmen t y ea rs.

Tax Deduc t i on a t Source (TDS) on t rans fe r o f cer ta in im mov ab le p roper t i es (o the r

t h a n a g r i cu l t u r a l l a n d ) Under the existing provisions of the Income-tax Act, tax is

required to be deducted at source on certain specified payments made to residents by way

of salary, interest, commission, brokerage, professional services, etc.

On t r an sf er o f i m m o v ab l e p r o p er t y b y a n o n- r es id en t , t ax i s r eq u ir ed t o b e

d e d u ct e d a t s o u r c e b y t h e t r a n sf e r ee . H o w e v e r , t h e r e i s n o s u ch r e q u i r em e n t o n

t r a n s f er o f i m m o v a b le p r o p e r t y b y a r e s id e n t e x c ep t i n t h e c a se o f c o m p u l s o r yacqu is i t i on o f ce r ta in imm ovab le p roper t i es.

In order to collect tax at the earliest point of time and also to have a reporting mechanism

of transactions in the real estate sector, it is proposed to insert a new provision to provide

that every transferee, at the time of making payment or crediting any sum by way of

consideration for transfer ofi m m o v a b l e p r o p er t y ( o t h e r t h a n a g r i c u l t u r al l a n d ) , s h a l l

d e d u ct t a x , at t h e r a t e o f 1 % o f s u c h s u m , i f t h e c o n s i d er a t i o n p a i d o r p a y ab l e f o r

the t r ans fer o f such p ro per t y exceeds

( a ) f i ft y l ak h r u p ee s i n c as e s u ch p r o p er t y i s s i t u at e d i n a s pe ci f ie d u r b a n

agg lomera t i on ; o r

(b ) t w en ty l akh rupees i n case such p roper t y i s s i t ua ted i n any o the r a rea .

It is further proposed to provide that where the consideration paid or payable for thetransfer of such property is less than the value adopted or assessed or assessable by any

authority of a State Government for the purposes of payment of stamp duty, the value so

adopted or assessed or assessable shall be deemed as consideration paid or payable for the

transfer of such immovable property.

Fo r b e t t e r c o m p l i a n ce , i t i s a l s o p r o p o s ed t o p r o v i d e t h a t a r e g i s t e r i n g o f f i ce r

a p p o i n t ed u n d e r t h e I n d i a n

Reg ist ra t i on Ac t , 1908 ( Reg ist ra r ) sha l l no t reg i s te r the t rans fe r o f any immov ab le

p r o p e r t y w h e r e t a x es a r e r e q u i r e d t o b e d e d u c t ed u n d e r t h i s p r o v i s i o n u n l e ss t h e

t rans fe ree fu rn i shes p roo f o f deduc t i on and paym ent o f TDS

For reducing the compliance burden on the transferee, it is also proposed that a simple one

page challan for payment of TDS would be prescribed containing details (including PAN) oftransferor and transferee and also certain details of the property.

T h e t r a n s f er e e w o u l d n o t b e r e q u i r e d t o o b t a i n a n y T a x D e d u c t i o n a n d Co l l e ct i o n

A c co u n t N u m b e r ( T A N ) o r t o f u r n i s h a n y T DS st a t e m e n t a s t h i s w o u l d b e m o s t l y a

o n e t i m e t r a ns ac t io n . T h e t r a n s fe r or w o u l d g e t c r ed i t o f T DS l i k e a n y o t h er

p r e - pa id t a x es o n t h e b a s is o f i n fo r m a t i on f u r n is h ed b y t h e t r a n s fe r ee i n t h e

cha l l an o f paymen t o f TDS.

Th is amendm ent w i l l t ake ef fec t f rom 1s t Oc tober , 2012 .

TDS on rem unera t i on to a d i rec to r


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Under the existing provisions of the Income-tax Act, a company, being an employer, is

required to deduct tax at the time of payment of salary to its employees including Managing

director/whole time director. However, there is no specific provision for deduction of tax on

the remuneration paid to a director which is not in the nature of salary.

I t i s p roposed to amend sec t i on 194J to p rov ide tha t tax i s requ i red to be deduc ted

o n t h e r e m u n e r at i o n p a i d t o a d i r e ct o r , w h i c h i s n o t i n t h e n a t u r e o f s a la r y , a t t h e

r a t e o f 1 0 % o f s u ch r e m u n e r a t i o n .

Th is amendm ent w i l l t ake ef fec t f rom 1s t Ju l y , 2012 .

Tax Co l l ec t i on a t Source (TCS) on cash sa le o f bu l l i on and j ew e l l e ry

Under the existing provisions of the Income-tax Act, tax is required to be collected at source

by the seller at the specified rate on certain goods like alcoholic liquor, tendu leaves, scrap

etc. at the time of sale.

I n o r d e r t o r e d u c e t h e q u a n t u m o f c a s h t r a n s ac t i o n i n b u l l i o n a n d j e w e l le r y s e ct o r

a n d f o r c u r b i n g t h e f l o w o f u n a c co u n t e d m o n e y i n t h e t r a d i n g s y s t em o f b u l l i o n

and jew e l l e ry , i t i s p roposed to p r ov ide tha t th e sel l e r o f bu l l i on and j ew e l l e ry shal l

c o l l ec t t a x a t t h e r a t e o f 1 % o f s a le c o n s id e r a t i o n f r o m e v e r y b u y e r o f b u l l i o n a n d

j ew el l er y i f sa le co ns id er at i o n ex cee ds t w o lak h r up ee s an d t h e sa le is i n ca sh . Th i s

w o u l d b e i r r es p ec t iv e o f t h e f a ct w h e t h er b u y er i s a m a n u fa ct u r e r , t r a d er o r

pu rchase i s fo r p e rsona l use .


TCS on sa le of cer ta in m inera ls

Mining sector is an important segment of Indian economy but the trading of minerals

remained largely unregulated resulting in non-reporting or under-reporting of trading in

minerals trading transactions for the taxation purpose. In order to collect tax at the earliest

point of time and also to improve reporting mechanism of transactions in mining sector, it is

proposed that t ax a t t he ra te o f 1% sha l l be co l l ec ted by the se l l er f rom the buyer o f

t h e f o l l o w i n g m i n e r a l s:

(a ) Coa l ;

( b ) L i g n it e ; a n d( c ) I r o n o r e.

H o w e v er , t h e s e l l er s h al l a l s o n o t c o l le ct t a x o n s al e o f t h e s a i d m i n e r a l s i f t h e

s am e a r e p u r c h as ed b y t h e b u y e r f o r p e r s o n a l c o n su m p t i o n . Further, the seller of

these minerals shall not collect tax if the buyer declares that these minerals are to be

utilized for the purposes of manufacturing, processing or producing articles or things.


Da i l y tonnage income o f sh ipp ing comp any

The Tonnage Tax Scheme introduced vide Finance Act 2005 provides for taxation of income

of a shipping company on presumptive basis. Under this scheme, the operating profit of a

shipping company is determined on the basis of tonnage capacity of its ships.

The rates of daily tonnage income specified under this scheme remained unchanged since

the introduction of this scheme. It is, therefore, proposed to amend section 115VG to revise

the rate of daily tonnage income under this scheme as under:

Qu al i fy i n g sh ip

hav ing ne t tonnage

Ex is ti ng a m ou nt o f d ai ly

tonnage income

Pr o po sed am ou n t o f

tonnage income

( 1 ) ( 2 ) ( 3 )

Up t o 1 ,00 0 Rs.4 6 fo r each 10 0 t on s Rs.7 0 fo r each 1 00 t on s


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e x ce ed i n g 1 , 0 00 b u t

n o t m o r e t h a n 1 0 , 0 00

Rs.460 p lus Rs.35 fo r each

1 0 0 t o ns e xc ee di n g 1 ,0 0 0

t o n s

Rs.700 p lus Rs.53 fo r each

1 0 0 t o n s e xc ee di ng 1 ,0 0 0

t o n s

e x ce ed i n g 1 , 0 00 b u t

n o t m o r e t h a n 2 5 , 0 00

Rs.3610 p l u s Rs.28 fo r each

1 0 0 t o ns e xc ee di n g 1 ,0 0 0

t o n s

Rs.5470 p lus Rs. 42 for each

1 0 0 t o n s e xc ee di ng 1 ,0 0 0

t o n s

exceed ing 25 ,000

Rs.7,810 p lus R s. 1 9 f o r

e ac h 1 0 0 t o n s e xc ee di n g

25 ,000 tons

Rs.11,770 p l u s R s. 2 9 f o r

e ac h 1 0 0 t o ns e xc ee di n g

25 ,000 tons

T h i s am e n d m e n t w i l l t a k e e f fe c t f r o m 1 s t A p r i l , 2 0 1 3 and will, accordingly, apply in

relation to the assessment year 2013- 14 and subsequent assessment years.

C. MEASURES TO PREVENT GENERATI ON AND CI RCULATI ON OF UNACCOUNTED

MONEY

Cash c red i t s under sec t i on 68 o f t he Ac t

Section 68 of the Act provides that if any sum is found credited in the books of an assessee

and such assessee either

(i) does not offer any explanation about nature and source of money; or

(ii) the explanation offered by the assessee is found to be not satisfactory by the Assessing

Officer, then, such amount can be taxed as income of the assessee.

The onus of satisfactorily explaining such credits remains on the person in whose books

such sum is credited. If such person fails to offer an explanation or the explanation is not

found to be satisfactory then the sum is added to the total income of the person. Certain

judicial pronouncements have created doubts about the onus of proof and the requirements

of this section, particularly, in cases where the sum which is credited as share capital, share

premium etc. Judicial pronouncements, while recognizing that the pernicious practice of

conversion of unaccounted money through masquerade of investment in the share capital of

a company needs to be prevented, have advised a balance to be maintained regarding onus

of proof to be placed on the company. The Courts have drawn a distinction and emphasized

that in case of private placement of shares the legal regime should be different from that

which is followed in case of a company seeking share capital from the public at large.

I n t h e c a se o f c l o s e ly h e l d c o m p a n i es , i n v es t m e n t s a r e m a d e b y k n o w n p e r s o n s .

Therefore, a higher onus is required to be placed on such companies besides the general

onus to establish identity and credit worthiness of creditor and genuineness of transaction.

This additional onus , needs to be p laced on such compan ies to a l so p ro ve the sou rce

o f m o n e y i n t h e h a n d s o f s u c h s h a r eh o l d e r o r p e r s o n s m a k i n g p a y m e n t t o w a r d s

i ssue o f sha res be fo re such sum i s accep ted as genu ine c red i t . If the company fails to

discharge the additional onus, the sum shall be treated as income of the company and

added to its income. It is, therefore, proposed to amend section 68 of the Act to provide that

the nature and source of any sum credited, as share capital, share premium etc., in the

books of a closely held company shall be treated as explained only if the source of funds is

also explained by the assessee company in the hands of the resident shareholder. However,

even in the case of closely held companies, it is proposed that this additional onus of

satisfactorily explaining the source in the hands of the shareholder, would not apply if theshareholder is a well regulated entity, i.e. a Venture Capital Fund, Venture Capital Company

registered with the Securities Exchange Board of India (SEBI).

Th is amendm ent w i l l t ake e f fec t f rom 1s t Ap r i l , 2013 and w i l l , acco rd ing l y , app ly i n

re la t i on to the assessmen t yea r 2013- 14 and subsequen t yea rs .

Taxa t ion o f cash c red i t s , unexp la ined m oney , i nves tmen ts e tc .

Under the existing provisions of the Income-tax Act, certain unexplained amounts are

deemed as income under section 68, section 69, section 69A, section 69B, section 69C and

section 69D of the Act and are subject to tax as per the tax rate applicable to the assessee.

In case of individuals, HUF, etc., no tax is levied up to the basic exemption limit. Therefore,


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in these cases, no tax can be levied on these deemed income if the amount of such deemed

income is less than the amount of basic exemption limit and even if it is higher, it is levied

at the lower slab rate. In order to curb the practice of laundering of unaccounted money by

taking advantage of basic exemption limit, it is proposed to tax the unexplained credits,

money, investment, expenditure, etc., which has been deemed as income under section 68,

section 69, section 69A, section 69B, section 69C or section 69D, at the rate of 30% (plus

surcharge and cess as applicable). It is also proposed to provide that no deduction in respect

of any expenditure or allowance shall be allowed to the assessee under any provision of the

Act in computing deemed income under the said sections.

This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation

to the assessment year 2013-14 and subsequent assessment years.

Comp u lso ry f i l i ng o f i ncom e tax re tu rn i n r e la t i on to assets l oca ted ou ts ide In d ia

Under the existing provisions of section 139, every person is required to furnish a return of

income if his income during the previous year relevant to the assessment year exceeds the

maximum amount which is not chargeable to tax. The return of income has to be furnished

in the prescribed form and verified in the prescribed manner and setting forth such other

particulars as may be prescribed.

It is proposed to amend the provisions of section 139 so that f u r n i s h i n g o f r e t u r n o f

i n c o m e u n d e r s e c t i o n 1 3 9 may be m a d e m a n d a t o r y f o r e v er y r e s id e n t h a v i n g a n y

a ss et ( i n c l u d i n g f i n a n ci a l i n t e r e st i n a n y e n t i t y ) l o c at e d o u t s i d e I n d i a o r s i g n in gau tho r i t y i n any accoun t l ocated ou ts ide Ind ia . Furnishing of return by such a resident

would be mandatory irrespective of the fact whether the resident taxpayer has taxable

income or not.

Th is amendm ent w i l l t ake e f fec t re t rospec t i ve l y f rom t he 1s t day o f Ap r i l , 2012 and

w i l l a c c o r d i n g ly a p p l y t o a s se s sm e n t y e ar 2 0 1 2 - 1 3 a n d s u b s e q ue n t a ss es sm e n t

years.

Reassessment o f i n come in re la t i on t o any asset l oca ted ou t s ide Ind ia

Under the provisions of section 149 of the Income-tax Act, the time limit for issue of notice

for reopening an assessment on account of income escaping assessment is 6 years. The time

limit of 6 years is not sufficient in cases where assets are located outside India because

gathering information regarding such assets takes much more time on account of additionalprocedures and laws of foreign jurisdictions.

It is proposed to amend the provisions ofs ec t i o n 1 4 9 s o a s t o i n c r e as e t h e t i m e l i m i t

f o r i s s u e o f n o t i c e f o r r e o p en i n g a n a ss es s m e n t t o 1 6 y e a r s , w h e r e t h e i n c o m e i n

r e l at i o n t o a n y a ss et ( i n c l u d i n g f i n a n ci a l i n t e r e st i n a n y e n t i t y ) l o c at e d o u t s i d e

I nd ia , cha rgeab le to t ax , has escaped assessmen t .

Amendments are also proposed to be made in section 147 of the Income-tax Act to provide

that income shall be deemed to have escaped assessment where a person is found to have

any asset (including financial interest in any entity) located outside India.

The provisions of sections 147 and 149 are procedural in nature and w i l l t ake ef fec t f rom

1s t Ju l y , 2012 for enabling reopening of proceedings for and assessment year commencing

prior to this date. This is proposed to be clarified through an Explanation stating that theprovisions of these sections, as amended, by the Finance Act, 2012, shall also be applicable

for any assessment year beginning on or before the 1st day of April, 2012.

Corresponding amendments are also proposed to be made to the provisions of section 17 of

the Wealth-tax Act.

These amendm ents w i l l t ake e f fec t f rom the 1s t day o f Ju l y , 2012.

Penal t y on und isc losed i ncome found du r in g the cou rse o f sea rch

Under the existing provisions of section 271AAA of the Income-tax Act, no penalty is levied

if the assessee admits the u n d i s cl o s ed i n c o m e i n a s t a t em e n t u n d e r s u b - s e ct i o n ( 4 )


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o f sec t i on 132 reco rded in the course of search and specifies the manner in which such

income has been derived and pays the tax together with interest, if any, in respect of such

income. As a result, undisclosed income (for the current year in which search takes place or

the previous year which has ended before the search and for which return is not yet due)

found during the course of search attracts a tax at the rate of 30% and no penalty is

leviable.

I n o r d er t o s t r en g t h en t h e p e n al p r o v is io n s, i t i s p r o p o se d t o p r o v id e t h a t t h e

p r o v i s i o n s o f s e ct i o n 2 7 1 A A A w i l l n o t b e a p p l i ca b l e f o r s e ar c h e s c o nd u c t e d o n o r

a ft e r 1 s t Ju l y , 2 0 12 . I t i s a l so p r o p o se d t o i n se r t a n e w p r o v is i on i n t h e A ct( sec t i on 271AAB) fo r l evy o f pena l t y i n a case where sea rch has been i n i t i a ted on

or a f te r 1s t Ju l y , 2012 . The new sect i on p r ov ides tha t , -

( i ) I f und i sc losed i ncome i s adm i t ted du r ing t he cou rse o f search , the taxpayer w i l l

b e l i a bl e f o r p e na lt y a t t h e r a t e o f 1 0 % o f u n d i sc lo s ed i n co m e s u bj e ct t o t h e

fu l f i l lmen t o f ce r ta in cond i t i ons .

( i i ) I f und i sc losed i ncome i s no t admi t t ed du r ing the cou rse o f sea rch bu t d i sc losed

in the re tu r n o f i ncome f i l ed a f te r the sea rch , the taxpayer w i l l be l i ab le fo r pena l t y

a t t h e r a t e o f 2 0 % o f u n d i s cl o se d i n c o m e s u b j ec t t o t h e f u l f il l m en t o f c e r t ai n

cond i t i ons .

( i i i ) I n a c a se n o t c o v e r ed u n d e r ( i ) a n d ( i i ) a b o v e , t h e t ax p a y er w i l l b e l i ab l e f o r

p e n al t y a t t h e r a t e r a n g i n g f r o m 3 0 % t o 9 0 % o f u n d i sc l o se d i n c om e .

T he se a m en d m en t s w i l l t ak e ef fe ct f r om t h e 1 st d ay o f Ju ly , 2 0 12 and will,

accordingly, apply to any search and seizure action taken after this date.

Exped i t i ng p rosecu t i on p roceed ings under the Ac t

Chapter XXII of the Income-tax Act, 1961 details punishable offences and prosecution for

such offences. Prosecution under the direct tax laws is used as a tool for deterrence and

effective enforcement of laws. It is proposed to strengthen the prosecution mechanism

(through new sections 280A, 280B, 280C and 280D) under the

Income-tax Act by

(i) Providing for constitution of Special Courts for trial of offences.(ii) Application of summons trial for offences under the Act to expedite prosecution

proceedings as the procedures in a summons trial are simpler and less time consuming.

(iii) Providing for appointment of public prosecutors.

The existing provisions of section 276C, 276CC, 277, 277A and section 278 of the

Income-tax Act provide that in a case where the amount of tax, penalty or interest which

would have been evaded by a person exceeds one hundred thousand rupees, he shall be

punishable with rigorous imprisonment for a term which shall not be less than six months

but which may extend to seven years and with fine.

In case the amount which would have been evaded by a person does not exceed one

hundred thousand rupees, he shall be punishable with rigorous imprisonment for a term

which shall not be less than three months but which may extend to three years and with

fine.

T h e t h r es h ol d o f o n e h u n d r ed t h o u sa n d r u p e es w a s i n t r o d uc ed i n 1 9 7 6. I t i s

p r o p o s ed t o b e a m e n d e d s o t h a t t h e r e v i se d t h r e s h o l d w i l l b e t w e n t y - f i v e h u n d r ed

thousand rup ees.

Summons trials apply to offences where the maximum term of imprisonment does not

exceed two years. It is, therefore, proposed that where the amount which would have been

evaded does not exceed twenty-five hundred thousand rupees, the person shall be

punishable with rigorous imprisonment for a term which shall not be less than three months

but which may extend to two years and with fine.

These amendments will take effect from the 1st day of July, 2012.


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Share p remiu m in excess o f t he fa i r m arke t va lue to be t r ea ted as i ncome

Section 56(2) provides for the specific category of incomes that shall be chargeable to

income-tax under the head Income from other sources.

It is proposed to insert a new clause in section 56(2). The new clause will apply where a

company, not being a company in which the public are substantially interested, receives, in

any previous year, from any person being a resident, any consideration for issue of shares.

In such a case if the consideration received for issue of shares exceeds the face value of

such shares, t he aggrega te cons ide ra t i on rece i ved fo r such sha res as exceeds the

fa i r mark e t va lue o f t he sha res shal l be cha rgeab le to i ncom e- tax under t he head

I n co m e f r om o t he r s ou r ces. However, this provision shall not apply where the

consideration for issue of shares is received by a venture capital undertaking from a venture

capital company or a venture capital fund. Fu r t h e r , i t i s a l s o p r o p o s e d t o p r o v i d e t h e

c o m p a n y a n o p p o r t u n i t y t o s u b st a n t i a t e i t s c l ai m r e g a r d in g t h e f a i r m a r k e t v a l u e.

A c co r d i n g l y , i t i s p r o p o s e d t h a t t h e f a i r m a r k e t v a l u e o f t h e s h ar e s s h al l b e t h e

h igher o f t he va lue

( i ) as may be dete rm ined i n acco rdance w i th t he me thod as may be p rescr ibed ; o r

( i i ) a s m a y b e s u b s t an t i a t e d b y t h e c o m p a n y t o t h e s a t i sf a ct i o n o f t h e A s s es s in g

O ff i ce r , b a se d o n t h e v a lu e o f i t s a ss et s , i n cl u d in g i n t an g i bl e a ss et s , b e in gg o o d w i l l , k n o w - h o w , p a t e n t s , c o p y r i g h t s , t r a d e m a r k s , l i c en c es , f r a n c hi s es o r a n y

o the r bus iness o r commerc ia l r i gh ts o f s im i l a r na tu re .


re la t i on to the assessmen t yea r 2013- 14 and subsequen t assessmen t yea rs .

D. TAX I NCENTI VES AND RELI EFS

Tax i ncen t i ve fo r fund in g o f ce r ta in I n f ras t ruc tu r e Sec to rs

Section 115A of the Income Tax Act provides that any interest income received by any

non-resident from the Government or an Indian concern shall be taxable at the rate of 20%

on the gross amount of such interest income. The interest income received by a

non-resident from a notified Infrastructure Debt Fund (IDF) is taxable at a reduced rate of5% on gross amount of such interest income.

Section 195 of the Act provides that in case of any interest payment made to a non-resident

tax shall be deducted (withholding tax) at the rate in force. Currently, the rate of 20%

withholding tax is prescribed, in case of any interest paid by the Government or Indian

concern to a non-resident.

In order to augment long-term low cost funds from abroad for the infrastructure sector, it is

proposed to provide tax incentives for funding certain infrastructure sectors from

borrowings made abroad subject to certain conditions. It is proposed to amend Section 115A

of the Income Tax Act to provide that any interest paid by a specified company to a

nonresident in respect of borrowing made in foreign currency from sources outside India

between 1st July, 2012 and 1st July, 2015, under an agreement, including rate of the

interest payable, approved by the Central Government, shall be taxable at the rate of 5%(plus applicable surcharge and cess).

The specified company shall be an Indian company engaged in the business of -

(i) construction of dam,

(ii) operation of Aircraft,

(iii) manufacture or production of fertilizers,

(iv) construction of port including inland port,

(v) construction of road, toll road or bridge;

(vi) generation, distribution of transmission of power

(vii) construction of ships in a shipyard; or

(viii) developing and building an affordable housing project as is presently referred to in


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section 35AD(8)(c)(vii).


to the Assessment Year 2013-14 and subsequent assessment years.

It is further proposed to insert a new section 194LC to provide that interest income paid by

such specified company to a nonresident shall be subjected to tax deduction at source at the

rate of 5% (plus applicable surcharge and cess).


Low er ra te o f t ax on d i v idends rece i ved from fo re ign compan ies

Section 115BBD of Income Tax Act (the Act) provides for taxation of gross dividends

received by an Indian company from a specified foreign company (in which it has

shareholding of 26% or more) at the rate of 15% if such dividend is included in the total

income for the Financial Year 2011-12 i.e. Assessment Year 2012-13. The above provision

was introduced as an incentive for attracting repatriation of income earned by residents

from investments made abroad with certain conditions to check the misuse of the incentive.

In order to continue these provisions for one more year, it is proposed to amend section

115BBD to extend the applicability of this section in respect of income by way of certain

foreign dividends received in Financial Year 2012-13 also, subject to the same conditions.

This amendment will take effect from 1st April, 2013 and shall apply to the Assessment year

2013-14.

P r o v i si o n s r e l at i n g t o V en t u r e Ca p i t al Fu n d ( V CF) o r V en t u r e Ca p i t al Co m p a n y

( VCC) .

Provisions of Section 10(23FB) and Section 115U of the Act were intended to ensure a tax

pass through status to Securities and Exchange Board of India (SEBI) registered Venture

Capital Fund (VCF) or Venture Capital Company (VCC). Section 10(23FB) granted

exemption in respect of income of such VCF/VCC. The benefit was available if investment by

such VCC/VCF was in unlisted shares of a domestic company, i.e. a Venture Capital

Undertaking (VCU). Section 115U ensures that income, in the hand of the investor through

VCF/VCC is taxed in like manner and to the same extent as if the investment was directly

made by investor in the VCU. Further, TDS provisions are not applicable to any paymentmade by the VCF to its investor and payment by VCC to the investor is exempted from

Dividend Distribution Tax (DDT). Section 10(23FB) further provides that income of a SEBI

regulated VCF or VCC, derived from investment in a domestic company i.e. Venture Capital

Undertaking (VCU), is exempt from taxation, provided the VCU is engaged in only nine

specified businesses. The working of VCF, VCC or VCU are regulated by SEBI and RBI. In

order to avoid multiplicity of conditions in different regulations for the same entities, the

sectoral restriction on business of VCU is required to be removed from Income Tax Act and

such VCU is to be allowed to be governed by conditions imposed by SEBI and RBI. The

provisions of section 115U currently allow an opportunity of indefinite deferral of taxation in

the hands of investor. With a view to rationalize the above position and to align it with the

true intent of a pass-through status, it is proposed to amend section 10(23FB) and section

115U to provide that.-

(i) The venture Capital undertaking shall have same meaning as provided in relevant SEBIregulations and there would be no sectoral restriction.

(ii) Income accruing to VCF/ VCC shall be taxable in the hands of investor on accrual basis

with no deferral.

(iii) The exemption from applicability of TDS provisions on income credited or paid by VCF/

VCC to investors shall be withdrawn.

These amendments will take effect from 1st April, 2013, and will, accordingly, apply in

relation to the assessment year 2013-14 and subsequent years.

Remova l o f t he cascad ing e f fec t o f D i v idend D is t r i bu t i on Tax (DDT)


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Section 115-O of the Act provides for taxation of distributed profits of domestic company. It

provides that any amount declared, distributed or paid by way of dividends, whether out of

current or accumulated profits, shall be liable to be taxed at the rate of 15%. The tax is

known as Dividend Distribution Tax (DDT). Such distributed dividend is exempt in the hands

of recipients.

Section 115-O of the Act provides that dividend liable for DDT in case of a company is to be

reduced by an amount of dividend received from its subsidiary after payment of DDT if the

company is not a subsidiary of any other company. This removes the cascading effect of DDT

only in a two-tier corporate structure.

With a view to remove the cascading effect of DDT in multi-tier corporate structure, it is

proposed to amend Se ct i o n 1 1 5 - O o f t h e A c t t o p r o v i d e t h a t i n c as e a n y c o m p a n y

r e c ei v e s, d u r i n g t h e y e a r , a n y d i v i d en d f r o m a n y s u b s i d ia r y a n d s u ch s u b si d i a r y

h a s p a i d D D T a s p a ya b le o n s u ch d i v id e nd , t h en , d i v id en d d i st r i b u t ed b y t h e

ho ld ing com pany i n the same year , t o tha t ex ten t , sha l l no t be sub jec t t o D iv idend

D i s t r i b u t i o n T ax u n d e r s e ct i o n 1 1 5 - O o f t h e A c t . T h i s a m e n d m e n t w i l l t a k e e f f e ct

f rom 1s t Ju l y , 2012 .

Exempt ion i n respec t o f i ncom e rece i ved by ce r ta in fo re ign com pan ies

Section 10 of the Income-tax Act provides for certain incomes which are not included in the

total income of a person subject to the conditions specified in the relevant clauses of thesection.

In the national interest, a mechanism has been devised to make payment to certain foreign

companies in India in Indian currency for import of crude oil. The current provisions of the

Income-tax Act would render such payment taxable in India because payment is being

received by these foreign companies in India in Indian currency. This would not be justified

when such payment is based on national interest and particularly when no other activity is

being carried out in India by these foreign companies except receipt of payment in Indian

currency.

It is therefore proposed to insert a n e w c l au s e ( 4 8 ) i n s e ct i o n 1 0 o f t h e I n c o m e - t a x

A c t t o p r o v id e f o r e x em p t i o n i n r e sp ec t o f a ny i n co m e o f a f o r e ig n c o m p a n y

rece ived i n Ind ia i n I nd ian cu r rency on accoun t o f sa le o f crude o i l t o any pe rson i n

I n d i a s ub j e c t t o t h e f o l l o w i n g c o n d i t i o n s:

( i ) T h e r e ce i p t o f m o n e y i s u n d e r a n a g r e em e n t o r a n a r r a n g em e n t w h i c h i s e i t h er

en te red i n to by t he Cen t ra l Governm en t o r app rov ed by i t .

( i i ) T h e f o r ei g n c o m p a n y , a n d t h e a r r a n g e m e n t o r a g r ee m e n t h a s b e e n n o t i f i ed b y

the Cen t ra l Governm en t hav ing regard t o the na t i ona l i n t e res t i n th i s beha l f .

( i i i ) T he r e c ei p t o f t h e m o n e y i s t h e o n l y a c t i vi t y c a r r i ed o u t b y t h e f o r ei g n

c o m p a n y i n I n d i a . Th e se a m e n d m e n t s w i l l t a k e e f f ec t r e t r o s p e ct i v e l y f r o m 1 s t

Apr i l , 2012 and w i l l , acco rd ing l y , app ly i n re la t i on to the assessmen t yea r 2012- 13

and subsequen t yea rs once such a r rangement o r ag reement i s no t i f i ed .

Ex tend ing bene f i t o f i n i t i a l dep recia t i on to t he pow er secto r

Section 32(1)(iia) provides for allowance of initial depreciation (in addition to normal

depreciation) at the rate of 20% of the actual cost on new machinery or plant (other than

ships and aircraft) to the assessee engaged in the business of manufacture or production of

any article or thing in the year of acquisition and instalment. Under the existing provisions,

the benefit of initial depreciation is not available on the new machinery or plant installed by

an assessee engaged in the business of generation or generation and distribution of power.

In order to encourage new investment by the assessees engaged in the business of

generation or generation and distribution of power, it is proposed to amend this section to

provide that an assessee engaged in the business of generation or generation and

distribution of power shall also be a l l o w e d i n i t i a l d ep r e c ia t i o n a t t h e r a t e o f 2 0 % o f

a ct u a l c o s t o f n e w m a c h i n er y o r p l a n t ( o t h e r t h a n s h i p s a n d a i r c r af t ) a c qu i r e d a n d


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i ns ta l l ed i n a p rev ious yea r .

T h i s am e n d m e n t w i l l t a k e e f fe c t f r o m 1 s t A p r i l , 2 0 1 3 and will, accordingly, apply in


W e i g h t e d d e d u c t i o n f o r s c ie n t i f ic r e s ea r c h a n d d e v el o p m e n t Under the existing

provisions of Section 3 5 ( 2 A B ) o f t h e I n c o m e - t a x A c t , a c o m p a n y i s al l o w e d w e i g h t ed

d e d u ct i o n a t t h e r a t e o f 2 0 0 % o f e x p e nd i t u r e ( n o t b e i n g i n t h e n a t u r e o f co s t o f

a n y l a n d o r b u i l d i n g ) i n c u r r e d o n a p p r o v ed i n - h o u s e r e se ar c h a n d d e v el o p m e n t

f ac il i t ie s. T he se p r o v i si o n s a r e n o t a pp l ic ab l e i n r e sp e ct o f a n y e x pe nd i t u r eincu r red by a company a f te r 31s t March , 2012 .

In order to incentivise the corporate sector to continue to spend on in-house research, it is

proposed to amend this section to extend the benefit of the weighted deduction for a further

period of five years i.e. up to 31st March, 2017. This amendment will take effect from 1st

April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and

subsequent assessment years up to assessment year 2017-18.

Weigh ted deduc t i on fo r expend i tu r e i ncu r red on ag r i cu l tu ra l ex tens ion p ro jec t

Agricultural extension services play a critical role in enhancing the productivity in the

agricultural sector. In order to incentivise the business entities to provide better and

effective agriculture extensive services, it is proposed to insert a new provision in the

Income-t a x A c t t o a l l o w w e i g h t ed d e d u c t i o n o f 1 5 0 % o f t h e e x p e nd i t u r e i n c u r r edo n a g r i cu l t u r a l e x t e n s i o n p r o j e c t . T h e a g r i c u l t u r a l e x t e n si o n p r o j e c t e l i g i b l e f o r

t h i s w e ig h t ed d e du ct i o n s h al l b e n o t i fi ed b y t h e B o a r d i n a cc o r da nc e w i t h t h e

p resc r ibed gu id e l i nes.



Weigh ted deduc t i on fo r expend i tu r e fo r sk i l l deve lopment

The Department of Industrial Policy & Promotion (DIPP) has notified the National

Manufacturing Policy (NMP) vide Press Note dated 4th November, 2011. The notified NMP

inter alia propose to provide following direct tax incentive for skill development in

manufacturing sector:

T o e n c o ur a g e t h e p r i v a t e s ec t o r t o s et u p t h e i r o w n i n s t i t u t i o n s , t h e g o v e r n m e n t

w i l l p r o v i d e w e i g h t e d s t a nd a r d d e d u ct i o n o f 1 5 0 % o f t h e e x p e nd i t u r e ( o t h e r t h a n

l a n d o r b u i l d i n g ) i n c u r r e d o n P u b l ic P r i v a t e P ar t n e r s h i p ( P P P) p r o j e c t f o r s k i l l

d ev el op m en t i n t h e I T I s i n m a nu fa ct u r in g s ec t or i n s ep ar at e f ac il it i es i n

coord ina t i on w i th NSDC.

In order to incentivise companies to invest on skill development projects in the

manufacturing sector, it is proposed to insert a new provision in the Income-tax Act to

provide weighted deduction of 150% of expenses (not being expenditure in the nature of

cost of any land or building) incurred on skill development project. The skill development

project eligible for this weighted deduction shall be notified by the Board in accordance with

the prescribed guidelines. The proposed amendment will take effect from 1st April, 2013

and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent

assessment years.

Turnover o r g ross rece ip ts fo r aud i t o f accoun ts and p resump t i ve taxa t i on

I. Under the existing provisions of section 44AB, every person carrying on business is

required to get his accounts audited if the total sales, turnover or gross receipts in the

previous year exceed sixty lakh rupees. Similarly, a person carrying on a profession is

required to get his accounts audited if the total sales, turnover or gross receipts in the

previous year exceed fifteen lakh rupees.

In order to reduce the compliance burden on small businesses and on professionals, it is

proposed t o i n c r ea s e t h e t h r e s h o ld l i m i t o f t o t a l s a l es , t u r n o v e r o r g r o s s r e c ei p t s ,

spec i f ied under sec t i on 44AB fo r ge t t i ng accoun ts aud i ted , from s i x t y l akh rupees


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t o o n e c r o r e r u p e e s i n t h e c as e o f p e r s o n s c ar r y i n g o n b u s i n es s a n d f r o m f i f t ee n

l ak h r u p ee s t o t w e n t y f iv e l ak h r u p ee s i n t h e c a se o f p er s on s c ar r y in g o n

pro fess ion .

II. It is also proposed that for the purposes of presumptive taxation under section 44AD, the

threshold limit of total turnover or gross receipts would be increased from sixty lakh rupees

to one crore rupees.

These amendments will take effect from 1st April, 2013 and will, accordingly, apply to the

assessment year 2013-14 and subsequent assessment years.

Exempt ion fo r Sen io r Ci t i zens f rom p ayment o f adv ance tax

Under the existing provisions of Income-tax Act, every assessee is required to pay advance

tax if the tax liability for the previous year exceeds ten thousand rupees. In case of senior

citizens who have passive income of the nature of interest, rent, etc., the requirement of

payment of advance tax results in raising compliance burden.

In order to reduce the compliance burden of such senior citizens, it is proposed that a

resident senior citizen, n o t h a v i n g a n y i n c o m e c h a r g ea b l e u n d er t h e h e a d P r o f it s

a n d g a i n s o f b u s i n es s o r p r o f e ss i o n , s h a l l n o t b e l i a b l e t o p a y a d v a n ce t a x a n d

such sen io r c i t i zen sha l l be a l l owed to d i scharge h i s tax l i ab i l i t y (o t he r than TDS)

by paym ent o f se l f assessmen t tax .

T hi s a m en d m en t w i l l t a ke e ff ec t f r om t h e 1 st A p ri l, 2 0 12 . A cc or d in g ly , t h e

a fo resa id sen io r c i t i zen w ou ld no t be requ i red to p ay advance tax fo r t he f i nanc ial

yea r 2012-1 3 and subsequen t f i nanc ia l yea rs .

W e al t h T ax Ex e m p t io n o f r e si d en t i al h o u se a ll o t t ed t o e m p l oy e e e t c. o f a

c o m p a n y

Under the existing provisions of section 2 of the Wealth-tax Act, the specified assets for the

purpose of levy of wealth tax do not include a residential house allotted by a company to an

employee or an officer or a whole time director if the gross annual salary of such employee

or officer, etc. is less than five lakh rupees.

Cons ide r ing genera l i nc rease i n sala ry and i n f l a t i on s ince rev i s ion o f t h i s l im i t , i t i s

p roposed to i n c rease the ex i s t i ng th resho ld o f g ross sa la ry f rom f i ve l akh rup ees toten l akh rupees fo r the pu rpose o f l evy ing w ea l th - tax on res iden t i a l house a ll o t ted

by a company to an emp loyee o r an o f f i cer o r a w ho le t ime d i rec to r .

T h i s am e n d m e n t w i l l t a k e e f f ec t f r o m 1 s t A p r i l , 2 0 1 3 a n d will, accordingly, apply in


R el i ef f r o m l o n g- t e r m c ap i t al g a in s t a x o n t r a ns fe r o f r e si d en t i al p r o p er t y i f

i nves ted i n a manu fac tu r i ng sm a l l o r med ium en t e rp r i se

The Government had announced National Manufacturing Policy (NMP) in 2011, one of the

goals of which is to incentivise investment in the Small and Medium Enterprises (SME) in

the manufacturing sector. It is proposed to insert a new section 546B so as to provide

rollover relief from long term capital gains tax to an individual or an HUF on sale of a

residential property (house or plot of land) in case of re-investment of sale consideration inthe equity of a new start-up SME company in the manufacturing sector which is utilized by

the company for the purchase of new plant and machinery.

Th is re l i ef w ou ld be sub jec t t o the cond i t i ons tha t -

( i ) t he amoun t o f ne t cons ide ra t i on i s used by the i nd i v idua l o r HUF be fo re the due

d a t e o f f u r n i s h i n g o f r e t u r n o f i n c o m e u n d e r s u b - s ec t i o n ( 1 ) o f s e ct i o n 1 3 9 , f o r

s u b s c r i p t i o n i n e q u i t y s h a r e s i n t h e S M E c o m p a n y i n w h i c h h e h o l d s m o r e t h a n

5 0 % s h ar e c ap i t a l o r m o r e t h a n 5 0 % v o t i n g r i g h t s .

( i i ) T he a m o u nt o f s u bs cr i p t io n a s s h ar e c ap i t al i s t o b e u t i l i ze d b y t h e S ME

c o m p a n y f o r t h e p u r c h as e o f n e w p l a n t a n d m a c h i n er y w i t h i n a p e r i o d o f o n e y e ar


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f r om the da te o f subsc r ip t i on i n the equ i t y sha res .

( i i i ) I f t h e a m o u n t o f n e t c o n s i d er a t i o n s u b s cr i b e d a s e q u i t y s h a r es i n t h e S ME

c o m p an y i s n o t u t i li ze d b y t h e S ME c o m p a ny f o r t h e p u r c h as e o f p l an t a nd

m a c hi n er y b ef o r e t h e d u e d a t e o f f i l i ng o f r e t u r n b y t h e i n d i v id u al o r H UF, t h e

u n u t i l i se d a m o u n t s h al l b e d e p o si t e d u n d e r a d e p o si t s ch e m e t o b e p r e s c r i be d i n

th i s beha l f .

( i v ) Su i tab le sa feguards so as to res t r i c t t he t rans fe r o f t he sha res o f t he comp any ,

and o f t he p lan t and m ach ine ry fo r a pe r iod o f 5 yea rs a re p roposed to be p rov idedt o p r e v e nt d i v e r si o n o f t h e s e f u n d s. F u r t h er , c a p i t al g a i n s w o u l d b e s u b j e ct t o

taxa t i on i n case any o f t he cond i t i ons a re v io la ted .

( v ) T h e r e l ie f w o u l d b e a v ai l a bl e i n c as e o f a n y t r a n s fe r o f r e s id e n t i al p r o p e r t y

m a d e o n o r b e f o r e 3 1 st M a r ch , 2 0 1 7 . T h e p r o p o se d a m e n d m e n t s i n t h e p r o v i s i o n s

o f the I ncome- t ax Ac t shal l be e f fec t i ve f rom 1s t Ap r i l , 2013 and w ou ld acco rd ing l y

app ly to assessmen t yea r 2013- 14 and subsequen t assessmen t yea rs .

Reduc t i on i n t he ra te o f Secur i t i es T ransact i on Tax (STT)

Securities Transaction Tax (STT) on transactions in specified securities was introduced vide

Finance (No.2) Act, 2004. It is proposed to reduce STT in Cash Delivery segment from the

existing 0.125% to 0.1%. The proposed new rates along with details of old rates are given

in the following table.

TABLE

Sl . No . N a t u r e o f t a x a b le s e cu r i t i e s t r a n sa c t i on P ay a b l e b y Ex i s t i n g R at e s %

Proposed ra tes%

( 1 ) ( 2 ) ( 3 ) ( 4 ) ( 5 )

1 . De l i ve ry based pu rchase o f equ i t y Purchaser 0 .125 0 .1

shares i n a company / un i t s o f an equ i t y

o r i en ted fund en te red i n to th rough a

recogn ised s tock exchange in I nd ia .

2. Del ivery b ased sa le of equi ty shares in Sel ler 0 .125 0.1

a c o m p a n y / u n i t s o f a n eq u i t y o r i e n t e dfund en te red i n to th ro ugh a recogn ized

s tock exchange in Ind ia .

The proposed amendments in the rates of Securities Transaction Tax (STT) will be effective

from the 1st day of July, 2012 and will accordingly apply to any transaction made on or

after that date.

Deduc t i on i n r espec t o f cap i ta l expend i tu r e on spec i f i ed bus iness

I . Under the existing provisions of section 35AD of the Income-tax Act, investment-linked

tax incentive is provided by way of allowing 100% deduction in respect of the whole of any

expenditure of capital nature (other than on land, goodwill and financial instrument)

incurred wholly and exclusively, for the purposes of the specified business during the

previous year in which such expenditure is incurred. Currently, the following specifiedbusinesses are eligible for availing the investment-linked deduction under section

35AD(8)(c):-

(i) setting up and operating a cold chain facility;

(ii) setting up and operating a warehousing facility for storage of agricultural produce;

(iii) laying and operating a cross-country natural gas or crude or petroleum oil pipeline

network for distribution, including storage facilities being an integral part of such network.

(iv)building and operating, anywhere in India, a new hotel of two-star or above category as

classified by the Central Government;


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(v) building and operating, anywhere in India, a new hospital with at least one hundred

beds for patients;

(vi) developing and building a housing project under a scheme for slum redevelopment or

rehabilitation, framed by the Central Government or a State Government, as the case may

be, and notified by the Board in this behalf in accordance with the guidelines as may be

prescribed.

(vii) developing and building a housing project under a scheme for affordable housing

framed by the Central Government or a State Government, as the case may be, and notified

by the Board in this behalf in accordance with the guidelines as may be prescribed; and

(ix) production of fertilizer in India.

It is proposed to include three new businesses as specified business for the purposes of

the investment-linked deduction under section 35AD, namely:-

(a) setting up and operating an inland container depot or a container freight station notified

or approved under the Customs Act, 1962 (52 of 1962);

(b) bee-keeping and production of honey and beeswax; and

(c) setting up and operating a warehousing facility for storage of sugar.

The dates of commencement of the specified business are detailed in section 35AD (5). Itis proposed that the date of commencement of operations for availing investment linked

deduction in respect of the three new specified businesses shall be on or after 1st April,

2012.

These amendments will take effect from 1st April, 2013 and will, accordingly, apply in

relation to the assessment year 2013-14 and subsequent assessment years.

I I . It is also proposed that the following specified businesses commencing operations on or

after the 1st of April, 2012 shall be allowed a deduction of 150% of the capital expenditure

under section 35AD of the Income-tax Act, namely:-

(i) setting up and operating a cold chain facility;

(ii) setting up and operating a warehousing facility for storage of agricultural produce;

(iii) building and operating, anywhere in India, a hospital with at least one hundred beds for

patients;

(iv) developing and building a housing project under a scheme for affordable housing

framed by the Central Government or a State Government, as the case may be, and notified

by the Board in this behalf in accordance with the guidelines as may be prescribed; and

(v) production of fertilizer in India.


to the assessment year 2013-14 and subsequent assessment years.

I I I . Currently, the investment-linked deduction under section 35AD is allowed to anassessee engaged in the business of building and operating a hotel whereby the deduction

can only be granted to the owner of a hotel if he himself operates it.

In service industries like hotels, a franchisee business system exists where the hotel owner

may get the hotel operated through an outsourcing arrangement.

Therefore, it is proposed to provide a suitable clarification so that a hotel owner continues

to be eligible for the investment linked deduction under section 35AD if he, while continuing

to own the hotel, transfers the operation of such hotel to another person. Accordingly, a

new sub-section (1A) is proposed to be inserted in section 35AD to provide that where the

assessee builds a hotel of two-star or above category as classified by the Central

Government and subsequently, while continuing to own the hotel, transfers the operation


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thereof to another person, the assessee shall be deemed to be carrying on the specified

business of building and operating hotel.

This amendment will take effect retrospectively from 1st April, 2011 and will, accordingly,

apply in relation to the assessment year 2011-12 and subsequent assessment years.

Ex tens ion o f sunse t da te fo r tax ho l i day fo r pow er secto r

Under the existing provisions of section 80-IA(4)(iv) of the Income-tax Act, a deduction

from profits and gains is allowed to an undertaking which,

(a) is set up for the generation and distribution of power if it begins to generate power at

any time during the period beginning on 1st April, 1993 and ending on 31st March, 2012;

(b) starts transmission or distribution by laying a network of new transmission or

distribution lines at any time during the period beginning on 1st April, 1999 and ending on

31st March, 2012;

(c) undertakes substantial renovation and modernization of existing network of transmission

or distribution l ines at any t i m e d u r i n g t h e p e r i o d b e g i n n i n g o n 1 s t A p r i l , 2 0 0 4 a n d

end ing on 31s t March , 2012.

It is proposed to amend the above provision to extend the terminal date for a further period

of one year, i.e., up to 31st March, 2013.


to assessment year 2013-14 and subsequent assessment years.

Reduc t i on o f t he e l i g ib le age fo r sen io r c i t i zens fo r ce r ta in tax r e l i e f s

The Finance Act, 2011 amended the effective age of a senior citizen being a n I n d i an

res iden t f rom s i x t y - f i ve yea rs o f age to s i x t y yea rs fo r the pu rposes o f app l i cat i on

o f v a r i o u s t a x s l a b s an d r a t e s o f t a x u n d e r t h e I n c o m e T ax A c t , 1 9 6 1 f o r i n c o m e

earned du r ing the f i nanc ial yea r 2011-12 ( assessmen t yea r 2012-13 ) .

T h er e a r e c e r t a in o t h e r p r o v i s i o ns o f t h e A c t i n w h i c h t h e a g e f o r q u a l i f y i ng a s a

sen io r c i t i zen i s now p roposed to be s im i l a r l y amended .

( i ) Sec t i on 80D o f the I ncome- t ax Ac t p rov ides fo r a deduc t i on i n respec t o f p remia

pa id tow ards a heal th i nsu rance po l i cy fo r t he assessee o r h i s fam i l y ( spouse and

d e p en d a n t c h i l d r en ) a n d a f u r t h e r d e d u ct i o n i s a l so a l l o w e d f o r b u y i n g a h e al t h

insu rance po l i cy fo r pa ren t ( s ) . Where the p remium i s pa id to e ffec t o r keep i n fo rce

a n i n s u r a n ce o n t h e h e a l t h o f a n y p e r s o n w h o i s a s e n i o r c i t i z en , t h e d e d u c t i o n s

a re a l l owab le up to a h ighe r sum o f Rs. 20 ,000 / - i ns tead o f Rs . 15 ,000 / - .

( i i ) Se ct i o n 8 0 D D B o f t h e I n c om e - t ax A ct p r o v id e s f o r a d e du c t io n u p t o R s.

4 0 , 0 0 0/ - f o r t h e m e d i ca l t r e a t m e n t o f a s p e ci f i ed d i s e as e o r a i l m e n t i n t h e c as e,

i n t e r a l i a , o f a n i n d i v i d u al o r h i s d e p e n d an t . T h i s d e d u c t i o n i s e n h an c ed t o R s.

6 0 , 0 0 0/ w h e r e t h e a m o u n t a c t u a ll y p a i d i s i n r e s p ec t o f a n y o f t h e a b o v e p e r s o n s

w ho i s a sen io r c i t i zen .

( i i i ) Se ct i o n 1 9 7 A ( 1 C) o f t h e I n c om e - t ax A ct p r o v id es t h at i n r e sp e ct o f t a xd e du c t io n a t s o ur c e u n d e r s ec t io n 1 9 3 ( i n t e r es t o n s ec u ri t i es ) o r s ec t io n 1 9 4

( d i v i d e n d s) o r s e c t i o n 1 9 4 A ( i n t e r es t o t h e r t h a n i n t e r e st o n s e c u r i t i es ) o r s e c t i o n

1 9 4 EE ( p a y m e n t s i n r e sp e c t o f d e p o si t s u n d e r N S S et c . ) o r s ec t i o n 1 9 4 K ( i n c o m e

i n r e sp ec t o f u n i t s ) , n o d e du ct i o n o f t a x s h al l b e m a d e i n t h e c a se o f a s e n io r

c i t i zen , i f such i nd i v idua l f u rn i shes a dec lara t i on i n t he p resc r ibed fo rm ( Fo rm No .

15H) t o the e f fect t ha t t he tax on h i s est im a ted to ta l i ncome o f the p rev ious yea r i n

w h ich such i ncome i s to be i nc luded in compu t ing h i s to ta l i ncome w i l l be ni l.

In all of the above-mentioned provisions, i.e., under sections 80D, 80DDB and 197A the

effective age for a senior citizen who can avail of the benefit is mentioned as sixty-five

years or more at any time during the relevant previous year. In order to make the effective

age of senior citizens uniform across all the provisions of the Income Tax Act, it is proposed


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to reduce the age for availing of the benefits by a senior citizen under the aforesaid sections

(sections 80D, 80DDB and 197A) from sixty-five years to sixty years.

The amendments to section 80D and section 80DDB will take effective from 1st April, 2013

and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent

assessment years.

The amendment to sect i on 197A w i l l t ake e f fec t f rom 1s t Ju l y , 2012 .]

Deduc t i on fo r expend i tu r e on p reven t i ve hea l th check -up

Under the existing provisions contained in section 80D of the Income-tax Act, a deduction is

allowed in respect of premium paid towards a health insurance policy for insurance of self,

spouse and dependant children or any contribution made to the Central Government Health

Scheme, up to a maximum of Rs.15,000 in aggregate. A further deduction of Rs.15,000 is

also allowed for buying a health insurance policy in respect of parents.

It is proposed to a m en d t h i s s ec t i on t o a ls o i n c l ud e a n y p a ym e n t m a d e b y a n

a ss e ss ee o n a cc o u n t o f p r e v en t i v e h e al t h c h ec k - u p o f s e lf , s p o u s e , d e p en d a n t

c h i l dr e n o r p a r en t s ( s ) d u r i n g t h e p r e v i o us y e a r a s e l i g ib l e f o r d e d u c t i o n w i t h i n t h e

o v er a ll l i m i t s p r e s cr i b ed i n t h e s ec t io n . H o w e v er , t h e p r o p os ed d ed u ct i o n o n

accoun t o f expend i tu r e on p r even t i ve hea l th check -up ( fo r se l f , spouse, dependan t

ch i l d ren and pa ren ts ) sha l l no t exceed in the aggrega te Rs .5 ,000 .

It is further proposed to provide that for the purpose of the deduction under section 80D,

payment can be made - (i) by any mode, including cash, in respect of any sum paid on

account of preventive health check-up and (ii) by any mode other than cash, in all other

cases.

These amendments will take e f fect f rom 1s t Ap r i l , 2013 and w i l l , acco rd ing l y , app ly i n


D ed u ct i o n i n r e sp e ct o f i n t er e st o n d e po s it s i n s av i n gs a cc ou n t s U nd er t h e

p roposed new sec t i on 80TTA o f the I ncome- t ax Ac t , a deduc t i on up to an ex ten t o f

t e n t h o u sa nd r u p ee s i n a g gr e ga t e s h a ll b e a ll o w e d t o a n a ss es se e, b e in g a n

ind i v idua l o r a H indu und iv ided fam i l y , i n respec t o f any i ncome by w ay o f i n te res t

on depos i t s (no t be ing t im e depos i t s ) i n a sav ings accoun t w i th

( i ) a b a n k i ng c o m p a n y t o w h i c h t h e B an k i n g R eg u l a t i o n A ct , 1 9 4 9 ( 1 0 o f 1 9 4 9 ) ,

a p p l ie s ( i n c l u d i n g a n y b a n k o r b a n k i n g i n s t i t u t i o n r e f er r e d t o i n s e c t i o n 5 1 o f t h a t

A c t ) ;

( i i ) a c o - op er a t i ve s o ci et y e n ga ge d i n c ar r y i n g o n t h e b u si n es s o f b a nk i n g

( i n c l u d i n g a c o - o p er a t i v e l a n d m o r t g a g e b a n k o r a c o - o p e r a t i v e l an d d e v el o p m e n t

b a n k ) ; o r

( i i i ) a pos t o f f i ce , as de f ined i n c lause (k ) o f sec t i on 2 o f t he I nd ian Pos t O f f ice Ac t ,

1 8 9 8 ( 6 o f 1 8 9 8 ) .

H o w e v er , w h e r e t h e a f o r e sa i d i n c o m e i s d e r i v e d f r o m a n y d e p o si t i n a s a v i n g s

a cc o u n t h e l d b y , o r o n b e h a l f o f , a f i r m , a n a ss o ci a t i o n o f p e r s o n s o r a b o d y o f

i nd i v idua ls , no deduc t i on sha l l be al l ow ed in respect o f such i ncome in com pu t ingt h e t o t a l i n c o m e o f a n y p a r t n e r o f t h e f i r m o r a n y m e m b e r o f t h e a s so c i at i o n o r

b o d y .



E. RA TI O N AL I ZA TI O N OF T AX D ED UCTI O N A T SOURCE ( T DS) A ND T AX

COLLECTI ON AT SOURCE (TCS) PROVI SI ONS

I . Deemed da te o f paymen t o f t ax by the res iden t payee

Under the existing provisions of Chapter XVII-B of the Income-tax Act, a person is required


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to deduct tax on certain specified payments at the specified rates if the payment exceeds

specified threshold. In case of non-deduction of tax in accordance with the provisions of this

Chapter, he is deemed to be an assessee in default under section 201(1) in respect of the

amount of such non-deduction.

However, section 191 of the Act provides that a person shall be deemed to be assessee in

default in respect of non/short deduction of tax only in cases where the payee has also

failed to pay the tax directly. Therefore, the deductor cannot be treated as assessee in

default in respect of non/short deduction of tax if the payee has discharged his tax liability.

The payer is liable to pay interest under section 201(1A) on the amount of non/short

deduction of tax from the date on which such tax was deductible to the date on which the

payee has discharged his tax liability directly. As there is no one-to-one correlation between

the tax to be deducted by the payer and the tax paid by the payee, there is lack of clarity as

to when it can be said that payer has paid the taxes directly. Also, there is no clarity on the

issue of the cut-off date, i.e. the date on which it can be said that the payee has discharged

his tax liability.

In order to provide clarity regarding discharge of tax liability by the resident payee on

payment of any sum received by him without deduction of tax, it proposed to amend section

201 to provide that the payer who fails to deduct the whole or any part of the tax on the

payment made to a resident payee shall not be deemed to be an assessee in default in

respect of such tax if such resident payee -

(i) has furnished his return of income under section 139;

(ii) has taken into account such sum for computing income in such return of income; and

(iii) has paid the tax due on the income declared by him in such return of income, and the

payer furnishes a certificate to this effect from an accountant in such form as may be

prescribed.

The date of payment of taxes by the resident payee shall be deemed to be the date on

which return has been furnished by the payer.

I t i s a l so p roposed to p rov ide tha t w here the payer fa i l s to deduc t the who le o r any

p a r t o f t h e t a x o n t h e p a y m en t m a de t o a r e si d en t a n d i s n o t d e em e d t o b e a n

a ss e ss ee i n d e f au l t u n d e r s ec t i o n 2 0 1 ( 1 ) o n a c c o u n t o f p a y m e n t o f t a x e s b y t h e

such res iden t , t he i n te res t under sect i on 201( 1A) ( i ) sha l l be payab le f rom the da te

o n w h i c h s u ch t a x w a s d ed u c t i b l e t o t h e d a t e o f f u r n i sh i n g o f r e t u r n o f i n c o m e b ysuch res iden t p ayee .

A m e n d m e n t s o n s i m i l ar l i n es a r e a l s o p r o p o s ed t o b e m a d e i n t h e p r o v i s i o n s o f

s ec t i o n 2 0 6 C r e l a t i n g t o T CS f o r c l ar i f y i n g t h e d e em e d d a t e o f d i s ch a r g e o f t a x

l i ab i l i t y by t he buyer o r l i censee o r l essee . These amendm ents w i l l t ake e f fect f rom

1s t Ju l y , 2012 .

I I . D i s al l o w a n c e o f b u s i n e ss e x p e n d i t u r e o n a c c ou n t o f n o n - d e d u c t i o n o f t a x o n

payment t o res iden t payee

A related issue to the above is the disallowance under section 40(a)(ia) of certain business

expenditure like interest, commission, brokerage, professional fee, etc. due to

non-deduction of tax. It has been provided that in case the tax is deducted in subsequent

previous year, the expenditure shall be allowed in that subsequent previous year ofdeduction.

In order to rationalise the provisions of disallowance on account of non-deduction of tax

from the payments made to a resident payee, it is proposed to amend section 40(a)(ia) to

provide that where an assessee makes payment of the nature specified in the said section to

a resident payee without deduction of tax and is not deemed to be an assessee in default

under section 201(1) on account of payment of taxes by the payee, then, for the purpose of

allowing deduction of such sum, it shall be deemed that the assessee has deducted and paid

the tax on such sum on the date of furnishing of return of income by the resident payee.

These beneficial provisions are proposed to be applicable only in the case of resident payee.

These amendments will take effect from 1st April, 2013 and will, accordingly, apply in



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I I I . F ee a n d p e n a l t y f o r d e l ay i n f u r n i s h i n g o f T D S/ T CS St a t e m e n t a n d p e n a l t y f o r

i nco r rec t i n fo rm a t ion i n TDS/ TCS Sta temen t

As per the existing provisions of the Income-tax Act, a deductor is required to furnish a

periodical TDS statement (quarterly) containing the details of deduction of tax made during

the quarter by the prescribed due date. A substantial number of the deductors are not

furnishing their TDS statement within the prescribed due date. Delay in furnishing of TDS

statement results in delay in granting of credit of TDS to the deductee and consequently

results into delay in issue of refunds to the deductee tax payers or raising of infructuous

demand against the deductee tax payers. Further, in large number of cases, the deductors

are not furnishing correct information like PAN of the deductee, amount of tax deducted,

etc. in the TDS statement. Furnishing of correct information in respect of tax deduction is

critical for processing of return of income furnished by the deductee because credit for TDS

is granted to the deductee on the basis of information furnished by the deductor.

Under the existing provisions of section 272A, penalty of Rs.100 per day is levied for delay

in furnishing of TDS statement, however, no specific penalty is specified for furnishing of

incorrect information in the TDS statement. The said provisions of penalty are not proved to

be effective in reducing or eliminating defaults relating to late furnishing of TDS statement.

In order to provide effective deterrence against delay in furnishing of TDS statement, it is

proposed -

(i) to provide for levy of fee of Rs.200 per day for late furnishing of TDS statement from the

due date of furnishing of TDS statement to the date of furnishing of TDS statement.

However, the total amount of fee shall not exceed the total amount of tax deductible during

the period for which the TDS statement is delayed, and

(ii) to provide that in addition to said fee, a penalty ranging from Rs.10,000 to Rs.1,00,000

shall also be levied for not furnishing TDS statement within the prescribed time.

In view of the levy of fee for late furnishing of TDS statement, it is also proposed to provide

that no penalty shall be levied for delay in furnishing of TDS statement if the TDS statement

is furnished within one year of the prescribed due date after payment of tax deducted along

with applicable interest and fee.

In order to discourage the deductors to furnish incorrect information in TDS statement, it is

proposed to provide that a penalty ranging from Rs.10,000 to Rs.1,00,000 shall be leviedfor furnishing incorrect information in the TDS statement. Consequential amendment is

proposed in section 273B so that no penalty shall be levied if the deductor proves that there

was a reasonable cause for the failure.

Consequential amendment is also proposed in section 272A to provide that no penalty

under this section shall be levied for late filing of TDS statement in respect of tax deducted

on or after 1st July, 2012.

Amendments on the similar lines for levy of fee and penalty for delay in furnishing of TCS

statement and furnishing of incorrect information in the TCS statement are also proposed to

be made.

These amendments will take effect from 1st July, 2012 and will, accordingly, apply to the

TDS or TCS statement to be furnished in respect of tax deducted or collected on or after 1stJuly, 2012.

I V . I n t im a t ion a f te r p rocessing o f TDS s ta tem

Documents

Amendments in Direct Taxes