CA Vinamar Gupta
Analysis of Direct Tax Amendments in Finance Act 2016 passed on 14-05-2016 (including changes made in Finance Bill)
Finance Bill 2016 comprised 12 Chapters, 238 Clauses and 15 Schedules spread over 221 pages. It brought in Krishi Kalyan Cess, Infrastructure Cess, Equalization Levy, The Income Declaration Scheme, Direct and Indirect Tax Dispute Resolution Schemes and amendments previous Finance Acts ranging from Finance Act 2001 to 2015 . The Journey of Change did not end here and In Lok Sabha 47 further amendments were brought in Finance Bill on 29-04-2016 including insertion of 3 more clauses there by increasing total clauses to 241.
Out of this first 115 clauses, Introduction of Equalization Levy under Chapter VIII, The Income Declaration Scheme under Chapter IX and Direct Tax Dispute Resolution Scheme under Chapter X and Schedule I on tax rates deal with the Changes made in Direct Taxes.
1. Tax Rates:
For AY 2017-18, In case of domestic companies where its total turnover or the gross receipt in the previous year 2014-15 does not exceed five crore rupees tax shall be charged @ 29%.
Comments:
Tax rate for financial year 2016-17 has been determined on the basis of FY year 2014-15, because companies have already filed their return for 2014-15. Hence so that companies may not under state their turnover for 2016-17, to avail 1% tax benefit, the base year of 2014-15 instead of 2015-16 has been taken. At the same time if turnover of the company for 2014-15 is merely 50 lacs and turnover for 2015-16 is 500 crores, still rate of 29% shall apply for AY 2017-18
In case of companies not in existence in 2014-15, whether turnover can be assumed lesser than 5 crore is a moot point not answered in Finance Act.
2. Gold Monetization and Gold Bonds Scheme
Brief Discussion on Schemes
a) Gold Monetization Scheme: The scheme comprises purity verification , opening of gold saving account accounts with banks, transfer of gold to refiners, utilization of deposited gold, lending of gold to jewelers. Interest rate on saving account to be deposited by banks. Principal and Interest to be paid in gold. Option for redemption in cash or gold. The deposits under the revamped scheme can be made for a short-term period of 1-3 years (with a roll out in multiples of one year); a medium-term period of 5-7 years and a long-term period of 12-15 years (as decided from time to time). Like a fixed deposit, breaking of lock-in period will be allowed in either of the options and there would be a penalty on premature redemption (including part withdrawal) The jewellers, on the basis of the terms and conditions of the banks, will get a gold Loan Account opened at the bank. When agold loan is sanctioned, the jewellers will receive physical delivery of goldfrom the refiners. The banks will in turn make the requisite entry in the jewellers’ gold Loan Account
b) Gold Bond Scheme
As per Soverign Gold Bonds Scheme, physical form of gold is converted into form of Soveriegn Gold Bonds (SGB). Investors are assured of market value of gold at the time of maturity plus periodical interest @ 2.75% payable semi annually. The tenure of bonds is 8 years with exit option at 5th , 6th and 7th year. Bonds can be used as collaterals for loan[Loan to value (LTV) to be decided by RBI. Bonds can also be traded on exchange thus providing an option to make early exit. Bonds carry soverign guarantee against capital invested and interest. Only resident Individuals, HUFs, trusts, universities and charitable institutions are eligible to invest. Joint holding in Gold Bonds is allowed and minors can also hold the bonds provided application is made by guardian of the minor. Bonds are issued in denomination of gram and and minimum investment in SGB is 2 gms and maximum investment in a financial year is 500 gms. The issue price of SGB is previous week (Mon-Friday) simple average of closing price of gold of 999 purity published by Indian Bullion and Jewellers Association Ltd. (IBJA). The redemption price is also similarly worked out. In case of joint holding limit applies to first holder. The bonds are sold through banks, stock holding corporation and designated post offices and their commission is 1% of subscription amount and receiving offices shall share at least 50% of the commission so received with the agents or sub agents for the business procured through them.
Tax Benefits Imparted for Gold Monetization and Gold Bond Schemes
a) Deposit certificates issued under the Gold Monetisation Scheme, 2015 have been excluded from definition of capital asset u/s 2(14)(vi) from AY 2016-17. Hence there shall be no capital gains tax.
b) Income on deposit certificates issued under the Gold Monetisation Scheme, 2015 has been exempted u/s 10(15) from AY 2016-17
c) any transfer of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015, by way of redemption, by an assessee being an individual has been excluded from transfer for purposes of capital gain by virtue of section 47(viic) from AY 2017-18
d) As per 3rd proviso to section 48, benefit of indexation is not available for bonds and debentures. However, Benefit of indexation shall be available on Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015: Section 48 amended for the purpose from AY 2017-18
Comments : Interest on Gold Bond Scheme has not been exempted. Also redemption under gold bonds scheme has been exempted, however, transfer has not been exempted. However transfer has been imparted indexation benefit.
3. Electronic Hearing
Clause 2(23C) inserted to provide that “hearing” includes communication of data and documents through electronic mode
As per Section 282A inserted by the Finance Act, 2008, w.e.f. 1-6-2008.
On Authentication of notices and other documents.
282A. (1) Where this Act requires a notice or other document to be issued by any income-tax authority, such notice or other document shall be signed in manuscript by that authority.
(2) Every notice or other document to be issued, served or given for the purposes of this Act by any income-tax authority, shall be deemed to be authenticated if the name and office of a designated income-tax authority is printed, stamped or otherwise written thereon.
(3) For the purposes of this section, a designated income-tax authority shall mean any income-tax authority authorised by the Board to issue, serve or give such notice or other document after authentication in the manner as provided in sub-section (2)
Section 282A(1) has been amended wef 01-06-2016 to provide that Where this Act requires a notice or other document to be issued by any income-tax authority, such notice or other document shall be signed in manuscript by that authority signed and by that authority in accordance with such procedure as may be prescribed
Comments: While section 282A(1) deals with manner of issuing documents by Income Tax Authority , Section 282 deals with stage subsequent to issuing of documents i.e. manner of service of a notice or summon or requisition or order or any other communication under this Act. Section 282 requires delivery or transmission by post or approved Courier or in the manner provided in Code of Civil Procedure or in form of electronic record under Information Technology Act, to an address as specified in Rule 127 [ R.127 inserted w.e.f. 02-12-2015] in order to effectuate service under the law.
4. Central Government Subsidy to Central/ State Govt Trusts excluded from definition of Income wef AY 2017-18
The Finance Act, 2015 had amended the definition of income under clause (24) of section 2 of the Act so as to provide that the income shall include assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43 of the Income-tax Act.
As a result grant or cash assistance or subsidy etc. provided by the Central Government for budgetary support of a trust or any other entity formed specifically for operational zing certain government schemes will be taxed in the hands of trust or any other entity. Therefore, it is proposed to amend section 2(24) to provide that subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or State government shall not form part of income.
5. POEM based residence test of foreign companies deferred till AY 2017-18 and relaxation from provisions of the Income Tax law provided to foreign Companies wef AY 2017-18
Provisions of section 6(3) earlier amended by Finance Act 2015 and reiterated in Finance Bill 2016
A company is said to be resident in India in any previous year, if,—
(i) it is an Indian company; or
(ii) its place of effective management, in that year, is in India.
Explanation.—For the purposes of this clause “place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made.
The amended provisions of Section 6(3) were to come into effect from Assessment Year 2016-17. The Finance Bill, 2016 proposes to defer the implementation of POEM as test of residency by one year to apply from Assessment Year 2017-18 onwards. The Finance Minister in his speech stated that “The determination of residency of foreign company on the basis of Place of Effective Management (POEM) is proposed to be deferred by one year.”
This is to be achieved by omitting clause (ii) of Section 4 of the Finance Act 2015 with effect from 1-4-2016. The amendment to Finance Act 2015 is to be carried out vide Part XV of the Finance Bill 2016. Thus, for assessment year 2016-17, the test of residency for foreign companies continues to be on the touch stone of “control and management’’ of its affairs
In the context of implementation of POEM based residence rule, certain issues, relating to the applicability of current provisions of the Act to a company which is incorporated outside India and has not earlier been assessed to tax in India, have arisen. In particular, the issues relate to applicability of specific provisions of the Act relating to Advance tax payment, applicability of TDS provisions, computation of total income, set off of losses and manner of application of transfer pricing regime. These provisions have compliance requirements which would not have been undertaken by the company at relevant time due to absence of any such requirement under tax laws of country of incorporation of such company. Similarly, issues of computation of depreciation also arise when in earlier years it has not been subject to computation under the Act.
Problems highlighted also arise due to the fact that a company may be claiming to be a foreign company not resident in India but in the course of assessment, it is held to be resident based on POEM being in fact in India. This determination would be well after closure of the previous year and it may not be possible for company to undertake many of procedural requirements. Representations have also been made by stakeholders that the implementation of POEM be deferred by a year, by which time clarity regarding guidelines and applicability of other provisions of the Act would be in place.
Chapter XII-BC introduced in Income Tax Act 1961
115JH(1) Where a foreign company is said to be resident in India in any previous year and such foreign company has not been resident in India in any of the previous years preceding the said previous year, then, notwithstanding anything contained in this Act and subject to the conditions as may be notified by the Central Government in this behalf, the provisions of this Act relating to the computation of total income, treatment of unabsorbed depreciation, set off or carry forward and set off of losses, collection and recovery and special provisions relating to avoidance of tax shall apply with such exceptions, modifications and adaptations as may be specified in that notification for the said previous year:
Provided that where the determination regarding foreign company to be resident in India has been made in the assessment proceedings relevant to any previous year, then, the provisions of this sub-section shall also apply in respect of any other previous year, succeeding such previous year, if the foreign company is resident in India in that previous year and the previous year ends on or before the date on which such assessment proceeding is completed.
(2) Where, in a previous year, any benefit, exemption or relief has been claimed and granted to the foreign company in accordance with the provisions of sub-section (1), and, subsequently, there is failure to comply with any of the conditions specified in the notification issued under sub-section (1), then,—
(i) such benefit, exemption or relief shall be deemed to have been wrongly allowed;
(ii) the Assessing Officer may, notwithstanding anything contained in this Act, re-compute the total income of the assessee for the said previous year and make the necessary amendment as if the exceptions, modifications and adaptations referred to in sub-section (1) did not apply; and
(iii) the provisions of section 154 shall, so far as may be, apply thereto and the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the failure to comply with the condition referred to in sub-section (1) takes place.
(3) Every notification issued under this section shall be laid before each House of Parliament.
Comments
For Example during assessment for AY 2017-18 completed on 24-12-2020, it comes to notice of AO that POEM of foreign company is in India. So, exceptions u/s 115JH shall not only apply to PY 17-18,18-19 also i.e. relevant to AY 18-19 and AY 19-20 But not w.r.t. AY 2020-21 relevant to previous year 2019-20.
However other assesses are not provided any relief from procedural requirement for ignorance about their tax liability.
6. Exemption to Foreign Mining Companies from business of uncut and unasserted diamond in Special Zone notified by Central Government [Effective from AY 2016-17]
A “Special Notified Zone” (SNZ) had been created to facilitate shifting of operations by foreign mining companies (FMC) to India and to permit the trading of rough diamonds in India by the leading diamond mining companies of the world. The activity of FMC of mere display of rough diamonds even with no actual sale taking place in India may lead to creation of business connection in India of the FMC. This potential tax exposure has been an area of concern for the mining companies willing to undertake these activities in India. In order to facilitate the FMCs to undertake activity of display of uncut diamond (without any sorting or sale) in the special notified zone, it is proposed to amend section 9 of the Act wef AY 2016-17 by inserting clause (e) in Expl 1 to S.9(i) as under:
“ In the case of a foreign company engaged in the business of mining of diamonds, no income shall be deemed to accrue or arise in India to it through or from the activities which are confined to the display of uncut and unassorted diamond in any special zone notified by the Central Government in the Official Gazette in this behalf”
7. Off Shore Funds u/s 9A
In Finance Act 2015, section 9A was inserted in backdrop of the fact that under the existing provisions, the presence of a fund manager in India may create sufficient nexus of the off-shore fund with India and may constitute a business connection in India even though the fund manager may be an independent person. Also due to nexus with India, activity in respect of investments outside India for an off-shore fund, the profits made by the fund from such investments may be liable to tax in India . Section 9A was inserted to promote promotion of off shore funds in India subject to fulfilment of certain conditions
However conditions u/s 9A(3)(k) that the fund shall not carry on or
control and manage, directly or indirectly, any business in India or from India is being modified to state that the fund shall not carry on or control and manage, directly or indirectly, any business in India. The condition of not carrying on or controlling and managing business from India abolished
One of the other conditions is that fund must be resident of country with which DTAA or TIEA subsists. However in case of some off shore funds like large pension funds or mutual funds from USA or SICAVs (open ended collective investment schemes) from Luxembourg are not resident as per tax laws of other country but still information may be gathered about these as DTAA and TIEA also applies to persons not resident as per tax laws of that country. Hence condition u/s 9A(3)(b) being amended to cover the off shore funds incorporated outside India which are covered by DTAA or TIEA.
8. Equalization Levy:[Chapter VIII of Finance Act 2016]
Internet advertising is rapidly growing both in terms of revenue and share in the total advertising market. The volume of internet advertising reached USD 135.4 billion in 2014. The market for internet advertising is projected to grow at a rate of 12.1% per year during the period 2014 to 2019. As the stakes started rocketing, taxing such virtual transactions attained prominence. The existing provisions of the income-tax statute were unable to tie the noose around these transactions. Perhaps the reason is Indian income-tax legislation is still governed physical presence test. Hence the concept of Equalization levy introduced.
Equalization Levy:
♣ Applicable from date to be notified by Central Government
♣ It extends to whole of India except the state of J&K
♣ Introduced vide Chapter VIII of Finance Bill 2016. Vide S. 160 to S.177 of Finance Bill 2016
♣ Rate @6% as per S.162(1) of Finance Bill
♣ Services covered by Equalization Levy:
a) Online Advertisement
b) any provision for digital advertising space
c) any other facility or service for the purpose of online advertisement
d) and includes any other service as may be notified by the Central Government in this behalf
♣ Charge of tax is on amount of consideration received or receivable by Non Resident from:
(i) a person resident in India and carrying on business or profession; or
(ii) a non-resident having a permanent establishment in India.
♣ Amount chargeable to equalization levy has been exempted u/s 10(50).
♣ Equalization levy shall not apply where
a) Where service recipient is non resident having PE in India and service is effectively connected with such PE.
b) Consideration does not exceed Rs. One lakh.
c) Payment is not for the purpose of business or profession
♣ Equalization Levy shall operate like TDS and shall be deducted from payment to non resident and to be deposited by 7th of following calendar month [Word calendar month specifically mentioned . Hence whether Arvind Mills (Karnatka High Court ) shall apply for other provisions and lunar month shall apply ?] [S. 163]
♣ 1% Interest for delayed payment u/s 167.
♣ Even if equalization levy not deducted, it shall be deposited by service recipient out of his own pocket. S. 163(3) [Whether on gross basis ?]
♣ Disallowance u/s 40(a)(ib) shall be attracted for failure to deduct levy or deposit after deducting till due date of return on amount paid or payable to non resident. [Here words “paid” also used to resolve the controversy of Merilyn Shipping]. Allowance of expenditure only in the year of deposit. [ 163(3) situation not dealt here where amount deposited without deducting]
♣ Statements to be filed with in prescribed time after end of financial year. Belated/Rectified statements may be filed with in 2 years from end of financial year [Here no requirement to file revised return only if original filed in time]. AO may also give notice to file the return. [S.164] Penalty for belated return @ Rs. 100/- per day u/s 169
♣ Intimation and processing of intimation with in one year from the end of financial year in which statement is filed. [However u/s 143(1) it is one year from the end of assessment year.]
♣ Rectification of intimation by AO/assessee with in one year from end of financial year in which intimation issued.[Not served]S.166
♣ Penalty for failure to deduct = Equal to equalization levy [Even if paid u/s 163(3) out of own pocket ?]
♣ Penalty for failure to deposit= Rs. 1000/- per day Max. Equalization levy.
♣ Penalty is subject to pleading reasonable cause and after providing opportunity of being heard[S. 170]
♣ Appeal to CIT A u/s 171; ITAT u/s 172; Prosecution for false statement u/s 173; Applicability of certain provisions regarding summons u/s 131; survey u/s 133A etc
♣ Rule making power is u/s 176 and power to remove difficulties u/s 177
Constitutonal Validity of Equalization levy:
As per S. 161(d) equalization levy means tax leviable on consideration received or receivable for any specified service under the provisions of this Chapter.
The word “tax” has not been defined in Chapter VIII of Finace Bill 2016. As per Clause (j) to Section 161 provides that words or expressions used but not defined in the said Chapter and which are specifically defined in the Income-tax Act; shall have the meanings respectively assigned to them in the Income-tax Act. Section 2(43) of the Income-tax Act defines tax as under:
“”Tax” in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under Section 115WA”
Accordingly, the term ‘tax’ in Chapter VIII of the Finance Bill should mean ‘income-tax’.
Also in order to avoid double taxation of income tax equalization levy has been exempted u/s 10(50). Further if equalization levy had not been tax on income it would have found place in section 43B like other taxes and not 40(a)(ib).
The legislative intention of the proposed Equalisation Levy can be gathered from the budget speech of the Hon’ble Finance Minister (while presenting Finance Bill 2016). At para 151 of his speech he said:
“151. In order to tap tax on income accruing to foreign e-commerce companies from India, it is proposed that a person making payment to a non-resident, who does not have a permanent establishment, exceeding in aggregate ` 1 lakh in a year, as consideration for online advertisement, will withhold tax at 6% of gross amount paid, as Equalisation Levy. The Levy will only apply to B2B transactions.
The Mumbai Tribunal in the case of ADIT v. Chiron Behring GmbH & Co (2008) 24 SOT 278 (Mum) had an occasion to examine the applicability of India-Germany Double Taxation Avoidance Agreement. In the said case, the assessee was liable to pay ‘trade tax’ under the German domestic tax provisions. The Revenue authorities argued that such tax is not covered within the tax treaty. The Mumbai Tribunal rejected this argument by observing that Article 6 of the German Trade Tax Act states ‘The basis of taxation for Trade Tax is the income from the business’. From this finding, it concluded that the trade tax is not a turnover tax, but only is tax on the income from business. Such tax was thus held to be eligible for tax treaty purposes.
Hence equalization levy is a tax on income.
9. Taxation of Dividend for High End assesses
S. 115BBDA inserted w.e.f. AY 2017-18, where Total Income of following types of resident assesses i.e,
a) Individual
b) HUF
c) Firm
includes dividends of a domestic company > Rs. 10,00,000, then amount exceeding Rs 10 lacs shall be chargeable to tax @10% .
1. Balance Income reduced by dividends shall be taxable at normal rates
2. No expenditure or deduction is allowable against dividend income.
3. Here dividend u/s 2(22)(e) is not covered.
4. Section 10(34) also amended to provide that dividend taxable u/s 115BBDDA shall not be exempt.
5. Dividend received from foreign companies is not taxable.
6. Generally firms are not eligible as shareholders but LLPs shall get covered.
7. Also, corporate assessee, AOP,BOIs, artificial juridical persons, local authorities shall remain tax exemp
An amendment has been made in Finance Act 2016 as passed by Loksabha providing that for the purpose of calculating limit of 10 lacs income in aggregate by way of dividends to be taken and 10% tax to be computed on aggregate amount of dividends in excess of 10 lacs. Thus individual dividends of domestic company can not be segregated to apply the tax u/s 115BBDA.
10. TCS on luxury cars and transactions exceeding Rs. two lacs
1. U/s 206C, TCS on Alcohlic liquor is 1%, on Tendu leaves @ 5%, Timber and other forest products @2.5%, scrap and minerals @1% . Sellers under category of Central government, state govt, company , fim, co-operative societies and Individual/HUF having turnover exceeding audit limit are covered and can collect the same only from buyer not using and certifying that goods are for manufacturing. [S.206C(1)]
2. U/s 206C(IC) parking lots, toll plazas, mining are taxable @ 2%.[S.206C(1C)]
3. Also at present, cash sale of bullion for amount exceeding Rs. Two lacs and cash sale of jewellery exceeding Rs. Five lacs is chargeable to TCS @ 1%.[S.206C(1D)]
4. CBDT vide notification dated 30-12-2015, mandated compulsory furnishing of PAN for all sales/ purchases of motor vehicle and also for all transactions of cash sale/purchase of goods or services exceeding Rs. Two lacs. This limit made applicable to jewelery transactions also. It took effect from 01-01-2016. Further AIR Information regarding receipt of cash payment exceeding two lakh rupees for sale, by any person, of goods or services of any nature to be furnished by any person who is liable for audit under section 44AB of the Act made effective from 01-04-2016.
5. Persons who are required to collect TCS as “Seller” are:
a) Central Government,
b) a State Government or
c) any local authority or
d) corporation or authority established by or under a Central, State or Provincial Act, or
e) any company or
f) firm or
g) co-operative society and also includes
h) An individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year
Persons not covered:
a) Individual carrying on business whose turnover u/s 44AB(a) is less than or equal to One crore for immediately preceding financial year or
b) Individual carrying on profession whose turnover u/s 44AB(b)
a) For the purpose of Financial year 2016-17, whose gross receipts is less than or equal to 25 lacs for immediately preceding financial year 2015-16
i) For Financial Year 2017-18 and onwards, whose gross receipts is less than or equal to 50 lacs for immediately preceding financial year 2016-17 and onwards
c) HUF carrying on business whose turnover u/s 44AB(a) is less than or equal to One crore for immediately preceding financial year or
d) HUF carrying on profession whose turnover u/s 44AB(b)
i) For the purpose of Financial year 2016-17, whose gross receipts is less than or equal to 25 lacs for immediately preceding financial year 2015-16
ii) For Financial Year 2017-18 and onwards, whose gross receipts is less than or equal to 50 lacs for immediately preceding financial year 2016-17 and onwards
e) AOP, whether incorporated or not
f) Body of Individuals, whether incorporated or not
g) Society registered under Societies registration Act. Wholly for charitable or religious purposes even if carrying on business which is incidental to the objects of the Society
h) Trust, not being section 25 company, Wholly for charitable or religious purposes even if carrying on business which is incidental to the objects of the trust
i) Association or Institution entitled to exemption u/s 10.
j) Club
6. TCS on motor vehicles for value exceeding Rs. 10 lacs and on sale of goods or provision of services exceeding two lacs is applicable even if motor vehicle or goods or services for personal consumption.
a) TCS on Luxury Cars
i) In Finance Bill 2016, w.e.f 01-06-2016, TCS was imposed on transactions of sale of motor vehicles for value exceeding Rs. 10 lacs @1% u/s 206C(1)
ii) In S.206C(1) exemption from TCS could be claimed by manufacturer if declaration regarding use in manufacturing is provided by the buyer in Form 27C. Since motor vehicles are not raw material, the placement of motor vehicles u/s 206C(1) was actually a misfit.
iii) The legislature realized the anomaly and Motor Vehicle for value exceeding Rs. 10 lacs were planted to specifically enacted Sub-section 206C(1F). As per Section 206C(1F)
Every person, being a seller, who receives any amount as consideration for sale of a motor vehicle of the value exceeding ten lakh rupees, shall, at the time of receipt of such amount, collect from the buyer, a sum equal to one per cent of the sale consideration as income-tax.
The definition of buyer also extended to include the person who obtains in any sale, goods of the nature specified in the said sub-section (i.e. Motor Vehicle for value exceeding Rs. 10 lacs)
Comments :
1. TCS is applicable on full amount of consideration on receipt of any amount of consideration which may be a paltry sum
2. In case 1% exceeds the amount received, the collection from the buyer shall become difficult and only the sum received can be deposited and not the 1% of full consideration.
3. As per definition of the buyer in case of 206C(1F), right to receive is not covered, hence no TCS should be applied on payment for advance booking.
4. 206C(1F) is not applicable to luxury cars only as is normally propagated but applicable to all the motor vehicles.
5. TCS on motor vehicles for value exceeding Rs. 10 lacs to be collected even if there is no cash receipt.
6. Where value of motor vehicle is lesser than 10 lacs, 206C(1D) might apply in case any amount is received in cash.
b) TCS provisions regarding Sale of Goods and Provisions of Service
Relevant TCS provisions
As per Section 206C(1D) amended wef 01-06-2016,
Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery or providing any service, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax, if such consideration,—
(i) for bullion, exceeds two hundred thousand rupees; or
(ii) for jewellery, exceeds five hundred thousand rupees;or
(iii) for any goods, other than those referred to in clauses (i) and (ii), or any service, exceeds two hundred thousand rupees
Provided that no tax shall be collected at source under this sub-section on any amount on which tax has been deducted by the payer under Chapter XVII-B
(1E) Nothing contained in sub-section (1D) in relation to sale of any goods (other than bullion or jewellery) or providing any service shall apply to such class of buyers who fulfil such conditions, as may be prescribed
Explanation.—For the purposes of this section-
(aa) buyer” with respect to—
(i) sub-section (1) means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the Table in sub-section (1) or the right to receive any such goods but does not include,—
(A) a public sector company, the Central Government, a State Government, and an embassy, a High Commission, legation, commission, consulate and the trade representation, of a foreign State and a club; or
(B) a buyer in the retail sale of such goods purchased by him for personal consumption;
(ii) sub-section (1D)or sub-section (1F) means a person who obtains in any sale, goods of the nature specified in the said sub-section;
(c ) seller” means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) or sub-section (1D)] are sold or services referred to in sub-section (1D) are provided
Analysis
Scope of Transactions Covered
As per S.206C(ID) TCS is applicable to Seller who receives any amount in cash as consideration for :
a) Sale of Goods or
b) Provision of Service
Issues Involved:
i) Whether TCS applicable to full Sale Consideration or Consideration received in cash for Sale of Goods or Provisions of Service
The Principal issue involved is whether TCS is to be collected on:
a) The amount of cash received only or
b) The full amount of sale consideration where any amount is received in cash as consideration for Sale
Opinion:
Finance Minister’s Budget Speech (para 149 of the Budget Speech)
149. I also propose to collect tax at source at the rate of 1% on purchase of luxury cars exceeding value of Rs.ten lakh and purchase of goods and services in cash exceeding Rs.two lakh. For compliant tax payers with resources, this levy not only advances collection of tax when the expenditure is incurred, but it provides data to the tax authorities to identify the persons who incur such expenditure, but may be missing from the tax base. Farmers and notified class of persons will have an option of giving a form by which TCS will not be charged.
Memorandum Explaining the provisions of Finance Bill 2016
The existing provision of section 206C of the Act, inter alia, provides that the seller shall collect tax at source at specified rate from the buyer at the time of sale of specified items such as alcoholic liquor for human consumption, tendu leaves, scrap, mineral being coal or lignite or iron ore, bullion etc. in cash exceeding two lakh rupees.
In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high value transactions within the tax net, it is proposed to amend the aforesaid section to provide that the seller shall collect the tax at the rate of one per cent from the purchaser on sale of motor vehicle of the value exceeding ten lakh rupees and sale in cash of any goods (other than bullion and jewellery), or providing of any services (other than payments on which tax is deducted at source under Chapter XVII-B) exceeding two lakh rupees.
It is also proposed to provide that the sub-section (1D) relating to TCS in relation to sale of any goods (other than bullion and jewellery) or services shall not apply to certain class of buyers who fulfil such conditions as may be prescribed.
This amendment will take effect from 1st June, 2016.
Section 206C(1D)
Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery or providing any service, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration
Hence
a) As per Memorandum explaining provision of Finance bill 2016, TCS @1% is applicable to sale in cash of any goods exceeding two lakh rupees.
b) However as per express provisions of S.206C (1D), TCS is collected @ 1% of Sale Consideration for receipt of any amount in cash as consideration for sale of goods.
So, there appears to be a contradiction with in the provisions of law and memorandum explaining provisions of finance bill. While as per Memorandum explaining finance bill and FM’s Speech, TCS is applicable only on cash sale of goods for sum exceeding Rs. 2 lacs, the express provisions provide that even if a paltry amount against sale exceeding Rs. 2 lacs is received in cash, the entire sale consideration to be brought under TCS net and not to be restrained to the amount of cash receipt.
ii) Whether TCS is applicable to sale or provision of services made before 01-06-2015
The point of taxation for TCS on sale of goods or provision of service is
“the time of receipt of such amount in cash” and not Sale of Goods
Hence ,If sale consideration amount is outstanding on 31-05-2016, and any amount is received there after in cash , the assessee is liable to pay tax on the amount received after 31-05-2016 in respect of transactions executed before 31-05-2016. However, another incidental issue involved is :
1. Whether only the amount received in cash after 31-05-2016 out of outstanding balance on 31-05-2016 shall be exigible to TCS or
2. Whether the entire amount of consideration excluding the amount received before 01-06-2015 become exigible to TCS
Opinion
As per Section 206C(ID):
“Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery or providing any service, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax”
TCS to be collected on 1% of sale consideration and not amount in cash as consideration for sale of goods. Hence, TCS might apply on entire sum reducing the amount received before 01-06-2016.
iii) Whether TCS is applicable where both sale of goods and provision of service is involved i.e. in the case of works contract
As per Section 206C(ID), TCS is applicable on sale of goods or provision of service. However, where both sale of goods and provision of service is involved, an issue arises that whether TCS provisions u/s 206C(ID) shall become applicable.
Opinion
As per Article 366(29A), transfer of property in goods in case of works contract is deemed as sale. Further as per Section 66E(b) and 66E(h), service portion is declared service in case of works contract. Hence TCS shall become applicable to works contract also. However the matter needs clarification by legislature.
iv) Whether 1% TCS to be collected on the amount of Vat and Excise Duty Charged.
Opinion
The word sale consideration is not defined under Income Tax Law but as per Section 145A, “…….the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head “Profits and gains of business or profession” shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation ………..”
Hence TCS to be charged on full amount of sale consideration. Taxes, Duties, Cess or fee can not be segregated. The word “Sale Consideration” can not be equated with “Gross Turnover” u/s 44AB , where in refundable taxes are required to be excluded.
v) Whether TCS is applicable to amount of advance received in cash:
The Definition of buyer under Explanation to Section 206C, specifically includes “right to receive” for the purposes of 206C(1), however for 206C(1D), it is missing. So, when advance is paid by the buyer towards right to receive the goods, whether TCS provisions can be applied
Opinion:
The matter requires clarification. If such a version is adopted, the assesses might resort to the policy of receiving entire sum as advance in cash. There by defeating the purpose of introducing the provisions.
vi) Whether TCS is applicable where payment is made through bearer cheque.
Opinion: Since TCS is applicable only to receipt of cash as consideration for sale, TCS provisions u/s 206C(1D) shall not apply where payment is received through bearer cheque
vii) Whether TCS is applicable where goods are exchanged under Barter System [say Jewellery is exchanged for bullion]
Opinion: Since TCS is applicable only to receipt of cash as consideration for sale, TCS provisions u/s 206C(1D) shall not apply where payment is received through exchange of goods.
viii) Whether TCS provisions under section 206C(1D) also cover the goods or services covered by other provisions.
As per Section 206C(1) for alcoholic liquor for human consumption, tendu leaves, timber, forest products, scrap, coal, lignite or iron ore, and as per S.206C(1C), for parking lot, toll plaza and mining and quarrying, TCS is applicable at the time of debit of amount to the account of buyer or receipt of amount in cash or cheque or draft or any other mode, which ever is earlier.
At the same time 206C(1D) is applicable to receipt of any amount in cash as consideration for sale of goods or provision of service.
The issue that arises is that whether 206C(ID) can result in Duplication of levy in respect of goods or services covered by other provisions.
Opinion
One may follow the Latin Maxim Generalia Specialibus Non Derogant i.e. the provisions of a general statute must yield to those of a special one. But the matter should have been clarified by the legislature instead of leaving the taxpayer to the mercy of tax officials.
ix) Whether TCS is applicable where buyer or seller or both are non residents
Opinion: Section 206C does not put any embargo upon transactions with non residents.
But in case of import of goods, where seller is non resident, the provisions of the Act can not be extended beyond India. Further, it the seller who is liable to collect tax and not the resident buyer.
In case of export of goods, where buyer is non resident, enforcing deposit of tax on behalf of buyer who has no income chargeable to tax in India can not be sustained in the Court of law, because TCS is tax collected and paid on behalf of buyer. Further as per Section 9, where operations of non resident are confined to procurement of goods in India, no Income can be deemed to have accrued or arisen in India.
x) Whether TCS is applicable to transactions between two residents where Sale of Goods is in Course of Import i.e. High Sea Sales.
Opinion
High Sea Sales take place before the goods cross the Custom Frontiers of India. Although the Income Tax Act does not extend beyond India and the word “India” is defined u/s 2(25A) as
India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976), and the air space above its territory and territorial waters
However Section 206C(ID) does not place any embargo upon such transactions and hence shall be covered by TCS
(xi) Provision of Services
i. In case of provision of service, the TDS is normally deductible u/s 194C or 194Hor 194J. Hence the seller need not report or pay tax where tax has been deducted by recipient of services. However, the transactions where TDS was deductible but has not actually been deducted, the service provider shall become liable to report and pay TCS, where any amount is received in cash.
ii. In respect of amounts below threshold limits u/s 194C/H/J, no TCS required because threshold limit for TCS is more than threshold limit for TDS
iii. Litigation may arise because of services not defined under Income Tax law. In case of rent and interest, although TDS is applicable but where tax is not deducted and TCS is also not collected, the authorities might allege that rent is declared service u/s 66E of Service Tax law and interest is in form of financial services.
(xii) Personal Consumption
There is no exemption for payment of TCS in respect of goods or services for personal consumption like S.206C(1)
11. Accreted Income (Exit) Tax for Charitable Institutions
1. Introduced by way of Chapter XII-EB to Income Tax Act comprising of sections 115TD , 115TE, IITF. e.f. 01-06-2016
2. Accereted Income tax is the tax at MMR applied to Aggregate FMV of total assets – Total Liabilities (computed as per prescribed valuation method) on
i) Date of cancellation of registration of trust or
ii) Date of modification/adoption to ineligible objects by trust or
iii) Date of merger with trust not registered u/s 12AA or not having similar objects
iv) Date of dissolution of trust.
3. In case of dissolution of firm section 45(4) is applicable and tax is charged on market value of assets on the date of dissolution from the firm. In case of liquidation of company, section 46 is applicable and tax is charged in hands of shareholders on market value of distributed assets on the date of dissolution
4. These provisions have overriding effect over all other provisions .because S.115TD commences with words “Notwithstanding any thing contained in this Act.
5. This chapter is applicable to Trust registered u/s 12AA and not institutions u/s 10(23C). This is also not applicable to registered trust in respect of periods prior to registration. This Chapter is also not applicable to Trust which is unregistered and continues to remain unregistered.
6. This Chapter applies in three circumstances
7. First: 115TD (a) :Trust registered/s 12AA converted into any form which is not eligible for grant of registration under section 12AA.
Further as per S.115TD(3), a trust or an institution shall be deemed to have been converted into any form not eligible for registration under section 12AA in a previous year, if,—
i. the registration granted to it under section 12AA has been Accereted Income tax to be paid with in 14 days from date on which order of cancellation of registration is received [as per 115TD(5)(i)].
However 115TD(5)(i) was amended by the Parliament in Loksabha to extend the period of payment of accereted income tax. As per amednded provisions, in case of cancellation of registration , where appeal before ITAT is not filed against the order of cancellation, accereted Income tax to be paid with in 14 days from the date of expiry of period of filing appeal.
However, where appeal has been filed but ITAT has confirmed the order of cancellation, accereted Income tax to be paid with in 14 days from the date of receipt of order of cancellation.
; or
(ii) it has adopted or undertaken modification of its objects which do not conform to the conditions of registration and it,—
(a) has not applied for fresh registration under section 12AA in the said previous year. Accereted Income tax to be paid with in 14 days from the end of previous year in which objects are modified [S.115TD(5)(ii)]; or
(b) has filed application for fresh registration under section 12AA but the said application has been rejected. Accereted Income tax to be paid with in 14 days from date of rejection [115TD(5)(iii)] However 115TD(5)(iii) was amended by the Parliament in Loksabha to extend the period of payment of accereted income tax. As per amednded provisions, in case of cancellation of registration , where appeal before ITAT is not filed against the order of rejection, accereted Income tax to be paid with in 14 days from the date of expiry of period of filing appeal.
However, where appeal has been filed but ITAT has confirmed the order of cancellation, accereted Income tax to be paid with in 14 days from the date of receipt of order of rejection.
Comments: As per Section 12AA(3) and 12AA(4), registration of trust can be cancelled in following circumstances:
a) activities of such trust or institution are not genuine
b) Activities not being carried out in accordance with the objects of the trust or institution
c) Due to operation of sub-section (1) of section 13, i.e.
i) income of trust for private religious purposes ;
ii) trust for the benefit of particular religious community or cast
iii) income under rules enures for benefit of trustee etc or any part of income or property used applied for benefit of trustee
iv)Funds not invested as per 11(5).
Hence technical breaches like application of any part of income for benefit of trutee, violation of 11(5) etc.
CBDT has issued a Circular No. 21/2016 dated 27-05-2016, and has clarified that that the process for cancellation of registration is to be initiated strictly in accordance with section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions.
CBDT has also cautioned that since cancellation of registration of trust shall invite accereted income tax as per Finance Act 2016, authorities are, therefore, advised not to cancel the registration of a charitable institution granted u/s 12AA just because the proviso to section 2(15) comes into play
8. Second: Further accereted income tax under this chapter shall also become applicable if trust or institution registered u/s 12AA is merged with any entity other than an entity which is a trust or institution having objects similar to it and registered under section 12AA. Accereted Income tax to be paid with in 14 days from date of merger [115TD(5)(iv)]
Here it may be noted that mere merger with trust registered u/s 12AA is not sufficient. It should also have similar objects. Dissimilar objects of trust registered u/s 12AA shall also attract accereted income tax . Further merger with institutions covered by 10(23C) but not registered u/s 12AA might also invite accereted income tax.
9. Third: Further as per 115TD(c) accereted income tax under this chapter shall also become applicable if trust or institution registered u/s 12AA failed to transfer upon dissolution all its assets to any other trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause ( iv) or
sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, within a period of twelve months from the end of the month in which the dissolution takes place Accereted Income tax as per S. 115TD(5)(v) to be paid with in 14 days from the end of 12 month. The person to whom assets are transferred shall be liable to pay tax as assessee in default to the extent of assets received are capable of meeting liability as per S.115TF(2) and proviso to 115TF(2)
10. For delayed payment of tax interest @1% is payable.
11. An amendment has been made to Section 115TD by Loksabha while passing Finance Bill 2016 by inserting following provisos u/s 115TD(2) :
Provided that so much of the accreted income as is attributable to the following asset and liability, if any, related to such asset shall be ignored for the purposes of sub-section (1), namely:—
(i) any asset which is established to have been directly acquired by the trust or institution out of its income of the nature referred to in clause (1) of section 10;
(ii) any asset acquired by the trust or institution during the period beginning from the date of its creation or establishment and ending on the date from which the registration under section 12AA became effective, if the trust or institution has not been allowed any benefit of sections 11 and 12 during the said period:
Provided further that where due to the first proviso to sub-section (2) of section 12A, the benefit of sections 11 and 12 have been allowed to the trust or the institution in respect of any previous year or years beginning prior to the date from which the registration under section 12AA is effective, then, for the purposes of clause (ii) of the first proviso, the registration shall be deemed to have become effective from the first day of the earliest previous year:
12. Additional Depreciation to power distribution concerns
Benefit of Additional depreciation @20% of actual cost u/s 32(1)(iia) which was earlier available to power sector concerns in generation or generation and distribution of power now also extended to power distribution or transmission concerns . Wef AY 2017-18
13. Royalty income for Patent of person resident in India who is true and first patentee made taxable at concessional rate of 10% wef AY 2017-18 by introducing S. 115BBF . Income chargeable under capital gain for transfer of patent or Income from sale of patented products is not eligible for concessional taxation.
In Finance Bill following further provisions added by Loksabha while passing the bill
(3) The eligible assessee may exercise the option for taxation of income by way of royalty in respect of a patent developed and registered in India in accordance with the provisions of this section, in the prescribed manner, on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the relevant previous year.
(4) Where an eligible assessee opts for taxation of income by way of royalty in respect of a patent developed and registered in India for any previous year in accordance with the provisions of this section and the assessee offers the income for taxation for any of the five assessment years relevant to the previous year succeeding the previous year not in accordance with the provisions of sub-section (1), then, the assessee shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which such income has not been offered to tax in accordance with the provisions of sub-section (1).
[115BF(4) is similar to Section 44AD(4)]
14. Profit Linked Deduction for Startups:
a) Businesses involving :
i. Technology or Intellectual property driven processes or services or
ii. Innovation, Development, Deployment or commercialization of new products
b) Incorporated as company from 01-04-16 to 31-03-2019. The benefit extended to LLP also by introducing amendment in Finance Bill 2016 in Loksabha
c) Turnover not exceeding Rs. 25 crores in any previous year from 01-04-2016 to 31-03-2021
d) Holding certificate of eligible business from Inter Ministerial Board
are eligible for 100% deduction of profits and gains under newly introduced section 80IAC wef AY 2017-18 for any three consecutive assessment years out of five years beginning from the year in which the eligible start-up is incorporated.
Other conditions of not formed by splitting up or reconstruction of existing business; transfer of old machinery and applicability of 80IA (7) to 80IA(11) are also applicable
Note: What if deduction in first three years is claimed and fourth year turnover exceeds 25 crores ? Whether income shall be recomputed? Section is silent.
15. Capital gain exemption for Investment in fund to finance startups u/s 54EE up to 50 lacs made in six months from date of transfer of Long term capital assets in one or two financial years on the line of S.54EC. NO transfer of investment in three years and no loan to be subscribed in three years on security of investment.[Effective from AY 2017-18]
16. Exemption u/s 54GB available to Individual/HUF assessee against sale of residential house for investment in 50% or more share capital of manufacturing Company in MSME sector up to 31-03-2017 extended to start up company u/s 80-IAC and that too for extended period up to 31-03-2019 [Effective from AY 2017-18] While in case of company in MSME sector investment in computer or computer software does not qualify for investment by MSME company , an exception has been drawn for startup company and investment in computer and computer software shall also qualify as investment by startup company.
17. 100% Profit Linked Deduction for Affordable Housing Projects u/s 80IBA wef AY 2017-18
Conditions:
1. Approval :
a) Project is approved by competent authority e. authority empowered by Central Government.
Amendments introduced in Finance Bill
As per bill introduced, the competent authority was required to approved as per prescribed guideline, however, in Finance Act, the requirement of approval with separate prescribed guidelines has been done away. Since approval for building plan is generally granted by local bodies, hence requirement of Competent authority being empowered by Central Government has also been done away at the time passing bill in Lok Sabha. Rather now competent authority means the authority empowered to approve the building plan by or under any law for the time being in force
b) Where project is approved more than once, the project shall be deemed to have been approved on the date on which the project was first building plan of the housing project was first [Finance Bill amended in Loksabha] approved by the competent authority;
2. Completion
a) Project is completed with in 3 years from date of approval by competent authority
b) the project shall be deemed to have been completed when a certificate of completion of project as a whole is obtained in writing from the competent authority
c) If project is not completed in three years, deduction already claimed shall be deemed to be PGBP income of the previous years in which period of completion expires.
3. Area
a) Built up area of shops and other commercial establishments does not exceed 3% of aggregate built up area
b) Project on Land situated with in Chhenai, Delhi, Kolkatta, Mumbai or in 25Kms measured aerially [Change Introduced by Loksabha in Finance Bill] form municipal limits of these cities :
| Min. plot area | 1000 sq mts=10763 sq ft |
| Max residential unit area | 30 sq mts i.e. 322.91 sq ft |
| Utilization of permissible Floor Area ratio | Min. 90% |
- Project on land in other cities :
| Min. plot area | 2000 sq mts=21527 sq ft |
| Max residential unit area | 60 sq mts i.e. 645 .83sq ft |
| Utilization of permissible Floor Area ratio | Min. 80% |
4, Separate Books of Accounts of Housing Project are maintained
- Deduction u/s 80IBA is not available to works contractor to whom the work is awarded by any person.
- Also no deduction for such profits under any other section
5. The deduction u/s 80-IBA is not available to assessee who is works contractor of such housing project.
Note : For Affordable Housing Project there is also a deducation u/s 35AD for capital expenditure @ 150% which has been brought down to 100% wef AY 2018-19
18. Additional Deduction on Housing Loan Interest u/s 80EE:
1. As per section 24(b), if self occupied property is acquired or constructed with borrowed capital with in three years from the end of financial year in which capital is borrowed, deduction of Rs. 2 lacs is allowed [Enhanced from 1.5 lacs wef AY 2015-16].
2. Further in respect of loan sanction from 01-04-2013 to 31-03-2014, additional cumulative deduction of Rs. One lakh for interest on loan for assessment year 2014-15 and 2015-16 was available to Individual who does not own any residential house property on the date of sanction of the loan for loan up to Rs 25 lacs in respect of house valuing up to Rs40 lacs.
3. Deduction u/s 80EE is not available for AY 2016-17
4. Now wef AY 2017-18 and subsequent assessment years for loan sanctioned from 01-04-2016 to 31-03-2017 additonal deduction of Rs. 50000 per annum shall be allowed to such Individual for loan up to Rs. 35 lacs in respect of house valuing up to Rs 50 lacs. u/s 80EE.
5. If this deduction is to be aligned with deduction u/s 80-IA, the period of sanction of loan should be extended to 31-03-2019 at least.
19. Extended period of Acquisition/Construction allowed for Housing Loan Interest
Enhanced deduction of Rs. 2 lacs for interest on housing loan on construction or acquisition for self occupied house is granted subject to condition that acquisition or construction is completed with in three year from the end of financial year in which the capital is borrowed. Limit of three years enhanced to five years wef AY 2017-18
Comments: If a person subscribes loan during 2011-12, he is required to complete construction till 31-03-2015, however, if construction is not completed till 31-03-2015 but in financial year 2015-16, the assessee is not entitled for deduction of enhanced amount of Rs. 2 lacs for AY 2016-17. However for AY 2017-18, the same assessee might become eligible for deduction of interest up to Rs. 2 lacs.
On the other hand, another assessee, who completes the construction in the year 2016-17 only, shall be entitled to enhanced deduction of Rs. 2 lacs from the very first year of completion.
So, a person who completes the house early also does not stand to gain.
20. Incentive for Employment Generation:
1. As per existing provisions of 80JJAA, manufacturing company enjoys deduction of 30% of additional wages paid to new regular workmen in excess of 100 employees and employed for at least 300 days in a previous year , if increase in number of employees is at least 10% of number on last day of preceeding year in case of existing factory.
2. Provisions of section 80JJAA have now been revamped w.e.f AY 2017-18: as under:
a) Benefit of 30% on additional employee cost shall now be available for a period of three years [ Whether it means 90% cumulative deduction for additional employee cost? And what if employee leaves after one year]
b) Additional Employee Cost:
i) Means additional emoluments paid or payable to additional employees employed during the previous years.
ii) Additional Employee does not include an employee
a) whose total emoluments are more than Rs. 25000 per month
b) An employee whose contribution paid by govt under EPF Act 1952
c) An employee employed for less than 240 days in previous year.
d) An employee not participating in RPF
iii) Additional Emoluments do not include:
a) Contribution by employer to PF, EPF any other fund for benefit of employee under the law
b) Lump sum payments paid / payable on termination, superannuation or voluntary retirement, like gratuity, leave encashment, VRS, severance pay, commuted pension and like
iv) Additional employee cost shall be NIL if
a) No increase in number of employees from number on last day of preceding year
b) Emoluments paid in cash
- For new business, employee cost of first year shall be additional employee cost eligible for deduction .
- 80JJAA is applicable to assesses covered by 44AB i.e. all assessee including those getting accounts audited because of provisions of presumptive taxation.
- Requirement of company assessee or manufacturing unit done away.
- Also condition of at l00 employee and increase in number being more than 10% done away.
- Condition of being employed for 300 days lowered to 240 days.
21. House Rent deduction
In case of assessee,
a) Not having HRA Income
b) Not owning any residential accommodation by themselves or by spouse or minor child or HUF
c) Neither owning any self occupied residence nor owning house not self occupied due to business, employment at some other place.
Least of the Following deduction is allowed u/s 80GG:
i) Rent paid – 10% of total income (before allowing deduction u/s 80GG)
ii) 25% of total income (before allowing deduction u/s 80GG)
iii) Rs. 2000 per month
Limit of Rs. 2000 pm enhanced to Rs. 5000 pm from AY 2017-18
22. Taxability of Shares received by Individual/HUF under amalgamation or demerger
When shares of private company are received by firm or company u/s 56(2)(viia) , transactions not regarded as transfers like receipt of shares in amalgamation or demerger are excluded, However there is no corresponding exception when shares are received by Individual / HUF u/s 56(2)(vii). Hence exception to this effect also incorporated in 56(2)(vii)
23. Rebate u/s 87A in respect of individual resident in India whose total income does not exceed five hundred thousand rupees, up to Rs. 2000 increased to Rs. 5000 wef Ay 2017-18.
24. Section 25A, 25AA and 25B on unrealized rent and rent arrears consolidated into S.25A to provide that unrealized rent or arrears of rent shall be chargeable to tax as income of the assesee under Income from House property in which arrears or unrealized rent is received, whether in the year of receipt assessee is owner of the property or not. Further 30% deduction against such sum shall be allowed.
25. Presumptive taxation for Business
Comparative Positions of older and proposed provisions of 44AD(1) to 44AD(5) is reproduced below:
| 44AD(1) | (1) Notwithstanding anything to the contrary contained in sections 28to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”. | No Change |
| 44AD(2) | (2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed | No Change |
| 44AD(2) Proviso | Provided that where the eligible assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40. | Omitted |
| 44AD(3) | The written down value of any asset of an eligible business shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years. | No Change |
| 44AD(4) | The provisions of Chapter XVII-C shall not apply to an eligible assessee in so far as they relate to the eligible business. | Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and
he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1) |
| 44AD(5) | Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AAand get them audited and furnish a report of such audit as required undersection 44AB. | Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB. |
Section 44AD(4) as proposed to be amended by Finance Bill 2016
- Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and
- he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1),
- he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1)
Now let us analyse the benefits available u/s 44AD
Benefits u/s 44AD(1)
8% of total turnover or higher sum is deemed to be income of eligible business, overriding the provisions of section 28 to 43C [but not 44AA and 44AB].
Benefit u/s 44AD(2)
Deduction u/s 33 to 38 is deemed to have been allowed. Hence there is no actual benefit but rather benefit if any, is taken away in lieu of 8% or higher sum deemed to be income of the assessee
Benfit u/s 44AD(3)
WDV of business is calculated as if depreciation has been allowed
Hence benefit, if any is there in section 44AD(1) and not in any other provision. However section 44AD(1) does not talk about books or audit, which are separately dealt in 44AA and 44AB
Section 44AD(5) as proposed to be amended by Finance Bill 2016
- Notwithstanding anything contained in the foregoing provisions of this section,
- an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax ,
- shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and
- get them audited and furnish a report of such audit as required under section 44AB.
Section 44AA(2)(iv)
Every assessee carrying on business shall
…………………………
Where the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year
Keep and maintain such books of accounts and other documents as may enable the assessing officer to compute his total income in accordance with the provisions of this Act
Section 44AB(e)
Every person
carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year
get his accounts of such previous audited……..
Hence S.44AA(2)(iv) and 44AB(e) are just corollary to what is said in 44AD(5)
Now the issue is when is section 44AD(4) applicable
Section 44AD(4) has two parts one is the applicability (or operative part )and other is substantive part. Section 44AD(5) is also speaks of consequences of applicability of 44AD(4)
Applicability (Or operative) part
- Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and
- he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1),
Consequence Part in 44AD(4)
- he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1)
Implications
The assessee shall forego the benefit once the profit of six consecutive years is not shown at 8%, hence actual profit shall be computed for next five years.
This consequence shall also apply even if income is computed at lower than exemption limit and assessee can not reflect higher income to convert his undisclosed income into disclosed income
Consequence part in 44AD(5)
Eligible assessee to whom 44AD(4) applies and income is more than exemption limit
- shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and
- get them audited and furnish a report of such audit as required under section 44AB.
1. Situation where 44AD(4) is applicable and income is more than exemption limit
E.g. Year 1 profit is 8% or higher
Year 2 profit is less than 8%
Then section 44AD(5) states that for Year 3 to Year 7, if income is more than exemption limit, the assessee shall have to get the accounts prepared and get the audit done.
Now there can be following propositions:
i) If in year 3 to years 7 income is lesser than 8% but higher than exemption limit, assessee shall prepare books and get the accounts audited. This was also the situation which existed before amendment of section 44AD(5) as reproduced above.
ii) If in the year 3 to year 7 income more than 8% but lesser than exemption limit, then maintenance of prescribed books and audit not required. This was also the essence of section 44AD(5) before amendment as reproduced above
iii) If in year 3 to year 7, income is more than 8% and also higher than exemption limit, whether still maintenance of prescribed books and audit required where turnover is lesser than two crores?
If the answer is yes, because it is as per amended provision, it defies the logic of presumptive income scheme itself.
If answer is no, then it is obliteration of express provisions of the law
2. Situation where 44AD(4) is not applicable and income is more than exemption limit
a) Reflecting 8% or higher income for six consecutive years. In such a situation if in Year 7 income is reflected lesser than 8% , still in year 8 benefit of 44AD can be availed.
b) Never earlier reflected 8% or higher Income or it is first year of the assessee business , then in Year 1 after such years or in the Year 1 itself benefit of 44AD can be availed.
In the both the above situations, since 44AD(4) is not
applicable and as per 44AD(5) as well as 44AA(2)(iv) and 44AB(e), maintenance of books and audit is required only when 44AD(4) is applicable, books/ audit not required for Year 8 or Year 1 respectively in above propositions.
Although in such situation one might argue that books may be required to be maintained because of 44AA(2)(i)/(ii) but Memorandum explaining provisions of Finance Bill 2009 mentioned that “An assessee opting for the above scheme shall be exempted from maintenance of books of accounts related to such business as required under section 44AA of the Income-tax Act”
c) The year in which income is reflected lesser than 8%, 44AD(4) is again not applicable because 44AD(4) applies only to an an eligible assessee who declares profit for any previous year in accordance with the provisions of this section , hence normal provisions of law shall apply. Hence assessee shall be entitled to have benefit of deduction under section 30 to 38. Audit provisions shall apply if turnover is higher than one crore.
Another Interesting proposition of drafting 44AD(4) and 44AD(5) is that requirement of carrying out eligible business has also been dispensed with, while it is there in 44AD(5) in present form. Whether it is intentional or unintentional, only draftsmen know.
Retroactive application of Section 44AD(4) and 44AD(5)
The provisions have been amended wef AY 2017-18. However it is not clear that if, if assessee once covered by 44AD(1) has shown lesser than 8% income for period earlier that AY 2017-18, whether 44AD(4) and 44AD(5) shall become applicable wef AY 2017-18. It means that if operative part of 44AD(4) becomes applicable to the assessee for AY 2017-18, it might get covered by proposed provisions. Hence the amendment may have retroactive if not retrospective application.
Since section 44AD in present for came into existence wef AY 2011-12, let us take an example. Suppose for AY 2011-12, income was declared at 8% or higher sum but in any of five subsequent assessment year i.e. AY 2012-13 to AY 2016-17, income is declared lesser than 8%, then section 44AD benefit shall not apply for AY 2017-18 as per proposed amendment in 44AD(4).
Impact of not enhancing audit limit for business u/s 44AD
By not amending section 44AB(a) in the Finance Bill , the situation has been made more perplexing. This implies that if assessee’s turnover is between one crore and two crore he needs to get his accounts audited u/s 44AB(a) inspite of being covered by presumptive taxation u/s 44AD up to two crores.
Special Allowance of partners’ salary and interest to firm abolished ; Implications
Following proviso to 44AD(2) is proposed to be omitted wef AY 2017-18:
“Provided that where the eligible assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40.”
Implications
As per Supreme Court in Munjal Sales Corporation 298 ITR 298, interest to partner is covered by 36(1)(iii) and section 40(b) only places a restriction. Similarly salary to partner is covered by Section 37 and Section 40(b) only places restriction upon the same.
By Omissions of proviso to section 44AD(2) the provisions of 44AD(2) shall come into play which says that deductions u/s 30 to section 38 shall be deemed to have been given full effect . Therefore full effect shall be deemed to have been given effect to partners salary and interest covered respectively by 36(1)(iii) and section 37.
Hence if partnership deed provides for salary and interest to partners, while no deduction shall be allowable for presumptive taxation u/s 44AD, it might become taxable in the hands of partner u/s 28(v)
One school of thought is that fiction is not to be extended beyond the purpose for which it is created (Supreme Court in Bengal Immunity). Hence deeming fiction that full effect is deemed to have been given to deductions u/s 30 to 38 for presumptive taxation of firm can not be extended to tax interest and salary, deemed to have been allowed as deduction for firm, in the hands of the partner.
Another school of thought is that full effect must be given to the statutory fiction and it should be carried to its logical conclusion and to that end it would be proper and even necessary to assume all those facts on which alone the fiction can operate. By following this proposition, interest and salary shall become taxable in the hands of partner merely by virtue of provisions of partnership deed even though no separate deduction is allowed to the firm.
26. Presumptive Taxation for specified professions u/s 44ADA wef AY 2017-18. Specified professions are defined in 44AA(1). Hence legal, medical, engineering or architectural profession, the profession of accountancy , technical consultancy , interior decoration or any other notified profession is covered.
1. Limit for presumptive taxation for specified professions is 50 lacs.
2. Rate of presumptive taxation is @50%
3. Deductions u/s 30 to 38 including interest and salary to partners and depreciation shall be deemed to have been given effect and WDV shall be computed accordingly.
4. If assessee claims lower income and income is more than exemption limit, 44AA and 44AB shall apply.
27. Maximum Rate of Depreciation pegged at 40% w.e.f previous 2017-18
i.e AY 2018-19:
Examples of a few following assets with currents rates of depreciation that shall be affected are:
1. Buildings and Machinery for installing water treatment plant @ 100%
2. Purely temporary erections such as wooden structures @ 100%
3. Air Pollution, Water Pollution and Solid waste Control Equipment @ 100%
4. Containers made of glass and plastic used as refills @ 50%
5. Computers including computer software @ 60%
6. Wooden parts used in artificial silk manufacturing machinery @ 100%
7. Flour Mill Rollers @ 80%
8. Iron and Steel Industry- Rolling Mill Rolls @ 100%
9. Cinematograph films –bulbs of studio lights @ 100%
10. Energy saving devices including renewal energy devices including solar energy devices, windmills, biogas plants, electrically operated vehicles @ 80%
11. Books owned by assessee carrying on profession being annual publications @ 100%
12. Other Books owned by assessee carrying on profession @ 60%
13. Books owned by assesses carrying on business in running lending libraries @ 100%
Comments: Memorandum Explaining provisions of finance bill have mentioned about this change, however, the Finance Act 2016 is silent on this change. Law in this regard may be framed in times to come
28. Weighted Deduction on Capital Expenditure u/s 35AD cut down
For following business deduction @ 150% was available by virtue of S. 35AD(1A) which has been omitted wef AY 2018-19,
1. setting up and operating a cold chain facility
2. setting up and operating a warehousing facility for storage of agricultural produce;
3. building and operating, anywhere in India, a7[hospital] with at least one hundred beds for patients
4. 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
5. production of fertilizer in India
Thus only 100% deduction shall be available for above Businesses
Note : For affordable housing 100% profit linked deduction also introduced by incorporating S. 80-IBA wef AY 2017-18
29. Loss of Specified Business u/s 35AD where capital expenditure is allowed as deduction to be carried forward only if return is filed in time. Necessary amendments made in S.80 and Section 139(3)
30. Deduction of NPA provisions also being allowed by NBFCs
At present u/s 36(1)(viia) , following deduction on account of provisioning for bad and doubtful debts is allowed:
| a) | Scheduled Banks (not being foreign banks) , non schedules banks, co-operative banks (Other than PACS, Agri cultural and Rural developments banks)
Optional Allowance for Scheduled and non Scheduled banks for assets classified by RBI as doubtful or loss assets in accordance with guidelines |
7.5% of Income + 10% of Agg. Avg. Advances made by Rural branches
Max. 5% of such assets shown in the books of accounts of the bank on last day of previous year |
| b) | Foreign Banks | 5% of Income |
| c) | Public Financial Institutions, State Financial Corporation or State Industrial Investment Corporation | 5% of Income |
| Note : Income is computed before allowing deduction under Chapter VI-A and deduction under 36(1)(viia) | ||
Since NBFCs are also engaged in lending to different sector similar deduction being allowed to NBFCs also up to 5% of Income wef AY 2017-18.
31. Non Residents exempted from application of section 206AA wef 01-06-2016
As per section 206AA which has overriding impact on the all other provisions of the Act, in case of failure to furnish PAN to the deductor, highest of the following rates shall apply:
1. Rate specified in relevant provisions
2. Rate or Rates in Force
3. 20%
In case of non resident, as per section 115A(b), rate of 10% is applicable for royalty and fee for technical services. However, if non resident is not having PAN, tax shall be deducted @ 20%.
Section 206AA(7) which provides relief to non residents from applicaton of 206AA in respect of TDS on long term infrastructure bonds has been extended to all other payments subject to complying prescribed conditions.
Comments Here it may be noted that as per ITAT Pune Bench in Serum Institute pronounced on 30-03-2015, even in the absence of PAN payer not required to deduct TDS at 20% if case covered by DTAA.
32. MAT for FII done away In view of undertaking given by Government to Supreme Court in Castleton Investment and various circulars issued by CBDT, MAT provisions for FIIs done away wef AY 2001-02
33. Set off of Loss not to be allowed against Deemed Income u/s 68 etc.: Whether any Impact on P&H High Court ruling in Kim Pharma
As per Section 115BBE inserted wef AY 2013-14, tax rate of 30% is to applied to income chargeable to tax u/s 68,69,69A,B,C,D Also no deduction for any expenditure or allowance is allowed in respect of income assessed under these sections.
Memorandum explaining provisions of Finance Bill says that there is uncertainty on the issue of set-off of losses against income referred in section 115BBE of the Act. The matter has been carried to judicial forums and courts in some cases has taken a view that losses shall not be allowed to be set-off against income referred to in section 115BBE. However, the current language of section 115BBE of the Act does not convey the desired intention and as a result the matter is litigated. In order to avoid unnecessary litigation, it is proposed to amend the provisions of the sub-section (2) of section 115BBE to expressly provide that no set off of any loss shall be allowable in respect of income under the sections 68 or section 69 or section 69A or section 69B or section 69C or section 69D. This amendment shall have effect from AY 2017-18.
Comments: Whether this leads to argument that Punjab and Haryana High Court ruling may not be applied for period preceding AY 2017-18 or amendment is clarificatory in nature. However depreciation and Unabsorbed depreciation already stands covered by word “allowance wef AY 2013-14”
34. Consideration for Restrictive Covenants of Profession:
It was held by ITAT Delhi in Satya Sheel Khosla 63 taxmann.com 293 quoting para 28 on page 692 of Kanga and Palkhiwala that u/s 28(va) consideration received for restrictive covenants is taxable in case of business but not taxable in case of profession . Hence consideration received for restrictive covenants in profession also being made taxable wef AY 2017-18.
35. Sale of Goodwill of Profession also made taxable
It was held by ITAT Chennai in K. Prem Raj 41 taxmann.com 81 that sale of goodwill of profession would not as such come within ambit of provisions of section 55(2)(a); same is not taxable as LTCG. Hence section 55 (2)(a) being amended to provide that cost of acquisition of self generated goodwill of profession shall be NIL, so that it also becomes taxable under Capital gain wef AY 2017-18 and supreme court decision in BC SreeNiwas Shetty no longer operates for self generated goodwill of profession.
36. Scope of S. 43 B extended to include any sum payable by assessee to Indian railways for use of railway assets to expedite recoveries of railaways wef AY 2017-18.
37. Application of S. 50C rationalized where date of agreement is much before date of registration of sale deed
Under the existing provisions contained in Section 50C, in case of transfer of a capital asset being land or building on both, the value adopted or assessed by the stamp valuation authority for the purpose of payment of stamp duty shall be taken as the full value of consideration for the purposes of computation of capital gains.
The Income Tax Simplification Committee (Easwar Committee) has in its first report, pointed out that this provision does not provide any relief where the seller has entered into an agreement to sell the property much before the actual date of transfer of the immovable property and the sale consideration is fixed in such agreement, whereas similar provision exists in section 43CA of the Act i.e. when an immovable property is sold as a stock-in-trade.
It is proposed to amend the provisions of section 50C so as to provide that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration.
It is further proposed to provide that this provision shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, on or before the date of the agreement for the transfer of such immovable property.
38. Unlisted shares held for 24 months or less would be treated as short-term capital asset
As per section 2(42A) of the Income-tax Act, any capital asset held by the taxpayer for a period of not more than 36 months immediately preceding the date of its transfer is treated as short-term capital asset.
The aforesaid period of 36 months is treated as 12 months in case of shares held in a company. However, an amendment was made by Finance Act (No. 2) Act, 2014 to provide that the said period of 12 months won’t be applicable in respect of shares not listed in recognized stock exchange. Hence, with effect from 01.04.2015, unlisted share is treated as short-term capital asset if it is held for not more than 36 months immediately preceding the date of its transfer.
The Finance Bill, 2016 as passed by the Lok Sabha inserted a new clause to provide that the period of 36 months would be substituted with period of 24 months in case of unlisted shares. In other words, unlisted shares of company would be treated as short-term capital asset if it is held for a period of 24 months or less immediately preceding the date of its transfer. This change is effective from AY 2017-18
39. Filing of Return for Long Term capital Gain from equity shares or equity oriented mutual funds exempt u/s 10(38) wef AY 2017-18
By amending sixth proviso to S.139(1), return of filing made compulsory even if income of the assessee without claiming exemption exceeds maximum amount not chargeable to tax. However no such requirement for long term capital loss covered by 10(38).
40. Return shall not be defective merely because self assessment tax and interest not paid with return: wef AY 2017-18
Finance Act 2013 wef 01-06-2013 had inserted clause (aa) in section 139(9) to provide that a return of income shall be regarded as defective unless the tax together with interest, if any, payable in accordance with the provisions of section 140A, has been paid on or before the date of furnishing of the return
Now clause(aa) has been removed, Hence return shall not be defective for non payment of tax and interest on or before date of furnishing return of income
41. wef AY 2017-18
Current Provisions
(4) Any person who has not furnished a return within the time allowed to him under sub-section (1), or within the time allowed under a notice issued under sub-section (1) of section 142, may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier
Amended Provisions
“(4) Any person who has not furnished a return within the time allowed to him under sub-section (1), may furnish the return for any previous year at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier
Implications:
1. Return not filed in response to notice u/s 142 can not be filed belatedly and to be filed with in time allowed u/s 142 or such further time as may be allowed by AO from time to time. [As per section 14 of General Clauses Act]
2. Also belated return to be filed till end of assessment year
42. Belated Return u/s 139(4) can also be revised u/s 139(5) wef AY 2017-18
Current Provisions
If any person, having furnished a return under sub-section (1), or in pursuance of a notice issued under sub-section (1) of section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier
Amended Provisions
If any person, having furnished a return under sub-section (1) or sub-section (4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier
Implications
Belated return u/s 139(4) can also be rectified. Belated return u/s 142(1) can not be rectified.
However memorandum explaining provisions of Finance bill still mentions about return furnished in response to notice u/s 142 which is inconsistent with express amendment.
43. Scope of adjustment in processing of return u/s 143(1) expanded wef AY 2017-18
As per section 143(1)(a) while processing return the total income or loss shall be computed after making the adjustments for
(i) any arithmetical error in the return or
(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return. As per Explanation to 143(1) an incorrect claim apparent from any information in the return” shall mean a claim, on the basis of an entry, in the return
1. of an item, which is inconsistent with another entry of the same or some other item in such return
2. in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished;
3. in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction
WEf AY 2017-18 Now adjustment u/s 143(1)(a) in return of income can also be made for
1. Disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139
2. Disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return
3. Disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC,80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139
Addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return
Intimation of Adjustment to Assessee:
Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode:
Response of the assessee to be awaited for 30 days
Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made
Note: Audit qualification which is not quantified may not get covered in adjustment. Further adjustment for disallowances only shall be made for audit qualification and not for other additions like revenue receipt considered as capital receipt by assessee. Also, if income as per 26AS is taken, then corresponding TDS adjustment should also be made.
44. Return selected under scrutiny also to be processed before issue of order u/s 143(3)
Section 143(1D) provided that where a notice has been issued to a taxpayer under sub-section (2) of section 143 of the Act, it shall not be necessary to process the return in such a case.
However CBDT vide Instruction dated 1/2015 dated 13-01-2015 said that in cases where an unprocessed return is selected for scrutiny, the legislative intent is to prevent the issue of refund after processing as scrutiny proceedings may result in demand for taxes on finalization of the assessment subsequently.
Delhi High Court in Tata Teleservices 69 taxmann.com 226 on 11-05-2016 has held that :
“……… 23. The real effect of the instruction is to curtail the discretion of the AO by ‘preventing’ him from processing the return, where notice has been issued to the Assessee under Section 143(2) of the Act. If the legislative intent was that the return would not be processed at all once a notice is issued under Section 143 (2) of the Act, then the legislature ought to have used express language and not the expression “shall not be necessary”. By the device of issuing an instruction in purported exercise of its power under Section 119 of the Act, the CBDT cannot proceed to interpret or instruct the income tax department to ‘prevent’ the issue of refund. In the event that a notice is issued to the Assessee under Section 143 (2) of the Act, it will be a matter the discretion of the concerned AO whether he should process the return.
24. Consequently, the Court is of the view that the impugned Instruction No.1 of 2015 dated 13th January 2015 issued by the CBDT is unsustainable in law and it is hereby quashed. It is directed that the said instruction shall not hereafter be relied upon to deny refunds to the Assessees in whose cases notices might have been issued under Section 143(2) of the Act. The question whether such return should be processed will have to be decided by the AO concerned exercising his discretion in terms of Section 143 (1D) of the Act.
2nd Proviso to S.143(1)
Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made.
However now in wake of detailed adjustments required to be made under 143(1)(a), the imbroglio over processing before assessment has been resolved by adding a proviso to 143(1D) as under
Notwithstanding anything contained in sub-section (1), the processing of a return shall not be necessary before the expiry of the period specified in the second proviso to sub-section (1), where a notice has been issued to the assessee under sub-section (2):
Provided that such return shall be processed before the issuance of an order under sub-section (3).
Comments
Hence now, where scrutiny notice u/s 143(2) is issued, it shall not be necessary to process the return with in one year from the end of financial year in which return is filed. However, every return shall necessarily be processed before order u/s 143(3) is passed. This shall also perhaps solve the problem of assesses waiting for their refunds even after completion of assessments.
- Notice for scrutiny of return u/s 143(2) can now also be issued by prescribed authority other than assessing officer wef 01-06-2016.
45. Jurisdiction of Assessing Officer u/s 124 not to questioned in serach cases after one month from notice u/s 153A [wef 01-06-2016]
Jurisdiction of an Assessing Officer u/s 153A in some cases have been called into question at the appellate stages. In order to remove any ambiguity in such cases 124(3) being amended to specifically provide that cases where search is initiated under section 132 or books of accounts, other documents or any assets are requisitioned under section 132A, no person shall be entitled to call into question the jurisdiction of an Assessing Officer after the expiry of one month from the date on which he was served with a notice under sub-section (1) of section 153A or sub-section (2) of section 153C or after the completion of the assessment, whichever is earlier.
46. Legal Framework of Inquiry by prescribed authority u/s 133C strengthened by providing more teeth to Assessing Officers
Finance Act 2014 wef 01-10-2014 had introduced S.133C providing that With a view to enable prescribed income-tax authority to verify the information in its possession relating to any person, prescribed income-tax authority, may, issue a notice to such person requiring him, on or before a date to be therein specified, to furnish information or documents, verified in the manner specified therein which may be useful for, or relevant to, any enquiry or proceeding under this Act.
Prescribed Authority u/s 133C is Principal Director General or Director General or Principal Director or Director, as per Rule 12D
Now Section 133C(2) being introduced wef 01-06-2016 as under:
Where any information or document has been received in response to a notice issued under sub-section (1), the prescribed income-tax authority may process such information or document and make available the outcome of such processing to the Assessing Officer
Further Explanation 2 to section 147 amended to provide for reopening of cases by the AO on the basis of the information so received.
47. Tax Incentive of 5% to new domestic manufacturing companies
The Finance Minister in last budget speech had promised to reduce corporate tax rate from 30% to 25% by phasing out various incentives.
A new section 115BA has been incorporated for domestic manufacturing companies set up and registered on or after 01-03-2016, where in income tax at the option of company [exercisable before due date u/s 139(1)]shall be computed @ 25% wef AY 2017-18 subject to foregoing of following incentives:
1. Deduction u/s 10AA e. Deduction for units in SEZ
2. Deduction u/s 32(1)(iia) i.e. Additonal Depreciation @ 20%
3. Deduction u/s 32AC for investment in new plant and machinery exceeding 100 crores/25 crores
4. Deduction u/s 32AD for Investement in Plant and Machinery in notified areas in Bihar, Telangana, West Bengal
5. Deduction u/s 33AB for Tea Development, Coffee Development etc
6. Deduction u/s 35AD for capital expenditure in specified businesses
7. Deduction u/s 35AC for expenditure on eligible projects
8. Deduction u/s 35(2AA) and (2AB) for research and development
9. Expenditure on agriculture extension projects u/s 35CCC
10. Expenditure on skill development project u/s 35CCD
11. Chapter VI-A Deductions other than deduction u/s 80JJAA for additional wages to employees
12. Loss of earlier years attributable to above sections is not set off .
The Finance Bill, 2016 as passed by the Lok Sabha provides that benefit of concessional tax rate shall also be available to the companies engaged in research in relation to or distribution of article or thing manufactured or produced by it.
Finance Bill 2016, also amended by Lok Sabha to provide that once the option to avail of benefit of concessional tax rate has been exercised by the company for any previous year, it cannot subsequently withdraw the same or for any other previous year.
48. Depreciation u/s 32 to be determined in prescribed manner
[Whether rates shall b different from rates in Rule 5 read with Appendix 1A]
49. Advance Tax
WEf 01-06-2016 , Based on the recommendations of Expenditure Management Commission clubbed with the fact that most of the advance tax is now paid electronically it is proposed to rationalize schedule for advance tax payment and prescribe the same advance tax schedule for all assessees other than an eligible assessee in respect of eligible business as referred to in section 44AD. Advance Tax dates and rates applicable to Corporate assesses have also been adopted for non corporate assesses.
In case of eligible business u/s 44AD, advance tax to be paid by 15th march . However no similar provisions framed for presumptive taxation for professionals u/s 44ADA. Under Section 44ADA also there is no exemption from advance tax Chapter XVII-C. Hence whether advance tax by professional to be paid along other assesses.
50. Application for Waiver of Interest u/s 220(2A) to be disposed off in time bound manner
U/s 220(2) assessee is required to pay Interest @ 1% on amount of default of tax not paid with in 30 days from demand notice u/s 156 from day after said 30 days till payment of tax. Further u/s 220(2A) CC/CIT may waive/reduce interest u/s 220(2) on application . However no time period for disposing off the application was mentioned . Now following provisos inserted u/s 220(2A)
Provided that the order accepting or rejecting the application of the assessee, either in full or in part, shall be passed within a period of twelve months from the end of the month in which the application is received:
Provided further that no order rejecting the application, either in full or in part, shall be passed unless the assessee has been given an opportunity of being heard:
Provided also that where any application is pending as on the 1st day of June, 2016, the order shall be passed on or before the 31st day of May, 2017
51. Interest u/s 234C [wef 01-06-2016]
Interest under section 234C shall not be chargeable in case of an assessee having income under the head “Profits and gains of business or profession” for the first time,
52. Interest on Refund pegged with timely filing of refund as under wef 01-06-2016
where the refund is out of any tax collected at source under section 206C or paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one-half per cent. for every month or part of a month comprised in the period,—
(i) from the 1st day of April of the assessment year to the date on which the refund is granted, if the return of income has been furnished on or before the due date specified under sub-section (1) of section 139; or
(ii) from the date of furnishing of return of income to the date on which the refund is granted, in a case not covered under sub-clause (i)
Comments: If return is filed timely with in due date, interest on refund shall run from Ist April, other wise it shall run from date of filing of return
53. Dispute on Issue of Interest on Refund of Self Assessment tax resolved wef 01-06-16
Bombay High Court in Stock Holding Corporation [17-11-2014] and Punjab and Haryana High Court in Punjab Chemical & Crop Protection Ltd [25-08-2014] have pronounced that interest on refund of self assessment tax is entitled u/s 244A(1)(b).
However Delhi High Court in Engineers India Ltd [2015] 55 taxmann.com 1 (Delhi) FEBRUARY 26, 2015 had held that no interest u/s 244A can be paid on refund of self assessment tax u/s 244A(1)(b)because Expl below 244A(1)(b) defines expression “date of payment of tax or penalty” means the date on and from which the amount of taxes or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand.” while self assessment tax is not paid in pursuance of notice u/s 156.
Then Madras High Court in Rajaratna Mills Ltd [2015] 64 taxmann.com 89 (Madras) AUGUST 18, 2015 resolving the issue of interpretation of Explanation to S. 244A(1) has held that Assessee is entitled to interest on refund of self assessment tax because of substantive part of sub-section (1) of section 244A. The explanation to section 244A does not really talk about the entitlement or disentitlement. It only defines expression “date of payment of tax or penalty” .The above explanation does not give room for an interpretation that if a person has paid money otherwise than by way of demand under section 156, he is not entitled to interest on refund under section 244A. The explanation cannot, really, curtail the method of computation prescribed in clause (b) or the substantive part of section 244A
Now provisions of refund recognizing the above dispute have incorporated S.244(1)(aa) as under :
where the refund is out of any tax paid under section 140A, such interest shall be calculated at the rate of one-half per cent. for every month or part of a month comprised in the period, from the date of furnishing of return of income or payment of tax, whichever is later, to the date on which the refund is granted:
54. No Interest if Refund lesser than 10% of determined tax [w.e.f. 01-06-2016]
No interest on refund arising out of TCS, TDS, advance tax or self assessment tax shall be payable, if the amount of refund is less than ten per cent. of the tax as determined under sub-section (1) of section 143 or on regular assessment
55. Additional 3% Interest for Appeal Effect delayed beyond 3 months w.e.f. 01-06-2016
As per Section 153(5) order appeal effect to be made with in 3 months from the end of month in which order is received.
Section 244A(1A) inserted wef 01-06-2016 to provide that In a case where a refund arises as a result of giving effect to an order under section 250 or section 254 or section 260 or section 262 or section 263 or section 264, wholly or partly,
otherwise than by making a fresh assessment or reassessment, the assessee shall be entitled to receive, in addition to the interest payable under sub-section 244A(1), an additional interest on such amount of refund calculated at the rate of three per cent. per annum, for the period beginning from the date following the date of expiry of the time allowed under sub-section (5) of section 153 to the date on which the refund is granted
56. In ITAT post of Sr Vice President abolished w.e.f. 01-06-2016
In view of the fact that there are no extra-judicial or administrative duties or difference in the pay scale attached with the post of Senior Vice-president in the Tribunal visa viz Vice President, it is proposed to omit the reference of “Senior Vice-President [S.252]
57.Filing of appeal by the Assessing Officer against the order of the DRP abolished to remove litigation by omitting 253(3A) and amending 253(4)
58. Rectification period of ITAT orders limited from 4 years to 6 months wef 01-06-2016
The existing provisions sub-section (2) of the section 254 of the Act, provide that the Appellate Tribunal may rectify any mistake apparent from the record in its order at any time within four years from the date of the order.
In order to bring certainty to the order of ITAT, it is proposed to amend sub-section (2) of section 254 to provide that the Appellate Tribunal may rectify any mistake apparent from the record in its order at any time within six months from the end of the month in which the order was passed
59. Monetary limit for Hearing of appeal by SMC in ITAT raised from 15 lacs to 50 lacs u/s 255(3) w.e.f. 01-06-2016
60. Scheme of taxation for Employees regarding provident funds, approved superannuation fund and pension fund revisited
1. Recognized Provident Funds
What is Recognised Provident Fund ?
As per Section 2(38) “recognised provident fund” means a provident fund which has been and continues to be recognised by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees’ Provident Funds Act, 1952 (19 of 1952)
a) Taxability of Employees Contribution to Recognized Provident Fund
i) As per Rule 7 of Schedule IV-A
An employee participating in a recognised provident fund shall, in respect of his own contributions to his individual account in the fund in the previous year, be entitled to a deduction in the computation of his total income of an amount determined in accordance with section 80C
ii) Under Section 80C(2)(vi), there is deduction for contribution by an employee to a recognised provident fund. Contributions by government employees under Provident Fund Act 1925 is eligible for deduction u/s 80C(2)(iv). Contribution to Public Provident Fund under PPF Act 1968 is eligible for deduction u/s 80C(2)(v) rws 80C(4) whether made in name of assessee or spouse or child. Deduction u/s 80C is available up to Rs. 150000. Hence no deduction for contributions exceeding Rs. 150000/-. No deduction u/s 80C is available for contribution to unrecognized provident fund.
b) Taxability of Employer’s Contribution to Recognized Provident Fund
i) As per Section 7 the annual accretion in the previous year to the balance at the credit of an employee participating in a recognised provident fund, to the extent provided in rule 6 of Part A of the Fourth Schedule shall be deemed to be income received by employee
ii) Extent of Employer’s annual contributions deemed to be income received by employee as per Rule 6 of Schedule IV-A
That portion of the annual accretion in any previous year to the balance at the credit of an employee participating in a recognised provident fund as consists of—
(a) contributions made by the employer in excess of twelve per cent of the salary of the employee [or Rs. 1,50,000 whichever is less was proposed to be inserted Wef AY 2017-18 has been rolled back],
Note : Finance Bill 2016 therefore proposed to tax employer’s contribution to recognized provident fund in excess of Rs. 1,50,000 . Hence employees whose salary exceeded Rs. 12,50,000 would have been effected by this amendment. [150000 x (12/100)=1250000]. However this proposal has also been rolled back .
(b) interest credited on the balance to the credit of the employee in so far as it is allowed at a rate exceeding such rate as may be fixed by the Central Government in this behalf by notification in the Official Gazette,
[Rate fixed is 9.5% w.e.f. 1-9-2010 – Notification No. SO 1046(E), dated 13-5-2011.]
shall be deemed to have been received by the employee in that previous year and shall be included in his total income for that previous year, and shall be liable to income-tax .
iii) Head of Income for taxability of Employers’ Contribution
The annual accretion to the balance at the credit of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule shall be chargeable as salary as per Section 17(1)(vi)
iv) In case of statutory provident funds and unrecognized provident funds, contribution of employer is not treated as income received.
c) Taxability of Withdrawls of Accumulated Balance from Recognized Provident Fund
i) As per section 10(12) the accumulated balance due and becoming payable to an employee participating in a recognized provident fund, to the extent provided in rule 8 of Part A of the Fourth Schedule is exempt
Amendment Proposed in Finance Bill 2016 but dropped by Finance Minister
Provided that nothing contained in this clause shall apply in respect of any amount of accumulated balance, attributable to any contributions made on or after the 1st day of April, 2016 by an employee other than an excluded employee, exceeding forty per cent. of such accumulated balance due and payable in accordance with provisions of rule 8 of Part A of the Fourth Schedule.
Explanation.—For the purposes of this clause, the term “excluded employee” means an employee whose monthly salary does not exceed such amount, as may be prescribed;’;
ii) Extent of Withdrawl from recognized provident fund as per Rule 8 Schedule IV-A
The accumulated balance due and becoming payable to an employee participating in a recognized provident fund shall be excluded from the computation of his total income—
(i) if he has rendered continuous service with his employer for a period of five years or more, or
(ii) if, though he has not rendered such continuous service, the service has been terminated by reason of the employee’s ill-health, or by the contraction or discontinuance of the employer’s business or other cause beyond the control of the employee, [or]
[(iii) if, on the cessation of his employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable to him is transferred to his individual account in any recognised provident fund maintained by such other employer.
iv) if the entire balance standing to the credit of the employee is transferred to his account under a pension scheme referred to in section 80CCD and notified by the Central Government (Inserted by Finance Bill wef AY 2017-18)
Explanation.—Where the accumulated balance due and becoming payable to an employee participating in a recognised provident fund maintained by his employer includes any amount transferred from his individual account in any other recognised provident fund or funds maintained by his former employer or employers, then, in computing the period of continuous service for the purposes of clause (i) or clause (ii) the period or periods for which such employee rendered continuous service under his former employer or employers aforesaid shall be included.]
iii) Calculation of Tax on premature withdrawl of accumulated balance.as per Rule 9 of Schedule IV-A
Where the accumulated balance due to an employee participating in a recognised provident fund is included in his total income owing to the provi-sions of rule 8 not being applicable, the Assessing Officer shall calculate the total of the various sums of tax which would have been payable by the emp-loyee in respect of his total income for each of the years concerned if the fund had not been a recognised provident fund, and the amount by which such total exceeds the total of all sums paid by or on behalf of such employee by way of tax for such years shall be payable by the employee in addition to any other 66[tax] for which he may be liable for the previous year in which the accumulated balance due to him becomes payable.
Note: It means that tax shall be computed for respective years without giving effect to deduction for contribution to EPF under section 80C.
Iv )Deduction at source of tax payable on accumulated balance as per Rule 10 of Sch IV-A.
The trustees of a recognised provident fund, or any person authorised by the regulations of the fund to make payment of accumulated balances due to employees, shall, in cases where sub-rule (1) of rule 9 applies, at the time an accumulated balance due to an employee is paid, deduct therefrom the amount payable under that rule and all the provisions of Chapter XVII-B shall apply as if the accumulated balance were income chargeable under the head “Salaries”.
v) TDS on Payment of accumulated balance due to an employee.As per Section 192A inserted wef 01-06-2015
Notwithstanding anything contained in this Act, the trustees of the Employees’ Provident Fund Scheme, 1952, framed under section 5 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952) or any person authorised under the scheme to make payment of accumulated balance due to employees, shall, in a case where the accumulated balance due to an employee participating in a recognised provident fund is includible in his total income owing to the provisions of rule 8 of Part A of the Fourth Schedule not being applicable, at the time of payment of the accumulated balance due to the employee, deduct income-tax thereon at the rate of ten per cent :
Provided that no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payment to the payee is less than thirty thousand rupees fifty thousands rupees [wef 01-06-2016]:
Provided further that any person entitled to receive any amount on which tax is deductible under this section shall furnish his Permanent Account Number to the person responsible for deducting such tax, failing which tax shall be deducted at the maximum marginal rate.
vi) Facility of Form 15G/15H
However wef 01-06-2015, the assessee can file form 15G if total income including premature withdrawl of PF abalance does not exceed exemption limit. Senior Citizens can file Form 15H where tax payable is NIL even after inclusion of premature withdrawl of PF balance
vii) In case of Unrecognized provident Fund or WIthdrawl from provident fund with in five years as per Section 17(3)
Section 17(3) is applicable to payments other than covered by S.10(12). Section 10(12) applies to accumulated balance due or payable to employee participating in recognized provident fund to the extent provided in Rule 8 of Schecule IV-A. Hence section 17(3) shall apply to following situations:
1. Amount becoming due or payable from unrecognized provident fund
2. Amount from recognized provident fund not covered by Rule 8 of SCh-IV-A
As per Section 17(3) profits in lieu of salary” includes any payment (other than any payment referred to in clause(12) of Section 10) due to or received by an assessee from an employer or a former employer or from a provident or other fund to the extent to which it does not consist of contributions by the assessee or interest on such contributions
Note:
1. On payment of employee’s own contribution, since it will be return of investment by employee without enjoying any deduction u/s 80C, there shall be no tax implication.
2. Interest on employee’s contribution shall be taxable as Income from Other Sources.
3. Employer’s Contribution as well as interest on employer’s contribution shall be taxable as profits in lieu of salary.
viii) Withdrawl from Stautory Provident Fund for Government Employees or Public Provident Fund
As per Section 10(11) any payment from provident Fund to which provident Fund Act 1925 applies [It applies to Government Employees] or from any other provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette i.e. Public Provident Fund under PPF Scheme 1968 is exempt from tax.
2. Approved Superannuation Fund
What is Approved Super Annuation Fund:?
As per section 2(6) “approved superannuation fund” means a superannuation fund or any part of a superannuation fund which has been and continues to be approved by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the rules contained in Part B of the Fourth Schedule
a) Contribution by an employee to an approved superannuation fund
U/s 80C(2)(vii) deduction up to Rs. 150000 is available for contribution to approved superannuation fund.
b) Taxability of Employer’s Contribution to approved superannuation Fund
As per Section 17(2) The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees is chargeable as perquisites
The Limit being enhanced to Rs.1.50 lacs wef AY 2017-18 to bring parity with section 80C.
c) Withdrawl from approved Superannuation Fund
Section 10(13) exempts
any payment from an approved superannuation fund made—
(i) on the death of a beneficiary ; or
(ii) to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement ; or
(iii) by way of refund of contributions on the death of a beneficiary ; or
(iv) by way of refund of contributions to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement, to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act and any interest thereon
Amendment Proposed wef AY 2017-18
Section 10(13) further proposes to exempt transfer to the account of the employee under a pension scheme referred to in section 80-CCD and notified by the Central Government
60% of Commuted annuity in respect contribution after 01-04-2016 made taxable by adding proviso
Provided that any payment in lieu of or in commutation of an annuity purchased out of contributions made on or after the 1st day of April, 2016, where it exceeds forty per cent. of the annuity, shall be taken into account in computing the total income;
3. New Pension Scheme u/s 80CCD:
a) Employees Contribution
Section 80CCD(1)
Where an assessee, being an individual employed by the Central Government on or after the 1st day of January, 2004 or,
being an individual employed by any other employer,
or any other assessee, being an individual]
has in the previous year paid or deposited any amount in his account under a pension scheme notified or as may be notified by the Central Government, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited as does not exceed,—
(a) in the case of an employee, ten per cent of his salary in the previous year; and
(b) in any other case, ten per cent of his gross total income in the previous year.]
[(1A) The amount of deduction under sub-section (1) shall not exceed one hundred thousand rupees.]Omitted by Finance Act 2015
Following sub-section (1B) has been inserted after sub-section (1A) of section 80CCD by the Finance Act, 2015, w.e.f. 1-4-2016 :
(1B) An assessee referred to in sub-section (1), shall be allowed a deduction in computation of his total income, [whether or not any deduction is allowed under sub-section (1)], of the whole of the amount paid or deposited in the previous year in his account under a pension scheme notified or as may be notified by the Central Government, which shall not exceed fifty thousand rupees:
Provided that no deduction under this sub-section shall be allowed in respect of the amount on which a deduction has been claimed and allowed under sub-section (1).
b) Employer’s Contribution
80CCD(2) Where, in the case of an assessee referred to in sub-section (1), the Central Government or any other employer makes any contribution to his account referred to in that sub-section, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government or any other employer as does not exceed ten per cent of his salary in the previous year.
Note: As per Section 7(iii) the contribution made, by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD is deemed to be income received Further As per Section 17(1)(viii) salary includes the contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD;
Hence Contributions by employer in excess of 10% shall become taxable.
c) Taxability of Withdrawl/Maturity
80CCD(3) Where any amount standing to the credit of the assessee in his account referred to in sub-section (1) or sub-section (1B), in respect of which a deduction has been allowed under that sub-section or sub-section (2), together with the amount accrued thereon, if any, is received by the assessee or his nominee, in whole or in part, in any previous year,—
(a) on account of closure or his opting out of the pension scheme referred to in sub-section (1) or sub-section (1B); or
(b) as pension received from the annuity plan purchased or taken on such closure or opting out,
the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee or his nominee, as the case may be, in the previous year in which such amount is received, and shall accordingly be charged to tax as income of that previous year.
Following proviso proposed to be inserted wef AY 2017-18
Provided that the amount received by the nominee, on the death of the assessee, under the circumstances referred to in clause (a), shall not be deemed to be the income of the nominee
Conversion into Annuity Plan
(5) For the purposes of this section, the assessee shall be deemed not to have received any amount in the previous year if such amount is used for purchasing an annuity plan in the same previous year.
40% Receipts from New Pension Scheme Exempted by inserting clause 10(12A) wef AY 2017-18 as under:
(12A) any payment from the National Pension System Trust to an employee on closure of his account or on his opting out of the pension scheme referred to in section 80CCD, to the extent it does not exceed forty per cent. of the total amount payable to him at the time of such closure or his opting out of the scheme;”;
Explanation.—For the purposes of this section, “salary” includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.
Conclusion: 60% of Withdrawl from recognized provident fund sought to be taxed by Finance Bill 2016 has been dropped and hence shall continue to enjoy tax exempt status. Employer’s contribution to recognized fund in excess of Rs. 150000 was also proposed to be taxed has also been rolled back. Employer’s Contribution to approved superannuation fund has been exempted till Rs. 150000 to bring it in parity with deduction for employees contribution. In investment in New Pension Scheme also still there is no cap for exemption in absolute terms of monetary limit except percentage limit of 10%. While conversion from new pension scheme to annuity was already tax exempt, the conversion from recognized provident fund and approved superannuation fund to new pension scheme has also been exempted. 40% of amount receivable under new pension scheme and commuted annuity is also proposed to be exempted from tax. Amount received by nominee under new pension scheme on death of the contributor has been provided albeit exemption. Contributors of New Pension scheme already enjoys the benefit of additional deduction of Rs. 50,000/- u/s 80CCD(1B) over and above normal aggregate deduction of Rs. 150000 u/s 80C and 80CCD(1).
61. Time limit for completion of assessments and reassessments. New Section 153 substituted wef 01-06-2016
1. Assessment u/s 143/144
No order of assessment shall be made under section 143 or section 144 at any time after the expiry of twenty-one months from the end of the assessment year in which the income was first assessable.
2. Assessment u/s 147
No order of assessment, reassessment or recomputation shall be made under section 147 after the expiry of nine months from the end of the financial year in which the notice under section 148 was served
3. Fresh Assessment due to ITAT Order or CIT Order
- Notwithstanding anything contained in sub-sections (1) and (2),
- an order of fresh assessment in pursuance of an order under section 254 or section 263 or section 264, setting aside or cancelling an assessment,
- may be made at any time before the expiry of nine months from the end of the financial year
- in which the order under section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be,
- the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner
4. Assessment in case of Reference to TPO
- Notwithstanding anything contained in sub-sections (1), (2) and (3),
- where a reference under sub-section (1) of section 92CA is made during the course of the proceeding for the assessment or reassessment,
- the period available for completion of assessment or reassessment, as the case may be, under the said sub-sections (1), (2) and (3) shall be extended by twelve months
5. Appeal Effect
- Where effect to an order under section 250 [CITA]or section 254 [ITAT]or section 260 [HC/SC]or section 262[SC] or section 263 or section 264 is to be given by the Assessing Officer, wholly or partly, otherwise than by making a fresh assessment or reassessment,
- such effect shall be given within a period of three months from the end of the month in which order under section 250 or section 254 or section 260 or section 262 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be, the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner:
- Provided that where it is not possible for the Assessing Officer to give effect to such order within the aforesaid period, for reasons beyond his control, the Principal Commissioner or Commissioner on receipt of such request in writing from the Assessing Officer, if satisfied, may allow an additional period of six months to give effect to the order
6. Consequential Assessment
Nothing contained in sub-sections (1) and (2) shall apply to the following classes of assessments, reassessments and recomputation which may, subject to the provisions of sub-sections (3) and (5), be completed—
(i) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 250, section 254, section 260, section 262, section 263, or section 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act,
on or before the expiry of twelve months from the end of the month in which such order is received or passed by the Principal Commissioner or Commissioner, as the case may be; or
(ii) where, in the case of a firm, an assessment is made on a partner of the firm in consequence of an assessment made on the firm under section 147, on or before the expiry of twelve months from the end of the month in which the assessment order in the case of the firm is passed
As per Explanation 2
Explanation 2.—For the purposes of this section, where, by an order referred to in clause (i) of sub-section (6),—
(a) any income is excluded from the total income of the assessee for an assessment year, then,an assessment of such income for another assessment year shall, for the purposes of section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order; or
(b) any income is excluded from the total income of one person and held to be the income of another person, then, an assessment of such income on such other person shall, for the purposes of section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order, if such other person was given an opportunity of being heard before the said order was passed.
Comments:
i) Section 153(6)(i) may cover following two situations:
a) Direction is given to exclude the income from total income of one person and to include the same income in the hands of some other person.
b) Direction can be given to excude income from total income of assessee in one assessment year and to include the said income in the total income of another assessment year
ii) If fresh assessment is made by order u/s 254, 263, 264, then 153(6) shall not apply and 153(3) shall apply and assessment shall have to be completed with in 9 months from the end of financial year in which order is made. Say if order u/s 254 resulting consequential fresh assessment of other person is received, say on 19th March 2017, while the assessment as per 153(6) can be completed till 31st March 2018 but it is subject to 153(3), hence consequential assessment to be completed till 31st December 2017.
iii) However if fresh assessment is made due to HC/SC order or order of any civil court, then assessment u/s 153(6) can be made with in 12 months from the end of month in which order is received.
iv) In cases where fresh assessment is not required, while 153(5) shall apply to case of assessee for the year subject matter of appeal and appeal effect shall be given in 3 months. However section 153(6) shall apply to another assessment year of the same assessee or some other person and hence consequential assessment can be made with in 12 months from the end of month in which order is passed/received.
v) Section 153(6)(ii) applies where income of the firm is reduced or enhanced resulting in consequential changed in income of partners say on account of section 40(b).
vi) In Old section 153 no time limitation was prescribed for appeal effect and consequential assessments
7. Extended time period for Appeal Effect and Consequential Orders receieved /passed before 01-06-2016
Where effect to any order, finding or direction referred to in sub-section (5) or sub-section (6) is to be given by the Assessing Officer, within the time specified in the said sub-sections, and such order has been received or passed, as the case may be, by the income-tax authority specified therein before the 1st day of June, 2016, the Assessing Officer shall give effect to such order, finding or direction, or assess, reassess or recompute the income of the assessee, on or before the 31st day of March, 2017.
8. Time limit for revived assessments u/s 153A
Notwithstanding anything contained in the foregoing provisions of this section, sub-section (2) of section 153A or sub-section (1) of section 153B, the order of assessment or reassessment, relating to any assessment year, which stands revived under sub-section (2) of section 153A, shall be made within a period of one year from the end of the month of such revival or within the period specified in this section or sub-section (1) of section 153B, whichever is later
9. New provisions applicable only to orders made after 01-06-2016
The provisions of this section as they stood immediately before the commencement of the Finance Act, 2016, shall apply to and in relation to any order of assessment, reassessment or recomputation made before the 1st day of June, 2016.
Period to be Excluded for Computing Time Limitation for Assessment
As per Explanation 1 to Section 153
(i) Change in Jurisdiction
the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be re-heard under the proviso to section 129;
Comments As per Section 129 Whenever in respect of any proceeding under this Act an income-tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercises jurisdiction, the income-tax authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor :
Provided that the assessee concerned may demand that before the proceeding is so continued the previous proceeding or any part thereof be reopened or that before any order of assessment is passed against him, he be reheard.
(ii) Stay Order
the period during which the assessment proceeding is stayed by an order or injunction of any court;
(iii) Cancellation of exemption u/s 10
the period commencing from the date on which the Assessing Officer intimates the Central Government or the prescribed authority, the contravention of the provisions of clause (21) or clause (22B) or clause (23A) or clause (23B) or sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, under clause (i) of the proviso to sub-section (3) of section 143 and ending with the date on which the copy of the order withdrawing the approval or rescinding the notification, as the case may be, under those clauses is received
by the Assessing Officer;
Comments: As per section 143(3) Proviso in case of above associations including hospital or educational institution having receipts more than one crore and approved by authority , contravening the provisions of section exemption u/s 10 shall be denied only if AO has intimated Central Govt/prescribed authority.
(iv) Special Audit
the period commencing from the date on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and—
(a) ending with the last date on which the assessee is required to furnish a report of such audit under that sub-section; or
(b) where such direction is challenged before a court, ending with the date on which the order setting aside such direction is received by the Principal Commissioner or Commissioner; or
(v) Valuation
The period commencing from the date on which the Assessing Officer makes a reference to the Valuation Officer under sub-section (1) of section 142A and ending with the date on which the
report of the Valuation Officer is received by the Assessing Officer;
(vi) Declration to avoid repetative appeal
The period (not exceeding sixty days) commencing from the date on which the Assessing Officer received the declaration under sub-section (1) of section 158A and ending with the date on which the order under sub-section (3) of that section is made by him.
(vii) Application to Settlement Commission
in a case where an application made before the Income-tax Settlement Commission is rejected by it or is not allowed to be proceeded with by it, the period commencing from the date on which an application is made before the Settlement Commission under section 245C and ending with the date on which the order under sub-section (1) of section 245D is received by the Principal
Commissioner or Commissioner under sub-section (2) of that section
(viii) Application for advance Ruling rejected
The period commencing from the date on which an application is made before the Authority for Advance Rulings under sub-section (1) of section 245Q and ending with the date on which the order rejecting the application is received by the Principal Commissioner or Commissioner under sub-section (3) of section 245R; or
(ix) Advance Ruling pronounced
the period commencing from the date on which an application is made before the Authority for Advance Rulings under sub-section (1) of section 245Q and ending with the date on which the advance ruling pronounced by it is received by the Principal Commissioner or Commissioner
under sub-section (7) of section 245R; or
(x) Time taken for Tax Information Exchange
the period commencing from the date on which a reference or first of the references for exchange of information is made by an authority competent under an agreement referred to in section 90 or section 90A and ending with the date on which the information requested is last received by the Principal Commissioner or Commissioner or a period of one year, whichever is less
(xi) Impermissible Avoidance agreements
The period commencing from the date on which a reference for declaration of an arrangement to be an impermissible avoidance arrangement is received by the Principal Commissioner or Commissioner under sub-section (1) of section 144BA and ending on the date on which a direction under sub-section (3) or sub-section (6) or an order under sub-section (5) of the said section is received by the Assessing Officer
Where after exclusion less than 60 days are left for assessment
Provided that where immediately after the exclusion of the aforesaid period, the period of limitation referred to in sub-sections (1), (2), (3) and sub-section (8) available to the Assessing Officer for making an order of assessment, reassessment or recomputation, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly
For Example:
Return for financial year 2016-17 is filed on 30-09-2016. Notice u/s 143(2) issued on 23-08-2017. On 01-03-2019 special audit is directed.
On 21-05-2019 assessee challenges the direction for special audit and on 30-06-2019, Court quashing the directin for special audit is received
Now period to be excluded is from 01-03-2019 to 30-06-2019 i.e. 121days . Hence assessment can be made till 30th July [31st March + 121 days] . Since period available for making assessment is 30 days, the assessment can be made till 29th August i.e. 30th June + 60 days
In case of application for Settlement abating u/s 245HA , the period of limitation shall get extended by one year, if the period after exclusion is less than one year.
62. Increase in TDS Limits wef 01-06-2016:
a) Limit of Rs. 5000/- for Winnings from Horse Races enhanced to Rs. 10,000/- Limit for winning from Lotteries u/s 194B was enhanced to Rs. 10,000/- wef 01-07-2010, hence corresponding increase made in winning from horse races
b) Aggregate Annual Limit of Rs. 75000/- increased to Rs 100000/-. However if during 01-04-2016 to 31-05-2016 work done is more than Rs. 75000/- but less than Rs. 1,00,000/- during 01-04-16 to 31-03-2017, whether TDS required to be deducted ?
c) Monetary Limit of Rs. 20,000/- for Insurance Commission u/s 194D reduced to Rs. 15000/-. TDS rate on Insurance Commission is 5% as per Part II of First Schedule.
d) Monetary Limit for Commission u/s 194H enhanced from Rs. 5000/- to Rs. 15000/- and rate reduced from 10% to 5% to bring parity with Insurance Commission.
e) Monetary Limit for Commission on Lottery Tickets u/s 194G enhanced from Rs. 1000/- to Rs. 15000/- and rate reduced from 10% to 5% to bring parity with Insurance and other Commission.
f) TDS rate on withdrawl of NSS Deposits reduced from 20% to 10% u/s 194EE.
g) TDS on LIC Maturities exceeding Rs. 1,00,000/- not exempt u/s 10(10D) was charged @2% by Finance Act 2014 wef 01-10-2014 . TDS rate lowered to 1%.
h) TDS @10% for compulsory acquisition of immovable property other than agriculture land where aggregate payments during financial year exceed Rs. 2 lacs now enhanced to Rs 2.50 lacs
63. Form 15G/15H enabled for rental payments wef 01-06-2016
TDS limit for rent is 1,80,000/- But still there may be cases of assesses having income below exemption limit or having NIL tax. Hence such assesses can also now give declarations 15G/15H.
64. Penalty Provisions effective from AY 2017-18
270A.
Penalty for Underreported Income
(1) The Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the Course of proceeding under this Act [Inserted by Amending Finance Bill 2016] , direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income.
Circumstances When Income considered to have been underreported
(2) A person shall be considered to have under-reported his income, if—
(a) the income assessed is greater than the income determined in the return processed under clause (a) of sub-section (1) of section 143;
(b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished;
(c) the income reassessed is greater than the income assessed or reassessed immediately before such reassessment;
(d) the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income determined in the return processed under clause (a) of sub-section (1) of section 143;
(e) the amount of deemed total income assessed as per the provisions of section 115JB or section 115JC is greater than the maximum amount not chargeable to tax, where no return of income has been filed;
(f) Introduced in Loksabha: The amount of deemed total income reassessed u/s 115JB or 115JC is greater that deemed total income assessed or reassessed immediately before such reassessment.
(g) the income assessed or reassessed has the effect of reducing the loss or converting such loss into income.
Amount of Underreporting
(3) The amount of under-reported income shall be,—
First Time Assessment
(i) in a case where income has been assessed for the first time,—
(a) if return has been furnished, the difference between the amount of income assessed and the amount of income determined under clause (a) of sub-section (1) of section 143;
(b) in a case where no return has been furnished,—
(A) the amount of income assessed, in the case of a company, firm or local authority; and
(B) the difference between the amount of income assessed and the maximum amount not chargeable to tax, in a case not covered in item (A);
Reassessment
(ii) in any other case, the difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order:
Q. Whether order side by ITAT u/s 254 shall result first time assessment or fall in any other case ?
MAT
Provided that where under-reported income arises out of determination of deemed total income in accordance with the provisions of section 115JB or section 115JC, the amount of total under-reported income shall be determined in accordance with the following formula—
(A — B) + (C — D)
where,
A = the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions);
B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of under-reported income;
C = the total income assessed as per the provisions contained in section 115JB or section 115JC;
D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of under-reported income:
Provided further that where the amount of under-reported income on any issue is considered both under the provisions contained in section 115JB or section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D.
Explanation.—For the purposes of this section,—
(a) “preceding order” means an order immediately preceding the order during the course of which the penalty under sub-section (1) has been initiated;
(b) in a case where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that loss into income, the amount of under-reported income shall be the difference between the loss claimed and the income or loss, as the case may be, assessed or reassessed.
Intangible Addition
(4) Subject to the provisions of sub-section (6), where the source of any receipt, deposit or investment in any assessment year is claimed to be an amount added to income or deducted while computing loss, as the case may be, in the assessment of such person in any year prior to the assessment year in which such receipt, deposit or investment appears (hereinafter referred to as “preceding year”) and no penalty was levied for such preceding year, then, the under-reported
income shall include such amount as is sufficient to cover such receipt, deposit or investment.
(5) The amount referred to in sub-section (4) shall be deemed to be amount of income under-reported for the preceding year in the following order—
(a) the preceding year immediately before the year in which the receipt, deposit or investment appears, being the first preceding year; and
(b) where the amount added or deducted in the first preceding year is not sufficient to cover the receipt, deposit or investment, the year immediately preceding the first preceding year and so on.
Exclusions from Underreported Income
(6) The under-reported income, for the purposes of this section, shall not include the following, namely:—
(a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner or the Commissioner (Appeals), as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered;
(b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom;
(c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or isallowance;
(d) the amount of under-reported income represented by any addition made in conformity with the arm’s length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and
(e) the amount of undisclosed income referred to in section 271AAB.
Quantum of Penalty
(7) The penalty referred to in sub-section (1) shall be a sum equal to fifty per cent. of the amount of tax payable on under-reported income.
Misreporting
(8) Notwithstanding anything contained in sub-section (6) or sub-section (7), where under-reported income is in consequence of any misreporting thereof by any person, the penalty referred to in sub-section (1) shall be equal to two hundred per cent. of the amount of tax payable on under-reported income.
Circumstances of Mis reportimng
(9) The cases of misreporting of income referred to in sub-section (8) shall be the following, namely:—
(a) misrepresentation or suppression of facts;
(b) failure to record investments in the books of account;
(c) claim of expenditure not substantiated by any evidence;
(d) recording of any false entry in the books of account;
(e) failure to record any receipt in books of account having a bearing on total income; and
(f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.
(10) The tax payable in respect of the under-reported income shall be the amount of tax calculated—
(a) on such income as if it were the total income, in the case of a company, firm or local authority; and
(b) at the rate of thirty per cent., of the amount of under-reported income, in any other case.
As per new section 270A(10) as amended in Finance Bill by Parliamnt
The tax payable in respect of the under-reported income shall be—
| (a) | where no return of income has been furnished and the income has been assessed for the first time, the amount of tax calculated on the under-reported income as increased by the maximum amount not chargeable to tax as if it were the total income; | |
| (b) | where the total income determined under clause (a) of sub-section (1) of section 143 or assessed, reassessed or recomputed in a preceding order is a loss, the amount of tax calculated on the under-reported income as if it were the total income; | |
| (c) | in any other case determined in accordance with the formula— | |
| (X-Y) | ||
| where, | ||
| X = the amount of tax calculated on the under-reported income as increased by the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order as if it were the total income; and | ||
| Y = the amount of tax calculated on the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order. |
(11) No addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year.
(12) The penalty referred to in sub-section (1) shall be imposed, by an order in writing, by the Assessing Officer, the Commissioner or Principal Commissioner, or the Commissioner (Appeals), as the case may be.’.
65. Immunity from Imposition of Penalty
After section 270A of the Income-tax Act as so inserted, the following section shall be inserted with effect from the 1st day of April, 2017, namely:—
270AA.(1) An assessee may make an application to the Assessing Officer to grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or 276CC, if he fulfils the following conditions, namely:—
(a) the tax and interest payable as per the order of assessment or reassessment under sub-section (3) of section 143 or section 147, as the case may be, has been paid within the period specified in such notice of demand; and
(b) no appeal against the order referred to in clause (a) has been filed.
(2) An application referred to in sub-section (1) shall be made within one month from the end of the month in which the order referred to in clause (a) of sub-section (1) has been received and shall be made in such form and verified in such manner as may be prescribed.
(3) The Assessing Officer shall, subject to fulfilment of the conditions specified in sub-section (1) and after the expiry of the period of filing the appeal as specified in clause (b) of sub-section (2) of section 249, grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C, where the proceedings for penalty under section 270A has not been initiated
under the circumstances referred to in sub-section (9) of the said section 270A.
Comments : It means immunity is not available for misreporting of Income. It is available only for underreporting.
(4) The Assessing Officer shall, within a period of one month from the end of the month in which the application under sub-section (1) is received, pass an order accepting or rejecting such application:
Provided that no order rejecting the application shall be passed unless the assessee has been given an opportunity of being heard.
(5) The order made under sub-section (4) shall be final.
Comments : It is not appealable order ?
(6) No appeal under section 246A or an application for revision under section 264 shall be admissible against the order of assessment or reassessment, referred to in clause (a) of sub-section (1), in a case where an order under sub-section (4) has been made accepting the application.”.
66. The Direct Tax Dispute Resolution Scheme , 2016 applicable from 01-06-2016
1. Introduced vide Chapter X of Finance Act 2016
2. Comprises sections 200 to 211 of Finance Act 2016
3. The Direct Tax Dispute Resolution Scheme Rules notified on 26-05-2016
Disputed Tax: As per section 201(1)(d) “disputed tax” means the tax determined under the Income-tax Act, or the Wealth-tax Act, which is disputed by the assessee or the declarant, as the case may be
“Tax arrear” means, the amount of tax, interest or penalty determined under the Income-tax Act or the Wealth-tax Act, in respect of which appeal is pending before the Commissioner of Income-tax (Appeals) or the Commissioner of Wealth-tax (Appeals) as on the 29th day of February, 2016
a) Amount Payable under The Scheme [Section 202]
- Subject to the provisions of this Scheme,
- where a declarant files, on or after the 1st day of June, 2016
- but on or before a date to be notified by the Central Government in the Official Gazette,[i.e. 31st December as N/N 34/2016 dated 26-05-2016]
- a declaration to the designated authority [Form 1 in duplicate] in accordance with the provisions of section 203 in respect of
- tax arrear, or specified tax,
- then, notwithstanding anything contained in the Income-tax Act or the Wealth-tax Act or any other provision of any law for the time being in force,
- the amount payable under this Scheme by the declarant shall be as under, namely:––
(I) in case of pending appeal related to tax arrear being––
(a) tax and interest,—
(i) in a case where the disputed tax does not exceed ten lakh rupees, the whole of the disputed tax and the interest on disputed tax till the date of assessment or reassessment, as the case may be; or
(ii) in any other case, the whole of disputed tax, twenty-five per cent. of the minimum penalty leviable and the interest on disputed tax till the date of assessment or reassessment, as the case may be;
(b) penalty, twenty-five per cent. of the minimum penalty leviable and the tax and interest payable on the total income finally determined.
Comments :
| Disputed Tax <=10 lacs | Disputed Tax + Interest on Disputed Tax up to date of Assessment |
| Disputed Tax> 10 lacs | Disputed Tax +
25% of Minimum penalty leviable Interest on Disputed Tax up to date of Assessment [Comments: If AO imposes 200% or 300% penalty u/s 271(1)©, Amount payable as penalty is 25% of 100% only] |
| Penalty | Twenty-five per cent. of the minimum penalty leviable and the tax and interest payable on the total income finally determined.
[Comments : Here interest up date of assessment not mentioned, so, full interest up to date of payment to be paid] |
| In case of specified tax
Specified Tax means a tax (i) the determination of which is in consequence of or validated by any amendment made to the Income-tax Act or the Wealth-tax Act with retrospective effect and relates to a period prior to the date on which the Act amending the Income-tax Act or the Wealth-tax Act, as the case may be, received the assent of the President; and (ii) a dispute in respect of such tax is pending as on the 29th day of February, 2016; |
the amount of such tax so determined |
As per Section 206 if Any amount paid in pursuance of a declaration made under section 202 shall not be refundable under any circumstances
b) To Whom Declaration to be made
As per Section 203(1) ,A declaration under section 202 shall be made to the designated authority in such form and verified in such manner as may be prescribed. [ Form 1 in duplicate]
As per S.201(1)(b), designated authority” means an officer not below the rank of a Commissioner of Income-tax and notified by the Principal Chief Commissioner for the purposes of this Scheme;
As per Rule 3(4) of Rules The designated authority on receipt of declaration shall issue a receipt in acknowledgement thereof.
c) Deemed Withdrawl of appeal before CIT A
As per Section 203(2), Where the declaration is in respect of tax arrear, consequent to such declaration, appeal in respect of the disputed income, disputed wealth and tax arrear pending before the Commissioner of Income-tax (Appeals) or the Commissioner of Wealth-tax (Appeals), as the case may be, shall be deemed to have been withdrawn
d) Determination of Amount payable by Designated Authority S.204(1)
The designated authority shall, within a period of sixty days from the date of
receipt of the declaration, determine the amount payable by the declarant in accordance with the provisions of this Scheme and grant a certificate in such form as may be prescribed, to the declarant setting forth therein the particulars of the tax arrear or the specified tax, as the case may be, and the sum payable after such determination
As per Rule 4, The designated authority shall issue a certificate referred to in sub-section (1) of section 204 in Form-3.
e) Payment of Determined Amount, Intimation and Order
S.204(2)f
- The declarant shall pay the sum determined by the designated authority as per the certificate granted under clause (a) of sub-section (1) within thirty days of the date of receipt of the certificate and
- intimate the fact of such payment to the designated authority along with proof thereof and
- The designated authority shall thereupon pass an order stating that the declarant has paid the sum.
As per Rule 5, The detail of payments alongwith proof thereof, made pursuant to the certificate issued by the designated authority shall be furnished by the declarant to the designated authority in Form-4.
As per Rule 6, The order by the designated authority under sub-section (2) of section 204 in respect of tax arrear shall be in Form-5 and in respect of specified tax shall be in Form-6
f) Order is conclusive
S.204(3) Every order passed under sub-section (2), determining the sum payable under this Scheme, shall be conclusive as to the matters stated therein and no matter covered by such order shall be re-opened in any other proceeding under the Income-tax Act or the Wealth-tax Act or under any other law for the time being in force, or as the case may be, under any agreement, whether for protection of investment or otherwise, entered into by India with any other country or territory outside India
g) Immunity [S.205]
| 1 | Immunity from instituting any proceedings in respect of an offence under the Income-tax Act or the Wealth-tax Act, as the case may be |
| 2 | Immunity from imposition or waiver, as the case may be, of penalty under the Income-tax Act or the Wealth-tax Act, as the case may be, in respect of specified tax covered in the declaration under section 202 tax arrear covered in the declaration to the extent the penalty exceeds the amount of penalty referred to in sub-clause (b) of clause (I) of section 202 |
| 3 | waiver of interest under the Income-tax Act or the Wealth-tax Act, as the case may be, in respect of specified tax covered in the declaration under the section 202 or tax arrear covered in the declaration to the extent the interest exceeds the amount of interest referred to in sub-clause (a) of clause (I) of section 202 |
h) Non Application of the Scheme [S.208]
The Dispure Resolution Scheme shall not apply :
| 1 | Relating to an assessment year in respect of which an assessment has been made under section 153A or 153C of the Income-tax Act or assessment or reassessment for any of the assessment years, in consequence of a search initiated under section 37A or requisition made under section 37B of the Wealth-tax Act if it relates to any tax arrear |
| 2 | Relating to an assessment or reassessment in respect of which a survey conducted under section 133A of the Income-tax Act or section 38A of the Wealth tax Act, has a bearing if it relates to any tax arrear |
| 3 | Relating to an assessment year in respect of which prosecution has been instituted on or before the date of filing of declaration under section 202 |
| 4 | Relating to any undisclosed income from a source located outside India or undisclosed asset located outside India; |
| 5 | Relating to an assessment or reassessment made on the basis of information received under an agreement referred to in section 90 or section 90A of the Incometax Act, if it relates to any tax arrear |
| 6 | Any person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act,1974:[COFEPOSA]
However, if order of detention has been revoked under COFEPOSA or has been set aside by Court of Competent Jurisdiction, the person can avail t8he benefit of this Scheme. |
| 7 | In relation to prosecution for any offence punishable under Chapter IX or Chapter XVII of the Indian Penal Code |
| 8 | In relation to prosecution for any offence punishable under the Narcotic Drugs and Psychotropic Substances Act, 1985 [NDPS] |
| 9 | In relation to prosecution for any offence punishable under Unlawful Activities (Prevention) Act, 1967 |
| 10 | In relation to prosecution for any offence punishable under Prevention of Corruption Act, 1988; |
| 11 | To any person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992; |
Conclusion : By Introducing large number of changes in the Income Tax law, the law has been ballooned to an extent that assesses to whom the law applies find it arduous to comply the law. Compliance without understanding of the law often lands assesses and Counsels into soup and then Courts are clogged with Litigation. This article is an attempt to enhance the understanding about changes to held implementation of law.
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Sir commendable job you’ve done. Thankyou!