Pravin Saraswat, FCA, CS, DISA
SIGNIFICANT CHANGES EFFECTED IN DIRECT TAXES BY THE FINANCE ACT 2017
The Finance Act, 2017, which has made a history of being a enacted law on 31st March, 2017 (assented by President of India on 31/03/2017), has made far-reaching changes in Direct Taxes. Special mention requires the cash transaction provisions which are going to affect almost every strata of society belonging to business and non-business class. In coming days, these changes would keep the professionals engaged in interpreting the provisions and advising their clients, who would naturally be a worried lot in view of the changes to be made in their style of operating business in future. Author has tried to make lucid analysis of the provisions by linking the present provisions with the newly enacted provisions:
1. CHANGES IN INCOME TAX RATE FOR AY 18-19 (FY 17-18):
1.1 Individual: New slab of Surcharge of 10% for Total Income of Rs. 50 Lacs to Rs. 100 Lacs introduced. On income exceeding Rs. 100 Lacs, the surcharge is 15% of total income.
1.2 Individual: Presently a tax rebate of Rs. 5000/- is allowed if the total income does not exceed Rs. 500000/-. With effect from 01/04/2017, the limit has been reduced to Rs. 2500/- up to the total income of Rs. 350000/-.
1.3 Companies: Where the total turnover or gross receipt does not exceed Rs. 50 Crore during FY 2015-16, the tax rate would be 25% for FY 2017-18
2. CHANGE IN TDS RATE FOR FY 2017-18:
Presently, Individual/HUF who are under Tax Audit (Turnover exceeding Rs. 1 Crore) are liable to deduct TDS on rent(whether used for business or residence) if the total rent exceeds Rs. 180000/- per annum. Now every individual/HUF, not covered by Tax Audit provisions, is liable to deduct TDS @ 5% if the monthly rent exceeds Rs. 50000/- per month.
3. CHANGES RELATED TO CAPITAL GAINS:
3.1 Holding Period of Capital Asset:
Now the holding period of Land and/or Building has been reduced to 24 months. Therefore the Holding period for different class of capital asset is as under:
|S.NO.||TYPE OF CAPITAL ASSET||HOLDING PERIOD|
|a)||All Listed Shares, Units of Equity Oriented Mutual Funds and Securities||12 Months or more|
|b)||Land and/or Building and Unlisted Shares||24 Months or more|
|c)||Any other type of capital asset including Units of Debt Oriented Mutual Fund||36 Months or more|
3.2 Form AY 2018-19 onwards, exemption u/s 10(38) on sale of the Long Term Capital Gain on Equity Shares (after paying STT) would be subject to following conditions:
a) These shares should had been purchased after paying STT if these were acquired after 01/10/2004.
b) However such condition would not be applicable if the acquisition is out of IPO, Follow-on IPO, Right Issue or Bonus issue for which separate notification would be issued by Government. Govt. would be bringing out notification for this purpose.
3.3. Capital Gains for the Joint Development Agreement(JDA) on the Land/Building owned by Individual/HUF:
Presently, the Capital Gains Liability on the owner is triggered as soon as the Joint Development Agreement (JDA) is entered and possession of the property is handed over for development to developer, though the sale of the developed property may take several years. In order to address such problems, new provisions u/s 45(5A) has been inserted laying down following conditions:
a) There should be a registered agreement between the owner of the Land or Building or both and developer, to develop the real estate in consideration of land or building or both or part in cash.
b) Capital gain shall be chargeable to tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the Competent For this purpose, the stamp duty value shall be the value on the date of issuing the completion certificate.
3.4 Shifting base year from 01/04/1981 to 01/04/2001 for computation of Capital Gains:
With effect from 01/04/2017, the assessee has the option to substitute the fair market value (FMV) as on 01/04/2001 in case of of asset acquired prior to 01/04/2001. Earlier this date was 01/04/1981.
3.5 Fair Market Value (FMV) to be deemed Consideration in the case of unquoted shares:
Under the newly introduced section 50CA wef 01/04/2017, the FMV would be deemed to be the full value of consideration if actual sale consideration is less than the FMV on the date of sale of shares. Thus, the both seller and buyers would have to pay tax on the difference if the FMV is higher than the actual consideration.
4. ACQUISITION OF ASSET WITHOUT CONSIDERATION OR INADEQUATE CONSIDERATION BY FIRMS/AOP AND WIDELY HELD COMPANIES:
Till now, firms, AOP and widely held companies were not liable to pay the tax on difference between Fair Market Value (FMV) and actual consideration.
Finance Act, 2017 now requires such assessees also to pay the tax u/s 56(2)(x) on the difference if the Fair Market Value is higher than actual consideration of movable or immovable asset. However trusts, transactions between relatives, HUF partition etc. are still out and not liable to pay the tax on the difference amount.
5. LIMIT FIXED FOR SET OFF OF INTEREST ON HOUSING LOAN ON RENTED PROEPRTIES AGAINST OTHER INCOME HEADS:
Presently, the interest on housing loans in respect of let out properties are allowed to be set off against other income without any limit. Wef 01/04/2017, the loss under the `Income from House Property’ would be kept limited to Rs. 200000/- for adjustment against other income head and balance loss, if any, would be allowed to be carried forward for next 8 years for setting off against the same head of income under the `Income from House Property’. Such carried forward loss would be allowed to be setoff against `Income From House Property’ without limit of Rs. 200000/-
6. CHANGES RELATED TO TRUST:
6.1 With effect from 01/04/2017, a trust registered u/s 10(23C) or 12AA can not make `Corpus Donations’ out of its income to any another trust registered u/s 10(23C) or 12AA. Such donations, if made, would not be treated as `Application’ of funds of `Donor’ Trust. Presently also, the `Donations’ out of the `Accumulated Income’ are not treated as application out of such income.
6.2 If the trust registered u/s 12A/12AA modifies its objectives subsequently, then trust would be required to obtain fresh registration by filing an application within 30 days of such adoption or modification of the objectives.
6.3 Trust are required to file their Income Tax Return if their receipts (before making any deduction for application) exceeds basic exemption limit i.e. Rs. 250000/- for AY 2018-19.
With effect from 01/04/2017 , trusts would be allowed to avail the benefit u/s 11 and 12 only if they file the ITR before the due dates u/s 139(1). Any delay in filing the ITR would disentitle them from the benefits u/s 11 and 12.
7. CHANGES FOR BUILDERS/OWNERS OF THE PROPERTY:
Presently, there is a dispute regarding the `Deemed Annual Value’ of vacant flats held as `Stock- in- Trade’, normally by builders, brokers, owners etc. However from AY 2018-19 onwards, if any property is held as stock-in-trade and such property is not let out during the whole (or any part) of the previous year, annual value of such property shall be taken as ‘Nil’ for a period of 1 year from the end of the FY in which the certificate of completion of construction of the property is obtained from the competent authority.
8. CHANGES RELATING TO CASH PAYMENTS AND RECEIPTS
8.1 As per the provisions upto 31/03/2017, any revenue expenditure incurred in cash (i.e. other than Account Payee Cheque /draft, NEFT, RTGS, Credit/ Debit Card ) exceeding Rs. 20,000/- per day per person (Rs. 35000 in case of a transport contractor) is not allowed as deduction u/s 40A(3). Now this limit of Rs. 20000/- has been brought down Rs. 10000/- per day per person. However, the limit of Rs. 35000/- for payment to transporter continues.
8.2 Till 31/03/2017, there was no restriction on the payment in cash for the acquisition of any asset. Now with effect from 01/04/2017, cash payment exceeding Rs. 10000/- per day person made otherwise than through Account Payee Cheque / draft, NEFT, RTGS, Credit/ Debit Card would not be considered as part of the cost of assets and accordingly such amount would not be considered for the purpose depreciation nor would be deemed as cost at the time of sale of such asset.
8.3 Receipt of Cash in excess of Rs. 200000/- by any person:
With effect from 01/04/2017, newly introduced section 269ST restricts the receipt of cash of Rs. 200000/- in following situations:
a) Aggregate receipt of Rs. 2 Lakhs or more from a person in a day
b) Aggregate receipt of Rs 2 Lakhs or more in respect of a single transaction
c) Receipt of Rs 2 Lakhs or more in relation to one event or occasion from a person
On violation of this section, a penalty equal to the amount received would be imposed on recipient (not payer). This section has very wide coverage and includes the receipt of payment of a invoice in several installments (if aggregate exceeds Rs. 2 Lacs), receipt of marriage-dowry in excess of Rs. 2 Lacs, Payment to any person on an occasion exceeding 2 Lacs, for example marriage, gift from relative. If one sells his car for Rs. 300000/- and receives the amount in cash, then penalty levied on him will be Rs.300000/-. If one withdraws Rs. 250000/- in cash from a bank on any day, then he would be liable for penalty.
In view of the newly introduced provisions relating to cash sales, the existing provisions (in vogue since 1.6.2016) relating to collection of TCS @ 1% on cash sales exceeding Rs.2 lakhs ( Rs.5 lakhs, in the case of jewellery) are deleted. Consequently, there is no need to collect TCS on cash sales exceeding Rs.2 lakhs in cash.
8.4 Reporting requirement on receipt of cash payment exceeding Rupees Two Lakh for sale of goods or services `per transaction’ during 01/04/2016 to 31/03/2017”
All assessees who are liable for tax audit u/s 44AB and are in receipt of cash exceeding Rs. 200000/- have to report such transaction in separate return form 61A for which due date is 31/05/2017. The delay would invite the penalty of Rs. 100/- per day of delay.
8.5 Reporting of Cash deposited during 09/11/2016 to 30/12/2016:
a) Income Tax Return of every assessee for FY 2016-17 requires the reporting of Cash deposited during 11.2016 to 30.12.2016 (if aggregate cash deposits during the period is Rs 2 Lacs or more)
b) Balance Sheet of every company assessee for the FY 2016-17 requires reporting of cash details in following manner in the Balance Sheet itself:
(Old 500 and 1000)
|Other denomination notes||Total|
|Closing cash in hand as on 08.11.2016|
|(+) Permitted receipts|
|(-) Permitted payments|
|(-) Amount deposited in Banks|
|Closing cash in hand as on 30.12.2016|
8.6 Donation in cash exceeding Rs. 2000/-
No deduction exceeding Rs. 2000/- (Present Limit Rs. 10000/-) would be allowed for eligible donations if the same is paid in cash
8.7 Summary for not using cash for following transactions:
|S. no.||Section||Cap on cash transaction||Consequences on breaching the limit|
|1,||40A(3)- Disallowance for cash expenditure||Payment of any expenditure above Rs. 10,000||No deduction|
|Payments for plying, hiring or leasing of goods carriage above Rs 35,000|
|2.||43(1)- Determination of actual cost of asset||Payment above 10,000 for purchase of asset||Such payment won’t be included in actual cost of asset (for depreciation and sale of asset)|
|3.||35AD- Investment linked deduction for capital expenditure||Payment above Rs 10,000 for any capital expenditure||No deduction|
|4.||80D- Health Insurance premium||No cash payment allowed||No deduction|
|5.||80G – Donations to certain funds and charitable institutions||Donations above Rs. 2,000||No deduction|
|6.||80GGA- Donations for scientific research or rural development.||Cash donation above Rs. 10,000||No deduction|
|7.||80GGB – Donations by companies to political parties.||No cash payment allowed||No deduction|
|8.||80GGC – Donations by any person to political parties||No cash payment allowed||No deduction|
|9.||269SS- Prohibition on acceptance of cash loans, deposits, etc. or sale of immovable asset||Rs. 20,000 or more||100% of amount received|
|10.||269ST- Prohibition on receiving cash||Rs. 2,00,000 or more||100% of amount received|
|11.||269T – Prohibition on repayment of loans or deposits in cash||Rs. 20,000 or more||100% of amount paid|
9. TRANSFER PRICING STUDY IN CASE OF TRANSACTIONS WITH RELATED PERSONS:
Till 31/03/2017, assessees making payments to related person (located in India) aggregating Rs. 20 Crore or more were liable for the Domestic `Transfer Pricing(TP) Study’ and file the required 3CE reports with the tax authorities. With effect from 01/04/2017, the scope of TP Study has been curtailed by excluding such transactions from the ambit of TP Study.
10. MAINTENANCE OF BOOKS OF ACCOUNT AND AUDIT REQUIREMENT
10.1 Presently those assessees, who are not covered by the `Presumptive Taxation Scheme’ wherein the 8% / 6% of the gross turnover or 50% of gross receipts in the profession is deemed as total income, are required to maintain the Books of Accounts or documents as specified in Income Tax Rules, 1962 , if their income is likely to exceed Rs. 120000/- or turnover is in excess of Rs. 1000000/-.
With effect from 01/04/2017, if the assessee is Individual or HUF, then these limits would be Rs. 150000/- and Rs. 2500000/- respectively and the limits for other assessees would remain same i.e. Rs. 120000/- and Rs. 1000000/-
10.2 For the AY 2017-18, assessees who are opting for `Presumptive Taxation Scheme’ are not liable for audit u/s 44AD, if their turnover is not in excess of Rs. 2 Crore or professional receipts are not in excess of Rs. 50 Lacs. Company /LLP are liable for audit if their turnover exceeds Rs. 1 Crore.
10.3 With effect from 01/04/2016, the rate of `Presumptive Taxation Scheme’ has been reduced to 6% of Gross Receipts/Turover in those cases where the payment of sales is received by way of account payee cheque/bank draft/use of electronic clearing system provided that such payment is received during the year or before the due date of furnishing returns u/s 139(1). Therefore assessees falling under this scheme have to keep separate records for Bank Sale and Cash Sale.
11. DIVIDEND TAXABLE IF EXCEEDS RS. 10 LACS:
Presently income by way of dividend in excess of Rs. 10 Lacs is taxable @ 10% in the case of resident Individual, HUF and Firm. With effect from 01/04/2017, such dividend would be taxable in all cases except Domestic Company, trust registered u/s 12A & Institutions eligible u/s 10(23)
12. MAT CREDIT CAN BE CARRIED FORWARD FOR 15 YEARS:
With effect from 01/04/17, the MAT Credit can be carried forward upto 15 years (Presently 10 Years) from the year in which such credit becomes available for adjustment
13. NON-DISCLOSURE OF REASONS TO BELIEVE TO CONDUCT SEARCH:
Presently, the reasons to believe or reasons to suspect for conducting the `Search’ can be disclosed at the stage of commencement of assessment proceedings. A retrospective amendment has been made (with effect from 01/04/1961), section 132 /132A have been amended to provide that such reasons would not be disclosed to any person / tribunal.
14. TIME LIMIT FOR FILING AND REVISING RETURN OF INCOME:
The Finance Act, 2016 had reduced the time limit of filing late returns(belated returns) by one year. With effect from the assessment year 2018-19, the time limit for revision of return has been reduced to the end of assessment year itself. The various situations are clarified as under:
|1.||What would be the last date for filing the ITR (after due date) for FY 2016-17||Upto 31/03/2018|
|2.||Whether the ITR for FY 2016-17 filed after due date (31st July/ 30th September) can be revised and upto what time ?||Yes, can be revised upto 31/03/2019|
|3.||Whether the ITR for FY 2017-18 can be filed after due date and revised ?||Yes, can be filed and revised upto 31/03/2019|
15. AADHAR IS MANDATORY FOR RETURN FILING WEF 01/07/2017
Every person who is eligible to obtain AADHAR number, should quote such number, on or after 1 July 2017, in the Return of income. Furthermore, every person who has been allotted PAN as on 1st July 2017 must intimate the AADHAR number to the Tax Authority, failing which, PAN allotted to such person shall be deemed to be invalid. Kindly note that linking of AADHAR with PAN is not possible, unless name as per AADHAR and PAN match perfectly. Hence, please take steps to rectify your name as per AADHAR to match as per PAN.
16. FEES FOR DELAY IN SUBMISSION OF ITR:
ITRs are required to be filed on or before 31st July and 30th September as per the applicable to different assessees. With effect from assessment year 2018-19, there would be following fees for delayed submission of ITR:
a) Upto Due date: NIL
b) Between 1st August/ 1st October upto 31st December 5000/-
c) Between 1st January to 31st March 10000/-
d) After 31st March Return filing is not possible
Further such fees would have to be deposited alongwith tax on the income.
17. REOPENING OF ASSESSMENTS / ITRs FOR LAST 10 YEARS IN CASE OF SEARCH:
Presently the notice can be issued for assessing income of last six assessment years preceding the year in which search is conducted. Now this power has been extended to cover 10 Years ( 6 Years + 4 Years) if the Assessing Officer has documents in possession which indicates that undisclosed income during these 4 years is not less than Rs. 50 Lacs. Therefore, every assessee should now keep the records/accounts for 10 years or more.
18. INCOME COMPUTATION & DISCLOSURE STANDARDS (ICDS) APPLICABLE FOR FY 2016-17 ONWARDS
CBDT has notified the ICDS which are applicable on Companies, Firms, Individual/HUF(If they are audit cases u/s 44AB). Some of the main provisions affecting the tax computation are as under:
a) Inventories as at 31/03/2017 are to be valued at cost or net realizable value, whichever is Cost shall comprise goods cost, conversion cost and all other costs incurred to bring them in present condition and location. Only FIFO or Weighted Average cost formula would be used.
b) Export Sale /Import Purchases would be recorded in the books of account by converting currency rate prevailing on the date of transaction. Exchange difference on settlement of transaction or on conversion thereof on last day of the previous year shall be recognized as expenses or income.
c) Government Grant relatable to asset would be reduced from such asset and depreciation would be provided on such reduced cost.
d) Interest and other borrowing cost directly linked to fixed assets would be capitalized. Interest incurred for manufacturing goods/items which require more than 12 months would also be capitalized.
If the general funds of the assessee are used for construction of fixed asset, then proportionate amount of interest (as per the formula prescribed) would be capitalized by comparing the opening and closing balance of fixed assets.
(The author is a Jaipur based practicing Chartered Accountant and can be reached on 09829063908, [email protected])