1. Clause 2 – Rates of Taxes

The basic exemption limit of resident women below the age of 60 years may be increased to Rs.2,25,000.

The basic exemption limit of resident individuals of the age of 60 years or more at any time during the previous year may be increased to Rs. 3,00,000.

2. Clause 4— Amendment in Section 9(1)

(a)(i) It is suggested that Explanations 4 and 5 to section 9( 1)(i) and other consequential amendments in sections 2(14) and 2(47) may be given effect to prospectively, i.e. with effect from A.Y. 2013-14, to avoid undue hardship to tax payers consequent to which penalty proceedings may be attracted for –

(1) non-payment of tax by the person whose income is deemed to accrue or arise in India and

(2) non-deduction of tax at source and disallowance of expenditure on account of non-deduction of tax at source in the hands of the person on whom the obligation to deduct tax at source is vested on account of the retrospective amendment.

(ii) Further, it is suggested that the words “derives directly or indirectly, its value substantially from the assets located in India” may be subject to different interpretations. The scope of “indirectly” may be defined to clarify the true intent of law. Further, the term “substantially” also need to be defined by specifying exact parameters like a specific percentage, as in section 2(32) of the Income-tax Act, 1961 or clause 314(185) of the Direct Taxes Code Bill, 2010 to avoid scope for any disagreements / litigation.

(iii) Furthermore, the liability to tax in India should be restricted to the extent of value derived from the assets located in India and not the value of the entire transaction.

(iv) The definition of royalty under section 194J may be delinked from the definition of royalty in section 9(1)(vi). There should be an independent definition of royalty under section 194J, since otherwise purchase and sale of software may fall within the definition of royalty, whereas the intent of proposed royalty definition is to cover exploitation of intangible assets.

(b) It is suggested that Explanations 4, 5 and 6 should be inserted with effect from 1.4.2013 and made applicable from A.Y.2013-14 onwards to avoid undue hardship to tax payers consequent to which penalty proceedings may be attracted for –

(i) non- payment of tax by the person whose income is deemed to accrue or arise in India and

(ii) non-deduction of tax at source and disallowance of expenditure on account of non-deduction of tax at source in the hands of the person on whom the obligation to deduct tax at source is vested on account of the retrospective amendment.

(c) It is suggested that the proposed Explanation to section 9(1)(vi) may be suitably re-worded.

3. Clause 5-Amendment in section 10(10D)

Instead of any sum received being made chargeable to income tax, only the sum, which is in excess of the premium payments made by the insured to the insurer should be considered as income exigible to tax. Suitable clarifications may be made accordingly.

4. Clause 3(iii), Clause 15 and Clause 16 – Amendment in sections 2(19AA)(iv), 47(vii) and 49

a) Since, the amendments are clarificatory in nature and are proposed to remove the conditions which were impossible to fulfill, it is suggested to make them applicable with retrospective effect i.e. from the date when the above conditions were inserted in the said sections i.e. for Section 47 (vii) with effect from 1 April 1967 and for Section 2(19AA) with effect from 1 April 2000.

b) Section 2(1B)(i) may be amended appropriately to provide that all the property of the amalgamating company or companies (other than assets like shares, debentures etc. held by any amalgamating company or  companies in another amalgamating company or companies) before amalgamation becomes the property of the amalgamated company by virtue of amalgamation. Corresponding amendment may also be made in Clause (ii) of section 2( 1B).

5. Clause 11 and Clause 77 – Amendment in Section 40 and Section 201.

The provisions of section 40(a)(ia) and section 201(1) may be amended retrospectively with effect from 1.4.2005 in order to clarify the real intent of law and to remove hardship, thereby reducing further litigations.

The later part of the proposed second proviso may be suitably amended to provide that it shall be deemed that the assessee has deducted tax in the relevant previous year and paid the tax on such sum on or before the due date of furnishing the return of income.

6. Clauses 13 and 14 – Amendment in sections 44AB and 44AD – Consequential amendment required in section 47(xiiib)

The limit of total sales, turnover or gross receipts in the business of a company for availing the benefit under section 47(xiiib) on conversion to an IJIJP may be suitably increased to Rs. 1 crore, in line with the limits in section 44AB and section 44AD. In fact, with a view to popularize the concept of IJIJP and also in view of the fact that such provision should apply to all cases of revenue neutral conversions from one form of entity to another form of entity, there should be no threshold on turnover, to avail the benefit under section 47(xiiib).

7. Clause 14- Amendment in section 44AD

The provisions of sub-section (6) of section 44AD should be made effective from A.Y.2013-14, since the persons earning income in the nature of commission or brokerage and persons carrying on agency business who had opted for presumptive taxation for A.Y.2011-12 and A.Y.2012-13 in the absence of specific exclusion in the definition of “eligible assessee” or “eligible business” would face genuine hardship on account of such retrospective amendment.

Further, instead of inserting sub-section (6), the definition of “eligible business” be amended to exclude professions, agency business and business in respect of which the earnings are in the form of commission or brokerage.

8. Clause 19 – Insertion of new section 54GB

a) The benefit under section 54GB may be extended to long-term capital gains on sale of any capital asset which is invested in the equity of a new start-up SME company for purchase of new plant and machinery within the prescribed time.

b) Investment in existing SME company may also be considered for the purpose of such exemption.

c) Further, investment in IJIJP which satisfies the condition of SME enterprises may also be permitted, subject to conditions as may be necessary. Restrictive clauses may be inserted in line with the appropriate clauses of the proviso to section 47(xiiib).

d) The restricted time limit for acquiring new plant and machinery will create difficulties and, therefore, it is  suggested that the SME company may be allowed to make such investment in new plant and machinery within a period of 2 years from the date on which the assessee makes the investment in its equity shares.

e) The period of 5 years for retaining the equity shares may be reduced to 3 years, in line with the requirement under section 54EC. Suitable exceptions for takeover/ merger/amalgamations etc. may also be provided.

f) Similarly, lock-in-period for plant and machinery acquired by the SME company may be reduced from 5 years to 3 years.

g) It may be clarified that the net consideration after deduction of tax at source @1% may be required to be invested, so that there is no cash flow mismatch.

h) In case of a Sale of joint property , the condition regarding holding of more than 50% of the share capital of the SME company by the assessee should be deemed to have been fulfilled if the co-owners of the said property hold more than 50% of the Share Capital of the SME company.

9. Clauses 21 and Clause 22 – Amendment in Section 56 and Section 68

(i) Clause (viib) in section 56(2) may be deleted. Alternatively, section 68 may be amended to exclude share premium. In such a case, the definition of income under section 2(24) should be amended to include any sum of money referred to in section 56(2)(viib).

(ii) A proviso similar to the proviso to section 56(2)(viia) should be incorporated in section 56(2)(viib) as well. Further, the proviso should also cover transactions not regarded as transfer under sections 47(vi) and 47(vib).

(iii) The Valuation rules should be similar lines to rules prescribed by the Reserve Bank of India on the basis of Discounted Cash Flow method to permit capturing of future potentials in the valuation.

(iv) Valuation Report from an ‘Accountant’ may be admissible so as to justify higher value of a share and the Share Premium on the basis of value of intangible assets, Land and Building etc. Higher valuation of Land and Building may also be supported by an Approved Valuer under the Wealth Tax Act.

10. Clause 21 – Amendment of section 56(2)(vii)

(i) The provisions of clubbing of income as contained in Chapter V of the Income-tax Act, 1961 should not be attracted once the sum of money or value of assets are subject to tax under section 56(2) in the hands of the recipient.

(ii) Lineal descendents of brothers and sisters of self and spouse may also be included in the definition of “relative”.

11. Clause 22 – Amendment in section 68

Since foreign investments are regulated by Reserve Bank of India through FEMA, it is suggested that the proposed clause be amended be made applicable for resident investors only like section 56 (viib).

12. Clause 25- Amendment of section 80D

It is suggested that section 80D be appropriately amended to provide for a deduction of Rs.5,000 for preventive health check-up of any member of the family, which is in addition to the existing limits under that section for medical insurance premium paid.

13. Clauses 27 and 28 – Amendment in sections 80G and 80GGA

It may be clarified as to whether the limit of Rs. 10,000 is applicable in respect of each individual contribution or aggregate contributions to an institution or to all institutions covered under sections 80G(2) and section 80GGA(2), respectively.

Further, since deductions under sections 80GGB and 80GGC are also in respect of donations, the above limit should be made applicable in respect of such contributions to political parties and electoral trusts as well, to dissuade cash payments.

14. Clause 30 – Amendment to Section 80TTA

Interest on time deposits may also be included within the scope of section 80TTA.

15. Clause 31 – Amendments to Sections 90 and 90A

It is suggested that the aforesaid amendments should be deleted.

16. Clause 34 – Amendment to Section 92B

(i) It is suggested to substitute the definition of “international transaction” prospectively w.e. f. 1.4.2013 so that persons who have entered into such transactions in the past, which are now affected due to the proposed changes, do not face undue hardship on account of penal consequences which are attracted due to non-maintenance of prescribed books of account and non-furnishing of report of an accountant and any other associated requirement.

(ii) Transfer Pricing provisions should not be made applicable to marketing intangibles, inter corporate guarantees etc unless a payment is made as it would increase litigation.

(iii) Due to lack of comparables in case of intangibles, appropriate safe harbor provisions may be introduced. Though the enabling provisions for making rules for safe harbour have been conferred on the Central Board of Direct Taxes three years back vide Finance (No.2) Act, 2009, the rules in this regard are yet to be notified. It is suggested that the rules may be notified at an early date so that the tax payers are able to avail the benefit intended by the legislature.

(iv) Further, the requirement of obtaining a Valuation Report from an accountant may also be provided for.

17. Clause 35 – Insertion of Section 92BA

1) Transfer pricing provisions should not be made applicable in respect of domestic transactions, particularly in respect of transactions in the nature of  expenditure under section 40A(2). In any case, payment of director’s remuneration in compliance with Schedule XIII of the Companies Act, 1956 and partners remuneration within the limits prescribed under section 40(b)(v) should not be included in the scope of “specified domestic transaction”. In case, such provisions are to be made applicable to domestic transactions, the threshold limit may be increased to atleast Rs.50 crores in respect of transactions covered under section 40A(2)(b).

Alternatively, the amount of expenditure allowed as deduction in the hands of one enterprise as per the arm’s length price determined should be treated as income of the other enterprise, and vice versa i.e. correlative adjustments should be allowed. Also, Advance Pricing Agreements should apply for domestic transactions as well.

2) The Finance Bill proposes to make transfer pricing provisions applicable to specified domestic transactions. As per the proposal, the existing Transfer pricing provisions would be applicable to domestic transactions covered by sections 40A(2), 80-IA(8)/(10) and 10AA and that domestic concerns would have to comply with the rigours of Rule 10D. This would mean that the provisions of section 92CA( 1) w.r.t. reference to the TPO would also apply. The existing administrative machinery of Transfer Pricing (i.e. TPO and DRP) are already over burdened and any further workload without a corresponding increase in the infrastructure will jeopardise the quality of the work.

3) The penalty for non-disclosure in the certificate by Accountant should be much lower and not 2% of the value of international transaction.

18. Clause 36- Amendment in section 92C

It is suggested that as it is possible that there may be more than one arm’s length margin possible and to bring the Indian TP provisions more in line with international practices –

(1) The concept of arm’s length range like the inter quartile range instead of specifying the tolerance band for each industry may be introduced.

(2) Alternately, the existing provision on 5% tolerance band should be extended till such time the government announces the specific industry percentages as was provided by the Finance Act, 2011

(3) At the minimum, the provision of 5% as it existed before the amendment made by Finance Act, 2011 should be extended for the year April 2011- March 2012 for all taxpayers.

19. Clause 39 – Advance Pricing Agreements (APAs)

(1) In line with the recommendations of the Parliamentary Standing Committee on the Direct Taxes Code Bill, 2010, it is suggested that an independent agency appointed by the CBDT consisting of technical and judicial Members, should be entrusted with task of framing APAs, specifying the manner in which ALP is to be determined in respect of an international transaction. The independent agency will advise the Board on APAs in  rder to ensure that the APAs reflect current commercial practices.

(2) An appropriate guidance to the assessees as well as to the TPOs is required, laying the appropriate steps and filtration process under all the recommended methods for transfer pricing by way of case studies which is internationally prevalent.

(3) A mechanism for a review of an APA on account of change in law or facts should be formulated.

(4) Appropriate procedure for withdrawal of application made by a tax-payer for APAs should be provided for in the scheme.

(5) The APAs should also provide for renewal of APAs after the expiry of initial period of applicability, where the business model as well as the law remains the same.

(6) Further, APAs should include a clause to provide that if any DTAA is entered into in future, and the provisions of the DTAA are more beneficial, the same would be applicable to the tax-payer.

(7) For bilateral APA, the APA and MAP negotiation between the two Competent Authorities should commence simultaneously.

20. Clause 46- Amendment in section 115JB

Clauses (b) and (e) of Explanation 1 may be deleted with effect from 1st April, 2012.

21. Clause 47-Amendment in section 115JC

It is suggested that the provisions should be amended appropriately to clarify that the specified persons are entitled to set-off AMT credit even when their adjusted total income falls below Rs. 20 lakhs in the year of set-off.

Further, even if the tax payer has discontinued the business, he should be allowed to set-off AMT credit, in line with the set¬off of business losses allowed even after discontinuance of business.

The benefit of carry forward and set-off of AMT credit should be permitted also in case of conversion of sole proprietorship to firms and LLPs.

22. Clause 54- Amendment in section 1 15U

Section 115U may be suitably amended to clarify the correct intention of law as laid down in the Explanatory Memorandum i.e. taxability of income in the hands of the investor and deduction of tax at source from such income by the VCC/VCF and non-applicability of dividend distribution tax in the hands of the VCC/VCF.

23. Clauses 61 and 62 – Amendment in Section 147 read with section 149

(i) It is suggested that the Explanation proposed to be inserted after section 149(3) be omitted so that effect of this provision is made applicable with effect from a prospective date. Alternatively, it may be provided that assessments for A.Y.2007-08 or thereafter may be  reopened on the basis of the amended provisions of section 149(3).

(ii) Reassessment proceedings initiated for a period prior to six years should be restricted to only income arising out of assets located outside India.

(iii) Further, appropriate amendments may be made to address the genuine hardship which assessees who are subject to presumptive tax provisions may face on account of such provision.

(iv) The term “financial interest” may be defined to ensure clarity.

(v) Giving way forward for the accountability of the revenue, the provisions of section 147 deeming income to have escaped assessment in the hands of a resident having an asset located outside India may be replaced by provisions vesting the onus on the Assessing Officer to provide that the income from such foreign asset has actually escaped assessment.

24. Clause 71 – Amendment of section 194J

(i) Section 194J be amended to provide an independent limit of Rs.30,000, above which remuneration or fees or commission to director may be subject to tax deduction at source.

(ii) Section 40(a)(ia) be amended to include within its scope payment to a director on which tax deductible at source has not been deducted.

25. Clause 73 – Introduction of new section 194LAA

(1) The requirement to deduct tax at source may be on the transferee or the payee, as the case may be.

(2) Since the main objective of this provision is to have a reporting mechanism in the real estate sector, deduction of tax on the actual sale consideration will serve the said requirement. Therefore, the provisions of adopting stamp valuation may be removed.

(3) Assessing Officers may be empowered to give exemption from deduction on the assessee furnishing declaration that capital gains exemption would be availed by investing as per the requirements of section 54, 54F, 54EC etc. He may be authorised to issue a non-deduction certificate specifically for this purpose.

(4) Appropriate clarifications be issued in respect of property jointly owned, part payments made in respect of property before 1st October, 2012 etc. Given the plethora of issues, the provisions may be re-considered before enactment.

26. Clause 76- Amendment in section 197A(1C)

This probably results in unintended hardship to these senior citizens and hence, it is suggested that the proposed amendment u/s 197A should also be effective 01 April 2012 in line with the amendments u/s 80D and 80DDB.

Form 15H may also be amended requiring declaration under section 197A(1C) to be made by an individual who is of the age of sixty years or more at any time during the previous year rather than sixty five as mentioned presently in the Form.

27. Clauses 67, 68 & 89 – Provision for rectification and appeal of intimation under section 200A

The provisions amending sections 154, 156 and 246A to provide for rectification and appeal of intimation under section 200A and deeming such intimation as notice of demand may be given effect to retrospectively.

28. Clause 81 – Amendment of section 209

Interest under section 234C may be waived off in such cases. In the alternative, the liability to pay interest should arise only in respect of instalments which fall due after such non-deduction or non-collection.

29. Clause 90 – Provisions Related to Dispute Resolution Panel (DRP)

The enhancement powers given to the Dispute Resolution Panel (DRP) will create more legal disputes than resolve. The primary task of finding a dispute is that of the AO and the DRP is supposed to resolve the dispute. The proposed powers will lead to creation of disputes at the DRP level.

30. Clause 96- Insertion of section 271AAB

Sub-section (3) may be amended to provide that the prosecution provisions under sections 274 and 275 would apply in relation to penalty levied only under clause (c) of this sub-section, and not in respect of cases covered under clauses (a) and (b).

31. Clause 98 – Insertion of section 271H

(i) Sub-section (3) may be amended to provide that penalty provisions under section 271H would not be attracted if the person proves that after paying tax deducted or collected along with the fee and interest, if any, to the credit of the Central Government, he has delivered or caused to be delivered the statement referred to in section 200(3) or the proviso to section 206C(3) before the expiry of due date of filing of return of income of the previous year in which the tax was so deducted or collected, irrespective of the quarter to which the tax relates.

(ii) Penalty may be prescribed having regard to quantum of default and the period of delay, and no discretion may be given to the Assessing Officer in this regard. In any case, it should not exceed the tax deductible or collectible at source, in respect of which the quarterly statement has not been filed.

32. Provision to be incorporated in the Finance Bill, 2012 to incorporate deduction in respect of investments made in Rajiv Gandhi Equity Savings scheme

A clause may be incorporated in the Finance Bill, 2012 to give effect to the above proposal.

Further, while giving effect to the above proposal, the benefit of deduction may be extended to existing retail investors also, in order to achieve the intended objective of encouraging continued flow of savings in financial markets.

33. General Anti Avoidance Rule (GAAR)

1) All the other recommendations given by the Parliamentary Standing Committee in respect of GAAR provisions under the Direct Taxes Code Bill, 2010 may also be considered with regard to the relevant provisions of GAAR in the Income-tax Act, 1961.

2) Applicability of GAAR provisions may be restricted only to instances of tax avoidance, as against legitimate tax planning, i.e., where the tax benefit is not within the intended scope of the Indian Income Tax Act, 1961; rather than covering all cases involving a tax benefit.

3) The constitution of the Approval Panel may include members from judiciary bodies, independent of the Income Tax Department. Objective guidelines, in the form of Notifications or Circulars may also be provided to illustrate cases where the Revenue Authorities will, and importantly, will not invoke GAAR.

4) The initial burden of proof must be placed on the Revenue Authorities, to prima facie make out a case for invoking GAAR.

5) Appropriate thresholds must be prescribed in order to prevent GAAR provisions being applied to cases which do not cross such thresholds. The thresholds may be defined with reference to any or more of the following:

a. Taxable income of the taxpayer involved,

b. Quantum of income or expense involved in the transaction,

c. Quantum of tax benefit or tax rate differential involved.

6) It is suggested that the existing provisions of sections 245N to 245V relating to Advance Ruling be extended to any arrangement or transaction to be entered into by Residents with Residents also. It may also be provided that if AAR approves any arrangement or transaction the provisions relating to GAAR (Sections 95 to 102) will not apply.

7) Transactions which have passed the specific anti-avoidance tests should not be subject to the rigors of GAAR. A specific exemption may be provided in this regard.


1. Section 43A – Exchange fluctuation loss due to sharp fall in Rupee value

It is suggested that Section 43A be amended to allow Capitalization of such foreign exchange loss even for domestically acquired asset.

2. Investment in Section 80CCF

Deduction under section 80CCF may be extended for the financial year 2012-13 and subsequent years and the limit may be suitably enhanced.


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