• Mar
  • 20
  • 2012

Direct Tax highlights of Union Budget 2012-13

CA Jitendra Goyal, CA Rajender Handa 

RATES OF INCOME TAX FOR THE ASSESSMENT YEAR 2013-14

Slab Rates For Individuals( below 60 years) , HUF, AOP/BOI, (other than co-operative societies) For resident women age below 60 Years  For senior citizens (Age between 60 – 80 Years)  For Super Citizens (Age above 80 Years) 
Upto 200000 Nil Nil Nil Nil
200001-250000 10% 10% Nil Nil
250001-500000 10% 10% 10% Nil
500001-1000000 20% 20% 20% 20%
Above 1000000 30% 30% 30% 30%
Education cess will be applicable.

 Widening of Tax Base

1.   Alternate Minimum tax (AMT) on all persons other than companies i.e. Partnership firms, Sole proprietorships and AOP. (W.E.F 01.04.2013 A.Y. 13-14 and onwards.)

Earlier Provisions Amended Provision Effect
Section 115JC to 115JFAlternate Minimum Tax only on Limited Liability Partnership Now the AMT has been extended to all persons other than companies who are claiming deduction under Chapter VIA heading C(other than section 80P)-“Deduction in respect of certain incomes” or section 10AA. 

However provisions of AMT Shall not be applicable to an Individual or HUF or AOP or BOI (whether incorporated or not) or artificial juridical person ref. in sec 2(31)(vii) if adjusted total income of such person does not exceed Rs.20 Laks

Following persons gets covered who are claiming deduction under sections 80H to 80TT(Excluding 80P) or section 10AA.Whose adjusted total income exceeds  Rs.20 Lac

-Individual

-AOP

-HUF

-BOI (whether incorporated or not)

-artificial juridical person ref. in sec 2(31)(vii).

Whether ATI exceeds Rs. 20Lac or Not

-LLP

-Partnership Firms

Tax to levied @ 18.5%

AMT credit will be allowed to be carry forward for ten assessment years same as in the case of MAT

Corress. Amend. In sec. 140A, 234A, 234B and 234C.

2.   TDS on Transfer on Immovable properties other than Agricultural Land exempt u/s 2(14)(iii) (W.E.F 01.10.2012)

Section 194LAA

 

  • ·         Every Transfree(Purchaser) at the time of making payment or crediting any sum by way of consideration for transfer of immovable property other than agriculture land shall deduct TDS @ 1% of such sum if the consideration paid or payable for the transfer of such property exceeds

(i)                  Rs. 50 Lakh –property situated in specified urban agglomeration

(ii)                 Rs.20 Lakh- in any other area.

 

  • ·         It is further proposed that where the consideration paid or payable is less than the value adopted or assessed or assessable by any authority of State Government for the payment of stamp duty, the value so adopted or assessed or assessable shall be deemed as consideration paid or payable.

 

  • ·         The registering under Indian registration act 1908(registrar) shall not register the transfer of property without furnishing the proof of payment of TDS

 

 

  • ·         Special one page challan for payment of above TDS will be prescribed. And there will be no requirement for obtaining TAN or furnish any TDS Statement(return).

 

 

Brief Analysis

  • ·         Earlier only transfer of immovable property by non residents attract the liability to TDS.

 

  • ·         Now every assessee is covered under the new section 194LAA only where consideration paid or payable exceeds;-

(i)                  Rs. 50 Lakh where property situated in following area

 

(i) Greater Mumbai urban agglomeration;

(ii) Delhi urban agglomeration;

(iii) Kolkata urban agglomeration;

(iv) Chennai urban agglomeration;

(v) Hyderabad urban agglomeration;

(vi) Bangaluru urban agglomeration;

(vii) Ahmedabad urban agglomeration;

(viii) District of Faridabad;

(ix) District of Gurgaon;

(x) District of Gautam Budh Nagar;

(xi) District of Ghaziabad;

(xii) District of Gandhinagar; and

(xiii) City of Secunderabad;

 

(ii)                 Rs.20 Lakh where property situated in areas other than above

 

  • ·         Value of sale consideration will be as per value adopted by stamp valuation authority as prescribed u/s 50C
  • ·         No registration will be possible without furnishing proof of payment of TDS
  • ·         No TAN is required to be obtained.
  • ·         No TDS returns is required to be filed.
   


 3.   Other Amendment s in TDS/TCS (W.E.F 01.07.2012)

Section Earlier Provision Amendments Remarks
194J New Insertion New clause (ba) inserted –

-any remuneration or fees or commission by  whatever name called, other than those on which tax is deductible under section 192, to a director of a company shall liable to be deducted @ 10%.

 

  • ·      Covers Director’s sitting fee.
206C New insertion In order to curb the flow of unaccounted money in trading system of bullion and jewellery new sub section (1D) is inserted,

where the seller of bullion and jewellery shall collect tax @ 1% of sale consideration from every buyer if the consideration in cash exceeds Rs.200,000/-, irrespective of the fact whether buyer is a manufacturer, trader or purchase is for personal use.

  • ·      Only cash Transaction will be covered that too exceeding Rs.200000/-
  New Insertion In order to regulate non reporting and under reporting of trading in minerals transactions a new entry no. (vii) in the table under sub section (1)  Namely”Minerals, being coal or lignite or iron ore” taxable @ 1%” is inserted

However the same will not be applicable if the buyer purchases for personal consumption or if a declaration is provided by the buyer that these minerals are to be utilized for the purpose of manufacturing, processing or producing articles or things.

  • ·      This may lead to tax collection from a power company which purchases coal for gen. of power and there is a dispute already on whether generation of power is production of an article or thing.
194LC New Insertion interest payment by a company specified u/s 115A   

to a non resident shall be subjected to TDS @ 5% (plus applicable surcharge and cess.)

 
194LA Threshold limit of TDS is Rs.100000/-

 

Threshold limit of TDS increased to Rs.200000/- In respect of compulsory acquisition of immovable property.
193 Threshold limit Rs.2500 for interest on listed debentures of company in which public is substantially interested Threshold limit raised to Rs.5000/- for interest on debenture(whether listed or not) issued by a company in which public are substantially interested.  


4.   Daily Tonnage income of shipping Companies u/ 115VG W.E.F 01.04.2013 i.e. A.Y. 2013-14 onwards.

For computing operating profit of a shipping company determined on the basis of tonnage capacity of its ships

MEASURES TO PREVENT GENERATION AND CIRCULATION OF UNACCOUNTED MONEY

1.   Cash credit u/s 68 of the Act. (W. E. F. 01.04.2013 i.e. A.Y. 2013-14 onwards.)

Earlier Provisions Amended Provisions Effect
Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the 1[Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the 1[Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.

“Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless—

(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and

(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:

Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.”.

 

  • ·   Every closely held company who accepts share Capital, share application money, share premium or any such amount, from a resident person has to offer an explanation regarding nature and source of such amount in the hand of such shareholder or person making the payment.

 

  • ·   In addition to the onus of proving the Identity of the person, creditworthiness of creditor and genuineness of transaction an additional onus is alos placed on such companies to prove the source of money in the hands of such shareholder or persons making payment

 

  • ·   So, now various judicial pronouncements which restricts and prove the onus of the assessee company just to prove Creditworthiness, identity of person making the payment and genuineness of transaction will have no application in the forthcoming period.

 

  • ·   These provisions shall not apply in case where the person making the payment is a Venture Capital fund or a venture Capital company registered with SEBI.

 

  • ·   Mainly to overcome the judgment of the SC in the case of CIT vs. Lovely Exports Pvt. Ltd.


2.   Taxation of Cash Credits, unexplained money, investments etc. w.e.f 01.04.2013 ie. A.Y. 13-14 onwards.

Provisions Remarks
Section 115BBE

 

  • ·   Income referred to in section 68, 69, 69A, 69B, 69C  and 69D to be taxable @ 30% (Plus cess plus surcharge as applicable)
  • ·   No expenditure or allowances is allowed from such income i.e. thresold exemption limits, losses etc.

 

Earlier in the case of Individual and HUF etc. even after making additions under these section, no tax is levied up to the basic exemption limit and lower tax is collected due lower slab rates.

Now to curb the practice of laundering of unaccounted money by taking advantage of basic exemption limit , income tax rate @ 30% is proposed which will be levied without allowing any deductions from such deemed income, even for losses and thresold exemption limits.

3. Compulsory filling of income tax return in relation to asset located outside India  w.e.f 01.04.2012 i.e. A.Y. 2012-13 onwards.

Existing provisions Amended Provisions. Effects.
Section 139(1)

Every person(other than company or firm) is required to furnish his return of income if his income during the previous year relevant to the assessment year exceeds the maximum amount which is not chargeable to tax.

 

Every resident having any assets( including financial interest in any entity located outside india) or signing authority in any account located outside india, shall furnish income tax return u/s 139 irrespective of the fact whether the resident taxpayer has taxable income or not.

 

  • ·         Only resident assessee having any asset located outside india or signing authority in any account located outside india will come under the purview of amended provisions.
  • ·         Assets located outside india is very wide and needs to be clarified.
  • ·         Financial interest will include equity shares, partnership, interest bearing loans/bonds etc. of an entity located outside india.

 

4. Reassessment of income in relation to any asset located outside India. w.e.f.  01.07.12 for enabling reopening of cases for and assessment year commencing prior to this date.

Sec. Earlier Provision Amended Provisions Effects.
149 Time limit of only 6 assessment year. Increase the time limit for issue of notice for reopening an assessment to 16 years, where income in relation to any assets (including financial interest in any entity) located outside india chargeable to tax has escaped assessment. Now the income tax department have more time to reopen the cases where the assessee have esacaped income in relation to any assets located outside india. This provisions proposed to be operative for assessment years beginning on or before the 1st day of April, 2012.

i.e. the last previous year in relation to assessment year 1996-1997 could be reopened during the assessment year 2012-13. 

147 Earlier there was a restriction  of reopening the case beyond 4 assessment years in some special case in first proviso to section 147. Now a further proviso is inserted after the first proviso to section 147 w.e.f. 01.07.12 where the first proviso to section 147 will not be applicable where a person is found to have any asset (including financial interest in any entity) located outside india, escaped assessment for any assessment year. Now with new provisions persons who found to have any assets located outside india escaped assessment for any assessment year, limit of four assessment year will not be applicable and there assessment can also be opened for assessment year 1996-1997 onwards.


5.   Penalty on undisclosed income found during the course of search

Section 271AAA shall ceases to have effect from 01.07.2012 i.e. if any search is conducted on or after 01.07.2012 provision of section 271AAA shall not apply and provision of New section 271AAB shall apply.

Section 271AAB

Applicability:- Where the search has been conducted on the assesse;

(i) Before the due date of furnishing the return of income year preceding the date of search It will be applicable for

(a) Previous year preceding the date of search;

(b) previous year in which search is conducted.

(ii) It will be applicable for

(a) Previous year in which search is conducted.

Different slabs of penalty of undisclosed income have been implemented.

Conditions @ 10% @ 20% @30%- 90%
During the course of search

  • ·         Admit the undisclosed income u/s 132(4) and

 

  • ·         Specifies the manner in which the  income is derived and

 

  • ·         Substantiate the manner in which the undisclosed income was derived and

 

On or before specified date

  • ·         Pays the tax with interest and

 

  • ·         Furnishes the return of income for specified year declaring such undisclosed income
 

 

 

 

 

 

 

 

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Specified date means the due date of furnishing of return of income under sub-section (1) of section 139 or the date on which the period specified in the notice issued under section 153A for furnishing of return of income expires, as the case may be.

Further if the penalty is levied under the provision of section 271AAB no penalty will be levied under section 271(1)(c).

6. Expediting prosecution proceeding under the Act. (w.e.f 01.07.2012)

New section have been inserted namely 280A, 280B, 280C and 280D to strengthen the prosecution mechanism by

(i) Providing for constitution of special courts for trial of offences

(ii) Application of summons trial

(iii) Providing for appointment of public prosecutors.

The existing provisions of section 276C, 276CC, 277, 277A and section 278 of the Income-tax Act the monetary limit of prosecution for specified period has been increased to Rs.2500,000/- from the existing limit of Rs.100,000/-

7. Share Premium in excess of the Fair market value to treated as income (W.E.F. 01.04.2013 i.e. A.Y. 2013-14 onwards)

New Inserted provision u/s 56(2) Effects.
  • in clause (e) of explanation to proviso to section 56(2)(Vii) the definition of the term relative has been amended to include any member in case of HUF.

 

  • Now with this amendment if HUF receives any gift from a member, it will be exempt from tax. However the income received on such gift will attract the provision of sec. 64 i.e. clubbing of income in the hands of the donor.
 after clause (viia), the following shall be inserted with effect from the 1st day of April, 2013, namely:—(viib) where a company, not being a company in                 which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:Provided that this clause shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund.

Explanation.—For the purposes of this clause,—

(a) the fair market value of the shares shall be the value—

 (i) as may be determined in accordance with such method as may be prescribed; or

 (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher;

(b) “venture capital company”, “venture capital fund” and “venture capital undertaking” shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of Explanation 1 to clause (23FB) of section 10;’.

  •    Applicable to the closely held company.
  • Issue of shares at a price higher than the fair market value.
  •  Amount of Such Excess i.e. issue price less FMV will be deemed income under income from other sources.
  •  FMV will be fair value as per the method prescribed or as may be substantiated by the company to the satisfaction of Assessing officer, whichever is higher.
  • For e.g. XYZ Pvt. Ltd. with 100000 equity share of Rs.10 each having total paid capital of Rs.1000000/- and reserve and surplus of Rs.20,00,000/-. Now XYZ Pv. Ltd. accepts  a share application money of Rs.50,00,000/- to issue 10000 equity share of Rs.10/- at premium of Rs.490/-. Now FMV/BV of the share of XYZ P. Ltd. Before accepting this amount was Rs.30/- per share(1000000+2000000)/100000, now as per new provisions the amount over and above Rs.30/-(FMV) i.e. Rs.470/- i.e. Rs.47,00,000 will deemed to be the income from other sources of the XYZ P. Ltd.
  • Now in above example suppose the company has been able to prove to the satisfaction of AO that issue price is FMV then there will be no deemed income.
  • With these provision now there may be double taxation of same transaction i.e. one u/s 68 in the hands of the company and second u/s 56(2)(viia) as income from other sources.

 

 

TAX INCENTIVES AND RELIEFS.

1.   Tax Incentives for funding of certain infrastructure Sectors. (w.e.f 01.04.2013 i.e. Ay. 2013-14 onwards)

Section 115A

In order to augment long term funds from abroad for the infrastructure  sector a new incentive has been provide by amending section 115A to provide that any interest paid by a specified company to a non resident in respect of borrowings made in foreign currency from sources outside India between 01.07.2012 to 01.07.2015 under an agreement, including rate of interest payable, approved by the central government, shall be taxable at the rate of 5%(plus applicable surcharge and cess)

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

(i) construction of dam,

(ii) operation of Aircraft,

(iii) manufacture or production of fertilizers,

(iv) construction of port including inland port,

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

(vi) generation, distribution of transmission of power

(vii) construction of ships in a shipyard; or

(viii) developing and building an affordable housing project as is presently referred to in section 35AD(8)(c)(vii).

2.   Lower rate of tax from dividends received from foreign companies.

Section 115BBD provides for taxation of gross dividends received by an Indian company from a specified foreign company (in which it has shareholding of 26% or more) @ 15% if such dividend is included in the total income for the F.Y. 2011-2012

The time limit mentioned for financial year 2011-2012 has been extended a financial year 2012-13 also.

3.   Provisions relating to Venture Capital Fund(VCF) or Venture Capital Company (VCC)

The provisions of section 115U currently allow an opportunity of indefinite deferral of taxation in the hands of investor. With a view to rationalize the above position and to align it with the true intent of a pass-through status, it is proposed to amend section 10(23FB) and section 115U to provide that.-

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

(ii) Income accruing to VCF/ VCC shall be taxable in the hands of investor on accrual basis with no deferral.

(iii) The exemption from applicability of TDS provisions on income credited or paid by VCF/ VCC to investors shall be withdrawn.

These amendments will take effect from 1st April, 2013, and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent years.

4.   Removal of Cascading effect on DDT

Earlier Provision Amended Provision Effect
Sub section (1A)

[(1A) The amount referred to in sub-section (1) shall be reduced by,—

(i) the amount of dividend, if any, received by the domestic company during the financial year, if—

(a) such dividend is received from its subsidiary;

(b) the subsidiary has paid tax under this section on such dividend; and

(c) the domestic company is not a subsidiary of any other company:

Provided that the same amount of dividend shall not be taken into account for reduction more than once;

 

 

[(1A) The amount referred to in sub-section (1) shall be reduced by,—

(i) the amount of dividend, if any, received by the domestic company during the financial year, if—

(a) such dividend is received from its subsidiary and

(b) the subsidiary has paid the tax which is payable under this section on such dividend

Provided that the same amount of dividend shall not be taken into account for reduction more than once;

 

 

 

 

Earlier provisions remove the cascading effect of DDT only in a two tier corporate structure, with the new amended provisions  cascading effect of DDT will be removed in multi tier corporate structure.

For E.g. Suppose

A Holding Company

B-wholly owned subsy of A.

C-wholly owned subsy of B.

 

Now C pays dividend of Rs.5 lac to B, B Pays div of Rs. 8 Lac and A pays to their share holder div of Rs. 20 Lac.

Now as per old provision C will pay ddt on 5 lac but B will not get the benefit of provision of sub section (1A) and will have to pay ddt on Rs.8 Lac.

However as per new amended prov. C will pay DDT on Rs.5 lac B will pay ddt on Rs.3 lac(8-5) and A will pay DDT on Rs.12(20-8).


 5.   Exemption in respect of income received by certain foreign companies

A new clause (48) in section 10 of the Income-tax Act to provide for exemption in respect of any income of a foreign company received in India in Indian currency on account of sale of crude oil to any person in India subject to the following conditions:

(i) The receipt of money is under an agreement or an arrangement which is either entered into by the Central Government or approved by it.

(ii) The foreign company, and the arrangement or agreement has been notified by the Central Government having regard to the national interest in this behalf.

(iii) The receipt of the money is the only activity carried out by the foreign company in India.

These amendments will take effect retrospectively from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13 and subsequent years once such arrangement or agreement is notified.

6.   Extending Benefit of initial benefit to the power section

In order to encourage new investment by the assessees engaged in the business of generation or generation and distribution of power, it is proposed to amend this section to provide that an assessee engaged in the business of generation or generation and distribution of power shall also be allowed initial depreciation at the rate of 20% of actual cost of new machinery or plant (other than ships and aircraft) acquired and installed in a previous year.

This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

7.   Weighted Deduction.

(a)      Scientific research and development section 35(2AB)

The period for weighted deduction of 200% has been extended upto 31.03.2017 from existing period of 31.03.2012.

(b)      New weighted deduction for expenditure incurred on Agriculture extension project

Section 35CCC.

Where an assessee inccurs any expenditure on agricultural extension project notified by the Board in this behalf in accordance with the guidelines as may be prescribed, then, there shall be allowed a deduction of a sum equal to one and one-half times (150%) of such expenditure.

Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provisions of this Act for the same or any other assessment year.

(c)      Weighted deduction for expenditure for skill development

Section  35CCD

In order to incentivize companies to invest on skill development projects in the manufacturing sector, it is proposed to insert a new provision in the Income-tax Act to provide weighted deduction of 150% of expenses (not being expenditure in the nature of cost of any land or building) incurred on skill development project. The skill development project eligible for this weighted deduction shall be notified by the Board in accordance with the prescribed guidelines.

8.   Turnover of gross receipts for audit of accounts and presumptive taxation. (A.Y. 2013-14 onwards)

Section 44AB has been amended to increase the threshold limit of total sales, turnover or gross receipts specified u/s 44AB for getting accounts audited

  •  From Rs.60 Lac to Rs.1 crore in the case of Person carrying on business
  • From Rs.15 Lac to Rs.25 Lac in the case of person carrying on profession.

9.   Amendments made u/s 44AD

  • Consequential amendments have also been made to for the purpose of presumptive taxation u/s 44AD, the threshold limit of total turnover or gross receipts have been increased from Rs.60 Lac to Rs.1 Crore

Applicable from 01.04.2013 i.e. A.Y. 2013-14 onwards

  •      Further this section is also amended to clarify that these presumptive scheme is not applicable to

(i)   a person carrying on profession as referred to in sub section (1) of section 44AA i.e. professionals

(ii) person earning income in the nature of commission or brokerage income

(ii)         Person carrying on an any agency business.

Applicable from A.Y. 2011-12 retrospectively

10.   Exemption for Senior Citizens from payment of advance tax (F.Y. 12-13 Onwards)

Section 207 has been amended to reduce the compliance burden of resident Senior citizen (who is of the age of sixty years or more at any time during the year) by providing exemption from payment of advance tax if the they did not have any income chargeable under the head Profit and Gains of Business or Profession.

This amendment will apply from 01.04.2012 i.e. F.Y. 2012-13 and onwards

11.   Relief from long term capital gains tax on transfer of residential property if invested in a manufacturing small or medium enterprises.

Section 54GB

Eligible Assessee Capital gain Assets Invest Conditions Not applied before due date. Violation of condition
Individual and HUF Long Term Capital Gain Residential property being a House or a plot of land. Net Consideration, in equity share of a eligible company.
  • Utilize the net consideration before due date u/s 139(1)
  • ·The eligible company within one year from the date of subscription utilize the amount for purchase of New asset
  • The equity shares issued or the new assets of acquired by the cannot be sold before the expiry of five year from the date of their acquision.
  •    Applicable for transfer of residential property before 31.03.2017.
Deposit in notifited bank by CG before the due date of filing of return by the eligible assessee. If any of the conditions are violated then the capital gain exempted earlier will be chargeable to tax in the hand of the eligible assesee in the year in which provisions are violated.

Eligible Company means a company which fulfils the following conditions, namely:—

(i) it is a company incorporated in India during the period from the 1st day of April of the previous year relevant to the assessment year in which the capital gain arises to the due date of furnishing of return of income under sub-section (1) of section 139 by the assessee;

(ii) it is engaged in the business of manufacture of an article or a thing;

(iii) it is a company in which the assessee has more than fifty per cent. share capital or more than fifty per cent. voting rights after the subscription in shares by the assessee; and

 (iv) it is a company which qualifies to be a small or medium enterprise under the Micro, Small and Medium Enterprises Act, 2006; (27 of 2006.)

New Asset means new plant and machinery but does not include—

(i) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person;

(ii) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house;

(iii) any office appliances including computers or computer software;

(iv) any vehicle; or

 (v) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.

12.          Reduction in the rate of Securities Transaction Tax (STT) (w.e.f 01.07.2012)   

 13.   Deduction in respect of capital expenditure on specified business.

It is proposed to include three new businesses as “specified business” for the purposes of the investment-linked deduction under section 35AD, namely:-

(a) setting up and operating an inland container depot or a container freight station notified or approved under the Customs Act, 1962 (52 of 1962);

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

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

The dates of commencement of the “specified business” are detailed in section 35AD (5). It is proposed that the date of commencement of operations for availing investment linked deduction in respect of the three new specified businesses shall be on or after 1st April, 2012.

These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

II. It is also proposed that the following specified businesses commencing operations on or after the 1st of April, 2012 shall be allowed a deduction of 150% of the capital expenditure under section 35AD of the Income-tax Act, namely:-

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

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

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

(iv) developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed; and

(v) production of fertilizer in India.

This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

III. A new sub-section (1A) is proposed to be inserted in section 35AD to provide that where the assessee builds a hotel of two-star or above category as classified by the Central Government and subsequently, while continuing to own the hotel, transfers the operation thereof to another person, the assessee shall be deemed to be carrying on the specified business of building and operating hotel.

This amendment will take effect retrospectively from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent assessment years.

14.   Extension of sunset date for the tax holiday for the power sector.

Section 80IA(4)(iv) has been amended to extent the benefit of tax exemption from 31.03.2012 to 31.03.2013.

15.     Reduction of the eligible age for senior citizens for certain tax reliefs.

In order to make the effective age of senior citizens uniform across all the provisions of the Income Tax Act, it is proposed to reduce the age for availing of the benefits by a senior citizen under the aforesaid sections (sections 80D, 80DDB and 197A) from sixty-five years to sixty years.

The amendments to section 80D and section 80DDB will take effective from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

The amendment to section 197A will take effect from 1st July, 2012.

16.     Deduction for expenditure on preventive health check-up.

It is proposed to amend this section to also include any payment made by an assessee on account of preventive health check-up of self, spouse, dependant children or parents(s) during the previous year as eligible for deduction within the overall limits prescribed in the section. However, the proposed deduction on account of expenditure on preventive health check-up (for self, spouse, dependent children and parents) shall not exceed in the aggregate Rs.5,000.

It is further proposed to provide that for the purpose of the deduction under section 80D, payment can be made – (i) by any mode, including cash, in respect of any sum paid on account of preventive health check-up and (ii) by any mode other than cash, in all other cases.

These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

17.   Deduction in respect of Interest on deposits in saving accounts. (W.E.F 01.04.2013 i.e. A.Y. 2013-14 onwards)

Section 80TTA

Eligible Assessee Conditions Quantum
Individual and Huf Income by way of interest on  deposits (not being time deposits i.e. FD) in saving account with-

(a)  Banking company

(b)  Co-operative society carrying on business of banking

(c)  A post office

Rs.10,000/-

RATIONALISATION OF TAX DEDUCTION AT SOURCE(TDS) AND TAX COLLECTION AT SOURCE (TCS) PROVISIONS.

1.   Clarification of section 191 read with section 201(1A) (W.E.F 01.07.2012)

In order to provide clarity regarding discharge of tax liability by the resident payee on payment of any sum received by him without deduction of tax, section 201 has been amended to provide that the payer who fails to deduct the whole or any part of the tax on the payment made to a resident payee shall not be deemed to be an assessee in default in respect of such tax if such resident payee –

(i) has furnished his return of income under section 139 (not only section 139(1));

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

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

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

It is also provided that where the payer fails to deduct the whole or any part of the tax on the payment made to a resident and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the such resident, the interest under section 201(1A)(i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee.

Amendments on similar lines are also proposed to be made in the provisions of section 206C relating to TCS for clarifying the deemed date of discharge of tax liability by the buyer or licensee or lessee.

2.       Disallowance of business expenditure on account of non deduction of tax on payment to resident payee (w.e.f 01.04.2013 i.e. A.Y. 2013-14)

In order to rationalize the provisions of disallowance on account of non-deduction of tax from the payments of business expenditure made to a resident payee, section 40(a)(ia) is amended to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax  if such resident payee –

(i) has furnished his return of income under section 139(not only section 139(1));

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

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

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

 then, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee.

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

3.       Fee and penalty for delay in furnishing of TDS/TCS statements and penalty for incorrect information in TDS/TCS statement (w.e.f 01.07.2012)

  Sections Inserted Quantum
Fee for failure to deliver TDS/TCS statement within the prescribed time limits Section 234E inserted Rs.200/- per day not exceeding  TDS/TCS deposited before or at the time of furnishing of returns.  Mandatory in Nature
Penalty for late or incorrect  information in the statement Section 271H, subject to Section 273B Not less than Rs.10,000/- but not exceeding Rs.100000/-, however no penalty shall be levied if for delay in furnishing of TDS statement if the TDS statement is furnished within one year of the prescribed due date after payment of TDS/TCS along with applicable interest and fee.

 4.       Intimation after processing of TDS statement. (w.e.f 01.07.2012)

In order to reduce the compliance burden of the deductor and also to rationalise the provisions of processing of TDS statement, it is proposed to provide that the intimation generated after processing of TDS statement shall be

(i) subject to rectification under section 154;

(ii) Appealable under section 246A; and

(iii) Deemed as notice of demand under section 156.

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

5.       Extension of time for passing an order under section 201 in certain cases

Under the existing provisions section 201 of the Income-tax Act, a person can be deemed to be an assessee in default, by an order, in respect of non-deduction/short deduction of tax. Such order can be passed within a period of four years from end of financial year in a case where no statement as referred to in section 200 has been filed.

Now section 201 has been amended, so as to extend the time limit from four years to six years.

This amendment will take effect retrospectively from 1st April, 2010

OTHER MISC. AMENDMENTS

1.       Extension of time for completion of assessments and reassessment. (W.E.F 01.07.2012)

2.       Assessment of Charitable organization in case commercial receipts exceeds the specified threshold

The 2nd proviso to Section 2(15) provides that in case where the activity of any trust or institution is of the nature of advancement of any other object of general public utility, and it involves carrying on of any activity in the nature of trade, commerce or business; but the aggregate value of receipts from the commercial activities does not exceed Rs. 25,00,000/- in the previous year, then the purpose of such institution shall be considered as charitable, and accordingly, the benefits of exemption shall be available to it.

Thus, a charitable trust or institution pursuing advancement of object of general public utility may be a charitable trust in one year and not a charitable trust in another year depending on the aggregate value of receipts from commercial activities.

There is, therefore, need to expressly provide in law that no exemption would be available for a previous year, to a trust or institution to which first proviso of sub-section 2(15) become applicable for that particular previous year. However, this temporary excess in one year may not be treated as altering the very nature of the trust or institution so as to lead to cancellation of registration or withdrawal of approval or rescinding of notification issued in respect of trust or institution.

It is, therefore, proposed to amend section 10(23C), section 13 and section 143 of the Act to ensure that such organization does not get benefit of tax exemption in the year in which it’s receipts from commercial activities exceed the threshold whether or not the registration or approval granted or notification issued is cancelled, withdrawn or rescinded.

Therefore in short when in a previous year the commercial receipts exceeds Rs.2500,000/- exemption will not be available and tax to be levied as per normal provision and in the year in which commercial receipts does not exceed Rs.2500,000/- exemption shall be granted.

This amendment will take effect retrospectively from 1st April, 2009 and will, accordingly, apply in relation to the assessment year 2009-10 and subsequent assessment years.

3.       Minimum Alternate Tax (MAT)

Section 115JB has been amended to

  •  provide that the companies(Insurance, banking and electricity companies) which are not required u/s 211 of the companies act to prepare their profit and loss account in accordance with the schedule VI of the Companies act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory acts shall be taken as a basis for computing the book profits u/s 115JB
  • To provide that the books profits shall be increase by the amount standing in the revaluation reserve relating the revalued assets which has been retired or disposed, if the same is not credited to profit and loss account.
  • Align the provision of this section with the revised schedule VI of the Companies Act, 1956.

4.       Liability to pay advance tax in case of non-deduction of tax (W.E.F 01.04.2012 i.e. F.Y. 2012-13 onwards)

Section 209

  • In earlier provisions the amount of advance tax payable is computed by reducing the amount of income –tax which would be deductible or collectible during the financial year from income tax on estimated income. It has been held by various judicial pronouncements that the person is not liable to pay the advance tax to the extent the tax is deductible or collectible from such amount, in case TDS/TCS not deducted/collected.
  • Section is amended to provide that where a person has received any income without deduction or collection of tax, he shall be liable to pay advance tax in respect of such income.

5.       Cost of acquisition and period of holding in case of certain transfers. (W.R.E 01.04.1999 i.e. A.Y. 1999-2000 onwards)

Section 49

  • Section has been amended to provide that in case of conversion of sole proprietorship or firm into a company referred to in section 47(xiv) and 47 (xiii) respectively which is not regarded as transfer, the cost of acquisition of asset in the hands of the company would be the same as that in the hand of the sole proprietary concern or the firm, as the case may be.
  • Consequently the period of holding of the capital assets by the company shall include the period for which such capital asset held by the previous owners i.e. sole proprietorship or firm as the case may be.

6.       Capital gain tax from sale of agriculture land by a Hindu Undivided Family (HUF) (W.E.F. 01.04.2013 i.e. A.Y. 2013-14 onwards)Section 54B has been amended to provide that the rollover relief is available if the land is used for agriculture purposes by an individual or his parent or by a HUF.

7.       Reference to Valuation officer.

Under the provisions of section 55A, where in the opinion of the Assessing Officer value of asset as claimed by the assessee is less than its market value, he may refer the valuation of a capital asset to a Valuation Officer. Under section 55 in a case where the capital asset became the property of the assessee before 1st April, 1981, the assessee has the option of substituting the fair market value of the asset as on 1st April, 1981 as the cost of the asset. In such a case the adoption of a higher value for the cost of the asset as the fair market value as on 1st April, 1981, would lead to a lower amount of capital gains being offered for tax.

Accordingly, it is proposed to amend the provisions of section 55A of the Income-tax Act to enable the Assessing Officer to make a reference to the Valuation Officer where in his opinion the value declared by the assessee is at variance from the fair market value. Therefore, in case where the Assessing Officer is of the opinion that the value taken by the assessee as on 1.4.1981 is higher than the fair market value of the asset as on that date, the Assessing Officer would be enabled to make a reference to the Valuation Officer for determining the fair market value of the property.

This amendment will take effect from 1st day of July, 2012.

8.       Capital gains in cases of amalgamation and demerger. (W.E.F. 01.04.2013 i.e. A.Y. 2013-14 onwards)

Section 47(vii)

The amended section 47(vii) exclude the requirement of issue of share to the shareholder where such shareholder itself is the amalgamated company, since it is not possible for holding company issue share to it self (being the shareholder), in case where subsidiary company amalgamates with the holding company.

Section 2(19AA)

Similar as mentioned above as to exclude the requirement of issue of share where resulting company itself is a shareholder of the demerged company.

However in both the above cases requirement of issue of shares to the other shareholder will remain in effect.

9.       Fair Market Value to be the full value of consideration in certain cases. (W.E.F. 01.04.2013 i.e. A.Y. 2013-14 onwards)

Section 50D

Capital gains are calculated on transfer of a capital asset, as sale consideration minus cost of acquisition. In some recent rulings, it has been held that where the consideration in respect of transfer of an asset is not determinable under the existing provisions of the Income-tax Act, then, as the machinery provision fails, the gains arising from the transfer of such assets is not taxable.

It is, therefore, proposed to insert a new section 50D which stipulates where in the case of a transfer, consideration for the transfer of a capital asset(s) is not attributable or determinable then for purpose of computing income chargeable to tax as gains, the fair market value of the asset shall be taken to be the full market value of consideration.

10.   Processing of return of income where scrutiny notice issued. (W.E.F. 01.07.2012)

In cases where notice under sub section 143(2) has been issued, processing of return u/s 143(1) and issue of refund will not be necessary.

11.    Notification of class of search cases where compulsory reopening of past six year not required (W.E.F 01.07.2012)

Under the amended provision the central government may notify cases or class of cases in which the A. O. shall not issue notice for initiation of proceedings for preceding six years, however action for completion of assessment proceedings for the A.Y. relevant to the previous year, in such class of cases, in which search or requisition has been made would be taken. This would result in initiating assessment proceedings only for the A.Y. relevant to the Previous year in which search or requisition has been made.

12.   Charging on interest on recovery of refund granted earlier

The provision of section 234D would be applicable to any proceeding which is completed on or after 01.06.2003, irrespective of the assessment year to which it pertains.

13.   Authorization or requisition and subsequent assessment in search cases.

A new section 292CC has been proposed to be inserted, to nullify the recent court judgments, which provide that-

(i)   it shall not be necessary to issue an authorisation under section 132 or make a requisition under section 132A separately in the name of each person;

(ii) where an authorisation under section 132 has been issued or a requisition under section 132A has been made mentioning therein the name of more than one person, the mention of such names of more than one person on such authorisation or requisition shall not be deemed to construe that it was issued in the name of an association of persons or body of individuals consisting of such persons;

(iii) notwithstanding that an authorisation under section 132 has been issued or requisition under section 132A has been made mentioning therein the name of more than one person, the assessment or reassessment shall be made separately in the name of each of the persons mentioned in such authorisation or requisition.

These amendments will take effect retrospectively from the 1st day of April, 1976 and will accordingly apply to assessment year 1976-77 and subsequent assessment years.

14.   Prohibition of cash donations in excess of ten thousand rupees. (W.E.F 01.04.2013 i. e. A.Y. 2013-14 onwards)

The proposed amendment in section 80G and 80GGA(certain donation scientific research or rural development made to research associations, universities, colleges or other associations/institution) is to specify therein that any payment exceeding a sum of Rs.10,000/- shall only be allowed as a deduction if such sum is paid by any mode other than cash.

That is to say deduction in respect of cash donation will be allowed only to the extent of Rs.10,000/-

Now one more mode of tax evasion has been plugged.

15.   Eligibility Conditions for exempt/deduction life insurance policies.(W.E.F 01.04.2013-14 i.e. A.Y. 2013-14 onwards)

  • It is proposed to amend section 10(10D) so as so provide that the exemption from sum received under any life insurance policies which is issued on or after 01.04.2012 would only be available for policies where the premium payable for any of the years during the term of the policy does not exceed 10% of the actual capital sum assured. (earlier it was 20% of the actual capital sum assured)
  • It is proposed to amend the provisions to provide the deduction for LIC premium as regards insurance policies issued on or after 01.04.2012 shall be allowed for only so much of the premium payable as does not exceed 10% of the actual capital sum assured. (earlier it was 20% of the actual capital sum assured).

16.   General Anti Avoidance Rules.

It is proposed to provide General Anti Avoidance Rule in the Income Tax Act to deal with aggressive tax planning. A. The main feature of such a regime are:-

(i) An arrangement whose main purpose or one of the main purposes is to obtain a tax benefit and which also satisfies at least one of the four tests, can be declared as an “impermissible avoidance arrangements”.

(ii) The four tests referred to in (i) are–

(a) The arrangement creates rights and obligations, which are not normally created between parties dealing at arm’s length.

(b) It results in misuse or abuse of provisions of tax laws.

(c) It lacks commercial substance or is deemed to lack commercial substance.

(d) Is carried out in a manner, which is normally not employed for bonafide purpose.

(iii) It shall be presumed that obtaining of tax benefit is the main purpose of an arrangement unless otherwise proved by the taxpayer.

(iv) An arrangement will be deemed to lack commercial substance if –

(a) the substance or effect of the arrangement as a whole, is inconsistent with, or differs significantly from, the form of its individual steps or a part; or

(b) it involves or includes -

(i) round trip financing;

(ii) an accommodating party ;

(iii) elements that have effect of offsetting or cancelling each other; or

(iv) a transaction which is conducted through one or more persons and disguises the value, location, source,

  • ownership or control of fund which is subject matter of such transaction; or

(c) it involves the location of an asset or of a transaction or of the place of residence of any party which would not have been so located for any substantial commercial purpose other than obtaining tax benefit for a party.

(v) It is also provided that certain circumstances like period of existence of arrangement, taxes arising from arrangement, exit route, shall not be taken into account while determining ‘lack of commercial substance’ test for an arrangement.

(vi) Once the arrangement is held to be an impermissible avoidance arrangement then the consequences of the arrangement in relation to tax or benefit under a tax treaty can be determined by keeping in view the circumstances of the case, however, some of the illustrative steps are:-

(a) disregarding or combining any step of the arrangement.

(b) ignoring the arrangement for the purpose of taxation law.

FOREIGN TAXATION

1.  Income deemed to accrue or arise in India

Section 9 & 2(47)

The proposed amendment in the above mentioned provisions provides clarificatory retrospective amendment  (from 01.04.1962 i.e AY 1962-63 onwards)to restate the legislative intent in respect of scope and applicability of section 9 and 195 and also to make other clarificatory amendments for providing certainty in law.

Section 9(1)(i)(a) Amendment Effect
Explanation 4 “THROUGH” shall be deemed to have always  means and included “by means of”, “in consequence of”, “by reason off The legislative intent of this clause is to widen the application as it covers incomes, which are accruing or arising directly or indirectly. The section codifies source rule of taxation wherein the state where the actual economic nexus of income is situated has a right to tax the income irrespective of the place of residence of the entity deriving the income. Where corporate structure is created to route funds, the actual gain or income arises only in consequence of the investment made in the activity to which such gains are attributable and not the mode through which such gains are realized. Internationally this principle is recognized by several countries, which provide that the source country has taxation right on the gains derived of offshore transactions where the value is attributable to the underlying assets.

 

The newly inserted explanation has widened the scope of taxability of income.

 

Now with this amendment transaction between two non resident person in respect of capital asset whether situated in India or not but derives directly or indirectly , its value substantially from assets located in India.

 

Explanation 5 an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.

Section 9(1)(i)(b)
Explanation 4 the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred. the consideration for use or right to use of computer software is royalty by clarifying that transfer of all or any rights in respect of any right, property or information as mentioned in Explanation 2, includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred.
Explanation 5 the royalty includes and has always included consideration in respect of any right, property or information, whether or not—

(a) the possession or control of such right, property or information is with the payer;

(b) such right, property or information is used directly by the payer;

(c) the location of such right, property or information is in India.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Explanation 6 the expression “process” includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret

 

Various judicial pronouncements which held that transmission of satellite(including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology is not deemed to accrue or arise in India in the hands of non residents. However the proposed amendment has specifically covered the same under the definition of Royally to bring the same under the tax ambit.
Section 2(47) includes and shall be deemed to have always included disposing of or parting with an asset or  any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily by way of an agreement (whether  entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterized as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated

outside India.

The section has been amended along with section 9, which is clarificatory in nature to restate the legislative intent in respect of overseas transactions, and widen the scope of term transfer.

Section 195 (W.R.E from 01.04.1962 i.e AY 1962-63 onwards)

Earlier Provisions Ammendments Effect
In the earlier provisions  various judicial prouncements have created doubts about the scope of section 195 and conflicting decisions were pronounced. In order to bring clarity to the existing provisions Explanation 2 have been added to specifically widen the scope of the applicability of Section 195 to deduct withholding tax.

 

Explanation 2

the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has—

(i) a residence or place of business or business connection in India; or

 (ii) any other presence in any manner whatsoever in India.”;

 

Section 195 of the Income-tax Act requires any person to deduct tax at source before making payments to a non-resident if the income of such non-resident is chargeable to tax in India. “Person”, here, will take its meaning from section 2 and would include all persons, whether resident or non-resident. Therefore, a non-resident person is also required to deduct tax at source before making payments to another non-resident, if the payment represents income of the payee non-resident, chargeable to tax in India. There are no other conditions specified in the Act and if the income of the payee non-resident is chargeable to tax, then tax has to be deducted at source, whether the payment is made by a resident or a non-resident.
Withholding tax not to be deducted on payment which is not chargeable to Tax under the Act. Notwithstanding anything contained in sub-section (1) and sub-section (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub-section (1) on that proportion of the sum which is so chargeable.” It is proposed to amend section 195 to provide that the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub-section (1) on that proportion of the sum which is so chargeable.


Validation Clause (applicable Enactment of Finance Act, 2012)

It is proposed to provide for validation of demands raised under the Income-tax Act in certain cases in respect of income accruing or arising, through or from transfer of a capital asset situate in India, in consequence of the transfer of a share or shares of a company registered or incorporated outside India or in consequence of agreement or otherwise outside India. It is proposed to provide through this validation clause that any notice sent or purporting to have been sent, taxes levied, demanded, assessed, imposed or collected or recovered during any period prior to coming into force of the validating clause shall be deemed to have been validly made and such notice or levy of tax shall not be called in question on the ground that the tax was not chargeable or any ground including that it is a tax on capital gains arising out of transactions which have taken place outside India. The validating clause shall operate notwithstanding anything contained in any judgment, decree or order of any Court or Tribunal or any Authority.

Now everyone can understand what will happen with the Vodafone International Holdings B V

Extension of Time Limit to issue notice (W.E.F. 01.04.2012)

Section 149

Section 149 is amended to extend time limit for issue of notice in case of a person who is treated as agent of a non-resident, the time limit presently prescribed of two years be extended to six years. It is also clarified that these provisions being of procedural nature shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.

Transfer Pricing Regulations to apply to certain domestic transactions

One of the major and key amendment brought in the income tax act 1961 is extending the applicability of transfer pricing regulations to the domestic transactions. The detail is as under which is provided in the memorandum explaining the finance bill:

The application and extension of scope of transfer pricing regulations to domestic transactions would provide objectivity in determination of income from domestic related party transactions and  determination of reasonableness of expenditure between related domestic parties.  It will create legally enforceable obligation on assessees to maintain proper documentation.

However, extending the transfer pricing requirements to all domestic transactions will lead to increase in compliance burden on all  assessees  which may not be desirable.

Therefore, the transfer pricing regulations need to be extended to the transactions entered into by domestic related parties or by an undertaking with other undertakings of the same entity for the purposes of section 40A, Chapter VI-A and  section 10AA.

The concerns of administrative and compliance burden are addressed by restricting its applicability to the transactions, which exceed a monetary threshold of Rs. 5 crores in aggregate during the year. In view of the circumstances which were present in the case before the Supreme Court, there is a need to expand the definition of related parties for purpose of section 40A to cover cases of companies which have the  same parent company.

It is, therefore, proposed to amend the Act to provide applicability of transfer pricing regulations (including procedural and penalty provisions) to transactions between related resident parties for the purposes of computation of income, disallowance of expenses etc. as required under provisions of (i) Sections 40A, 80-IA, 10AA, 80A,(ii) Sections where reference is made to section 80-IA, or (iii) Transactions as may be prescribed by the Board, if aggregate amount of all such domestic transactions exceeds Rupees 5 crore in a year. It is further proposed to amend the meaning of related persons as provided in section 40A to include companies having the same holding company.

Now all the provisions of transfer pricing regulation will be applicable in the above cases, so the chartered accountants not engaged in transfer pricing practice will become experts in the forthcoming period.

This amendment will take effect from 1st  April, 2013 and will, accordingly, apply in relation to the Assessment Year 2013-14 and subsequent assessment years

Compiled by CA Jitendra Goyal(cajitengoyal@yahoo.com) and CA Rajender Handa (carajenderhanda@yahoo.in)       


8 Responses to “Direct Tax highlights of Union Budget 2012-13”

  1. preetam says:

    Sir,

    Very useful, informative and authentic amended provisions of income-tax act that taken place in Union Budget 2012

  2. divanshu says:

    if we have agriculture land & gain profit of rs 2 lacs on sale of agriculture then what is tax value

  3. devendra jain says:

    very very thanks for providing budget information.

  4. kISHOR says:

    Thanks. for d detailed note on budget 2012.

  5. Jaimini says:

    Its very detailed and helpful note on Budget and it covers all the important aspect…

  6. Rahul Baid says:

    This has been by far the most comprehensive analysis of the Union budget that i have come across so far. Thanks a lot to the authors..

  7. BRAHM DEO YADAV says:

    Advice of MAT Calculation in Co. a per I.Tax Act

  8. Paras Gupta says:

    Sir,

    Thanks for the valuable information regarding changes in the budget 2012

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