Major direct tax proposals in Finance Bill 2016bangaloreicai.org/images/icons/2016/Announcement/Backg... · 2018-10-31 · 3/17/2016 12 Background Finance Minister has proposed Equalisation

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Major direct tax proposals in Finance Bill 2016

Presentation by : CA. Naveen Khariwal G Chartered Accountant Bangalore

PERSONAL TAXATION

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YOUR TAX BURDEN OVER THE YEARS

Year Minimum

Income for

tax

Tax

rate

Income at

which highest

tax rate starts

Highest

tax rate

(%)

Income at which

surcharge is

levied

Rate of

surcharge

(%)

Highest tax rate

including

surcharge

2000-01 50,000 10 1,50,000 30 60,000 10 34.5

2001-02 50,000 10 1,50,000 30 60,000 2 30.6

2002-03 50,000 10 1,50,000 30 60,000 5 31.5

2003-04 50,000 10 1,50,000 30 8,50,000 10 33.0

2004-05 50,000 10 1,50,000 30 8,50,000 10 33.6

2007-08 1,10,000 10 2,50,000 30 10,00,000 10 33.9

2009-10 1,60,000 10 5,00,000 30 10,00,000 10 33.9

2010-11 1,60,000 10 5,00,000 30 No Surcharge - 30.9

2011-12 1,80,000 10 8,00,000 30 No Surcharge - 30.9

2012-13 2,00,000 10 10,00,000 30 No Surcharge - 30.9

2013-14 2,00,000 10 10,00,000 30 1,00,00,000 10 33.99

2014-15 2,50,000 10 10,00,000 30 1,00,00,000 10 33.99

2015-16 2,50,000 10 10,00,000 30 1,00,00,000 12 34.61

2016-17 2,50,000 10 10,00,000 30 1,00,00,000 15 35.54

YOUR TAX BURDEN OVER THE YEARS

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In case of every individual being resident in India who is aged

below 60 years at any time during the previous year and incase

of HUF

INCOME SLAB (NOW) RATES OF TAX

Up to Rs.2,50,000

Nil.

Rs. 2,50,001 to Rs. 5,00,000

10 per cent.

Rs. 5,00,001 to Rs. 10,00,000 20 per cent.

Above Rs. 10,00,000 30 per cent.

INCOME SLAB RATES OF TAX

Up to Rs.3,00,000

Nil.

Rs. 3,00,001 to Rs. 5,00,000

10 per cent.

Rs. 5,00,001 to Rs. 10,00,000 20 per cent.


(ii) In the case of every individual, being a resident in India, who is

of the age of sixty years or more but less than eighty years at any

time during the previous year,—

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INCOME SLAB (NOW) RATES OF TAX

Up to Rs. 5,00,000

Nil

Rs. 5,00,001 to Rs. 10,00,000 20 per cent.


(iii) in the case of every individual, being a resident in India,

who is of the the age of eighty years or more at anytime

during the previous year,—

SURCHARGE

surcharge of 15% (earlier 12%) to be levied in case of person

(Individual, Hindu undivided family, association of persons, body of individuals, artificial juridical person) having total income exceeding Rs 1 crore. Surcharge rate continues to remain 12% for co-operative societies, firms and local authorities.

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Note: EC of 2% and SHE Cess of 1% shall be levied over and above the

above taxes.

It is proposed to reduce the rate of corporate tax to 25% in following

case:-

A domestic company set up and registered on or after 1st march 2016

and engaged in the manufacture and production of any article or

thing. Provided the total income of such company is computed

without claiming depreciation, deduction u/s 10AA or Chapter VI-A

or any other profit or investment linked deduction. The option is to

be exercised on or before the due date of filling return of income.

It is proposed to reduce the rate of corporate tax to 29% if the

turnover or gross receipts of the company in PY 2014-15 is less than

Rs. 5 crores

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iii. Firms Flat Rate of 30%,

Surcharge @ 12% of income tax if net income exceeds `1

Crore

EC of 2% and SHE Cess of 1% shall be levied over and above

the same including surcharge.

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Insertion of new section 115BA. Tax on income of certain

domestic companies.

―115BA. (1) Notwithstanding anything contained in this Act but

subject to the provisions of section 111A and section 112, the

income-tax payable in respect of the total income of a person,

being a domestic company, for any previous year relevant to the

assessment year beginning on or after the 1st day of April, 2017,

shall, at the option of such person, be computed at the rate of

twenty-five percent., if the conditions contained in sub-section (2)

are satisfied.

(2) For the purposes of sub-section (1), the following conditions

shall apply, namely:—

(a) the company has been set-up and registered on or after the 1st

day of March, 2016;

(b) the company is engaged in the business of manufacturing or

production of any article or thing; and

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(c) the total income of the company has been computed,—

(i) without any deduction under the provisions of section 10AA or clause

(iia) of sub-section (1) of section 32 or section 32AC or section 32AD or

section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or

sub-clause (iii) of sub-section (1) or sub-section (2AA) or sub-section

(2AB) of section 35 or section 35AC or section 35AD or section 35CCC

or section 35CCD or under any provisions of Chapter VI-A under the

heading ―C.—Deductions in respect of certain incomes” other than the

provisions of section 80JJAA;

(ii) without set off of any loss carried forward from any earlier assessment

year if such loss is attributable to any of the deductions referred to in

sub-clause (i); and

(iii) depreciation under section 32, other than clause (iia) of sub-section (1)

of the said section, is determined in the manner as may be prescribed.

(3) The loss referred to in sub-clause (ii) of clause (c) of sub-section

(2) shall be deemed to have been already given full effect to and

no further deduction for such loss shall be allowed for any

subsequent year.

(4) The option by the person referred to in sub-section (1) shall be

exercised in the prescribed manner on or before the due date

specified under sub-section (1) of section 139 for furnishing the

return of income for the relevant previous year.‖.

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Additional Resource Mobilisation

Taxation of income by way of dividend (Section 115BBDA & 10(34) )

It is proposed to insert a new section 115BBDA to provide that in the case of an individual, Hindu undivided family or a firm who is a resident in India any income by way of dividend declared, distributed or paid by a domestic company, in excess of 10 Lacs shall be taxable @ 10%.

Further, no deduction of any expenditure or allowance or set off of loss shall be allowed in computing the income by way of dividend referred in section 2(22) except dividend referred in Section 2(22)(e).

Consequently, provisions of Section 10(34) amended.

Clause 7 & 50 of Finance Bill 2016

„115BBDA. (1) Notwithstanding anything contained in this Act,

where the total income of an assessee, being an individual, Hindu

undivided family or a firm, resident in India, includes any income

exceeding ten lakh rupees, by way of dividends declared,

distributed or paid by a domestic company, the income-tax

payable shall be the aggregate of—

(a) the amount of income-tax calculated on the income by way of

such dividends, at the rate of ten per cent.; and

(b) the amount of income-tax with which the assessee would have

been chargeable had the total income of the assessee been reduced

by the amount of income by way of dividends.

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(2) No deduction in respect of any expenditure or allowance or set

off of loss shall be allowed to the assessee under any provision of

this Act in computing the income by way of dividends referred to in

clause (a) of sub-section (1).

(3) In this section, “dividends” shall have the same meaning as is

given to “dividend” in clause (22) of section 2 but shall not

include sub-clause (e) thereof.‟

in clause (34), the following proviso shall be inserted, namely:—

―Provided that nothing in this clause shall apply to any income by

way of dividend chargeable to tax in accordance with the

provisions of section 115BBDA;‖

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Change in rate of Securities Transaction tax in case where

option is not exercised

Section 98 of the Finance (No.2) Act, 2004 provides that the

securities transaction tax on sale of an option in securities where

option is not exercised is 0.017 per cent of the option premium. It

is proposed to increase the rate from 0.017 per cent to 0.05 per

cent.

This amendment will take effect from 1st June, 2016.

[Clause 230 of Finance Bill 2016]

'How to tax e-commerce businesses'? – Equalisation Levy is an answer

Equalisation levy – stems out of OECD’s BEPS Action Plan 1 on Digital Economy

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Background

Finance Minister has proposed Equalisation Levy (EL) through Finance Bill, 2016, Chapter VIII.

E-commerce companies like Face Book, Google, etc. are growing very fast, earning substantial revenues and some of them are avoiding Income-tax in the Country of Source (COS) as well as Country of Residence (COR). E-commerce business is growing at the fastest rate globally and no Government in the world can allow this business to go tax free.

It is now admitted by OECD and other concerned authorities that under the present rules of international taxation, E-commerce companies can escape taxation. The main reason is that under the existing rules of international taxation, COS can tax a non-resident providing E-commerce services only if the non-resident has a permanent establishment (PE) in the COS.

E-commerce companies do not need PE in any COS. They can set up the companies in tax havens and avoid COR tax also. For the last few years, there was strong public criticism – in Britain and other European countries - of these companies escaping taxation. In the light of the American and European financial crisis, G20 countries asked OECD to come out with recommendations for necessary modifications in the existing rules so that E-commerce companies also can be taxed.

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BEPS Action Report No. 1 on Digital Commerce has discussed

these issues. It has not made any specific recommendation.

However, it has given three different options. One of the options is

Equalisation Levy. When a company resident in COS earns

revenue from E-commerce business, that company has to pay

indirect taxes as well as Income-tax. However, when a non-

resident company provides E-commerce services, it escapes

Income-tax. Equalisation Levy tries to make a level playing field

for both – Resident & Non-Resident.

Finance Bill Proposals

2.1 Only Non-Resident earners:

Equalisation Levy is proposed to be charged only on non-residents of India. Its very purpose is to protect Indian Residents. Hence Indian E-commerce companies like Flipkart, Snap Deal etc. are not liable to Equalisation Levy. If a company is non-resident today and it opens a subsidiary or a PE in India to provide E-commerce services in India; it will be liable to normal Indian Income-tax and it will escape Equalisation Levy.

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2.2 Only Services:

Equalisation Levy is charged only for services. There is no such tax on goods sold through e-commerce. Simple reason is: Somehow, the rules of international taxation have distinguished goods and services. This weakness in the system continues at present. Finance Minister is not trying to remove a global weakness through its budget proposals. The impact is: Even after the budget is passed, if someone purchases goods on e-commerce platforms, he will not have to deduct Equalisation Levy at source.

2.3 No Characterisation, No PE:

EL is so designed that there is no characterisation issue. One does not have to determine whether it is a business income, royalty, or FTS or any other category of income. There is no need to determine Permanent Establishment or any other nexus to India. Simply because a non-resident earns revenue from India he is liable to EL.

2.4 Independent Tax:

This is not Income-tax. Chapter VIII of Finance Bill does not become part of the Income-tax law. Like STT, it will remain a separate tax. Hence, Double Tax Avoidance Agreements are not applicable to EL.

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2.5 Compliance:

2.5.1 Ideally, the responsibility to pay tax and file EL returns should be on the non-resident. However, enforcing these obligations on a non-resident requires a lot of ground work. Best method of ensuring compliance by Non-Residents who have no PE in India would be – to ask all banks, credit card companies and Payment Gateways to deduct EL before making the remittance abroad.

However, at present, there is no mechanism under which EL can be deducted by credit card companies from payments made through credit cards. The E-Commerce Committee had a discussion with Reserve Bank of India. And RBI confirmed that at present, it will not be possible to impose TDS through credit cards. (Note: In this article, by the term "TDS" we mean Deduction of Equalisation Levy at Source.)

In the circumstances, the only mechanism available to the Government of India was to recover the tax from the Indian resident payer.

It may be noted that the present proposal is a work-in-progress. A

lot of work needs to be done. Government in collaboration with

Reserve Bank of India may work out a mechanism whereby any

payment from an Indian resident to a non-resident can be

separated if it is an E-commerce payment. Once this step is

implemented, EL can be deducted by credit card companies, banks

and all payment gateways. Until this is done, a compromise has to

be accepted. This is what the Finance Bill proposes. The onus of

compliance is on Resident Payers.

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Under the Finance Bill proposal, Indian resident payers will deduct EL at source and pay to the Government of India. Whole mechanism for charging of tax, payment of tax, filing of returns and assessments – all can be completed on internet. The tax deductor may not have to meet Income-tax department.

2.5.2 Only persons carrying on business or profession and

making payment for specified services to non-resident E-

commerce companies are liable for deducting EL at source and

paying to Government of India. The payment mechanism is

simple. From all the payments to a non-resident, tax may be

deducted throughout a month. It has to be paid to the Government

of India on or before 7th day of next succeeding month.

A return of EL needs to be filed after the end of the year on or

before a date to be prescribed by EL rules.

If the Indian resident assessee does not pay tax to the Government

of India, he will be liable to tax, interest and penalty under

Chapter VIII of the Finance Act. He will also be liable to

disallowance of expenditure from his business income under

Section 40(a)(ib).

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2.5.3 At present, the non-resident has no responsibility under the law. He does not have to file any tax return nor pay anything. If a resident payer does not deduct EL at source and does not pay to the Government of India, it does not mean that the non-resident receiver is then liable to pay the tax.

2.6 Administration:

Equalisation Levy will be administered by Income-tax department.

2.7 Scheme of the tax: Chapter VIII:

In a very small chapter all the provisions for charging of tax, scope of revenues, liable to tax, collection machinery, assessment, penalty and prosecution, appeals – everything is provided. Hence this chapter is an independent complete chapter by itself.

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2.8 Home Consumer:

Millions of home consumers and small business consumers utilise internet services like Google, Face Book, What's App etc. Most of us do not make any payment to the service provider. Hence we are not liable to deduct any tax at source.

Assuming some home consumer makes payment for any specialised services, he will still not be liable to deduct any tax. This is specifically provided in the charging section – 162 (1) (i). This means that millions of consumers are not at all affected by EL.

Even for business payers, the TDS is applicable only if his payment for specified services to non-resident service provider exceeds Rs. 1,00,000 during a financial year. Thus assesses making small payments are exempted from TDS compliance. One Non-Resident may receive – say Rs. 99,000 from ten Indian assesses. Still, he will not suffer any EL. Similarly, one resident may pay Rs. 99,000 to ten non-residents.

He will not be liable to deduct EL. It may be noted that the NR E-commerce MNCs earn from Rs. 100 crores to Rs. 5,000 crores from India. For these target companies, the thresholds of Rs. 1,00,000 are so small that any manipulation by increasing companies won't be worthwhile.

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2.9 No Double Taxation within India:

Once a non-residents income is chargeable to tax under chapter VIII of Finance Bill, 2016, it is exempted from Indian Income-tax under Section 10 (50). Thus, there will be no double taxation of the same income within India. It may be better for the non-resident to be covered under EL rather than under ITA.

2.10 No Grossing Up:

Under Indian Income-tax Act, Section 195 etc. provide for

deduction of Income tax at source from payments made to non-

residents. There are cases when the non-resident insists that the tax

should be borne by Indian resident. In such a situation, the Indian

resident has to gross up the tax and suffer more. For illustration, if

the TDS rate is 10%, in this situation, Indian resident payer will

have to suffer 11% tax.

Section 163 of Chapter VIII provides for deduction and payment

of EL. Section 163 (3) provides that even if Indian resident payer

does not deduct EL, he has to make payment of EL to Government

of India. Thus, consider that the Indian resident has made a

payment of Rs. 100 to the non-resident, he has not deducted any

tax at source. He will simply pay Rs. 6 to the Government of India

and close the chapter.

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2.11 Tax Rate:

The rate of tax under EL is only 6%. This is much lower than the

normal TDS rates of 10% to 15%. This is an attraction for the non-

residents. Instead of suffering a higher rate of tax under Income-

tax, they can bear the EL and pay lower tax. Further, there will be

no further controversy about characterisation of payment,

determination of PE etc. The whole scheme will be simple in

administration by the department and compliance by the assessee.

The lower rate compensates for the fact that most assessees will

not be able to claim credit of EL under the Double Tax Avoidance

Agreements. They can of course claim the EL as an expenditure

suffered by them but not the relief of full tax adjustments.

2.12 Specified Service:

Section 161(h) defines specified service as – online advertisement, provision of digital advertising space etc. and includes any other service as may be notified by the Government.

It may be noted that E-commerce is a constantly developing business. There are so many technologies which together make it possible to do global business without PE in COS. Some of them can be listed as: computers, internet, television, mobile phones, satellites, cables, telephones; and a convergence of all these technologies. Each technology in the field of science keeps developing. Convergence of developing technologies provide a huge constantly changing mechanism for developing new businesses. Today traditional businesses conduct their business with new technologies. And completely new businesses are developing.

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In this situation, defining anything as E-commerce would be incorrect. Today's definition in the law will require an amendment within a few years. Recognising this fact, OECD had earlier published its reports under the title – "E-commerce". Present BEPS action reports are calling the same business as "Digital Commerce".

Sometime back E-commerce could be conducted only through computers. At that time, no one could imagine international business transacted through telephones. Today, international business through mobile phones has become a reality. It is eminently possible that in three years time, there will be another way of doing international business which is not considered today.

Recognising these facts of modern life, the budget proposal defines the services as "Specified Service". This definition can always be expanded by the Government. Thus the law provides for flexibility in line with the kind of business proposed to be taxed.

On the whole, Finance Minister has made an efficient and simple proposal to tax giant MNC.

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Case laws

Overruled

Right Florists Pvt ltd [TS-137-ITAT-2013(Kol)]

Kolkata ITAT in this case had held that search engines like

Google, Yahoo having its presence through websites cannot create

fixed place unless web servers located in relevant jurisdiction.

ITAT thus held that no TDS would be attracted on payment to

yahoo, Google for online advertisement on search engines.

Widening of Tax Base and Anti Abuse Measures (Section 206C)

Tax Collection at Source (TCS) on sale of vehicles; goods and services

In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high value transactions within the tax net, it is proposed to provide that the seller shall collect tax at the rate of 1% from the purchaser on:

O Sale of motor vehicle of the value exceeding Rs. 10 lakh in cash or by the issue of a cheque or draft or by any other mode or

o Sale in cash of any goods (other than bullion and jewellery), or providing of any services (other than payments on which tax is deducted at source under Chapter XVII-B) exceeding Rs 2 lakhs

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It is also proposed to provide that TCS provisions in relation to sale of any goods (other than bullion and jewellery) or services shall not apply to certain class of buyers who fulfil such conditions as may be prescribed

Amendment proposed to take effect from June 1, 2016

Clause 86 of Finance Bill 2016

Tax on distributed income to shareholder (section 115QA)

It is proposed to amend Sec 115QA to provide that the provision shall apply to any buy back of unlisted share undertaken by the company in accordance with the provisions of the law relating to the Companies and not necessarily restricted to Sec 77A of the Companies Act, 1956.

It is also proposed to provide that for the purpose of computing distributed income, the amount received by the Company in respect of the shares being bought back shall be determined in the prescribed manner. The rules would thereafter be framed to provide for manner of determination of the amount in various circumstances including shares being issued under tax neutral reorganizations and in different tranches.

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Provision proposed to answer doubts regarding the effect of buybacks undertaken by the company under different provisions of the Companies Act, 1956 or the Companies Act, 2013 and applicability of Sec 115QA to such transactions and provide clarity on determination of consideration received by the company at the time of issue of shares being bought back by the company.

Amendment proposed to take effect from June 1, 2016


Confirmed:

Capgemeini India Private Limited [TS- 101-HC-2016(BOM)

Bombay HC, while sanctioning Capgemini‘s buyback scheme, had ruled

that Company could buy-back its own shares by following procedure

prescribed u/s 77A / Section 68 or by following procedure prescribed

under Section 391 r.w.s 100 to 104 of the 1956 Act.

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Levy of tax where the charitable institution ceases to exist or converts into a non-charitable organization (Section 115TD, TE & TF )

Accordingly, it is proposed to amend the provisions of the Act and

introduce a new Chapter to provide for levy of additional income-

tax in case of conversion into, or merger with, any non-charitable

form or on transfer of assets of a charitable organisation on its

dissolution to a non-charitable institution. The elements of the

regime are: -

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(i) The accretion in income (accreted income) of the trust or

institution shall be taxable on conversion of trust or institution

into a form not eligible for registration u/s 12 AA or on merger

into an entity not having similar objects and registered under

section 12AA or on non-distribution of assets on dissolution to

any charitable institution registered u/s 12AA or approved under

section 10(23C) within a period twelve months from dissolution.

(ii) Accreted income shall be amount of aggregate of total assets as

reduced by the liability as on the specified date. The method of

valuation is proposed to be prescribed in rules. The asset and the

liability of the charitable organisation which have been transferred

to another charitable organisation within specified time will be

excluded while calculating accreted income.

(iii) The taxation of accreted income shall be at the maximum

marginal rate.

(iv) This levy shall be in addition to any income chargeable to tax in

the hands of the entity.

(v) This tax shall be final tax for which no credit can be taken by the

trust or institution or any other person, and like any other

additional tax, it shall be leviable even if the trust or institution

does not have any other income chargeable to tax in the relevant

previous year.

(vi) In case of failure of payment of tax within the prescribed time a

simple interest @ 1% per month or part of it shall be applicable

for the period of non-payment.

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(vii) For the purpose of recovery of tax and interest, the principal

officer or the trustee and the trust or the institution shall be

deemed to be assessee in default and all provisions related to the

recovery of taxes shall apply.

Further, the recipient of assets of the trust, which is not a

charitable organisation, shall also be liable to be held as assessee

in default in case of non-payment of tax and interest.

However, the recipient's liability shall be limited to the extent of

the assets received.

These amendments will take effect from 1st June, 2016.


CHAPTER XII-EB

SPECIAL PROVISIONS RELATING TO TAX ON ACCRETED

INCOME OF CERTAIN TRUSTS AND INSTITUTIONS

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115TD. (1) Notwithstanding anything contained in this Act, where in any previous year, a trust or institution registered under section 12AA has—

(a) converted into any form which is not eligible for grant of registration under section 12AA;

(b) merged with any entity other than an entity which is a trust or institution having objects similar to it and registered under section 12AA; or

(c) failed to transfer upon dissolution all its assets

to any other trust or institution registered under section 12AA or

to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause ( iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10,

within a period of twelve months from the end of the month in which the dissolution takes place,

then, in addition to the income-tax chargeable in respect of the

total income of such trust or institution,

the accreted income of the trust or the institution as on the

specified date shall be charged to tax and

such trust or institution, as the case may be, shall be liable to pay

additional income-tax (herein referred to as tax on accreted

income) at the maximum marginal rate on the accreted income.

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(2) The accreted income for the purposes of sub-section (1) means

the amount by which the aggregate fair market value of the total

assets of the trust or the institution, as on the specified date,

exceeds the total liability of such trust or institution computed in

accordance with the method of valuation as may be prescribed:

(2) The accreted income for the purposes of sub-section (1) means

the amount by which the aggregate fair market value of the total

assets of the trust or the institution, as on the specified date,

exceeds the total liability of such trust or institution computed in

accordance with the method of valuation as may be prescribed:

Provided that while computing the accreted income in respect of a

case referred to in clause © of sub-section (1), assets and

liabilities, if any, related to such asset, which have been

transferred to any other trust or institution registered under section

12AA or to any fund or institution or trust or any university or

other educational institution or any hospital or other medical

institution referred to in sub-clause (iv) or sub-clause (v) or sub-

clause (vi) or sub-clause (via) of clause (23C) of section 10,

within the period specified in the said clause, shall be ignored.

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(3) For the purposes of sub-section (1), a trust or an institution shall

be deemed to have been converted into any form not eligible for

registration under section 12AA in a previous year, if,—

(i) the registration granted to it under section 12AA has been

cancelled; or

(ii) it has adopted or undertaken modification of its objects which do

not conform to the conditions of registration and it,—

(a) has not applied for fresh registration under section 12AA in the

said previous year; or

(b) has filed application for fresh registration under section 12AA but

the said application has been rejected.

(4) Notwithstanding that no income-tax is payable by a trust or the

institution on its total income computed in accordance with the

provisions of this Act, the tax on the accreted income under sub-

section (1) shall be payable by such trust or the institution.

(5) The principal officer or the trustee of the trust or the institution,

as the case may be, and the trust or the institution shall also be

liable to pay the tax on accreted income to the credit of the Central

Government within fourteen days from,—

(i) the date on which the order cancelling the registration is

received by the trust or the institution in a case referred to in

clause (i) of sub-section (3);

(ii) the end of the previous year in a case referred to in sub-clause (a)

of clause (ii) of sub-section (3);

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(iii) the date on which the order rejecting the application is received

by the trust or the institution in a case referred to in sub-clause (b)

of clause (ii) of sub-section (3);

(iv) the date of merger in a case referred to in clause (b) of sub-

section (1);

(v) the date on which the period of twelve months referred to in

clause (c) of sub-section (1) expires.

(6) The tax on the accreted income by the trust or the institution

shall be treated as the final payment of tax in respect of the said

income and no further credit therefor shall be claimed by the trust

or the institution or by any other person in respect of the amount

of tax so paid.

(7) No deduction under any other provision of this Act shall be

allowed to the trust or the institution or any other person in respect

of the income which has been charged to tax under sub-section (1)

or the tax thereon.

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Explanation.—For the purposes of this section,—

(i) “date of conversion” means,—

(a) the date of the order cancelling the registration under section

12AA, in a case referred to in clause (i) of sub-section (3); or

(b) the date of adoption or modification of any object, in a case

referred to in clause (ii) of sub-section (3);

(ii) “specified date” means,—

(a) the date of conversion in a case falling under clause (a) of sub-

section (1);

(b) the date of merger in a case falling under clause (b) of sub-

section (1); and

(c) the date of dissolution in a case falling under clause (c) of sub-

section (1).

115TE. Where the principal officer or the trustee of the trust or the

institution and the trust or the institution fails to pay the whole or

any part of the tax on the accreted income referred to in sub-

section (1) of section 115TD, within the time allowed under sub-

section (5) of that section, he or it shall be liable to pay simple

interest at the rate of one per cent. for every month or part thereof

on the amount of such tax for the period beginning on the date

immediately after the last date on which such tax was payable and

ending with the date on which the tax is actually paid.

3/17/2016

33

115TF. (1) If any principal officer or the trustee of the trust or the

institution and the trust or the institution does not pay tax on

accreted income in accordance with the provisions of section

115TD, then, he or it shall be deemed to be an assessee in default

in respect of the amount of tax payable by him or it and all the

provisions of this Act for the collection and recovery of income-

tax shall apply.

(2) Notwithstanding anything contained in sub-section (1), in a case

where the tax on accreted income is payable under the

circumstances referred to in clause (c) of sub-section (1) of section

115TD, the person to whom any asset forming part of the

computation of accreted income under sub-section (2) thereof has

been transferred, shall be deemed to be an assessee in default in

respect of such tax and interest thereon and all the provisions of

this Act for the collection and recovery of income-tax shall apply:

3/17/2016

34

Provided that the liability of the person referred to in this sub-

section shall be limited to the extent to which the asset received by

him is capable of meeting the liability.‘.

Measures to phase out deductions

Phasing out of deductions and exemptions

Proposed Phase out plan of incentives (Profit linked Deductions/weighted deduction) available under the Act effective from April 1, 2017

Sl.

No

Section Incentive currently

available in the Act

Proposed phase out

measures/Amendment

1 10AA- Special

provision in

respect of newly

established units in

Special economic

zones (SEZ).

Profit linked deductions

for units in SEZ for profit

derived from export of

articles or things or

services

No deduction shall be

available to units

commencing manufacture or

production of article or thing

or start providing services on

or after 1st day April,2020.

(from previous year 2020-21

onwards).

3/17/2016

35

Sl.

No



Proposed phase out

measures/Amendment

2

35AC-Expenditure

on eligible projects

or schemes.

Deduction for expenditure

incurred by way of payment

of any sum to a public sector

company or a local authority

or to an approved association

or institution, etc. on certain

eligible social development

project or a scheme.


available with effect from

1.4.2017 (i.e from

previous year 2017-18

and subsequent years).

3 35CCD

Expenditure on

skill development

project

Weighted deduction of 150 %

on any expenditure incurred

(not being expenditure in the

nature of cost of any land or

building) on any notified skill

development project by a

company.

Deduction shall be

restricted to 100% from

01.04.2020 (i.e. from

previous year 2020-21

onwards)

Sl.

No



Proposed phase out

measures/Amendment

4 Section 80IA;

80IAB, and 80IB -

Deduction in

respect of profits

derive from a)

development,

operation and

maintenance of an

infrastructure

facility (80-IA)

b) development of

special economic

zone (80-IAB)

c) production of

mineral oil and

natural gas [80-

IB(9)]

100 % profit linked

deductions for specified

period on eligible business

carried on by industrial

undertakings or enterprises

referred in section 80IA;

80IAB, and 80IB.


available if the specified

activity commences on or

after 1st day April, 2017.

(i.e from previous year

2017-18 and subsequent

years)

3/17/2016

36

Proposed Phase out plan of incentives (Accelerated Depreciation/Weighted Deduction) available under the Act effective from April 1, 2018

Sl.

No



Proposed phase out

measures/Amendment

1 32 read with rule

5 of Income-tax

Rules, 1962-

Accelerated

Depreciation

Accelerated depreciation is

provided to certain

Industrial sectors in order

to give impetus for

investment. The

depreciation under the

Income-tax Act is available

up to 100% in respect of

certain block of assets.

To amend the new Appendix

IA read with rule 5 of

Income-tax Rules, 1962 to

provide that highest rate of

depreciation under the

Income-tax Act shall be

restricted to 40% w.e.f

01.4.2017. (i.e from previous

year 2017-18 and subsequent

years).

The new rate is proposed to

be made applicable to all the

assets (whether old or new)

falling in the relevant block

of assets.

Sl.

No



Proposed phase out

measures/Amendment

2 35(1)(ii)

Expenditure on

scientific research

Weighted deduction from

the business income to the

extent of 175 % of any

sum paid to an approved

scientific research

association which has the

object of undertaking

scientific research. Similar

deduction is also available

if a sum is paid to an

approved university,

college or other institution

and if such sum is used for

scientific research

Weighted deduction shall be

restricted to 150 % from

01.04.2017 to 31.03.2020 (i.e.

from previous year 2017-18

to previous year 2019-20) and

deduction shall be restricted

to 100 % from 01.04.2020

(i.e. from previous year 2020-

21 onwards)

3/17/2016

37

Sl.

No



Proposed phase out

measures/Amendment

3 35(1)(iia)

Expenditure on

scientific research



extent of 125 % of any

sum paid as contribution to

an approved scientific

research company.

Deduction shall be restricted

to 100 % with effect from

01.04.2017 (i.e. from previous


years)

4 35(1)(iii)

Expenditure on

scientific

research.



extent of 125 % of

contribution to an

approved research

association or university or

college or other institution

to be used for research in

social science or statistical

research


to 100 % with effect from



years)

Sl.

No

Section Incentive currently available

in the Act

Proposed phase out

measures/Amendment

5 35(2AA)-

Expenditure

on scientific

research

Weighted deduction from the

business income to the extent

of 200 % of any sum paid to a

National Laboratory or a

university or an Indian Institute

of Technology or a specified

person for the purpose of

approved scientific research

programme.


restricted to 150 % with effect

from 01.04.2017 to


year 2017-18 to previous year

2019-20). Deduction shall be

restricted to 100 % from


year 2020-21 onwards)

3/17/2016

38

Sl.

No


in the Act

Proposed phase out

measures/Amendment

6 35(2AB)-

Expenditure

on scientific

research


of the expenditure (not being

expenditure in the nature of

cost of any land or building)

incurred by a company,

engaged in the business of bio-

technology or in the business of

manufacture or production of

any article or thing except some

items appearing in the negative

list specified in Schedule-XI,

on scientific research on

approved in-house research and

development facility.


restricted to 150 % with effect

from 01.04.2017 to


year 2017-18 to previous year

2019-20).


to 100 % from 01.04.2020


21 onwards)

Sl.

No


in the Act

Proposed phase out

measures/Amendment

7 35AD-

Deduction in

respect of

specified

business

In case of a cold chain facility,

warehousing facility for storage

of agricultural produce, an

affordable housing project,

production of fertilizer and

hospital weighted deduction of

150 % of capital expenditure

(other than expenditure on

land, goodwill and financial

assets) is allowed.

In case of a cold chain

facility, warehousing facility

for storage of agricultural

produce, hospital, an

affordable housing project,

production of fertilizer,

deduction shall be restricted

to 100 % of capital

expenditure w.e.f. 01.4.2017


18 onwards).

8 35CCC-

Expenditure

on notified

agricultural

extension

project


of expenditure incurred on

notified agricultural extension

project


to 100 % from 1.4.2017 (i.e.

from previous year 2017-18

onwards)

3/17/2016

39

Measures to promote socio-economic growth

Exemption of income of Foreign company from storage and sale of crude oil stored as part of strategic reserves (Section 10(48A))

It is proposed to exempt income of foreign company from storage and sale of crude oil stored as part of strategic reserves if such storage and sale is pursuant to a notified agreement entered into by Central Govt. / approved by Central Govt.

Amendment proposed to take effect retrospectively from AY 2016-17 onwards.


Exemption in respect of certain activity related to diamond

trading in "Special Notified Zone". (Section 9)

Newly Inserted – clause (e) of Explanation 1 to Subsection(1) clause(i)

The existing provisions of Section 5 of the Act provides for the scope

of total income. In case of non-resident person, the taxation of

income in India happens only if the income accrues or arises in

India or is deemed to accrue or arise in India or is received in

India. Section 9 of the Act provides circumstances under which

income is deemed to accrue or arise in India. One of the

circumstances providing for income to be deemed to accrue or

arise in India is if any income is directly or indirectly derived

through or from a business connection in India.

3/17/2016

40

A "Special Notified Zone" (SNZ) had been created to facilitate

shifting of operations by foreign mining companies (FMC) to

India and to permit the trading of rough diamonds in India by

the leading diamond mining companies of the world. The

activity of FMC of mere display of rough diamonds even with

no actual sale taking place in India may lead to creation of

business connection in India of the FMC. This potential tax

exposure has been an area of concern for the mining companies

willing to undertake these activities in India.

In order to facilitate the FMCs to undertake activity of display of

uncut diamond (without any sorting or sale) in the special

notified zone, it is proposed to amend section 9 of the Act to

provide that in the case of a foreign company engaged in the

business of mining of diamonds, no income shall be deemed to

accrue or arise in India to it through or from the activities which

are confined to display of uncut and unassorted diamonds in a

Special Zone notified by the Central Government in the Official

Gazette in this behalf.

This amendment will take effect retrospectively from 1st April,

2016 and will accordingly apply in relation to assessment year

2016-17 and subsequent assessment years.


3/17/2016

41

Extending the benefit of initial additional depreciation under

section 32(1)(iia) for power sector

Under the existing provisions of section 32(1)(iia) of the Act,

additional depreciation of 20% is allowed in respect of the cost of

new plant or machinery acquired and installed by certain

assessees engaged in the business of generation and distribution

of power .

This depreciation allowance is over and above the deduction

allowed for general depreciation under section 32(1)(ii) of the

Act.

Under the existing provisions, the benefit of additional

depreciation is not available on the new machinery or plant

installed by an assessee engaged in the business of transmission

of power.

In order to rationalise the incentive of power sector , it is proposed

to amend this section so as to provide that an assessee engaged

in the business of transmission of power shall also be allowed

additional depreciation at the rate of 20% of actual cost of new

machinery or plant acquired and installed in a previous year.

This amendment will take effect from 1st April, 2017 and will,

accordingly, apply in relation to the assessment year 2017-18

and subsequent assessment years.

Clause 13 of finance bill 2016

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42

Taxation of Income from 'Patents‘ Section 115BBF and 115JB

Newly Inserted -Section 115BBF

In order to encourage indigenous R&D activities and to make India a global R & D hub, puts in place a concessional taxation regime for income from patents. This is in line with OECD BEPS project - Action Plan 5 which propagates the nexus approach.

Accordingly, it is proposed to insert new section 115BBF to

provide that where the total income of the eligible assessee income

includes any income by way of royalty in respect of a patent

developed and registered in India, then such royalty shall be

taxable at the rate of ten per cent ( plus applicable surcharge and

cess) on the gross amount of royalty.

No expenditure or allowance in respect of such royalty income

shall be allowed under the Act.

For the purpose of this concessional tax regime an eligible

assessee means a person resident in India, who is the true and

first inventor of the invention and whose name is entered on the

patent register as the patentee in accordance with Patents Act,

1970 and includes every such person, being the true and the first

inventor of the invention, where more than one person is

registered uas pententee under Patents Act, 1970 in respect of that

patent.

3/17/2016

43

Consequently, provisions of section 115JB proposed to amend so as to provide that the book profit shall be increased by an amount or amounts of expenditure relatable to income, by way of royalty in respect of patent chargeable to tax in accordance with the provisions of section 115BBF and also the amount of income shall be reduced from the book profit.

These amendments will take effect from 1st April, 2017 and will,

accordingly, apply in relation to the assessment year 2017-18 and

subsequent years.

Clause 52 & 53 of finance bill 2016

Tax incentives for start-ups

‗80-IAC. (1) Where the gross total income of an assessee, being an

eligible start-up,

includes any profits and gains derived from eligible business,

there shall, in accordance with and subject to the provisions of this

section, be allowed, in computing the total income of the assessee,

a deduction of an amount equal to one hundred per cent of the

profits and gains derived from such business for three consecutive

assessment years.

3/17/2016

44

(2) The deduction specified in sub-section (1) may, at the option of the

assessee, be claimed by him for any three consecutive assessment years

out of five years beginning from the year in which the eligible start-up is

incorporated.

(3) This section applies to a start-up which fulfils the following conditions,

namely:—

(i) it is not formed by splitting up, or the reconstruction, of a business

already in existence:

Provided that this condition shall not apply in respect of a start-up

which is formed as a result of the re-establishment, reconstruction or

revival by the assessee of the business of any such undertaking as

referred to in section 33B, in the circumstances and within the period

specified in that section;

(ii) it is not formed by the transfer to a new business of machinery or plant

previously used for any purpose.

Explanation 1.— For the purposes of this clause, any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if all the following conditions are fulfilled, namely:—

(a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;

(b) such machinery or plant is imported into India;

(c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee.

3/17/2016

45

Explanation 2.—Where in the case of a start-up, any machinery or

plant or any part thereof previously used for any purpose is

transferred to a new business and the total value of the machinery

or plant or part so transferred does not exceed twenty per cent. Of

the total value of the machinery or plant used in the business, then,

for the purposes of clause (ii) of this sub-section, the condition

specified therein shall be deemed to have been complied with.

(4) The provisions of sub-section (5) and sub-sections (7) to (11) of

section 80-IA shall apply to the start-ups for the purpose of

allowing deductions under sub-section (1).


(i) “eligible business” means a business which involves innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property;

(ii)“eligible start-up” means a company engaged in eligible business which fulfils the following conditions, namely:—

(a) it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2019;

(b) the total turnover of its business does not exceed twenty-five crore rupees in any of the previous years beginning on or after the 1st day of April, 2016 and ending on the 31st day of March, 2021; and

(c) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government.‘.

Clause 41of finance bill 2016

3/17/2016

46

(Section 54 EE)

It is proposed to insert section 54EE so as to provide exemption up to Rs. 50 lakh from capital gains tax if LTCG is invested in Units of Specified Fund, as may be notified by the Central Government subject to the condition that the amount remains invested for 3 years.


‗54EE. (1) Where the capital gain arises from the transfer of a long-

term capital asset (herein in this section referred to as the original

asset) and the assessee has, at any time within a period of six

months after the date of such transfer, invested the whole or any

part of capital gains in the long-term specified asset, the capital

gain shall be dealt with in accordance with the following

provisions of this section, namely:—

(a) if the cost of the long-term specified asset is not less than the

capital gain arising from the transfer of the original asset, the

whole of such capital gain shall not be charged under section 45;

3/17/2016

47

(b) if the cost of the long-term specified asset is less than the capital

gain arising from the transfer of the original asset, so much of the

capital gain as bears to the whole of the capital gain the same

proportion as the cost of acquisition of the long-term specified

asset bears to the whole of the capital gain, shall not be charged

under section 45:

Provided that the investment made on or after the 1st day of April,

2016, in the long-term specified asset by an assessee during any

financial year does not exceed fifty lakh rupees:

Provided further that the investment made by an assessee in the

long-term specified asset, from capital gains arising from the

transfer of one or more original assets, during the financial year in

which the original asset or assets are transferred and in the

subsequent financial year does not exceed fifty lakh rupees.

(2) Where the long-term specified asset is transferred by the assessee

at any time within a period of three years from the date of its

acquisition, the amount of capital gains arising from the transfer of

the original asset not charged under section 45 on the basis of the

cost of such long-term specified asset as provided in clause (a) or,

as the case may be, clause (b) of sub-section (1) shall be deemed

to be the income chargeable under the head ―Capital gains‖

relating to long-term capital asset of the previous year in which the

long-term specified asset is transferred.

3/17/2016

48

Explanation 1.—In a case where the original asset is transferred

and the assessee invests the whole or any part of the capital gain

received or accrued as a result of transfer of the original asset in

any long-term specified asset and such assessee takes any loan or

advance on the security of such specified asset, he shall be deemed

to have transferred such specified asset on the date on which such

loan or advance is taken.

Explanation 2.—For the purposes of this section,—

(a) “cost”, in relation to any long-term specified asset, means the amount invested in such specified asset out of capital gains received or accruing as a result of the transfer of the original Asset;

(b) “long-term specified asset” means a unit or units, issued before the 1st day of April, 2019, of such fund as may be notified by the Central Government in this behalf.’.

(Section 54 GB)

It is proposed to amend section 54GB so as to provide that capital

gains arising on transfer of a residential property shall not be

charged to tax if such capital gains is invested in subscription of

shares of a company which qualifies to be an eligible start-up

subject to other specified conditions & also the expression ―new

asset‖ includes computers or computer software in case of

technology driven start-ups certified by the InterMinisterial Board

of Certification notified by the Central Government in the Official

Gazette.


3/17/2016

49

Incentives for Promoting “Housing for All” (Section 80 IBA)

Provides for 100% deduction of the profits of an assessee developing and building affordable housing projects if the housing project is approved by the competent authority before the March 31, 2019 subject to following conditions –

a) project is completed within a period of 3 years from the date of approval,

b) project is on a plot of land measuring not less than 1000 sq. metres where the project is within 25 km from the municipal limits of 4 metros and in any other area, it is measuring not less than 2000 sq. metres where the size of the residential unit in the said areas is not more than 30 sq. metres and 60 sq. metres, respectively,

c) where residential unit is allotted to an individual, no such unit shall be allotted to him or any member of his family, etc


‗80-IBA. (1) Where the gross total income of an assessee includes

any profits and gains derived from the business of developing and

building housing projects, there shall, subject to the provisions of

this section, be allowed, a deduction of an amount equal to

hundred per cent. of the profits and gains derived from such

business.

3/17/2016

50

(2) For the purposes of sub-section (1), a housing project shall be a

project which fulfils the following conditions, namely:—

(a) the project is approved by the competent authority after the 1st

day of June, 2016, but on or before the 31st day of March, 2019,

in accordance with such guidelines as may be prescribed;

(b) the project is completed within a period of three years from the

date of approval by the competent authority:

Provided that,—

(i) where the approval in respect of a housing project is obtained

more than once, the project shall be deemed to have been

approved on the date on which the project was first approved by

the competent authority; and

(ii) the project shall be deemed to have been completed when a

certificate of completion of project as a whole is obtained in

writing from the competent authority;

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(c) the built-up area of the shops and other commercial establishments included in the housing project does not exceed three per cent. of the aggregate built-up area;

(d) the project is on a plot of land measuring not less than one thousand square metres where such project is located within the cities of Chennai, Delhi, Kolkata or Mumbai or within the area of twenty-five kilometres from the municipal limits of these cities, or two thousand square metres within the jurisdiction of any other municipality or cantonment board;

(e) the residential units comprised in the housing project does not exceed thirty square metres where such project is located within the cities of Chennai, Delhi, Kolkata or Mumbai or within the area of twenty-five kilometres from the municipal limits of these cities, or sixty square metres, where such project is located within the jurisdiction of any other municipality or cantonment board;

(f) where a residential unit in the housing project is allotted to an

individual, no other residential unit in the housing project shall be

allotted to the individual or the spouse or the minor children of

such individual;

(g) the project utilises—

(i) not less than ninety per cent. of the floor area ratio permissible

in respect of the plot of land under the rules to be made by the

Central Government or the State Government or the local

authority, as the case may be, where the project is located within

the cities of Chennai, Delhi, Kolkata or Mumbai or within the

area of twenty-five kilometres from the municipal limits of these

cities, or

(ii) (ii) not less than eighty per cent. of such floor area ratio where such project is located in any area other than the areas referred to in sub-clause (i); and

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52

(h) the assessee maintains separate books of account in respect of

the housing project.

(3) Nothing contained in this section shall apply to any undertaking

which executes the housing project as a works-contract awarded

by any person (including the Central Government or the State

Government).

(4) Where the housing project is not completed within the period

specified under clause (b) of sub-section (2) and in respect of

which a deduction has been claimed and allowed under this

section, the total amount of deduction so claimed and allowed in

one or more previous years, shall be deemed to be the income of

the assessee chargeable under the head ―Profits and gains of

business or profession‖ of the previous year in which the period

for completion so expires.

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(5) Where any amount of profits and gains derived from the business

of developing and building housing projects under any scheme for

the housing is claimed and allowed under this section for any

assessment year, deduction to the extent of such profit and gains

shall not be allowed under any other provisions of this Act.

(6) For the purposes of this section,—

(a) “built-up area” means the inner measurements of the residential

unit at the floor level, including projections and balconies, as

increased by the thickness of the walls, but does not include the

common areas shared with other residential units, including any

open terrace so shared;

(b) “competent authority” means the authority empowered by the

Central Government;

(c) “floor area ratio” means the quotient obtained by dividing the

total covered area of plinth area on all the floors by the area of the

plot of land;

(d) “housing project” means a project consisting predominantly of

dwelling units with such other facilities and amenities as the

competent authority may specify subject to the provisions of this

section;

(e) “residential unit” means an independent housing unit with

separate facilities for living, cooking and sanitary requirements,

distinctly separated from other residential units within the

building, which is directly accessible from an outer door or

through and interior door in a shared hallway and not by walking

through the living space of another household.‘

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Section 80EE of the Income-tax Act, the following section shall

be substituted with effect from the 1st day of April, 2017,

namely:—

‗80EE. (1) In computing the total income of an assessee, being an

individual, there shall be deducted, in accordance with and subject

to the provisions of this section, interest payable on loan taken by

him from any financial institution for the purpose of acquisition of

a residential property.

(2) The deduction under sub-section (1) shall not exceed fifty

thousand rupees and shall be allowed in computing the total

income of the individual for the assessment year beginning on the

1st day of April, 2017 and subsequent assessment years.

(3) The deduction under sub-section (1) shall be subject to the

following conditions, namely:—

(i) the loan has been sanctioned by the financial institution during

the period beginning on the 1st day of April, 2016 and ending on

the 31st day of March, 2017;

(ii) the amount of loan sanctioned for acquisition of the residential

house property does not exceed thirty-five lakh rupees;

(iii) the value of residential house property does not exceed fifty lakh

rupees;

(iv) the assessee does not own any residential house property on the

date of sanction of loan.

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55

(4) Where a deduction under this section is allowed for any interest

referred to in sub-section (1), deduction shall not be allowed in

respect of such interest under any other provision of this Act for

the same or any other assessment year.

(5) For the purposes of this section,—

(a) “financial institution” means a banking company to which the

Banking Regulation Act, 1949 applies, or any bank or banking

institution referred to in section 51 of that Act or a housing

finance company;

(b) “housing finance company” means a public company formed or

registered in India with the main object of carrying on the business

of providing long-term finance for construction or purchase of

houses in India for residential purposes.‘.

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Tax incentive for employment generation (Section 80JJAA)

The existing provisions of Section 80JJAA provide for a

deduction of thirty percent of additional wages paid to new

regular workmen in a factory for three years.

The provisions apply to the business of manufacture of goods in a

factory where 'workmen' are employed for not less than three

hundred days in a previous year.

Further, benefits are allowed only if there is an increase of at least

ten percent in total number of workmen employed on the last day

of the preceding year.

With a view to extend this employment generation incentive to all

sectors, it is proposed to provide that the deduction under the said

provisions shall be available in respect of cost incurred on any

employee whose total emoluments are less than or equal to twenty

five thousand rupees per month.

No deduction, however, shall be allowed in respect of cost

incurred on those employees, for whom the entire contribution

under Employees' Pension Scheme notified in accordance with

Employees' Provident Fund and Miscellaneous Provisions Act,

1952, is paid by the Government.

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It is further proposed to relax the norms for minimum number of

days of employment in a financial year from 300 days to 240 days

and also the condition of ten per cent increase in number of

employees every year is proposed to be done away with so that

any increase in the number of employees will be eligible for

deduction under the provision.

It is also proposed to provide that in the first year of a new business,

thirty percent of all emoluments paid or payable to the employees

employed during the previous year shall be allowed as deduction.

This amendment will take effect from 1st April, 2017 and will

accordingly apply in relation to assessment year 2017-18 and

subsequent assessment years.


‗80JJAA. (1) Where the gross total income of an assessee to whom

section 44AB applies, includes any profits and gains derived from

business, there shall, subject to the conditions specified in sub-

section (2), be allowed a deduction of an amount equal to thirty

per cent. of additional employee cost incurred in the course of

such business in the previous year, for three assessment years

including the assessment year relevant to the previous year in

which such employment is provided.

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(2) No deduction under sub-section (1) shall be allowed,—

(a) if the business is formed by splitting up, or the reconstruction, of an existing business:

Provided that nothing contained in this clause shall apply in respect of a business which is formed as a result of re-establishment, reconstruction or revival by the assessee of the business in the circumstances and within the period specified in section 33B;

(b) if the business is acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation;

(c) unless the assessee furnishes alongwith the return of income the report of the accountant, as defined in the Explanation to section 288 giving such particulars in the report as may be prescribed.


(i) “additional employee cost” means total emoluments paid or payable to

additional employees employed during the previous year:

Provided that in the case of an existing business, the additional

employee cost shall be nil, if—

(a) there is no increase in the number of employees from the total number

of employees employed as on the last day of the preceding year;

(b) emoluments are paid otherwise than by an account payee cheque or

account payee bank draft or by use of electronic clearing system through

a bank account:

Provided further that in the first year of a new business, emoluments

paid or payable to employees employed during that previous year shall

be deemed to be the additional employee cost;

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(ii)“additional employee” means an employee who has been

employed during the previous year and whose employment has the

effect of increasing the total number of employees employed by

the employer as on the last day of the preceding year, but does not

include,—

(a) an employee whose total emoluments are more than twenty-five

thousand rupees per month; or

(b) an employee for whom the entire contribution is paid by the

Government under the Employees‟ Pension Scheme notified in

accordance with the provisions of the Employees Provident Funds

and Miscellaneous Provisions Act, 1952; or

(c) an employee employed for a period of less than two hundred and

forty days during the previous year; or

(d) an employee who does not participate in the recognised provident

fund;

(iii) “emoluments” means any sum paid or payable to an employee

in lieu of his employment by whatever name called, but does not

include—

(a) any contribution paid or payable by the employer to any pension

fund or provident fund or any other fund for the benefit of the

employee under any law for the time being in force; and

(b) any lump-sum payment paid or payable to an employee at the

time of termination of his service or superannuation or voluntary

retirement, such as gratuity, severance pay, leave encashment,

voluntary retrenchment benefits, commutation of pension and the

like.

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Relief and welfare measures

Provision for tax benefits to Sovereign Gold Bond Scheme, 2015 and Rupee Denominated Bonds (section 47 & Third Proviso to 48)

Sovereign Gold Bond Scheme, 2015 –

Amends Sec 47 to provide that any redemption of Sovereign Gold Bond under the Scheme, by an individual shall not be treated as transfer and therefore shall be exempt from tax on capital gains.

Also amends Sec 48to provide indexation benefits to LTCG arising on transfer of Sovereign Gold Bond to all cases of assessees


Section 47

Rupee Denominated Bond –

It is proposed to provide that in case of nonresident, any gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company subscribed by him, shall be ignored for the purpose of computation of full value of consideration.


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Consolidation of 'plans' within a 'scheme' of mutual fund Section 47(xix)

It is proposed to insert New section 47(xix) to provide that any transfer by a unit holder of unit(s) held in consolidating plan of a mutual fund scheme, made in consideration of the allotment of a capital asset, being a unit or units, in the consolidated plan of that scheme of the mutual fund shall not be considered as a transfer for capital gain tax purposes and thereby shall be exempt


Rationalization of limit of deduction allowable in respect of rents

paid under Section 80GG

The existing provisions of Section 80GG provide for a deduction

of any expenditure incurred by an individual in excess of ten per

cent of his total income towards payment of rent in respect of any

furnished or unfurnished accommodation occupied by him for the

purposes of his own residence if he is not granted house rent

allowance by his employer, to the extent such excess expenditure

does not exceed two thousand rupees per month or twenty-five

per cent of his total income for the year, whichever is less, subject

to other conditions as prescribed therein.

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In order to provide relief to the individual tax payers, it is

proposed to amend section 80GG so as to increase the maximum

limit of deduction from existing Rs. 2000 per month to Rs. 5000

per month.

These amendments are proposed to be made effective from the

1st day of April, 2017 and shall accordingly apply in relation to

assessment year 2017-18 and subsequent years.


Tax Treatment of Gold Monetization Scheme, 2015 Section 2(14) & 10(15)

Amends Sec 2(14) to exclude Deposit Certificates issued under Gold Monetisation Scheme, 2015 notified by the Government, from the definition of capital asset and thereby to exempt it from capital gains tax.

Also amends Sec 10 (15) to provide that the interest on Deposit Certificates issued under the Scheme, shall be exempt.

These amendments made effective retrospectively from April 1, 2016 and shall accordingly apply in relation to AY 2016-17 and onwards.


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Rationalization of section 56 of the Income-tax Act Second proviso to 56(2)(vii)

The existing provisions of clause(vii) of sub-section 2 of section 56 of the Act provide for chargeability of income from other sources in case any money, immovable property or other property with or without consideration in excess of Rs 50,000 is received by an assessee being an individual or an Hindu undivided family (HUF).

The provisions also apply where shares of a company are received as a consequence of demerger or amalgamation of a company.

Such a transaction is not regarded as transfer where the recipient is a firm or a company.

With a view to bring uniformity in tax treatment, it is proposed to

amend the Act so as to provide that any shares received by an

individual or HUF as a consequence of demerger or amalgamation

of a company as referred to in Section 47 (vicb), (vid) & (vii) shall

not attract the provisions of clause (vii) of sub-section (2) of

section 56.

These amendments are proposed to be made effective from the

1st day of April, 2017 and shall accordingly apply in relation to

assessment year 2017-18 and subsequent years.


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Rationalization of limit of rebate in income-tax allowable under

Section 87A

Para 118. of FM Speech

In order to lessen tax burden on individuals with income not

exceeding Rs. 5 Lakhs, I propose to raise the ceiling of tax rebate

under section 87A from Rs. 2000 to Rs. 5000. There are 2 Crore

tax payers in this category who will get a relief of Rs. 3000 in

their tax liability.

This amendment will take effect from 1st April, 2017 and will




Increase in time period for acquisition or construction of self-

occupied house property for claiming deduction of interest

(Section 24(b)

The existing provision of Clause (b) of section 24 provides that

interest payable on capital borrowed for acquisition or construction

of a house property shall be deducted while computing income

from house property.

The second proviso to the said clause provides that a deduction of

an amount of two lakh rupees shall be allowed where a house

property referred to in sub-section (2) of section 23 (self-occupied

house property) has been acquired or constructed with capital

borrowed on or after the 1st day of April, 1999 and such acquisition

or construction is completed within three years from the end of the

financial year in which capital was borrowed.

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In view of the fact that housing projects often take longer time for

completion, it is proposed that second proviso of clause (b) of

section 24 be amended to provide that the deduction under the said

proviso on account of interest paid on capital borrowed for

acquisition or construction of a self-occupied house property shall

be available if the acquisition or construction is completed within

five years from the end of the financial year in which capital was

borrowed.

This amendment will take effect from 1st day of April, 2017 and will,


subsequent years.


Simplification and rationalisation of provisions relating to

taxation of unrealised rent and arrears of rent (Section 25

A)

Existing provisions of sections 25A, 25AA and 25B relate to

special provisions on taxation of unrealised rent allowed as

deduction when realised subsequently, unrealised rent received

subsequently and arrears of rent received respectively. Certain

deductions are available thereon.

It is proposed to simplify these provisions and merge them

under a single new section 25A and bring uniformity in tax

treatment of arrears of rent and unrealised rent.

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It is proposed to provide that the amount of rent received in arrears or

the amount of unrealised rent realised subsequently by an assessee

shall be charged to income-tax in the financial year in which such rent

is received or realised, whether the assessee is the owner of the

property or not in that financial year.

It is also proposed that thirty per cent of the arrears of rent or the

unrealised rent realised subsequently by the assessee shall be allowed

as deduction.

The amendment will take effect from 1st day of April, 2017 and will,


subsequent years.

[Clause 11 of finance bill 2016]

„25A. (1) The amount of arrears of rent received from a tenant or the

unrealised rent realised subsequently from a tenant, as the case

may be, by an assessee shall be deemed to be the income from

house property in respect of the financial year in which such rent

is received or realised, and shall be included in the total income of

the assessee under the head “Income from house property”,

whether the assessee is the owner of the property or not in that

financial year.

(2) A sum equal to thirty per cent. of the arrears of rent or the

unrealised rent referred to in sub-section (1) shall be allowed as

deduction.‟.

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Confirmed:

Uberoi Sons (Machines) Ltd. [TS-666-

HC-2012(DEL)]

Delhi HC in this case had held that arrears of rent received as ―mesne‖ profits /

compensation for unauthorized use and occupation of premises were taxable

only in year of receipt. HC thus held that reassessment initiated for taxing

―mesne‖ profits for the year in which they were due was invalid.

Ease of doing Business/dispute resolution

Exemption from DDT on distribution made by an SPV to Business Trust

In order to rationalize the taxation regime for business trusts (REITs and Invits) and their investors, it is proposed to provide a special dispensation and exemption from levy of DDT. The salient features of the proposed dispensation are: —

(a) Exemption from levy of DDT in respect of distributions made by SPV to the business trust;

(b) Such dividend received by the business trust and its investor shall not be taxable in the hands of trust or investors;

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(c) Exemption from levy of DDT would only be in the cases where the business trust either holds 100% of the share capital of the SPV or holds all of the share capital other than that which is required to be held by any other entity as part of any direction of any Government or specific requirement of any law to this effect or which is held by Government or Government bodies; and

(d) Exemption from the levy of DDT would only be in respect of dividends paid out of current income after the date when the business trust acquires the shareholding referred in (c) above in the SPV.

Dividends paid out of accumulated and current profits upto this date shall be liable for levy of DDT as and when any dividend out of these profits is distributed by the company either to the business trust or any other shareholder

Amendment effective from June 1, 2016.

Clause 7, 55, 61 & 80 of finance bill 2016

Modification of conditions of special taxation regime for off shore funds u/s 9A

Modifies condition to provide that the eligible investment fund for purposes of Sec 9A, shall also mean a fund established or incorporated or registered outside India in a country or a specified territory notified by the Government in this behalf. Further the condition of fund not controlling and managing any business in India or from India shall be restricted only in the context of activities in India.


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Deferment of Place of Effective Management (‘POEM’) (section 6)

In order to provide clarity in respect of implementation of POEM based rule of residence and also to address concerns of the stakeholders, -

a) applicability of POEM based residence test is deferred by one year and the determination of residence based on POEM shall be applicable from April 1, 2017

b) provide a transition mechanism for a company which is incorporated outside India and has not earlier been assessed to tax in India. Government empowered to notify rules for implementation of POEM.

Clause 4, 54 & 235 of finance bill 2016


Presumptive taxation scheme under section 44AD of Income tax

Act is available for small and medium enterprises i.e., non

corporate business with turnover or gross receipts not exceeding

one crore rupees.

At present about 33 lakh small business people avail of this

benefit, which frees them from the burden of maintaining detailed

books of account and getting audit done. I propose to increase the

turnover limit under this scheme to Rupees two crores which will

bring big relief to a large number of assesses in the MSME

category.

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Introduction of Presumptive taxation scheme for persons

having income from profession (Section 44AA, AB & ADA)

The existing scheme of taxation provides for a simplified

presumptive taxation scheme for certain eligible persons

engaged in certain eligible business only and not for persons

earning professional income.

In order to rationalize the presumptive taxation scheme and to

reduce the compliance burden of the small tax payers having

income from profession and to facilitate the ease of doing

business, it is proposed to provide for presumptive taxation

regime for professionals.

In this regard, new section 44ADA is proposed to be inserted in

the Act to provide for estimating the income of an assessee who

is engaged in any profession referred to in sub-section (1) of

section 44AA such as legal, medical, engineering or

architectural profession or the profession of accountancy or

technical consultancy or interior decoration or any other

profession as is notified by the Board in the Official Gazette and

whose total gross receipts does not exceed fifty lakh rupees in a

previous year, at a sum equal to fifty per cent. of the total gross

receipts, or, as the case may be , a sum higher than the aforesaid

sum earned by the assessee.

The scheme will apply to such resident assessee who is an

individual, Hindu undivided family or partnership firm but not

Limited Liability partnership firm.

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[Notified professions: (a) The profession of authorised representative; and (b) the profession of film artist (actor, cameraman, director, music director, art director, dance director, editor, singer, lyricist, story writer, screen play writer, dialogue writer and dress designer)—Notification : No. SO 17(E), dated 12-1-1977 / Profession of Company Secretary—Notification : No. SO 2675, dated 25-9-1992/Profession of Information Technology—Notification : No. SO 385(E), dated 4-5-2001. ]

Under the scheme, the assessee will be deemed to have been

allowed the deductions under section 30 to 38.

Accordingly, the written down value of any asset used for the

purpose of the profession of the assessee will be deemed to have

been calculated as if the assessee had claimed and had actually

been allowed the deduction in respect of depreciation for the

relevant assessment years.

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It is also proposed that the assessee will not be required to

maintain books of account under sub-section (1) of section

44AA and get the accounts audited under section 44AB in

respect of such income unless the assessee claims that the

profits and gains from the aforesaid profession are lower than

the profits and gains deemed to be his income under sub-section

(1) of section 44ADA and his income exceeds the maximum

amount which is not chargeable to income-tax.

These amendments will take effect from 1st April, 2017 and

will, accordingly, apply in relation to the assessment year 2017-

18 and subsequent years.


Increase in threshold limit for audit for persons having income from

profession (Section 44AB)

Under the existing provisions of section 44AB of the Act every person

carrying on a profession is required to get his accounts audited if the

total gross receipts in a previous year exceed twenty five lakh rupees.

In order to reduce the compliance burden, it is proposed to increase the

threshold limit of total gross receipts, specified under section 44AB for

getting accounts audited, from twenty five lakh rupees to fifty lakh

rupees in the case of persons carrying on profession.


accordingly, apply to the assessment year 2017-18 and subsequent

assessment years.


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Increase in threshold limit for presumptive taxation scheme for

persons having income from business. (Section 44AB, 44AD &

211)

The existing provisions of section 44AD provide for a

presumptive taxation scheme for an eligible business.

Where in case of an eligible assessee engaged in eligible business

having total turnover or gross receipts not exceeding rupees one

crore, a sum equal to eight per cent of the total turnover or gross

receipts, or as the case may be, a sum higher than the aforesaid

sum shall be deemed to be profits and gains of such business

chargeable to tax under the head "Profits and gains of business or

profession".

Under the scheme, the assessee will be deemed to have been

allowed the deduction under sections 30 to 38 of the Act.

Further, the eligible assessee can report income less than the

deemed income of eight per cent. of the total turnover or gross

receipts not exceeding rupees one crore provided he maintains

books of accounts as per section 44AB.

Further in the case of an eligible assessee, so far as the eligible

business is concerned, the provisions of Chapter XVII-C shall not

apply.

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In order to reduce the compliance burden of the small tax payers

and facilitate the ease of doing business, it is proposed to increase

the threshold limit of one crore rupees specified in the definition

of "eligible business" to two crore rupees.

It is also proposed that the expenditure in the nature of salary,

remuneration, interest etc. paid to the partner as per clause (b) of

section 40 shall not be deductible while computing the income

under section 44AD as the said section 40 does not mandate for

allowance of any expenditure but puts restriction on deduction of

amounts , otherwise allowable under section 30 to 38.

It is also proposed that where an eligible assessee declares

profit for any previous year in accordance with the provisions

of this section and he declares profit for any of the five

consecutive assessment years relevant to the previous year

succeeding such previous year not in accordance with the

provisions of sub-section (1), he shall not be eligible to claim

the benefit of the provisions of this section for five assessment

years subsequent to the assessment year relevant to the

previous year in which the profit has not been declared in

accordance with the provisions of sub-section (1).

For example, an eligible assessee claims to be taxed on

presumptive basis under section 44AD for Assessment Year

2017-18 and offers income of Rs. 8 lakh on the turnover of Rs.

1 crore.

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For Assessment Year 2018-19 and Assessment Year 2019-20

also he offers income in accordance with the provisions of

section 44AD.

However, for Assessment Year 2020-21, he offers income of

Rs.4 lakh on turnover of Rs. 1 crore.

In this case since he has not offered income in accordance with

the provisions of section 44AD for five consecutive assessment

years, after Assessment Year 2017-18, he will not be eligible to

claim the benefit of section 44AD for next five assessment

years i.e. from Assessment Year 2021-22 to 2025-26.

Further as the turnover limit of presumptive taxation scheme has

been enhanced to rupees two crore, it is proposed to provide that

eligible assessee shall be require to pay advance tax.

However, in order to keep the compliance minimum in his case, it

is proposed that he may pay advance tax by 15th March of the

financial year.



subsequent years.


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Deduction in respect of provision for bad and doubtful debt in the case of NBFC (Newly inserted 36(1)(viia)(d) & Explanation (vii)

Proposed that NBFCs shall be allowed deduction of 5% of Gross total income on account of provision for bad and doubtful debts.

NBFC shall have the meaning as provided u/s 45- I(f) of the RBI Act, 1934.





Rationalisation of scope of tax incentive under section

32AC(1A) Amended. First Proviso to Section 32AC(1A)

Newly inserted

The existing provision of sub-section (1A) in section 32AC of

the Act provides for investment allowance at the rate of 15%

on investment made in new assets (plant and machinery)

exceeding Rs.25 crore in a previous year by a company

engaged in manufacturing or production of any article or thing

subject to the condition that the acquisition and installation has

to be done in the same previous year. This tax incentive is

available up to 31.03.2017.

The dual condition of acquisition and installation causes

genuine hardship in cases in which assets having been

acquired could not be installed in same previous year.

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It is proposed to amend the sub-section (1A) of section 32AC so

as to provide that the acquisition of the plant & machinery of

the specified value has to be made in the previous year.

However, installation may be made by 31.03.2017 in order to

avail the benefit of investment allowance of 15%. It is further

proposed to provide that where the installation of the new asset

is in a year other than the year of acquisition, the deduction

under this sub-section shall be allowed in the year in which the

new asset is installed.

These amendments will take effect retrospectively from

1stApril, 2016 and will, accordingly, apply in relation to the

assessment year 2016-17 and 2017-18.


Exemption from requirement of furnishing PAN under section

206AA to certain non-resident.

The existing provision of section 206AA, inter alia, provides

that any person who is entitled to receive any sum or income or

amount on which tax is deductible under Chapter XVIIB of the

Act shall furnish his Permanent Account Number to the person

responsible for deducting such tax, failing which tax shall be

deducted at the rate mentioned in the relevant provisions of the

Act or at the rate in force or at the rate of twenty per cent.,

whichever is higher.

The provisions of section 206AA also apply to non-residents

with an exception in respect of payment of interest on long-

term bonds as referred to in section 194LC.

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In order to reduce compliance burden, it is proposed to amend the

said section 206AA so as to provide that the provisions of this

section shall also not apply to a non-resident, not being a

company, or to a foreign company, in respect of any other

payment, other than interest on bonds, subject to such

conditions as may be prescribed.



Applicability of Minimum Alternate Tax (MAT) on foreign

companies for the period prior to 01.04.2015.

Under the existing provisions contained in sub-section (1) of the

115JB in case of a company, if the tax payable on the total income as

computed under the Income-tax Act, is less than eighteen and one-half

per cent of its book profit, such book profit shall be deemed to be the

total income of the assessee and the tax payable by the assessee for the

relevant previous year shall be eighteen and one-half per cent of its

book profit.

Issues were raised regarding the applicability of this provision to

Foreign Institutional Investors (FIIs) who do not have a permanent

establishment (PE) in India. Vide Finance Act, 2015 of the provisions

of section 115JB were amended to provide that in case of a foreign

company any income chargeable at a rate lower than the rate specified

in section 115JB shall be reduced from the book profits and the

corresponding expenditure will be added back.

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However, since this amendment was prospective w.e.f. assessment

year 2016-17, the issue for assessment year prior to 2016-17

remained to be addressed.

A Committee on Direct Tax matters headed by Justice A.P. Shah,

set up by the Government to look into the matter, recommended

for an amendment of section 115JB to clarify the applicability

of Minimum Alternate Tax (MAT) provisions to Foreign

Institutional Investors/ Foreign Portfolio Investors (FIIs/FPIs) in

view of the fact that FIIs and FPIs normally do not have a place

of business in India.

In view of the recommendations of the committee and with a view

to provide certainty in taxation of foreign companies, it is

proposed to amend the Income-tax Act so as to provide that

with effect from 01.04.2001, the provisions of section 115JB

shall not be applicable to a foreign company if -

(i) the assessee is a resident of a country or a specified territory

with which India has an agreement referred to in sub-section (1)

of section 90 or the Central Government has adopted any

agreement under sub-section (1) of section 90A and the assesse

does not have a permanent establishment in India in accordance

with the provisions of such Agreement; or

(ii) the assessee is a resident of a country with which India does

not have an agreement of the nature referred to in clause (i)

above and the assessee is not required to seek registration under

any law for the time being in force relating to companies.

This amendment is proposed to be made effective retrospectively

from the 1st day of April, 2001 and shall accordingly apply in

relation to assessment year 2001-02 and subsequent years.

[Clause 53 of finance bill 2016]

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Case laws

Confirmed:

Castleton Investment Ltd[TS-570-SC- 2015]

SC had disposed of Castleton's SLP

against AAR ruling on MAT applicability to foreign companies not having

PE in India. Revenue therein had agreed to abide by CBDT instruction

no.18/2015 reiterating non-applicability of MAT provisions to foreign

companies for the period prior to April 1, 2015.

Tax Incentives to International Financial Services Centre (‘IFSC’) (Section 10(38), 115JB, 115-O)

It is proposed to amend section 115JB to provide that in case of a

company, being a unit located in International Financial Services

Centre and deriving its income solely in convertible foreign

exchange, the MAT shall be chargeable at 9%.

It is proposed to amend section 115-O so as to provide that no tax

on distributed profits shall be chargeable in respect of the total

income of a company being a unit located in International

Financial Services Centre, deriving income solely in convertible

foreign exchange, for any assessment year on any amount

declared, distributed or paid by such company, by way of

dividends (whether interim or otherwise) on or after the 1st day of

April, 2017 out of its current income, either in the hands of the

company or the person receiving such dividend.

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Section 113A of the Finance (No.2) Act, 2004 is proposed to be amended to exempt transaction from STT by providing that the provisions of Chapter VII shall not apply to taxable securities transactions entered into by any person on a recognized stock exchange located in International Financial Services Centre where the consideration for such transaction is paid or payable in foreign currency.

it is proposed to insert section 132A in Chapter VII of the Finance Act, 2013 so as to provide that the provisions of chapter VII shall also not apply to taxable commodities transactions entered into by any person on a recognized association located in unit of International Financial Services Centre where the consideration for such transaction is paid or payable in foreign currency, thereby exempting such transaction from commodities transaction tax.

The above two amendments will take effect from 1st June, 2016.

Clause 7, 53, 55, 230 & 234 of finance bill 2016

Year No. of Cases Income Declared (in Cr.)

Tax Collected (in Cr.)

1946-47 - 48 30

1951 20912 70 11

1965 2001 52 31

1966 1,14,226 145 19

1965-68 - 22 -

1975 2,58,992 1,588 257

1980 - 400 160

1985-86 1,53,990 2,940 388

1991 - - 984

1997 4,70,000 33,000 10,100

2015 638 4,147 2500

AMNESTY SINCE 1947

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THE INCOME DECLARATION

SCHEME, 2016

A. Applicability:

This scheme shall come into force on the 1st day of June, 2016. [Sec. 178]

B. Definitions.[Sec. 179]

1. ―Declarant‖ means a person making the declaration under sub–section (1) of section 180,

2. ―Income–tax Act‖ means the Income–tax Act, 1961 [Note: All other words and expressions will be as defined in the Income–tax Act.]

C. Person Eligible for this Scheme [Sec. 180]:

1. Any person as defined u/s 2(31) of the Income Tax Act.

2. The Eligible person may make declaration in respect of any income chargeable to tax under the Income–tax Act for any assessment year upto AY 2016–17

D. Conditions for making declaration [Sec. 180]:

1. for which he has failed to furnish a return under section 139 of the Income–tax Act,

2. which he has failed to disclose in a return of income furnished by him under the Income–tax Act before the date of commencement of this Scheme,

3. which has escaped assessment by reason of the omission or failure on the part of such person to furnish a return under the Income–tax Act or to disclose fully and truly all material facts necessary for the assessment or otherwise

E. Authority to whom declaration should be made [Sec. 183]: Principal Commissioner or the Commissioner.

F. Form of Declaration: It shall be in the prescribed form and in the prescribed manner.

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G. Persons not eligible to make declaration [Sec. 193]:

(a) to any person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974: Provided that—

(i) such order of detention, being an order to which the provisions of section 9 or section 12A of the said Act do not apply, has not been revoked on the report of the Advisory Board under section 8 of the said Act or before the receipt of the report of the Advisory Board, or

(ii) such order of detention, being an order to which the provisions of section 9 of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the review under sub–section (3) of section 9, or on the report of the Advisory Board under section 8, read with sub–section (2) of section 9 of the said Act, or

(iii) such order of detention, being an order to which the provisions of section 12A of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the first review under sub–section (3) of that section, or on the basis of the report of the Advisory Board under section 8, read with sub–section (6) of section 12A, of the said Act, or

(iv) such order of detention has not been set aside by a court of competent jurisdiction,

(b) in relation to prosecution for any offence punishable under

Chapter IX or Chapter XVII of the Indian Penal Code, the

Narcotic Drugs and Psychotropic Substances Act, 1985, the

Unlawful Activities (Prevention) Act, 1967 and the Prevention

of Corruption Act, 1988,

(c) to any person notified under section 3 of the Special Court

(Trial of Offences Relating to Transactions in Securities) Act,

1992,

(d) in relation to any undisclosed foreign income and asset which

is chargeable to tax under the Black Money (Undisclosed

Foreign Income and Assets) and Imposition of Tax Act, 2015,

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(e) in relation to any undisclosed income chargeable to tax under the Income–tax Act for any assessment year upto 2016–17 for which –

(i) a notice under section 142 or sub–section (2) of section 143 or section 148 or section 153A or section 153C of the Income–tax Act has been issued in respect of such assessment year and the proceeding is pending before the Assessing Officer, or

(ii) a search has been conducted under section 132 or requisition has been made under section 132A or a survey has been carried out under section 133A of the Income–tax Act in a previous year and a notice under sub– section (2) of section 143 for the assessment year relevant to such previous year or a notice under section 153A or under section 153C of the said Act for an assessment year relevant to any previous year prior to such previous year has not been issued and the time for issuance of such notice has not expired, or

(iii) Any information has been received by the competent authority under an agreement entered into by the Central Government under section 90 or section 90A of the Income–tax Act in respect of such undisclosed asset.

H. Value of Undisclosed Income Kept in the form of any Asset

[Sec. 180]:

1. The income chargeable to tax is declared in the form of

investment in any asset, the fair market value of such asset as

on the date of commencement of this Scheme shall be deemed

to be the undisclosed income.

2. The fair market value of any asset shall be determined in such

manner, as may be prescribed.

3. No deduction in respect of any expenditure or allowance shall

be allowed against the income in respect of which declaration

is made.

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K. More than One Declaration [Sec. 183(3)]:

Any person, who has made a declaration u/s 180 (1) in respect

of his income or as a representative assessee in respect of the

income of any other person, shall not be entitled to make any

other declaration. If any such other declaration was

subsequently made, shall be treated as void.

L. Declaration Treated as Void [Sec. 190]:

Notwithstanding anything contained in this Scheme, where a

declaration has been made by misrepresentation or suppression

of facts, such declaration shall be void and shall be deemed

never to have been made under this Scheme.

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M. Time for payment of tax, Surcharge & Penalty [Sec. 184]:

1. The tax, Surcharge and Penalty shall be on or before a date to be notified by

the Central Government in the Official Gazette.

2. The proof of payment of tax, surcharge and penalty shall be filed with the

Principal Commissioner or the Commissioner

3. If the declarant fails to pay the tax, surcharge and penalty, it shall be

deemed never to have been made under this Scheme.

4. Any amount of tax, and paid under section 181 or penalty paid shall not be

refundable. [Sec. 188]

5. If any declaration has been made, but no tax, surcharge and penalty referred

to in section 181 and section 182 has been paid within the time specified

under section 184, the undisclosed income shall be chargeable to tax under

the Income–tax Act in the previous year in which such declaration is made.

[Sec. 194(b)]

N. Undisclosed income declared not to be included in Total

Income [Sec. 185]:

The amount of undisclosed income declared shall not be

included in the total income of the declarant for any assessment

year under the Income–tax Act, if the declarant makes the

payment of tax and surcharge and Penalty.

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O. No Right to Re–open Completed Assessment or Reassessment

[Sec. 186]:

A declarant under this Scheme shall not be entitled, in respect of

undisclosed income declared or any amount of tax and

surcharge paid thereon, to re–open any assessment or

reassessment made under the Income–tax Act or the Wealth–tax

Act, 1957, or claim any set off or relief in any appeal, reference

or other proceeding in relation to any such assessment or

reassessment.

P. Immunity from Wealth Tax [Sec. 191] Where the undisclosed income

is represented by cash (including bank deposits), bullion, investment

in shares or any other assets –

(a) in respect of which the declarant has failed to furnish Wealth Tax

return upto Assessment year 2015–16 or

(b) which have not been shown in the return of net wealth furnished

by him for the said assessment year or years, or

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(c) which have been understated in value in the return of net wealth furnished by him for the said assessment year or years, then, the immunity / Exemptions are granted as under –

(i) wealth–tax shall not be payable by the declarant in respect of the assets referred to in clause (a) or clause (b) and such assets shall not be included in his net wealth for the said assessment year or years,

(ii) the amount by which the value of the assets referred to in clause (c) has been understated in the return of net wealth for the said assessment year or years, to the extent such amount does not exceed the voluntarily disclosed income utilised for acquiring such assets, shall not be taken into account in computing the net wealth of the declarant for the said assessment year or years.

Notes:

1. For declaration made by a firm, the assets declared by the Firm

shall not be taken into account in computing the net wealth of

any partner of the firm as the case may be, or in determining the

value of the interest of any partner in the firm.

2. The immunity benefit of Wealth tax is available only on proof of

Payment of Tax, Surcharge and Penalty is filled with Principal

Commissioner or the Commissioner.

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Q. Declaration shall not be used as Evidence [Sec. 189]:

The declaration Made under this scheme shall not be used as evidence against the declarant for the purpose of any proceeding relating to imposition of penalty, or for the purposes of any prosecution under the Income–tax Act or the Wealth–tax Act.

R. Treatment of Income where No declaration is Filed [Sec. 194(c)]:

Any income has accrued, arisen or received or any asset has been acquired out of such income prior to commencement of this Scheme, and no declaration in respect of such income is made under this Scheme,— (i) such income shall be deemed to have accrued, arisen or received, as the case may be, or (ii) the value of the asset acquired out of such income shall be deemed to have been acquired or made, in the year in which a notice under section 142, sub–section (2) of section 143 or section 148 or section 153A or section 153C of the Income–tax Act is issued by the Assessing Officer, and the provisions of the Income–tax Act shall apply accordingly.

S. Powers of Board [Sec. 196]

1. The Board may, subject to the control of the Central Government, by notification in the Official Gazette, make rules for carrying out the provisions of this Scheme.

2. Without prejudice to the generality of the foregoing power, such rules may provide for the form in which a declaration may be made under section 180 and the manner in which the same may be verified.

3. Every rule made under this Scheme shall be laid, as soon as may be, after it is made, before each House of Parliament, while it is in session, for a total period of thirty days, which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be, so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.

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T. Powers of Central Government [Sec. 195]:

1. If any difficulty arises in giving effect to the provisions of

this Scheme, the Central Government may, by order, not

inconsistent with the provisions of this Scheme, remove the

difficulty:

2. No such order shall be made after the expiry of a period of 2

years from the date on which the provisions of this Scheme

shall come into force. Order made under this section shall be

laid before each House of Parliament.

U. Save Clause [Sec. 194(a)]:

Save as otherwise expressly provided in sub–section (1) of

section 180, nothing contained in this Scheme shall be construed

as conferring any benefit, concession or immunity on any person

other than the person making the declaration under this Scheme,

V. Applicability of Other Acts: [Sec. 192]

The provisions of Chapter XV of the Income–tax Act relating to

liability in special cases and of section 189 of that Act or the

provisions of Chapter V of the Wealth–tax Act, 1957 relating to

liability in respect of assessment in special cases shall, so far as

may be, apply in relation to proceedings under this Scheme as

they apply in relation to proceedings under the Income–tax Act

or, as the case may be, the Wealth–tax Act, 1957.

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W. Undisclosed income declared not to be treated as Benami

transaction in certain cases.[Sec.187]

The provisions of the Benami Transactions (Prohibition) Act,

1988 shall not apply in respect of the declaration of undisclosed

income made in the form of investment in any asset, if the asset

existing in the name of a benamidar is transferred to the

declarant, being the person who provides the consideration for

such asset, or his legal representative, within the period notified

by the Central Government.

The Direct Tax Dispute Resolution Scheme, 2016

Litigation has been a major area of concern in direct taxes. In order to reduce the huge backlog of cases and to enable the

Government to realise its dues expeditiously, it is proposed to bring the Direct Tax Dispute Resolution Scheme, 2016 in relation to tax arrear and specified tax. The salient features of

the proposed scheme are as under:

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The scheme be applicable to "tax arrear" which is defined as the amount of tax, interest or penalty determined under the Income-tax Act or the Wealth-tax Act, 1957 in respect of which appeal is pending before the Commissioner of Income-tax (Appeals) or the Commissioner of Wealth-tax (Appeals) as on the 29th day of February, 2016.

The pending appeal could be against an assessment order or a

penalty order.

The declarant under the scheme be required to pay tax at the

applicable rate plus interest upto the date of assessment.

However, in case of disputed tax exceeding rupees ten lakh, twenty-five percent of the minimum penalty leviable shall also be required to be paid.

In case of pending appeal against a penalty order, twenty-five percent of minimum penalty leviable shall be payable along with the tax and interest payable on account of assessment or reassessment.

Consequent to such declaration, appeal in respect of the disputed income and disputed wealth pending before the Commissioner (Appeals) shall be deemed to be withdrawn

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In addition to the above, the scheme proposes that person may also make a declaration in respect of any tax determined inconsequence of or is validated by an amendment made with retrospective effect in the Income-tax Act or Wealth-tax Act, as the case may be, for a period prior to the date of enactment of such amendment and a dispute in respect of which is pending as on 29.02.2016 (referred to as specified tax).

For availing the benefit of the Scheme, such declarant shall be

required to withdraw any writ petition or any appeal filed against such specified tax before the Commissioner (Appeals) or the Tribunal or High Court or Supreme Court, before making the declaration and shall also be required to furnish a proof of such withdrawal.

Further if any proceeding for arbitration conciliation or mediation

has been initiated by the declarant or he has given any notice under any law or agreement entered into by India, whether for protection of investment or otherwise, he shall be required to withdraw such notice or claim for availing benefit under this Scheme.

It is proposed that person making declaration in respect of specified tax shall be required to furnish an undertaking in the prescribed form and verified in the prescribed manner, waiving the right, whether direct or indirect, to seek or pursue any remedy or claim in relation to the specified tax which otherwise be available to them under any law, in equity, by statute or under an agreement, whether for protection of investment or otherwise, entered into by India with a country or territory outside India.

It is proposed that no appellate authority or Arbitrator or Conciliator or Mediator shall proceed to decide an issue relating to the specified tax in the declaration in respect of which an order is made by the designated authority or in respect of the payment of the sum determined to be payable.

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It is proposed that where the declarant violates any of the conditions referred to in the scheme or any material particular furnished in the declaration is found to be false at any stage, it shall be presumed as if the declaration was never made under this Scheme and all the consequences under the Income-tax Act or Wealth-tax Act under which the proceedings against declarant were or are pending, shall be deemed to have been

revived.

The declarant under the scheme shall get immunity from institution of any proceeding for prosecution for any offence under the Income-tax Act or the Wealth-tax Act. In case of specified tax the declarant shall also get immunity from imposition of penalty under the Income-tax Act or the Wealth-tax Act.

However, in case of tax arrears immunity from penalty is proposed to be of the amount that exceeds the penalty payable as per the scheme.

The scheme provides waiver of interest under the Income-tax Act or the Wealth-tax Act in respect of specified tax.

However, waiver of interest in respect of tax arrears is to the extent the interest exceeds the amount of interest referred in the scheme.

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In the following cases a person shall not be eligible for the scheme:-

Cases where prosecution has been initiated before 29.02.2016.

Search or survey cases where the declaration is in respect of tax arrears.

Cases relating to undisclosed foreign income and assets.

Cases based on information received under Double Taxation Avoidance Agreement under section 90 or 90A of the

Income-tax Act where the declaration is in respect of tax arrears.

Person notified under Special Courts Act, 1992.

Cases covered under Narcotic Drugs and Psychotropic Substances Act, Indian Penal Code, Prevention of Corruption

Act or Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.

A declaration under the scheme may be made to the designated authority not below the rank of Commissioner in such form and verified in such manner as may be prescribed.

The designated authority shall within sixty days from the date of receipt of the declaration, determine the amount payable by the declarant.

The declarant shall pay such sum within thirty days of the passing such order and furnish proof of payment of such sum.

Any amount paid in pursuance of a declaration shall not be refundable under any circumstances.

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No matter covered by order of designated authority shall be reopened in any other proceeding under the Income-tax Act, 1961 or Wealth-tax Act, 1957.

The designated authority shall subject to the conditions provided in the scheme grant immunity from instituting any proceeding for prosecution for any offence under the two Acts in respect of matters covered in the declaration.

Nothing contained in this Scheme shall be construed as conferring any benefit, concession or immunity on the declarant in any proceedings other than those in relation to which the declaration has been made.

It is proposed that the Central Government may be given the power to issue such orders, instructions and directions for the proper administration of this Scheme to persons employed in the execution of this Scheme shall observe and follow such orders, instructions and directions of the Central Government.

In case any difficulty arises in giving effect to the provisions of this Scheme,the Central Government may by order not inconsistent with the provisions of this Scheme remove the difficulty.

However, no such order shall be made after the expiry of a period of two years from the date on which the provisions of this Scheme come into force.

Every such order, as soon as may be after it is made, be laid before each House of Parliament

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It is proposed that the Central Government may, by notification in the Official Gazette, make rules for carrying out the provisions of this Scheme. Every rule made under this Scheme be laid, as soon as may be after it is made, before each House of Parliament in the manner specified in the scheme.

Providing Time limit for disposing applications made by assessee under section 273A, 273AA or 220(2A)

Sub-section (2) of section 220 provides for levy of interest at the rate of 1 per cent for every month or part of month for the period during which the default continues. Sub-section (2A) of said section inter-alia, empowers the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner to reduce or waive the amount of interest paid or payable under sub-section (2) of the said section.

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Sub-section (4) of section 273A, inter alia, provides that the Principal Commissioner or the Commissioner may, on an application made by an assessee, reduce or waive the amount of any penalty payable by the assessee or stay or compound any proceeding for recovery of the penalty amount in certain circumstances.

Section 273AA inter alia, provides that the Principal Commissioner or the Commissioner may grant immunity from penalty,if penalty proceedings have been initiated in case of a person who has made application for settlement before the settlement commission and the proceedings for settlement had abated under the circumstances contained in section 245HA of the Act.

Under the existing provisions no time limit has been provided regarding the passing of orders either under section 220 or sections 273A or 273AA.

Further, these provisions do not specifically mandate that assessee be given an opportunity of being heard in case such application is rejected by an authority.

Therefore, in order to rationalise the provisions and provide for specifictime-line, amendment to the existing provisions have been proposed.

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It is proposed to amend section 220 to provide that an order accepting or rejecting application of an assessee shall be passed by the concerned Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner within a period of twelve months from the end of the month in which such application is received.

It is further proposed to amend section 273A and section 273AA to provide that an order accepting or rejecting the application of an assessee shall be passed by the Principal Commissioner or Commissioner within a period of twelve months from the end of the month in which such application is received.

It is also proposed to provide that no order rejecting the application of the assessee under section 220 or 273A, 273AA shall be passed without giving the assessee an opportunity of being heard.

However, in respect of applications pending as on 1st day of June, 2016, the order under said sections shall be passed on or before 31stMay, 2017.



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Providing legal framework for automation of various processes and paperless assessment Section 2(23C) newly inserted, 143(2) & 282A(1)

Proposes to amend Sec 282A(1) so as to provide that notices and documents required to be issued by income-tax authority under the Act shall be issued by such authority either in paper form or in electronic form in accordance with such procedure as may be prescribed.

Sub-section (2) of section 143 provides that, if the Assessing Officer considers it necessary and expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, he shall serve on the assessee a notice requiring him to produce, or cause to be produced on a specified date, any evidence on which the assessee may rely in support of the return.

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In order to ensure timely service of notice issued under sub-section (2) of section 143, it is proposed to amend sub-section (2) of section 143 to provide that notice under the said sub-section may be served on the assessee by the Assessing Officer or the prescribed income-tax authority, either to attend the office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence on which the assessee may rely in support of the return.

It is also proposed to amend the existing provision of section 2 by inserting new clause (23C) to define the term "hearing" to include communication of data and documents through electronic mode.

These amendments will take effect from the 1st day of June, 2016.


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Rationalizing TDS provisions relating to payments by Category-I and Category-II Alternate Investment Funds (‘AIFs’) to its investors (Section 194 LBB, 197)

In order to rationalise the TDS regime in respect of payments made by the investment funds to its investors, it is proposed to amend Sec 194LBB to provide that the person responsible for making the payment to the investor shall deduct income-tax u/s 194LBB at the rate of 10% where the payee is a resident and at the rates in force where the payee is a non-resident.

Further, it is proposed to amend Sec 197 to include Sec 194LBB in the list of sections for which a certificate for deduction of tax at lower rate or no deduction of tax can be obtained. Consequential changes are also proposed to be made to the definition of "rates in force" so as to include section 194LBB in it.



New Taxation Regime for securitisation trust and its investors (Section 10, 115TA, TC, TCA, 194 LBC, 197)

Under the existing provisions of ChapterXII-EA of the Act consisting of sections 115TA, 115TB and 115TC, special taxation regime in respect of income of the securitisation trusts and the investors of such trusts has been provided.

The regime provides that income distributed by the securitisation trust to its investors shall be subject to a levy of additional tax to be paid by the securitisation trust within 14 days of distribution of income.

The distribution tax shall be paid @ 25% if the distribution is made to an individual or a Hindu undivided family (HUF) and @ 30% if the distribution is to others.

Further, no distribution tax is to be levied if the distribution is made to an exempt entity.

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Consequent to the levy of distribution tax, the income of the investor, received from the securitisation trust, is exempt under section 10(35A) of the Act and the income of securitisation trust itself is exempt under section 10(23DA) of the Act.

It has been represented that under the current regime, the trusts set up by reconstruction companies or the securitisation companies are not covered although such trusts are also engaged in securitisation activity.

These companies are established for the purposes of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and their activities are regulated by the Reserve Bank of India (RBI).

It has been represented that the existing regime providing for final levy in the form of distribution tax is tax inefficient for the investors specially the banks and financial institutions. Disallowance of expenditure in respect of income received from securitisation trust increases the effective rate of taxation.

Further, the non-resident and resident investors are unable to take benefits of their specific tax status.

In order to rationalise the tax regime for securitisation trust and its investors, and to provide tax pass through treatment, it is proposed to amend the provisions of the Act to substitute the existing special regime for securitisation trusts by a new regime having the following elements: -

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(i) The new regime shall apply to securitisation trust being an SPV defined under SEBI (Public Offer and Listing of Securitised Debt Instrument) Regulations, 2008 or SPV as defined in the guidelines on securitisation of standard assets issued by RBI or being setup by a securitisation company or a reconstruction company in accordance with the SARFAESI Act;

(ii) The income of securitisation trust shall continue to be exempt. However, exemption in respect of income of investor from securitisation trust would not be available and any income from securitisation trust would be taxable in the hands of investors;

(iii) The income accrued or received from the securitisation trust shall be taxable in the hands of investor in the same manner and to the same extent as it would have happened had investor made investment directly in the underlying assets and not through the trust;

(iv) Tax deduction at source shall be effected by the securitisation trust at the rate of 25% in case of payment to resident investors which are individual or HUF and @ 30% in case of others. In case of payments to non-resident investors, the deduction shall be at rates in force;

(v) The facility for the investors to obtain low or nil deduction of tax certificate would be available; and

(vi) The trust shall provide breakup regarding nature and proportion of its income to the investors and also to the prescribed income-tax authority.

Further, it is proposed to provide that the current regime of distribution tax shall cease to apply in case of distribution made by securitisation trusts with effect from 01.06.2016.

New regime shall apply w.e.f. June 1, 2016.

Clause 3, 7, 57, 58, 59, 82 & 83 of finance bill 2016

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Exemption of Central Government subsidy or grant or cash

assistance, etc. towards corpus of fund established for specific

purposes from the definition of Income (Section 2(24)(xviii)

• The Finance Act, 2015 had amended the definition of income

under clause (24) of section 2 of the Act so as to provide that the

income shall include assistance in the form of a subsidy or grant or

cash incentive or duty drawback or waiver or concession or

reimbursement (by whatever name called) by the Central

Government or a State Government or any authority or body or

agency in cash or kind to the assessee other than the subsidy or

grant or reimbursement which is taken into account for

determination of the actual cost of the asset in accordance with the

provisions of Explanation 10 to clause (1) of section 43 of the

Income-tax Act.

• As a result grant or cash assistance or subsidy etc. provided by the

Central Government for budgetary support of a trust or any other

entity formed specifically for operationalizing certain government

schemes will be taxed in the hands of trust or any other entity.

• Therefore, it is proposed to amend section 2(24) to provide that

subsidy or grant by the Central Government for the purpose of the

corpus of a trust or institution established by the Central

Government or State government shall not form part of income.

• This amendment will take effect from 1stApril, 2017 and will,


subsequent years.


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Extension of scope of section 43B to include certain payments made to Railways (Section 43B(g) inserted)

The existing provisions of section 43B of the Act, inter alia, provide that any sum payable by the assessee by way of tax, cess, duty or fee, employer contribution to Provident Fund, etc., is allowable as deduction of the previous year in which the liability to pay such sum was incurred (relevant previous year) if the same is actually paid on or before the due date of furnishing of the return of income irrespective of method of accounting followed by a person.

With a view to ensure the prompt payment of dues to Railways for use of the Railway assets, it is proposed to amend section 43B so as to expand its scope to include payments made to Indian Railways for use of Railway assets within its ambit.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.


Clarification regarding set off losses against deemed undisclosed income Section 115 BBE

Section 115 BBE of the Act, inter-alia provides that the income relating to section 68 or section 69 or section 69A or section 69B or section 69C or section 69D is taxable at the rate of thirty per cent and further provides that no deduction in respect of any expenditure or allowances in relation to income referred to in the said sections shall be allowable.

Currently, there is uncertainty on the issue of set-off of losses against income referred in section 115BBE of the Act.

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The matter has been carried to judicial forums and courts in some

cases has taken a view that losses shall not be allowed to be set-off against income referred to in section 115BBE.

However, the current language of section 115BBE of the Act does not

convey the desired intention and as a result the matter is litigated. In order to avoid unnecessary litigation, it is proposed to amend the

provisions of the sub-section (2) of section 115BBE to expressly provide that no set off of any loss shall be allowable in respect of income under the sections 68 or section 69 or section 69A or section 69B or section 69C or section 69D.


accordingly, apply in relation to the assessment year 2017-18 and subsequent years.


Case laws

Overruled:

P. Mohammed [TS-586-HC- 2013(KER)]

Kerala HC had held that while arriving at undisclosed income for block

period u/s 158BB, set-off of brought forward losses pertaining to 'house

property' and 'interest paid on borrowings' was allowable. HC had observed

that set-off of inter-se losses and depreciation accruing in previous years

within block period, against income returned/assessed in any other previous

year in block period was not prohibited.

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Case laws

Jignesh V. Sheta [TS-370-ITAT-

2014(Ahd)] Ahmedabad ITAT allowed set-off of genuine business loss, not

claimed in return of income, against 'deemed‘ income addition u/s 69. ITAT

observed that Income assessed as 'deemed' income u/s 69 formed part of total

income assessable as IFOS and thus there was no ground to deny set off of loss

(on account of dealing in Futures & Options share transactions) against such

income.

Taxation of Non-compete fees and exclusivity rights in case of Profession

Section 28(va) & 55

Proposes to amend Sec 28(va) to bring the non-compete fee received/

receivable( which are recurring in nature) in relation to not carrying out

any profession, within the scope of Sec 28 of the Act i.e. the charging

section of profits and gains of business or profession.

Further, it is also proposed to amend the proviso to clarify that receipts

for transfer of right to carry on any profession, which are chargeable to

tax under the head "Capital gains", would not be taxable as profits and

gains of business or profession.

It is also proposed to amend Sec 55 so as to provide that the 'cost of

acquisition' and 'cost of improvement' for working out "Capital gains"

on capital receipts arising out of transfer of right to carry on any

profession shall also be taken as 'nil'.


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Case laws

Overruled:

Dr. K. Premraj

[TS-549-ITAT-2013(CHNY)]

Chennai ITAT had held that Sec 55(2)(a) providing nil acquisition cost for sale

of goodwill covers only 'business. It was further held that sale of goodwill in

case of profession results in capital receipt which was not covered u/s

55(2)(a).ITAT had observed that 'Business' and 'profession' are two different

streams.

Thus rejecting Revenue's stand that receipt was in the nature of "noncompete‖

income. ITAT had held that income from sale of goodwill in case of

'profession' relates to personal competence of the 'professional'.

Clarification regarding the definition of the term 'unlisted securities' for the purpose of Sec 112 (1) (c)

With a view to clarify the position, it is proposed to amend Sec 112(1)(c) so as to provide that long-term capital gains arising from the transfer of a capital asset being shares of a company not being a company in which the public are substantially interested, shall be chargeable to tax at the rate of 10%.

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Time limit for carry forward and set off of such loss under section 73A of the Income-tax Act

The existing provisions of section 73A of the Act provide that any loss, computed in respect of any specified business referred to in section 35AD shall not be set off except against profits and gains, if any, of any other specified business.

Further, section 80 of the Act inter-alia provides that a loss which has not been determined in pursance of return filed in accordance with the provisions of sub-section (3) of section 139, shall not be carried forward and set-off under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) or sub-section (3) or section 74 or sub-section 74A.

In accordance with the scheme of the Act, this loss is to be allowed if the return is filed within the specified time i.e. by the due date of filing of the return of the income as provided in section 80 for other losses determined under the Act.

Accordingly, it is proposed to amend section 80 so as to provide that the loss determined as per section 73A of the Act shall not be allowed to be carried forward and set off if such loss has not been determined in pursuance of a return filed in accordance with the provisions of sub-section (3) of section 139.

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It is also proposed to amend the said sub-section (3) of section 139 so as to give reference of sub-section (2) of section 73A in the said sub-section

These amendments will take effect retrospectively from 1stApril, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent years.


Amortisation of spectrum fee for purchase of spectrum

Under section 32 of the Act, depreciation is allowed in respect of assets including certain intangible assets.

Under section 35ABB of the Act, amortisation of license fee in case of telecommunication service is provided.

Government has newly introduced spectrum fee for auction of airwaves.

There is uncertainty in tax treatment of payments in respect of Spectrum i.e. whether spectrum is an intangible asset and the spectrum fees paid is eligible for depreciation under section 32 of the Act or whether it is in the nature of a 'license to operate telecommunication business' and eligible for deduction under section 35ABB of the Act.

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In order to provide clarity and avoid any future litigation and controversy, it is proposed to insert a new section 35ABA in th Act to provide for tax treatment of spectrum fee. The section seeks to provide,-

(i) any capital expenditure incurred and actually paid by an assessee on the acquisition of any right to use spectrum for telecommunication services by paying spectrum fee will be allowed as a deduction in equal instalments over the period for which the right to use spectrum remains in force.

(ii) where the spectrum is transferred and proceeds of the transfer are less than the expenditure remaining unallowed, a deduction equal to the expenditure remaining unallowed as reduced by the proceeds of transfer, shall be allowed in the previous year in which the spectrum has been transferred.

(iii) if the spectrum is transferred and proceeds of the transfer exceed the amount of expenditure remaining unallowed, the excess amount shall be chargeable to tax as profits and gains of business in the previous year in which the spectrum has been transferred.

(iv) unallowed expenses in a case where a part of the spectrum is transferred would be amortised.

(v) under the scheme of amalgamation, if the amalgamating company sells or transfer the spectrum to an amalgamated company, being an Indian company, then the provisions of this section will apply to amalgamated company as they would have applied to amalgamating company if later has not transferred the spectrum.

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year2017-18 and subsequent years.


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Proposed changes in the Indian Transfer Pricing Regime by the

Finance Bill, 2016

Country-by-country reporting and Master File

International taxation has assumed the center stage in the arena of

taxation. Digital economy and other changes in the way international

business is carried out has forced tax policy of G-20 and the

Organization of Economic Cooperation and Development ('OECD')

member countries to re-examine several aspects related to international

taxation.

The OECD came out with analysis on Base Erosion and Profit Shifting

('BEPS') identifying 15 action points. Issues relating to transfer pricing

have been discussed in Actions 8 to 10 and Action 13. Action 13 has

been devoted to "Transfer Pricing Documentation and Countryby-

Country Reporting".

The report suggests that taxpayers should maintain documents in

three parts: Country-by-Country Reports, Master File and Local

File.

This is driven by the need to have transparency on the part of

taxpayers in sharing all facts relevant to international transactions.

Though India is not a member of OECD, it has been actively

involved in the deliberations on BEPS organized by the OECD. In

all interactions with taxpayers Indian tax authorities have been

indicating that they are serious about implementing the

suggestions by the OECD to the extent possible.

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It is in line with the above that the Finance Minister has

introduced the Country-by-Country ('CBC') reporting and the

Master File in the Finance Bill, 2016.Section 286 has been

proposed to be introduced in the Income-tax Act, 1961 ('the Act'),

requiring maintenance and furnishing of the CbC report. The

salient features of section 286 are as follows:

The CbC reporting requirement would mandatorily apply to multinational enterprise ('MNE') Group having annual consolidated revenues exceeding INR 5,395 Crores (equivalent to € 750 Million2) in the previous year 2015-16

The resident parent entity3 of an MNE Group, would be required to furnish the CbC report to the prescribed authority, on the before the due date of furnishing the return of income

Every constituent entity4 of an MNE Group having a non-resident parent entity, would provide information regarding the country or territory of residence of the parent entity.

The Indian constituent would be required to furnish the CbC report to the prescribed authority, if the parent entity is resident:

– in a country with which India does not have an arrangement for exchange of the CbC report; or

– in a country which is not exchanging information with India even though there is an agreement

And this fact has been intimated to the entity by the prescribed authority

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In case an MNE Group having a non-resident parent entity has designated an alternate entity for filing the CbC report with the tax jurisdiction in which the alternate entity is a resident, then the Indian constituent entities, would not be under an obligation to furnish the CbC report, if the same can be obtained under the agreement for exchange of such reports by the Indian tax authorities.

In case there are more than one entities of the MNE Group in India (having a non-resident parent entity), then the MNE Group can nominate in writing to the prescribed authority, the entity which would furnish the report on behalf of the MNE Group

The CbC report would be required to be furnished in a prescribed

manner and in the prescribed form and would be based on the

template provided in the OECD BEPS report on Action Plan 13

The prescribed authority may also call for such document and information from the entity furnishing the CbC report, for the purpose of verifying the accuracy, as it may specify in the notice. In such cases, the entity would be under an obligation to make the required submission within a period of thirty days from the date of receipt of notice, which could be further extended by a period not beyond thirty days

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In order to ensure compliance with the CbC reporting requirements, penalty provisions have also been enhanced. Apropos, section 271GB is proposed to be introduced, to penalize taxpayers in the event of default. Following penalty structure has also been proposed, in case of non-furnishing, delay in furnishing and incorrect furnishing of the CbC report/ information called for:

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In addition to CbC, it is proposed that information and document

in respect of the MNE Group (which to a large extent appears to

be a Master File) should also be furnished by a constituent entity

of a MNE Group.

In this regard, section 92C(4) has been introduced, requiring a

constituent entity to furnish the information and document relating

to the MNE Group as may be prescribed. Detailed rules in this

regard would be notified shortly. In addition section 271AA(2) has

also been introduced proposing a penalty of INR 5,00,000 in case

of non-furnishing of the required information/ document to the

prescribed authority.

The aforesaid proposed amendments will be applicable from

1stApril, 2017 and shall apply for Assessment Year 2017-18 and

onwards.

Rationalization of tax deduction at Source (TDS) provisions:

• In order to rationalise the rates and base for TDS provisions, the existing threshold limit for deduction of tax at source and the rates of deduction of tax at source are proposed to be revised as under:

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Sr.

No

Section Provision Existing Provision

Proposed amendment

1 192 A Payment of accumulated

balance from provident

fund account

No TDS if payment

does not exceed

Rs. 30,000

No TDS if payment does

not exceed Rs. 50,000

2 194 BB Winnings from

Horse Race

No TDS if payment

does not exceed

Rs. 5,000

No TDS if payment does

not exceed Rs. 10,000

3 194 C Payments to

Contractors

No TDS if payment

does not exceed

Rs. 75,000

No TDS if payment

does not exceed

Rs. 100,000

4 194 D Payment of Insurance

commission

No TDS if payment

does not exceed

Rs. 20,000

Rate of TDS: 10%

No TDS if payment

does not exceed

Rs. 15,000

Rate of TDS: 5%

5 194DA Payment in respect

of Life Insurance

Policies

Rate of TDS: 2% Rate of TDS: 1%

6 194EE Payments in respect

of NSS Deposits

Rate of TDS: 20% Rate of TDS: 10%

Sr.

No


Proposed amendment

7 194G Commission on sale

of lottery tickets

No TDS if payment

does not exceed

Rs. 1,000

No TDS if payment

does not exceed

Rs. 15,000

Rate of TDS: 5%

8 194 H Commission or brokerage

No TDS if payment does not exceed Rs. 5,000 Rate of TDS: 10%

No TDS if payment does not exceed Rs. 15,000 Rate of TDS: 5%

9 194-I Deduction of tax from payment of Rent

No TDS if payment does not exceed Rs. 1,80,000

No TDS even if payment exceeds Rs. 1,80,000 provided landlord furnishes to the payer a self declaration In prescribed Form. No. 15G/15H.

10 194LA Payment of Compensation on acquisition of certain Immovable Property

No TDS if payment does not exceed Rs. 200,000

No TDS if payment does not exceed Rs. 250,000

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Sr.

No


Proposed amendment

11 194LBB Income in respect

of Units of

Investment Funds

Rate of TDS: 10% Rate of TDS:

(a) 10% in case

resident

(b) Rates in Force

in case of nonresident

12 194LBC Any Payment to an

investor in respect

of an investment in a

securitisation trust

(specified in Explanation

of section115TCA)

Rate of TDS:

(a) 25% in

case of resident

Individual or HUF

(b) 30% in case

of other resident

payee

(c) Rates in force

in case of nonresident

Sr.

No


Proposed amendment

13 206AA Exemption from Requirement of furnishing PAN to certain non-resident

Exemption from Section 206AA was allowed only in case of payment of interest on long-term bonds as referred to in section 194LC

Section 206AA is proposed to be amended to provide exemption from withholding at higher rate in case of other payments made to nonresident as well subject to certain conditions as may be prescribed.

14 206C Collection of TCS at 1%

Collection of TCS at 1% in case of: (a) Purchase of motor vehicle, if value thereof exceeds Rs. 10 lakhs (b) Purchase of any good or service, if value thereof exceeds Rs. 2 lakhs and the payment thereof is made in cash.

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Enabling of Filing of Form 15G/15H for rental payments (Section 197 A)

Proposes to amend Sec 197A for making the recipients of payments referred to in Sec 194-I also eligible for filing self-declaration in Form no 15G/15H for non-deduction of tax at source.



Rationalization of Section 50C in case sale consideration is

fixed under agreement executed prior to the date of registration

of immovable property

Under the existing provisions contained in Section 50C, in case of transfer of a capital asset being land or building on both, the value adopted or assessed by the stamp valuation authority for the purpose of payment of stamp duty shall be taken as the full value of consideration for the purposes of computation of capital gains.

The Income Tax Simplification Committee (Easwar Committee) has in its first report, pointed out that this provision does not provide any relief where the seller has entered into an agreement to sell the property much before the actual date of transfer of the immovable property and the sale consideration is fixed in such agreement, whereas similar provision exists in section 43CA of the Act i.e. when an immovable property is sold as a stock-in-trade

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It is proposed to amend the provisions of section 50C so as to provide that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration.

It is further proposed to provide that this provision shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, on or before the date of the agreement for the transfer of such immovable property

These amendments are proposed to be made effective from the 1st day of April, 2017 and shall accordingly apply in relation to assessment year 2017-18 and subsequent years.


Case laws

Confirmed

Modipon Ltd [TS-5-ITAT-2015(DEL)]

Delhi ITAT had held the circle-rate prevailing on sale-deed execution date

and not registration date was relevant for determining deemed sale

consideration u/s 50C. ITAT followed Vishakhapatnam

ITAT ruling in Lahiri Promoters Vs. ACIT [ITA No.12/VI/Vizag /2009]

wherein on similar facts it was held that as process was initiated from the date

of sale agreement thus for the purpose of IT Act the conditions that prevailed

on the date the transaction were applicable.

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Rationalization of conversion of a company into Limited

Liability Partnership (LLP) Section 47(xiiib)

Existing provisions of clause (xiiib) of Section 47 provides that conversion of a private limited or unlisted public company into Limited Liability Partnership (LLP) shall not be regarded as transfer, if certain conditions are fulfilled, which, inter alia, include a condition that the company's gross receipts, turnover or total sales in any of the preceding three years did not exceed Rs.60 lakh.

It is proposed to amend the said section so as to provide that, for availing tax-neutral conversion, in addition to the existing conditions, the value of the total assets in the books of accounts of the company in any of the three previous years preceding the previous year in which the conversion takes place, should not exceed five crore rupees.



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Taxsutra Breaking News : Govt withdraws proposal to tax employee provident fund

withdrawals: PTI (AS ON 08.03.2016)

Rationalisation of tax treatment of Recognised Provident Funds,

Pension Funds and National Pension Scheme (Section 80CCD,

10(12), 10(12A), 17

Under the existing provisions of the Income-tax Act, tax treatment for the National Pension System (NPS) referred to in section 80CCD is Exempt, Exempt and Tax (EET) i.e., the monthly/periodic contributions during the pension accumulation phase are allowed as deduction from income for tax purposes; the returns generated on these contributions during the accumulation phase are also exempt from tax; however, the terminal benefits on exit or superannuation, in the form of lump sum withdrawals, are taxable in the hands of the individual subscriber or his nominee in the year of receipt of such amounts.

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However, commutation of Government Pension and superannuation fund is exempt from taxation.

The monthly contribution, annual accrued income, advances/ withdrawals for specific purposes and final withdrawal from the Recognised Provident Funds (RPFs) on superannuation are also accorded EEE status i.e. Exempt, Exempt, Exempt.

In order to bring greater parity in tax treatment of different types of pension plans, it is proposed to amend section 10 so as to provide that in respect of the contributions made on or after the 1stday of April, 2016 by an employee participating in a recognised provident fund and superannuation fund, up to 40 % of the accumulated balance attributable to such contributions on withdrawal shall be exempt from tax.

Under the existing provisions, any payment from an approved superannuation fund made to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement is exempt from tax.

It is proposed to amend the said provisions so as to provide that any payment in commutation of an annuity purchased out of contributions made on or after the 1stday of April, 2016, which exceeds forty per cent of the annuity, shall be chargeable to tax.

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Under the existing provisions of section 80CCD, any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme is chargeable to tax.

It is proposed to provide that any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme referred to in Section 80CCD, to the extent it does not exceed forty percent of the total amount payable to him at the time of closure or his opting out of the scheme, shall be exempt from tax.

However, the whole amount received by the nominee, on death of the assessee shall be exempt from tax.

Under section 17, perquisite includes the amount of any contribution exceeding one lakh rupees to an approved superannuation fund by the employer in the hands of the assessee

Under the Part A of Fourth Schedule to the Income-tax Act contributions made by employer to the credit of an employee participating in a recognised provident fund, which are in excess of twelve percent of the salary of the employee, are liable to tax in the hands of the employee.

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However, there is no monetary limit for the contribution made by the employer though there is a monetary ceiling for employee's contribution.

The limit of contribution by the employee eligible under section 80C of the Act has been increased from one lakh rupees to one lakh and fifty thousand rupees vide Finance Act(No.2), 2014.

Therefore, in order to bring parity in the monetary limit for contribution by the employer and the employee, it is proposed to amend the said section and said schedule so as to provide the limit of employer's contribution to one lakh and fifty thousand rupees, without attracting tax.

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Further with a view to bring all the pension plans under one umbrella, it is also proposed to amend:-

(i) the said schedule so as to provide exemption to one-time portability from a recognised provident fund to National Pension System;

(ii) clause (13) of section 10 so as to provide that any payment from an approved superannuation fund by way of transfer to the account of the employee under NPS referred to in section 80CCD and notified by the Central Government shall be exempt from tax.


Clause 7, 9, 36 & 112 of finance bill 2016

Contributions

(Exempt

subject to

limits)

Accumul

ation

(fully

exempt)

Lump sum

Withdrawal

(Exempt

partially to

the extent of

40%)

Annuity/

Pension

(Fully

Taxable)

National

Pension

System(NPS)

Emp l o y e r ’ s Contribution tax- free to the extent of 10% of salary in the previous year

Totally exempt

40% tax-free under proposed new clause (12A) of section 10

Annuity Fully taxable

The following flow chart may be referred to for tax treatment of NPS,

RPF & ASF;

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Contributions

(Exempt

subject to

limits)

Accumul

ation

(fully

exempt)

Lump sum

Withdrawal

(Exempt

partially to

the extent of

40%)

Annuity/

Pension

(Fully

Taxable)

Employee‘s Contribution—

deductible to the extent of

10% of salary in the previous

year under Sec. 80CCD(1)

subject to limit of Rs. 1.5

Lakhs under Sec. 80CCE.

Further deduction of Rs.

50,000/- under Sec.

80CCD(1B). So contributions

up to Rs.2 Lakhs can be

claimed as deduction.

Balance 60%

t ax- free if

annuitised

Fully taxable if

not annuitised

and withdrawn

Contributions (Exempt

subject to limits)

Accumu

lation

(fully

exempt)

Lump sum Withdrawal

(Exempt partially to the

extent of 40%)

Annuity/

Pension

(Fully

Taxable)

For self – employed person , contribution deductible as above under Sec. 80CCD(1) and under Sec. 80CCD (1B) except that limit is 10% of gross total income instead of 10% of salary.

Recognised Provident Fund (RPF)

Employer’s contributions prior to 1-04-2016-taxfree to the extent they didn’t exceed 12% of employee’s salary. Contributions w.e.f. 01-04- 2016 tax-free to the extent of 12% of employee’s Salary or Rs.1,50,000 whichever is Less

Totally exempt

Withdrawals of Employees Contributions on or after 01-04-2016: 40% is tax-free Balance 60% tax- free if annuitised. Fully taxable if not annuitised and withdrawn Withdrawals of Employees Contributions prior to 01- 04-2016 100% tax-free


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Contributions

(Exempt

subject to limits)

Accumul

ation

(fully

exempt)

Lump sum Withdrawal

(Exempt partially to the

extent of 40%)

Annuity/

Pension

(Fully

Taxable)

A p p r o v e d superannuation fund

Employer ’ s contribution tax- free to the extent of Rs.1,00,000 if made prior to 01-04-2016 and to the extent of Rs.1,50,0000 if made on or after 01-04- 2016 Emp l o y e e ’ s Contribution d e d u c t i b l e under Sec. 80C subject to limit of Rs.1.5 Lakhs under Sec. 80CCE

Totally exempt

Withdrawal Commutation of contributions on or after 01- 04-2016 40% tax-free Balance 60% t ax- free if annuitised Fully taxable if not annuitised and withdrawn Withdrawal -Commutation of contributions prior to 01- 04-2016 100% tax-free


Filing of return of Income

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Existing provisions of sub-section (1) of section 139 provide that

every person referred to therein shall file a return of income on or

before the due date.

The sixth proviso to the said section provides that every person,

being an individual or Hindu undivided family or an association of

person or a body of individual, whether incorporated or not or any

artificial juridical person, if his total income or of any other person

in respect of which he is assessable under this Act during the

previous year, without giving effect to provisions of section 10A or

section 10B or section 10BA or Chapter VI-A, exceeds the

maximum amount which is not chargeable to income tax shall be

liable to furnish return on or before the due date.

Existing provision of sub-section (4) of section 139 provides that a

person who has not furnished a return within the time allowed to

him under sub-section (1), or within the time allowed under a

notice issued under sub-section (1) of section 142, may furnish the

return for any previous year at any time before the expiry of one

year from the end of the relevant assessment year or before the

completion of the assessment, whichever is earlier.

Sub-section (5) of the section 139 provides that if any person,

having furnished the return under sub-section (1), or in pursuance

of a notice issued under sub-section (1) of section 142 discovers

any omission or any wrong statement therein, he may furnish a

revised return at any time before one year from the end of the

relevant assessment year or completion of assessment, whichever

is earlier.

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Clause (aa) of Explanation to sub-section (9) of the section 139

provides that a return of income shall be regarded as defective

unless the self-assessment tax together with interest, if any,

payable in accordance with the provisions of section 140A, has

been paid on or before the date of furnishing of return.

In order to rationalise the time allowed for filing of returns,

completion of proceedings, and realization of revenue without

undue compliance burden on the taxpayer, and to promote the

culture of compliance, it is proposed to amend the above

provisions of the Act.

Amendment to sixth Proviso to 139(1)

It is proposed to amend the sixth proviso to sub-section (1) of the

section 139 to include that if a person during the previous year

earns income which is exempt under clause (38) of section 10 and

income of such person without giving effect to the said clause of

section 10 exceeds the maximum amount which is not chargeable

to tax, shall also be liable to file return of income for the previous

year within the due date

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Amendment to Section 139(4)

It is also proposed to substitute sub-section (4) of the aforesaid

section to provide that any person who has not furnished a return

within the time allowed to him under sub-section (1), may furnish

the return for any previous year at any time before the end of the

relevant assessment year or before the completion of the

assessment, whichever is earlier.

.


It is also proposed to substitute sub-section (5) of the aforesaid

section so as to provide that if any person, having furnished a

return under sub-section (1) or under sub-section (4), or in a

return furnished in response to notice issued under sub-section (1)

of section 142, discovers any omission or any wrong statement

therein, he may furnish a revised return at any time before the

expiry of one year from the end of the relevant assessment year or

before the completion of the assessment, whichever is earlier.

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It is also proposed to omit clause (aa) of the Explanation to sub-

section (9) of aforesaid section to provide that a return which is

otherwise valid would not be treated defective merely because

self-assessment tax and interest payable in accordance with the

provisions of section 140A has not been paid on or before the date

of furnishing of the return.

These amendments will take effect from 1st day of April, 2017

and will, accordingly apply in relation to assessment year 2017-

2018 and subsequent years.


Processing under section 143(1) be

mandated before assessment

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Under the existing provision of sub-section (1D) of section 143, processing of a return is not necessary where a notice has been issued to the assessee under sub-section (2) of the said section.

It is proposed to amend sub-section (1D) of the aforesaid section to provide that before making an assessment under sub-section (3) of section 143, a return shall be processed under sub-section (1) of section 143.

The Bill is silent as to cases where the order is passed u/s 144, etc. however, the expression assessment includes reassessment.

The amendment will take effect from the 1st day of April, 2017 and will, accordingly apply in relation to assessment year 2017-2018 and subsequent years.


Rationalisation of time limit for

assessment, reassessment and

recomputation

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Time limit for completion of assessment (Section 153) Time limit for completion of assessment changed as under1:

Additional time of 6 months may be allowed by Principal Commissioner/Commissioner where it is not possible for AO to give order giving effect within stipulated time for reasons beyond his control for reasons to be recorded in writing.

For cases pending as on June 1, 2016 time limit is March 31, 2017


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Rationalisation of time limit for

assessment in search cases

It is proposed to amend the time limit for completion of assessments made under section 153A or section 153C cases to bring it in sync with the new time limits provided for other cases. In order to simplify the provisions of existing section 153B by retaining only those provisions that are relevant to the current provisions of the Act, section 153B is proposed to be substituted with the following changes in time limit from the existing time limits as under:

(i) The limitation for completion of assessment under section 153A, in respect of each assessment year falling within six assessment years referred to in clause (b) of sub-section (1) of section 153A and in respect of the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A be changed from existing two years to twenty-one months from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed.

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(ii) The limitation for completion of assessment in case of other person referred to in section 153C shall be changed from existing two years to twenty-one months from the end of the financial year in which the last of the authorisation for search under Section 132 or requisition under section 132A was executed or nine months (changed from the existing one year) from the end of the financial year in which the books of account or documents or assets seized or requisition are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later.

The provisions of section 153B as they stood immediately before their amendment by the Finance Act, 2016, shall apply to and in relation to any order of assessment, reassessment or recomputation made before the 1st day of June, 2016.

The amendment will take effect from 1st day of June, 2016.


Section 211 – Rationalization of Advance Tax Payments (w.e.f 1st June 2016)

• The bill has proposed to cover all the assessees whose tax payable is Rs.10,000/- or more other than eligible assessees covered in presumptive taxation.

• The due dates for assessees (other than assessees opting for

presumptive taxation) shall be in the instalments as follows: Due Dates Amount Payable On or before 15th June 15% On or before 15th September 45% On or before 15th Dec 75% On or before 15th March 100% However for the assessees opting for presumptive taxation, 100%

advance tax on or before 15th March.

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Consequential changes in Sec. 234C in line with above provisions proposed. Further, no 234C interest leviable in case of assessee having income under the head PGBP for the first time


Clause 87 and 89 of finance bill 2016

Interest on refund 244A(1)(a), 244A(1)(aa) & 244A(1A) newly inserted

In order to ensure filing of return within the due date it is proposed to amend section 244A to provide that in cases where the return is filed after the due date, the period for grant of interest on refund may begin from the date of filing of return.

In the interest of fairness and equity, it is further proposed to provide that an assessee shall be eligible to interest on refund of self-assessment tax for the period beginning from the date of payment of tax or filing of return, whichever is later, to the date on which the refund is granted. For the purpose of determining the order of adjustment of payments received against the taxes due, the prepaid taxes i.e. the TDS, TCS and advance tax shall be adjusted first.

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(Thus the judgement of the Honble Bombay HC in the case of Merck Limited v/s CIT (WP 2529 of 2004) 55 Taxmann.com 392 is affirmed)

It is also proposed to provide that where a refund arises out of appeal effect being delayed beyond the time prescribed under sub-section (5) of section 153, the assessee shall be entitled to receive, in addition to the interest payable under sub-section (1) of section 244A, an additional interest on such refund amount calculated at the rate of three per cent per annum, for the period beginning from the date following the date of expiry of the time allowed under sub-section (5) of section 153 to the date on which the refund is granted. It is clarified that in cases where extension is granted by the Principal Commissioner or Commissioner by invoking proviso to subsection (5) of section 153, the period of additional interest, if any, shall begin from the expiry of such extended period.

This is in line with recommendation no. 20 of the Part 1 of the Justice RV Eshwar Committee at its page 59.

Further accountability of the AO to grant such interest has been fixed u/s 153(5) [newly inserted].


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Rationalisation of the provisions relating to Appellate Tribunal

Section 252(3), 252(4A) & 252(5) Amended

The reference to the expression ‘Senior Vice president’ has been omitted/deleted by virtue of these amendments since there there are no extra-judicial or administrative duties or difference in the pay scale attached with the post of Senior Vice-president in the Tribunal.



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Section 253(2A), 253(3A) & 253(4) Amended

The order of penalty passed u/s 270A (newly inserted) has been made Appealable before ITAT also.

Further henceforth it it proposed to do away with the filing of appeal by the Assessing Officer against the order of the DRP. Evenmore su-section (4) has been amended to provide that a Cross Objection can also not be filed against the order of DRP.

The amendment will take effect from 1st day of April, 2017.



Section 254(2) Amended

Till now a MA can be filed to get a mistake rectified within 4 years from the end of the FY in which the order sought to be rectified was passed by ITAT.

It is proposed now, that this period is being curtailed to 6 months from the end of the month in which the order was passed.

This is in line with recommendation no. 22 of the Part 1 of the Justice RV Eshwar Committee at its page 65.



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Section 255(3) Amended

Till now a single member, so notified by the central govt could dispose off matters in SMC bench having Total Income upto Rs. 15 Lakhs.

The said limit has now been enhanced to cases where the total income as computed by the Assessing Officer does not exceed fifty lakh rupees.

This is in line with recommendation no. 23 of the Part 1 of the Justice RV Eshwar Committee at its page 66 wherein this limit was suggested to be increased to Rs. 30 Lakhs.



Rationalisation of penalty provisions

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Section 270A (inserted w.e.f

01.04.2017)

Concealment penalty

The provisions of section 271dealing with penalty for failure to

comply with notices meant for filing of return of income besides

levy of penalty for concealment of income and furnishing of

inaccurate particulars of income would stand omitted in totality

from 1st day of April, 2017.

Section 270A proposed to be inserted would replace and apply

with regard to penalty for concealment of income. However, the

new section uses the expressions such as 'under-reporting and

misreporting of income' instead of the old expression

"concealment of income or furnishing of inaccurate particulars".

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Instances of under-reporting of income

The statutory provision proposed to be inserted gives a clear disconnect to the old provision with no reference whatsoever. It lists out instances where a taxpayer shall be construed to have under-reported his income. They are listed below:

(i) The income assessed is more than the income determined in the return processed under section 143(1);

(ii) When the income assessed is greater than the basic exemption limit where no return of income was furnished;

(iii) Where the income assessed is greater than the income assessed or reassessed previously;

(iv) The amount of deemed total income as per section 115JB or section 115JC, as the case may be, is greater than the deemed total income determined under section 143(1);

(v) The amount of deemed total income assessed as per section 115JB or section 115JC is greater than the maximum amount not chargeable to tax and where no return of income was filed;

(vi) The total income assessed or reassessed has the effect of reducing the loss or converting such loss into income.

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• Example 1. Case is of a firm liable to tax at the

rate of 30 per cent.:

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• Example 3. Case is of a company liable to tax

at the rate of 30 per cent.:

[Clause 62, 93, 96, 98, 99, 100, 101, 104 & 107 OF FINANCE BILL 2016]

Quantification of total income under-reported

The Finance Bill, 2016 gives a mathematical formula for computation of underreported income when the income tax is payable on the deemed total income computed under the provisions of section 115JB or section 115JC.

The amount of under-reported income = (A –B) + (C-D)

A = The total income assessed as per the general provisions of the Act.

B = Total income that would have been chargeable as per the general provisions reduced by the amount of under-reported income.

C = The total income assessed as per the provisions of section 115JB or section 115JC.

D = The total income that would have been chargeable had the total income been assessed as per the provisions of section 115JB or section115JC as reduced by the amount of under-reported income.

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Details Rs.

Total income assessed as per general provisions (A) 10,00,000

Total income that would have been chargeable had the total income been assessed as per the general provision as reduced by under-reported income (B)

8,00,000

(A-B) 2,00,000

Total income assessed as per the provisions contained in section 115JB or section 115JC (C)

5,00,000

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Details Rs.

Total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC as reduced by the amount of under-reported income (D)

4,00,000

(C-D) 1,00,000

Tax on under-reported income at 30% Rs.3 lakhs 90,000

Penalty for under reported income at 50% of tax 45,000

Total tax liability including penalty @ 45% 1,35,000

Exclusions from under-reported incomes

The statutory provision proposed to be inserted also lists out instances where

under-reporting of income will not apply. They are listed below:

(i) Where the assessee offers an explanation and the income-tax authority is

satisfied that the explanation is bona fide and all the material facts have been

disclosed;

(ii) The income assessed to tax is determined on the basis of estimate though the

books of account are correct and complete but the income cannot be properly

deduced therefrom due to the method employed by the taxpayer;

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(iii) Where the assessee himself has estimated a lower amount of addition or

disallowance in the computation of income and disclosed all facts material to

the addition or disallowance;

(iv) Where the assessee has maintained documents as prescribed under section 92D

and declared the international transactions under Chapter X and disclosed all

material facts relating to the transaction;

(v) The undisclosed income is detected on account of search operation and penalty

is leviable under section 271AAB.

Misreporting of income

The statutory provision also lists out what is misreporting of income, which

are listed below:

(i) Misrepresentation or suppression of facts;

(ii) Non-recording of investment in books of account;

(iii) Claim of expenditure not substantiated by evidence;

(iv) Recording of false entry in books of account;

(v) Failure to record any receipt in books of account which has a bearing

on total income.

(vi) Failure to report any international transaction or deemed international

transaction under Chapter X.

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Quantum of penalty

50% shall be the quantum of penalty calculated on tax payable on underreported income.

200% shall be the quantum of penalty calculated on the tax payable on the misreported income.

The provision also prescribes flat rate of tax at 30% on the under-reported income, which means the income added to the returned income and classified as under-reported income will not be taxed at slab rate but would be taxed at the flat rate of 30% besides penalty at 50% of the tax. Thus the effective rate of tax would be 45%.

It would be interesting to note that the proposed Income Declaration Scheme, 2016 also proposes to tax the undisclosed incomes at 45% tax rate.

‘270A. (1) The Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income.

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(2) A person shall be considered to have under-reported his income, if—

(a) the income assessed is greater than the income determined in the return processed under clause (a) of sub-section (1) of section 143;

(b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished;

(c) the income reassessed is greater than the income assessed or reassessed immediately before such reassessment;

(d) the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income determined in the return processed under clause (a) of sub-section (1) of section 143;

(e) the amount of deemed total income assessed as per the provisions of section 115JB or section 115JC is greater than the maximum amount not chargeable to tax, where no return of income has been filed;

(f) the income assessed or reassessed has the effect of reducing the loss or converting such loss into income.

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3) The amount of under-reported income shall be,—

(i) in a case where income has been assessed for the first time,—

(a) if return has been furnished, the difference between the amount of income assessed and the amount of income determined under clause (a) of sub-section (1) of section 143;

(b) in a case where no return has been furnished,—

(A) the amount of income assessed, in the case of a company, firm or local authority; and

(B) the difference between the amount of income assessed and the maximum amount not chargeable to tax, in a case not covered in item (A);

(ii) in any other case, the difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order:

Provided that where under-reported income arises out of determination of deemed total income in accordance with the provisions of section 115JB or section 115JC, the amount of total under-reported income shall be determined in accordance with the following formula—

(A — B) + (C — D)

where,

A = the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions);

B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of under-reported income;

C = the total income assessed as per the provisions contained in section 115JB or section 115JC;

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D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of under-reported income:

Provided further that where the amount of under-reported income on any issue is considered both under the provisions contained in section 115JB or section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D.


(a) “preceding order” means an order immediately preceding the order during the course of which the penalty under sub-section (1) has been initiated;

(b) in a case where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that loss into income, the amount of under-reported income shall be the difference between the loss claimed and the income or loss, as the case may be, assessed or reassessed.

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(4) Subject to the provisions of sub-section (6), where the source of any receipt, deposit or investment in any assessment year is claimed to be an amount added to income or deducted while computing loss, as the case may be, in the assessment of such person in any year prior to the assessment year in which such receipt, deposit or investment appears (hereinafter referred to as “preceding year”) and no penalty was levied for such preceding year, then, the under-reported income shall include such amount as is sufficient to cover such receipt, deposit or investment.

(5) The amount referred to in sub-section (4) shall be deemed to be amount of income under-reported for the preceding year in the following order—

(a) the preceding year immediately before the year in which the receipt, deposit or investment appears, being the first preceding year; and

(b) where the amount added or deducted in the first preceding year is not sufficient to cover the receipt, deposit or investment, the year immediately preceding the first preceding year and so on.

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(6) The under-reported income, for the purposes of this section, shall not include the following, namely:—

(a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner or the Commissioner (Appeals), as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered;

(b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced there from;

(c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance;

(d) the amount of under-reported income represented by any addition made in conformity with the arm’s length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and

(e) the amount of undisclosed income referred to in section 271AAB.

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(7) The penalty referred to in sub-section (1) shall be a sum equal to fifty per cent. of the amount of tax payable on under-reported income.

(8) Notwithstanding anything contained in sub-section (6) or sub-section (7), where under-reported income is in consequence of any misreporting thereof by any person, the penalty referred to in sub-section (1) shall be equal to two hundred per cent. of the amount of tax payable on under-reported income.

(9) The cases of misreporting of income referred to in sub-section (8) shall be the following, namely:—

(a) misrepresentation or suppression of facts;

(b) failure to record investments in the books of account;

(c) claim of expenditure not substantiated by any evidence;

(d) recording of any false entry in the books of account;

(e) failure to record any receipt in books of account having a bearing on total income; and

(f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.

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(10) The tax payable in respect of the under-reported income shall be the amount of tax calculated—

(a) on such income as if it were the total income, in the case of a company, firm or local authority; and

(b) at the rate of thirty per cent., of the amount of under-reported income, in any other case.

(11) No addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year.

(12) The penalty referred to in sub-section (1) shall be imposed, by an order in writing, by the Assessing Officer, the Commissioner, or the Commissioner (Appeals), as the case may be.’.

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“270AA.(1) An assessee may make an application to the Assessing Officer to grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C, if he fulfils the following conditions, namely:—

(a) the tax and interest payable as per the order of assessment or reassessment under sub-section (3) of section 143 or section 147, as the case may be, has been paid within the period specified in such notice of demand; and

(b) no appeal against the order referred to in clause (a) has been filed.

(2) An application referred to in sub-section (1) shall be made within one month from the end of the month in which the order referred to in clause (a) of sub-section (1) has been received and shall be made in such form and verified in such manner as may be prescribed.

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(3) The Assessing Officer shall, subject to fulfilment of the conditions specified in sub-section (1) and after the expiry of the period of filing the appeal as specified in clause (b) of sub-section (2) of section 249, grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C, where the proceedings for penalty under section 270A has not been initiated under the circumstances referred to in sub-section (9) of the said section 270A.

(4) The Assessing Officer shall, within a period of one month from the end of the month in which the application under sub-section (1) is received, pass an order accepting or rejecting such application:

Provided that no order rejecting the application shall be passed unless the assessee has been given an opportunity of being heard.

(5) The order made under sub-section (4) shall be final.

(6) No appeal under section 246A or an application for revision under section 264 shall be admissible against the order of assessment or reassessment, referred to in clause (a) of sub-section (1), in a case where an order under sub-section (4) has been made accepting the application.”.

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Immunity from penalty for under-reported income(270 AA) The Finance Bill, 2016 proposes to insert section 270AA empowering

the Assessing Officer to grant immunity from penalty under section 270A subject to conditions such as

(i) the taxpayer pays the tax and interest payable as per the assessment order;

(ii) such payment must be within the specified time; (iii) must not prefer an appeal against such assessment order; and (iv) make an application from the end of the month in which the order

or assessment was received in the prescribed form. The Assessing Officer on fulfillment of the above conditions and after

the expiry of period meant for filing appeal, shall grant immunity from imposition of penalty and the consequent prosecution proceedings contained in section 276C of the Act.

This immunity however will not apply to misreporting of income and

could be availed only in respect of under-reporting of income. There is no discretion vested with the Assessing Officer as regards granting of immunity as the section uses the word 'shall' and not 'may'.

Failure to maintain books of account [Section 271A]

Presently, for failure to maintain books of account as required by section 44AA would meet a sum of Rs.25,000 as penalty. The newly inserted section 270A deals with penalty for under-reporting of income besides misreporting of income.

Section 271A is proposed to be amended to clarify that this penalty could also be imposed in spite of the penalty under section 270A imposable on the taxpayer.

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Failure to keep and maintain information and document etc of

international transaction or specified domestic transaction

[Section 271AA]

Presently, penalty for failure to keep and maintain information and

documents of international transaction or specified domestic

transaction or maintaining or furnishing incorrect information or

document is liable for penalty at 2% of the value of each such

transaction.

Penalty for search cases [Section 271AAB]

Presently, section 271AAB provides for penalty ranging from 30%

to 90% of the undisclosed income in respect of search cases, in

case where assessee fails to admit his undisclosed income and also

fails to pay tax thereon on or before specified date.

The Finance Bill, 2016 proposes to remove such discretionary

penalty range and hence proposes for a flat 60% of the tax payable

as penalty in search cases. It is applicable from 01.04.2017.

Further, a consequential amendment is made to section

271AAB(2) to exempt levy of penalty under section 270A since

this section provides for comprehensive penalty in respect of

search cases.

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Penalty for not furnishing report of the international group

[Section 271GB]

The Finance Bill, 2016 proposes to insert a new section 286 meant

for furnishing of report of international group where the parent

entity is resident in India. Comprehensive conditions are imposed

by inserting section 286.

In order to ensure proper compliance of section 286 a

corresponding new section 271GB is proposed to be inserted for

levy of penalty where there is failure in furnishing of such report.

The quantum of penalty is Rs.5,000 per day when the failure does

not exceed one month and the quantum would be Rs.15,000 per

day when the failure continues beyond a period of one month.

Where the reporting entity fails to produce information and

documents sought by the prescribed authority within the time

allowed under section 286(6), the penalty could be levied at

Rs.5,000 for every day beginning from the day on which the

period for furnishing the information or document expires. The

levy of penalty however does not seem to be mandatory.

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For inaccurate information in the report furnished under section

286(2) and if the entity fails to inform the incorrectness and

furnish correct report within a period of 15 days of such discovery,

the prescribed authority may impose a penalty of Rs.5 lakhs. This

section would apply in relation to the assessment year 2017-18

and subsequent years.

Penalty for failure in compliance [Section 272A]

Presently, section 271 deals with penalty for failure to comply with the notice issued under section 142(1) or section 143(2) or failure to comply with a direction issued under section 142(2A) in addition to penalty for concealment.

Section 270A newly proposed to be inserted by the Finance Bill, 2016 deals only with penalty for under-reporting and misreporting of income. It does not deal with the other failures previously dealt with by section 271.

The Finance Bill, 2016 therefore proposes to cover failures such as (i) failure to comply with a notice issued under sections 142(1) or 143(2); and (ii) failure to comply with the direction for audit under section 142(2A) – by inserting clause (d) to section 272A. The penalty imposable would be Rs.10,000 for each such failure. There is no change in quantum of penalty for these failures/contraventions.

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Power to reduce penalty [Section 273A]

Presently, section 273A empowers the Principal Commissioner or

Commissioner to use discretion for waiver of penalty imposable on the

taxpayer. However, there is no time limit prescribed for accepting or

rejecting the petition for waiver of penalty.

The Finance Bill, 2016 proposes consequential amendment in section

273A for making reference to section 270A instead of section 271(1)(c)

which would stand omitted from 01.04.2017. Further it makes reference

to the newly proposed provision section 270A wherever there was

reference to erstwhile section 271(1)(c).

Additionally it mandates that the order of granting or rejecting

immunity from penalty under section 273A (for all the penal

provisions wherever applicable), the Principal Commissioner or

Commissioner must pass an order within a period of 12 months

from the end of the month in which the application was received.

Further no order shall be passed without giving an opportunity of

being heard to the taxpayer.

This amendment would also apply in respect of all applications

pending as on 01.06.2016 with time limit for disposal of such

applications by 31.05.2017.

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Immunity from penalty [Section 273AA]

Presently, the proceedings before the Settlement Commission could be abated in the circumstances mentioned in section 245HA. The Principal Commissioner or Commissioner may grant immunity from penalty to the taxpayer under section 273AA.

However, there is no time limit within which the application for immunity from penalty is to be decided.

The Finance Bill, 2016 proposes to amend to section 273AA by mandating that the Principal Commissioner or Commissioner must pass an order accepting or rejecting the application of the assessee within a period of 12 months from the end of the month in which such application was received. No order shall be passed without providing an opportunity of hearing to the assessee.

All pending applications as on 01.06.2016 have to be given disposal on or before 31.05.2017.

Waiver of penalty [Section 273B]

Section 273B contains majority of the penal provisions which the income tax authority may waive based on reasonable cause. Section 273B is proposed to be amended to accommodate the newly inserted section 271GB (meant for imposing penalty on international group for not furnishing the details within the prescribed time).

It may be noted that the newly inserted section 270A does not find place in section 273B which means that the power vested with the Assessing Officer under section 270AA is final though non-discretionary and the taxpayers cannot take recourse to the Commissioner for waiver of such penalty.

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Provisions related to Bank guarantee in lieu of provisional

attachment Section 281B

The Income Tax Simplification Committee (Easwar Committee) has recommended that provisional attachment of property could be substituted by a bank guarantee subject to fulfillment of certain conditions. Having considered this recommendation, it is proposed that the Assessing Officer shall revoke provisional attachment of property made under sub-section (1) of the aforesaid section in a case where the assessee furnishes a bank guarantee from a scheduled bank, for an amount not less than the fair market value of such provisionally attached property or for an amount which is sufficient to protect the interests of the revenue.

in order to help the Assessing Officer to determine the fair market value of the property, the Assessing Officer may, make a reference to the Valuation Officer, who may be required to submit the report of the estimate of the property to the Assessing Officer within a period of thirty days from the date of receipt of such reference.

In order to ensure the revocation of attachment of property in lieu of bank guarantee in a time bound manner, it is proposed to provide that an order revoking the attachment be made by the Assessing Officer within fifteen days of receipt of such guarantee, and in a case where a reference is made to the Valuation Officer, within fortyfive days from the date of receipt of such guarantee.

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It is further proposed that where a notice of demand specifying a sum payable is served upon the assessee and the assessee fails to pay such sum within the time specified in the notice, the Assessing Officer may invoke the bank guarantee, wholly or partly, to recover the said amount.

This amendments are in commensuration to the recommendation no. 27 of the Part 1 of the Justice RV Eshwar Committee at its page 70.

These amendments will take effect from lst day of June, 2016.


Time limit for passing order by TPO and completion of assessment

when a reference made to TPO

Under Sec 92CA(3A) TPO is required to pass an order 60days

prior to date on which limitation for completing assessment

expires. It is proposed to amend Sec. 92CCA(3A) to provide that

if assessment proceedings are stayed by a court order or where a

reference for exchange of information has been made by the

competent authority the time limit and time available to TPO is

less than 60 days after excluding the time for which assessment

was stayed or time taken for receipt of information, then such

remaining period shall be extended to 60 days. Further,

consequential amendment made in Se. 153.



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Assumption of jurisdiction of Assessing Officer

The existing sub-section (3) of the section 124, inter-alia, provides

that no person shall be entitled to call in question the

jurisdiction of an Assessing Officer in a case where return is

filed under section 139, after the expiry of one month from the

date on which he was served with a notice issued under sub-

section (1) of section 142 or sub-section (2) of section 143 or

after the completion of the assessment, whichever is earlier.

Currently, this provision does not specifically refer to notices

issued under section 153A or section 153C which relate to

assessment in cases where a search and seizure action has been

taken or cases connected to such cases.

Instances have come to notice wherein the jurisdiction of an Assessing Officer in such cases have been called into question at the appellate stages, despite the fact that order passed under section 153A or 153C is read with section 143(3) of the Act.

In order to remove any ambiguity in such cases it is proposed to amend sub-section (3) of section 124 to specifically provide that cases where search is initiated under section 132 or books of accounts, other documents or any assets are requisitioned under section 132A, no person shall be entitled to call into question the jurisdiction of an Assessing Officer after the expiry of one month from the date on which he was served with a notice under sub-section (1) of section 153A or sub-section (2) of section 153C or after the completion of the assessment, whichever is earlier.

This amendment will take effect from the 1st day of June, 2016.


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Legislative framework to enable and expand the scope of electronic processing of information

Section 133C(2) Newly inserted

In order to expedite verification and analysis of the information and documents so received, it is proposed to amend section 133C to provide adequate legislative backing for processing of information and documents so obtained and making the outcome thereof available to the Assessing Officer for necessary action, if any.

These amendments will take effect from the 1st day of June, 2016.



Section 143(1)(a) (iii) to (iv) and 1st proviso and 2nd proviso (Newly

inserted)

Certain new items have been added to the processing of the return of income.

The same are as under: -

―(iii) disallowance of loss claimed, if return of the previous year for which set

off of loss is claimed was furnished beyond the due date specified under sub-

section ( 1) of section 139;

(iv) disallowance of expenditure indicate d in the audit report but not taken into

account in computing the total income in the return;

(v) disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-

IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date

specified under sub-section (1) of section 139; or

(vi) addition of income appearing in Form 26AS or Form 16A or Form 16

which has not been included in computing the total income in the return:

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Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode:

Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made;”

This amendment is in commensuration to the recommendations wrt transparency in Tax administration –E governance and are appearing at item no. 3(g) of page 76 of the Part 1 of the Justice RV Eshwar Committee Report.

These amendments will take effect from the 1st day of April, 2017.



Section 147 Explanation 2, Clause (ca) Newly inserted

It is proposed to provide for reopening of cases by the AO on the basis of the information so received from the prescribed authority u/s 133C of the Act.

These amendments will take effect from the 1st day of June,

2016.


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Provisions not found in Finance Bill


The period for getting benefit of long term capital gain regime in case

of unlisted companies is proposed to be reduced from three to two

years.


Another issue which has led to considerable number of disputes is

quantification of disallowance of expenditure relatable to exempt

income in terms of Section 14A of the Income Tax Act. I propose to

rationalize the formula in Rule 8D governing such quantification. The

said Rule is being amended to provide that disallowance will be limited

to 1% of the average monthly value of investments yielding exempt

income, but not exceeding the actual expenditure claimed.

Documents

Major direct tax proposals in Finance Bill 2016bangaloreicai.org/images/icons/2016/Announcement/Backg... · 2018-10-31 · 3/17/2016 12 Background Finance Minister has proposed Equalisation