Income Tax Amendments applicable for November 2011 Attempt of CA Final Exams and IPCC Examination

TG Team 22 Aug 2011 7,710 Views 0 comment Print CA, CS, CMA | Articles

Amendments applicable for November 2011 Exams

[The Portion in italics is part of Memorandum explaining provisions of Finance Bill, 2010]

Change in rates

1. Rates of Income Tax for A/Y 2011-2012

(i) For woman, resident in India and below the age of 65 years at any time during the p/ y.

Upto Rs. 1,90,000	Nil
Rs. 1,90,001 to Rs. 5,00,000	10%
Rs. 5,00,001 to Rs. 8,00,000	20%
Above Rs. 8,00,000	30%

(ii) For an Individual (man or woman), resident in India who is of the age of 65 years or more at any time during the previous year.

Upto Rs. 2,40,000	Nil
Rs. 2,40,001 to Rs. 5,00,000	10%
Rs. 5,00,001 to Rs. 8,00,000	20%
Above Rs. 8,00,000	30%

(iii) Individuals, [other than those mentioned in above] HUF.

Upto Rs. 1,60,000	Nil
Rs. 1,60,001 to Rs. 5,00,000	10%
Rs. 5,00,001 to Rs. 8,00,000	20%
Above Rs. 8,00,000	30%

à Last year, when exemption limits were increased, taxpayers have responded positively to these contributions by contributing a higher level of taxes.

à That’s why there is a persuasive case for further relief by broadening the current tax slabs i.e. to lower the tax burden on individual taxpayers by widening the tax base.

Effect:

The revised tax slabs do provide an incentive to work harder to earn more and also an incentive to declare income faithfully and pay the tax honestly to taxpayers in the higher income slabs.

There are no tax relief for taxpayers whose total income is less than Rs. 3,00,000 & presently in the 10% tax slab.

Thus, on insertion of sec 80CCF, the only relief to these individuals is the deduction they get by investing upto Rs. 20,000 & this would save the tax upto Rs. 2,060/4,120 & 6,180 in 10%/20% & 30% slab respectively.

Residential Status

2. Fees for technical services means any consideration for the rendering of any managerial, technical or consultancy services Section 9

Following explanation have been amended-

Explanation: – It is not relevant that whether any person is having any residence or place of business in India or has rendered services in India or not. Where income is deemed to accrue as per 6, 7 or 8 then they shall be included in the total income of non-resident even if he is not having any residence or place of business in India or has not rendered services in India.

As per source rule 9, rendering of services is not relevant.

à However in a SC’s judgment in 2007, it was held that for establishing the territorial nexus between such income received & territory of India for any such income to be taxable in India, services have to be rendered as well as utilized in India.

à But that interpretation was not in accordance with legislative intent.

à Therefore, to remove the doubts regarding source rule, explanation was inserted by F.A. 2007 which provides that place of business is irrelevant.

à However Karnataka HC in a recent case of Jindal Thermal Power Company Ltd. held that on a plain reading of explanation, criteria of rendering & utilization of services remain untouched & unaffected.

► Thus, to remove the doubt about the legislative intent of source rule, it is proposed to substitute the explanation. (Applicable retrospective from 1^st June, 1976)

Salary

The limit of Gratuity has been increased to Rs. 10,00,000.

PGBP

3. Scientific research expenditure section 35

a) Deduction of 175% instead of 125% shall be allowed of sum paid to scientific research association or to a university or approved bodies to be used in scientific research.

Note:-

Rate mentioned in point (a) as 175% is applicable only for scienetific research

otherwise for

(i) approved bodies to be used for social science or statistical research.

(ii) any national laboratory or university for an approved programme.

(iii) an approved Indian company, whose main object is scientific research and development.(point 4)

it will remain 125%.

Weighted deduction of 150% has been increased to 200% in case of in house research.

This amendment was made to:

a. incentivise the corporate sector to invest in – house research and

b. to further encourage research and development across all sectors of the economy

4. Deduction for non- businessmen section 80GGA u/s VI –A

Following amendment has been made

The deduction is 100% of the sum paid to following institutions:-

(i) Approved scientific research association, university, college or other institution to be used for scientific research. (similar to sec. 35)

(ii) Approved research association who has as its object the undertaking of research in social science or statistical research or to a university, college or other institution for research in social science or statistical research. (similar to sec. 35)

5. Capital expenditure on capital business section 35AD

Following businesses shall also be included in above section-

a) Building and operating, anywhere in India, a new hotel of two star or above category.

b) Building and operating, anywhere in India, a new hospital with at least 100 beds for patients.

c) Developing and building a housing project under a scheme for slum rehabilitation.

If deduction is claimed under this section then no deduction shall be allowed under any other provisions.

The benefit of investment linked deduction is proposed to be extended to hotel sector to give a boost to investment in the tourism sector which has high employment potential.

6. Expenses not deductible Section 40(a)

Following amendment has been made-

(ii) Any interest, commission, rent, royalty or fees etc. payable to resident on which TDS has not been deducted

or paid before the due date of return of income u/s 139(1).

However deduction shall be allowed in the previous year in which TDS is paid if it is paid after the due date of return of income.

7. Compulsory audit of accounts section 44AB

Limit of 40,00,000 has been increased to 60,00,000 in case of business and from 10,00,000 to 15,00,000 in case of profession.

For the purpose of presumptive taxation u/s 44AD, the threshold limit of total turnover or gross receipts would be increased from 40 lakhs to 60 lakhs.

The threshold limit is proposed to be increased to facilitate business operations of small taxpayers. Means to reduce the compliance burden of small businesses and professionals.

Capital gains

8. Transfer not regarded as transfer Section 47

Following conditions for Conversion of a private company or an unlisted public company into a LLP have been inserted-

Transfer of capital asset by a private company or unlisted public company to a limited liability partnership or any transfer of shares held in the company by a shareholder as a result of conversion of the company if

(i) a,bc,d in 7 are satisfied

(ii) total sales or receipts of the company in any of the 3 preceding previous year does not exceed 60 lacs.

(iii) no amount is paid to any partner out of accumulated profits on the date of conversion for 3 years.

Consequential amendments

a. It is proposed to allow carry forward and set – off of business loss and unabsorbed depreciation to the successor LLP which fulfills the above mentioned conditions.

b. It is also proposed that the aggregate depreciation allowable to the Predecessor Company and successor LLP shall not exceed, in any P/Y, the depreciation calculated at the prescribed rates as if the conversion had not taken place.

c. It is further proposed that the actual cost of the block of the assets in case of the successor LLP shall be WDV of the block of assets as in the case of the predecessor company on the date of conversion.

d. It is also provided that the cost of acquisition of the capital asset for the successor LLP shall be deemed to be the cost for which the predecessor company acquired it.

To facilitate the conversion of small companies into LLPs, it is proposed that this will not subject to Capital gains tax.

9. Cost Inflation index (CII) for F/Y 10-11 is 711

Other Sources

10. Specific income section 56(2)

Following income shall be treated as income from other sources under this section-

Where a firm or a company (not being a company in which public are substantially interested) receives any shares of a company (not being a company in which public are substantially interested) without consideration, the FMV of which exceeds 50,000 Rs. or for inadequate consideration.

In order to curb the practice of transferring unlisted shares at prices below their FMV.

11. Corporate dividend tax

Rate of tax changed from 16.995% to 16.609%

Deductions

12. Deduction in respect of subscription to long term infrastructure bonds section 80CCF

New section have been inserted

→ Allowed to individual or a HUF.

→ Deduction is allowed for depositing the amount as subscription to long term infrastructure bonds, as may be notified by the CG.

→ Amount of deduction: Whole of the amount not exceeding 20,000 Rs.

Section is inserted for promoting the investment in the infrastructure sector.

These bonds generally carry a comparatively low rate of interest and have a lock-in-period of 5 years.

This relief will put more money in the hands of individual taxpayers for both consumption as well as savings.

13. Medical insurance premium section 80D

As per this amendment deduction can also be available if any contribution made to the Central Government Health Scheme.

14. Operating Hotels And Convention Centre Section 80ID

Terminal date has been increased from 31.3.10 to 31.07.2010.

To provide some more time for these facilities to be set up in the light of the Commonwealth Games in October, 2010.

Total Income

15. Surcharge

In case of companies rate of surcharge have been decreased from 10% to 7.5%.

For phasing out surcharge, current surcharge is reduced.

Assessment Procedure

16. Return of exempted entities Section 139(4C)

As per this amendment the word “Scientific” has been deleted from scientific research association.

Charitable Trust

17. Definition of charitable Purpose Section 2(15)

The carrying on any activity in the nature of trade, commerce or business for ‘advancement of any other object of general public utility’ is to be considered as for ‘charitable purpose’ provided aggregate receipts from such activities are 10,00,000 Rs. or less in the relevant F/Y.

Mischief:-

à The absolute restriction on any receipt of commercial nature may create hardship to the organizations which receive sundry considerations from such activities.

That’s why this section is proposed to be amended.

à In other words, for giving some relaxation in this restriction, amendment is proposed.

Example: –

One example could be a chamber of commerce otherwise eligible for exemption because of its object of promotion of commerce, which is an object of general public utility, losing its exemption merely because it renders some service to its members like charging certification fee by way of service to members. It is apparently recognized that the total disqualification for exemption in such cases is not fair.

TDS

18. Exemption limits section 194B, 194C, 194D, 194H, 194I, 194J

Threshold limits for payments mentioned in following sections are proposed to be raised.

S.No.	Section	Nature of payment	Existing Limit (Rs.)	Proposed Limit (Rs.)
1.	194B	Winning from Lottery	5,000	10,000
2.	194BB	Winning from Horse Races	2,500	5,000
3.	194C	Payment to contractors	20,000 (Single transaction) 50,000 (Aggregate of transac.)	30,000 (Single transaction) 75,000 (Aggregate of transac.)
4.	194D	Insurance Commission	5,000	20,000
5.	194H	Commission or brokerage	2,500	5,000
6.	194-I	Rent	1,20,000	1,80,000
7.	194J	Fees for professional or technical services	20,000	30,000