Over the past few years several tax concessions have been provided to units located in International Financial Services Centre (IFSC) under the Act to make it a global hub of financial services sector.
2. In order to further incentivise operations from IFSC, it is proposed to provide the following additional incentives:
(i) It is proposed to amend clause (4E) of section 10 of the Act to extend the exemption under the said clause to the income accrued or arisen to or received by a non-resident as a result of transfer of offshore derivative instruments or over-the-counter derivatives entered into with an Offshore Banking Unit of an International Financial Services Centre, referred to in subsection (1A) of section 80LA.
(ii) It is proposed to amend clause (4F) of section 10 to extend the exemption under the said clause to the income of a non-resident by way of royalty or interest, on account of lease of a ship in a previous year, paid by a unit of an International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, if the unit has commenced its operations on or before the 31st March, 2024.
It is also proposed to define “ship” to mean a ship or an ocean vessel, an engine of a ship or an ocean vessel, or any part thereof.
(iii) It is proposed to insert clause (4G) in section 10 to provide exemption to any income received by a non-resident from portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident, in an account maintained with an Offshore Banking Unit, in any International Financial Services Centre, referred to in subsection (1A) of section 80LA, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India.
It is also proposed to provide that “portfolio manager” shall have the same meaning as assigned to it in clause (z) of sub-regulation (1) of regulation (2) of International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021 made under the International Financial Services Centres Authority Act, 2019;
(iv) It is proposed to amend the Explanation to clause (viib) of section 56 of the Act to provide that specified fund shall also include Category I or a Category II Alternative Investment Fund which is regulated under the International Financial Services Centres Authority Act, 2019.
(v) It is proposed to amend clause (d) of sub-section (2) of section 80LA of the Act to provide that in addition to the income arising from the transfer of an asset being an aircraft, the income arising from the transfer of an asset, being a ship, which was leased by a unit of the International Financial Services Centre to any person shall also be eligible for deduction under section (1A) of the said section, subject to the condition that the unit has commenced operation on or before the 31st day of March, 2024.
It is also proposed to provide that ship shall have the same meaning as provided under clause (4F) of section 10.
3. These amendments will take effect from 1st April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years.
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Note on Clauses 4, 16 and 23 of Finance Bill 2022
Clause 4 seeks to amend section 10 of the Income-tax Act relating to incomes not included in total income.
Clause (4E) of the said section provides exemption to any income accrued or arisen to, or received by a non-resident as a result of transfer of non-deliverable forwards contracts entered into with an Offshore Banking Unit of an International Financial Services Centre as referred to in sub-section (1A) of section 80LA, which fulfils such conditions as may be provided by rules.
It is proposed to amend the said clause so as to provide that exemption under the said clause (4E) shall also be applicable to the income accrued or arisen to, or received by a nonresident as a result of transfer of offshore derivative instruments or over-the-counter derivatives entered into with an Offshore Banking Unit of an International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, which fulfils such conditions as may be provided by rules.
Clause (4F) of the said section provides exemption to any income of a non-resident by way of royalty or interest, on account of lease of an aircraft in a previous year, paid by a unit of an International Financial Services Centre as referred to in sub-section (1A) of section 80LA, if the unit has commenced its operations on or before 31st March, 2024.
It is proposed to amend the said clause to extend the said exemption to any income of a non-resident by way of royalty or interest, on account of lease of a “ship” paid by a unit of an International Financial Services Centre also.
It is further proposed to substitute the Explanation to the said clause to include the definition of the term “ship” therein.
It is also proposed to insert a new clause (4G) to the said section so as to provide exemption to any income received by a non-resident from portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident, in an account maintained with an Offshore Banking Unit, in any International Financial Services Centre as referred to in sub-section (1A) of section 80LA, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India.
It is also proposed to define the expression “portfolio manager” to have the same meaning as assigned to it in clause (z) of sub-regulation (1) of regulation (2) of the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021 made under the International Financial Services Centres Authority Act, 2019.
Clause (8) of the said section provides exemption to the income and remuneration of an individual who is assigned duties in India in connection with any co-operative technical assistance programmes and projects in accordance with an agreement entered by the Central Government and the Government of a foreign state (the terms thereof provide for the exemption given by this clause). Both the remuneration received by the individual from the foreign state and any other income accruing or arising outside India, and is not deemed to accrue or arise in India, are exempt under the said clause in certain cases.
Clause (8A) of the said section, inter alia, provides exemption on the remuneration or fee received by certain consultants, directly or indirectly out of the funds made available to an international organisation (agency) under a technical assistance grant agreement between the agency and the Government of a foreign state. The said clause further provides exemption to any income accruing or arising outside India (which does not accrue or arise in India) in respect of which the consultant is required to pay income or social security tax to the Government of the country or the country of his or its origin.
Clause (8B) of the said section, inter alia, provides exemption to an individual who is an employee of the consultant as referred to in clause (8A), and who is assigned duties in India in connection with a technical assistance programme and project in accordance with an agreement entered into by the Central Government and the agency subject to certain conditions. The said clause further provides exemption to any income accruing or arising outside India (which does not accrue or arise in India) in respect of which the consultant is required to pay income or social security tax to the country of his origin.
Clause (9) of the said section exempts the income of the family members of any individual or consultant as referred in clauses (8), (8A) and (8B), who accompany such individual or consultant to India, if the income does not accrue or arise in India and in respect of which such member is required to pay income and social security tax to the Government of foreign state or country of origin of such member.
It is proposed to insert provisos in clauses (8), (8A), (8B) and (9) of the said section so as to provide that the provisions of the said clauses shall not apply in respect of remuneration, fee and income, as the case may be, referred to in those clauses, of the previous year relevant to the assessment year beginning on or after the 1st April, 2023 and subsequent assessment years.
These amendments will take effect from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.
Clause (23C) of the said section provides for exemption to the income of certain entities.
Sub-clauses (iv), (v), (vi) and (via) of clause (23C) of said section provide exemption to the income received by any person on behalf of any fund or trust or institution or university or other educational institutions or hospital or other institutions which may be approved by a prescribed authority.
It is proposed to amend the said sub-clauses so as to substitute the reference of “prescribed authority” with the “Principal Commissioner or Commissioner”.
This amendment will take effect from 1st April, 2022.
Third proviso of clause (23C), inter-alia, provides that the fund or institution or trust or any university or other educational institution or any hospital or other medical institution, as is referred to in sub-clauses (iv), (v), (vi) and (via) of the said clause, shall apply at least eighty-five per cent. of its income, wholly and exclusively to the objects for which it is established and in a case where more than fifteen per cent. of its income is accumulated on or after the 1st day of April, 2002, the period of the accumulation of the amount exceeding fifteen per cent. of its income shall in no case exceed five years. It also provides that it shall invest or deposit its funds in specified modes.
Explanation 1 to the said third proviso provides that the income of the funds or trust or institution or any university or other educational institution or any hospital or other medical institution, shall not include income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution subject to the condition that such voluntary contributions are invested or deposited in one or more of the forms or modes specified in sub-section (5) of section 11, maintained specifically for such corpus.
It is proposed to insert a new Explanation 1A to the said third proviso so as to provide that where the property held under a trust or institution referred to in sub-clause (v) includes any temple, mosque, gurdwara, church or other place notified under clause (b) of sub-section (2) of section 80G, any sum received by such trust or institution as a voluntary contribution for the purpose of renovation or repair of such temple, mosque, gurdwara, church or other place, may, at its option, be treated by such trust or institution as forming part of corpus of that trust or institution, subject to the condition that the fund or trust or institution––
(a) applies such corpus only for the purpose for which the voluntary contribution was made; and
(b) does not apply such corpus for making contribution or donation to any person;
(c) maintains such corpus as separately identifiable; and
(d) invests or deposits such corpus in the forms and modes specified under sub-section (5) of section 11.
It is further proposed to insert Explanation 1B to the said third proviso to provide that for the purposes of the proposed Explanation 1A where any trust or institution referred to in sub-clause (v) has treated any sum received by it as forming part of the corpus, under Explanation 1A, and subsequently any of the conditions specified in clause (a) or clause (b) or clause (c) or clause (d) thereof are violated, such sum shall be deemed to be the income of such fund or trust or institution or university or other educational institution or hospital or other medical institution of the previous year during which the violation takes place.
These amendments will take effect retrospectively from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.
It is also proposed to insert Explanation 3 to the said third proviso of the said clause so as to provide that for the purposes of determining the amount of application under said proviso, where eighty-five per cent. of the income referred to in clause (a) of that proviso, is not applied wholly and exclusively to the objects for which the 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) is established, during the previous year but is accumulated or set apart, either in whole or in part, for application to such objects, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, if the following conditions are complied with,—
(a) such person furnishes a statement in the form and manner as may be provided by rules to the Assessing Officer stating the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed five years;
(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5) of section 11; and
(c) the statement referred to in clause (a) is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year.
It is also proposed to insert a proviso to the said Explanation 3 to provide that in computing the period of five years during which accumulation of income is allowed, the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded.
It is also proposed to insert a new Explanation 4 to the said third proviso of the said clause to provide that any income referred to in Explanation 3, which—
(a) is applied for purposes other than wholly and exclusively to the objects for which the 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) is established or ceases to be accumulated or set apart for application thereto; or
(b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5) of section 11; or
(c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of Explanation 3; or
(d) is credited or paid to any trust or institution registered under section 12AA or section 12AB 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),
shall be deemed to be the income of such person of the previous year–
(i) in which it is so applied or ceases to be so accumulated or set apart under clause (a); or
(ii) in which it ceases to remain so invested or deposited under clause (b); or
(i) being the last previous year of the period, for which the income is accumulated or set apart under clause (a) of Explanation 3, but not utilised for the purpose for which it is so accumulated or set apart under clause (c); or
(ii) in which it is credited or paid to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution under clause (d).
It is also proposed to insert a new Explanation 5 to the said third proviso so as to provide that notwithstanding anything contained in Explanation 4, where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause (b) of Explanation 3, as inserted, cannot be applied for the purpose for which it was accumulated or set apart, the Assessing Officer may, on an application made to him in this behalf, allow such person to apply that income for such other purpose in India as is specified in the application by such person and as is in conformity with the objects for which the fund or institution or trust or any university or other educational institution or any hospital or medical institution referred to in sub-clause
(iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) is established; and thereupon the provisions of Explanation 4 shall apply as if the purpose specified by that person in the application under the said Explanation were a purpose specified in the notice given to the Assessing Officer under clause (a) of Explanation 3.
It is also proposed to insert a proviso to Explanation 5 so as to provide that the Assessing Officer shall not allow application of such income by way of payment or credit made for the purposes referred to in clause (d) of Explanation 4.
It is also proposed to substitute the tenth proviso to the said clause (23C) so as to provide that where the total income of the 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), without giving effect to the provisions of the said sub-clauses, exceeds the maximum amount which is not chargeable to tax in any previous year, such fund or trust or institution or any university or other educational institution or any hospital or other medical institution, in addition to getting its books of accounts audited shall also, keep and maintain books of account and other documents in such form and manner and at such place, as may be provided by rules.
These amendments will take effect from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.
It is proposed to substitute the fifteenth proviso to the said clause (23C) so as to provide that where the fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) is approved under the said clause and subsequently the Principal Commissioner or Commissioner, has noticed occurrence of one or more specified violations during any previous year, or has received a reference from the Assessing Officer under the second proviso to sub-section (3) of section 143 for any previous year; or such case has been selected in accordance with the risk management strategy, formulated by the Board from time to time, for any previous year, the Principal Commissioner or Commissioner shall—
(i) call for such documents or information from the fund or institution or trust or any university or other educational institution or any hospital or other medical institution or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence of any specified violation;
(iii) pass an order in writing cancelling the approval of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution, on or before the specified date, after affording a reasonable opportunity of being heard, for such previous year and all subsequent previous years, if he is satisfied that one or more specified violation has taken place;
(iii) pass an order in writing refusing to cancel the approval of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution, on or before the specified date, if he is not satisfied about the occurrence of one or more specified violations;
(iv) forward a copy of the order under clause (ii) or clause (iii), as the case may be, to the Assessing Officer and such fund or institution or trust or any university or other educational institution or any hospital or other medical institution.
It also proposed to insert a new Explanation 1 to the fifteenth proviso of the said clause (23C) to provide that for the purposes of the said proviso, the expression “specified date” shall mean the day on which the period of six months, calculated from the end of the quarter in which the first notice is issued by the Principal Commissioner or Commissioner, on or after the 1st day of April, 2022, calling for any document or information, or for making any inquiry, under clause (i) expires.
It is also proposed to insert a new Explanation 2 to the said fifteenth proviso to provide that for the purposes of the said proviso, the following shall mean “specified violation”––
(a) where any income of the fund or trust or institution or any university or other educational institution or any hospital or other institution, which has been applied other than for the objects for which it is established; or
(b) the fund or institution or trust or any university or other educational institution or any hospital or other institution has income from profits and gains of business, which is not incidental to the attainment of its objectives or separate books of account are not maintained by it in respect of the business which is incidental to the attainment of its objectives; or
(c) any activity of the fund or institution or trust or any university or other educational institution or any hospital or other medical institution—
(A) is not genuine; or
(B) is not being carried out in accordance with all or any of the conditions subject to which it was notified or approved; or
(d) the fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not complied with the requirement of any other law for the time being in force, and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality.
It is also proposed to insert a new Explanation 3 to the said fifteenth proviso so as to provide that for the purposes of clause (b) of the said proviso, where the Assessing Officer has intimated the Central Government or the prescribed authority, under the first proviso of sub-section (3) of section 143, about the contravention of the provisions of sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of this clause by any fund or institution or trust or university or other educational institution or any hospital or other medical institution, in respect of an assessment year, and the approval granted to such fund or institution or trust or university or other educational institution or any hospital other medical institution has not been withdrawn or the notification issued in its case has not been rescinded, on or before the 31st day of March, 2022, such intimation shall be deemed to be a reference received, by the Principal Commissioner or Commissioner as on the 1st day of April, 2022, and the provisions of clause (b) of the second proviso to sub-section (3) of section 143 shall apply accordingly for such assessment year.
It is proposed to substitute the nineteenth proviso of the said clause (23C) so as to substitute the reference of the expression “prescribed authority” with “Principal Commissioner or Commissioner”. It is also proposed to remove the reference of the notification by the Central Government in case of the fund or institution referred to in sub-clause (iv) or the trust or institution referred to in sub-clause (v).
These amendments will take effect from 1st April, 2022.
It is proposed to insert a new twentieth proviso to the said clause (23C) so as to provide that the 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) shall furnish the return of income for the previous year in accordance with the provisions of sub-section (4C) of section 139, within the time allowed under that section.
It is also proposed to insert a new twenty-first proviso to the said clause (23C) so as to provide that where the income or part of income or property of 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), or any part of the such income, has been applied directly or indirectly for the benefit of any person referred to in sub-section (3) of section 13, such income or part of income or property shall, after taking in to account the provisions of sub-section (2), (4) and (6) of the said section, be deemed to be income of such person of the previous year in which it is so applied.
It is also proposed to insert a new twenty-second proviso to the said clause (23C) so as to provide that where 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) violates the conditions specified under the tenth or twentieth proviso, or where the provisions of the eighteenth proviso are applicable, its income chargeable to tax shall be computed after allowing deduction for the expenditure (other than capital expenditure) incurred in India, for the objects of the fund or institution or trust or the university or other educational institution or the hospital or other medical institution, subject to fulfilment of the following conditions, namely:–
(a) such expenditure is not from the corpus standing to the credit of the fund or institution or trust or the university or other educational institution or the hospital or other medical institution as on the end of the financial year immediately preceding the previous year relevant to the assessment year for which the income is being computed;
(b) such expenditure is not from any loan or borrowing;
(c) claim of depreciation is not in respect of an asset, acquisition of which has been claimed as application of income in the same or any other previous year; and
(d) such expenditure is not in the form of any contribution or donation to any person.
It is also proposed to insert an Explanation to the said twenty-second proviso to provide that for the purposes of determining the amount of expenditure under the said proviso, the provisions of sub-clause (ia) of clause (a) of section 40 and sub-sections (3) and (3A) of section 40A shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head “Profits and gains of business or profession”.
It is also proposed to insert a new twenty-third proviso to the said clause (23C) so as to provide that for the purposes of computing income chargeable to tax under twenty second proviso, no deduction in respect of any expenditure or allowance or set-off of any loss shall be allowed to the assessee under any other provision of this Act.
These amendments will take effect from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.
It is also proposed to insert Explanation 3 to the said clause (23C) so as to provide that for the purposes of this clause, any sum payable by 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) shall be considered as application of income during the previous year in which such sum is actually paid by it (irrespective of the previous year in which the liability to pay such sum was incurred by the fund or institution or trust or any university or other educational institution or any hospital or other medical institution according to the method of accounting regularly employed by it).
It is also proposed to insert a proviso to the said Explanation so as to provide that where during any previous year any sum has been claimed to have been applied by the fund or institution or trust or any university or other educational institution or any hospital or other medical institution, such sum shall not be allowed as application in any subsequent previous year.
These amendments will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-2023 and subsequent assessment years.
Clause 16 seeks to amend section 56 of the Income-tax Act relating to income from other sources.
Sub-section (2) of the said section provides that certain incomes as provided therein shall be chargeable to income-tax under the head “Income from other sources” without prejudice to the generality of the provisions of sub-section (1) thereof.
Clause (viib) of the said-sub-section provides that where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable under the head of Income-from other sources.
The first proviso to said clause (viib) provides that the provisions of the said clause shall not apply, where the consideration for issue of shares is received by a venture capital undertaking from, inter-alia, a specified fund.
Explanation to the said clause provides the definition of “specified fund” as a Category I or a Category II Alternative Investment Fund which is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992.
It is proposed to amend the said Explanation to clause (viib) to provide that “specified fund” shall also include Category I or a Category II Alternative Investment Fund which is regulated under the International Financial Services Centres Authority Act, 2019.
This amendment will take effect from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.
The existing provisions of clause (x) of sub-section (2) of the said section of the Income-tax Act, 1961 (the Act) inter alia, provides that where any person receives, in any previous year, from any person or persons any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum shall be the income of the person receiving such sum.
Proviso to the said clause provides for certain exclusions which shall not be part of the income specified in the clause.
It is proposed to amend the said proviso to insert two new clauses (XII) and (XIII) so as to provide that–
(i) any sum of money received by an individual, from any person, in respect of any expenditure actually incurred by him on his medical treatment or treatment of any member of his family, in respect of any illness related to COVID-19 subject to such conditions, as may be notified by the Central Government in this behalf, shall not be the income of such person;
(ii) any sum of money received by a member of the family of a deceased person, from the employer of the deceased person, or from any other person or persons to the extent that such sum or aggregate of such sums does not exceed ten lakh rupees,
where the cause of death of such person is illness relating to COVID-19 and the payment is, received within twelve months from the date of death of such person, and subject to such other conditions, as may be notified by the Central Government in this behalf, shall not be the income of such person.
It is also proposed to insert an Explanation to provide that for the purpose of both of the said clauses (XII) and (XIII) of this proviso, “family” in relation to an individual shall have the same meaning as assigned to in the Explanation 1 to clause (5) of section 10.
This amendment will take effect retrospectively from 1st April, 2020 and shall accordingly, apply in relation to the assessment year 2020-2021 and subsequent assessment years.
Explanation to clause (x) of the said sub-section provides that for the purposes of the said clause, the expressions “assessable”, “fair market value”, “jewellery”, “property”, “relative” and “stamp duty value shall have the same meanings as respectively assigned to them in the Explanation to clause (vii).
It is proposed to amend the said Explanation to include the definition of the expression “property” to have the same meaning as assigned to it in clause (d) of the Explanation to clause (vii) and shall include virtual digital asset.
This amendment will take effect from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.
Clause 23 seeks to amend section 80LA of the Income-tax Act relating to deductions in respect of certain incomes of Offshore Banking Units and International Financial Services Centre.
Sub-section (1A) of the said section, inter-alia, provides that where the gross total income of an assessee, being a Unit of an International Financial Services Centre, includes any income referred to in sub-section (2) of the said section, there shall be allowed, in accordance with and subject to the provisions of that section, a deduction from such income, of an amount equal to one hundred per cent. of such income for any ten consecutive assessment years, at the option of the assessee, out of fifteen years, beginning with the assessment year relevant to the previous year in which the permission, under clause (a) of sub-section (1) of section 23 of the Banking Regulation Act, 1949 or permission or registration under the Securities and Exchange Board of India Act, 1992 or any other relevant law was obtained.
Sub-section (2) of the said section specifies the incomes which are eligible for deduction, inter-alia, under the said sub-section (1A).
It is proposed to amend clause (d) of sub-section (2) of the said section to provide that the income arising from the transfer of an asset, being a ship which was leased by an unit of the International Financial Services Centre to a person, subject to the condition that the unit has commenced operation on or before the 31st day of March, 2024 shall also be eligible for deduction under the said sub-section (1A).
It is further proposed to amend the Explanation to the said clause (d) so as to provide that the term “ship” shall have the same meaning as provided in clause (4F) of section 10 of the Act.
These amendments will take effect from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.
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Extract of Clauses 4, 16 and 23 of Finance Bill 2022
4. Amendment of section 10.
In section 10 of the Income-tax Act,––
(a) with effect from the 1st day of April, 2023,––
(i) in clause (4E), after the words “non-deliverable forward contracts”, the words “or offshore derivative instruments or over-the-counter derivatives,” shall be inserted;
(ii) in clause (4F),––
(I) after the word “aircraft”, the words “or a ship” shall be inserted;
(II) for the Explanation, the following Explanation shall be substituted, namely:––
‘Explanation.—For the purposes of this clause,–
(i) “aircraft” means an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof;
(ii) “ship” means a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof;’;
(iii) after clause (4F), the following clause shall be inserted, namely:––
‘(4G) any income received by a non-resident from portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident, in an account maintained with an Offshore Banking Unit in any International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India.
Explanation.—For the purposes of this clause, “portfolio manager” shall have the same meaning as assigned to it in clause (z) of sub-regulation (1) of regulation (2) of the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021, made under the International 50 of 2019. Financial Services Centres Authority Act, 2019;’;
(iv) in clause (8), after sub-clause (b), the following proviso shall be inserted, namely:––
“Provided that nothing contained in this clause shall apply to such remuneration and income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023;”;
(v) in clause (8A), after sub-clause (b) and before the Explanation, the following proviso shall be inserted, namely:––
“Provided that nothing contained in this clause shall apply to such remuneration, fee and income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023.”;
(vi) in clause (8B), after sub-clause (b), the following proviso shall be inserted, namely:––
”Provided that nothing contained in this clause shall apply to such remuneration and income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023;”;
(vii) after clause (9), the following proviso shall be inserted, namely:––
“Provided that nothing contained in this clause shall apply to such income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2023;”;
(b) in clause (23C),––
(i) in sub-clauses (iv), (v), (vi) and (via), for the words “prescribed authority”, the words “Principal Commissioner or Commissioner” shall be substituted;
(ii) in the third proviso,––
(I) after Explanation 1, the following Explanations shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2021, namely:––
“Explanation 1A.––For the purposes of this proviso, where the property held under a trust or institution referred to in clause (v) includes any temple, mosque, gurdwara, church or other place notified under clause (b) of sub-section (2) of section 80G, any sum received by such trust or institution as a voluntary contribution for the purpose of renovation or repair of such temple, mosque, gurdwara, church or other place, may, at its option, be treated by such trust or institution as forming part of the corpus of that trust or institution, subject to the condition that the trust or institution,––
(a) applies such corpus only for the purpose for which the voluntary contribution was made;
(b) does not apply such corpus for making contribution or donation to any person;
(c) maintains such corpus as separately identifiable; and
(d) invests or deposits such corpus in the forms and modes specified under sub-section (5) of section 11.
Explanation 1B.––For the purposes of Explanation 1A, where any trust or institution referred to in sub-clause (v) has treated any sum received by it as forming part of the corpus, and subsequently any of the conditions specified in clause (a) or clause (b) or clause (c) or clause (d) of the said Explanation is violated, such sum shall be deemed to be the income of such trust or institution of the previous year during which the violation takes place.”;
(II) after Explanation 2, the following Explanations shall be inserted with effect from the 1st day of April, 2023, namely:––
“Explanation 3.––For the purposes of determining the amount of application under this proviso, where eighty-five per cent. of the income referred to in clause (a) of this proviso is not applied wholly and exclusively to the objects for which the 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) is established, during the previous year but is accumulated or set apart, either in whole or in part, for application to such objects, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, if the following conditions are complied with, namely:—
(a) such person furnishes a statement in such form and manner, as may be prescribed, to the Assessing Officer stating the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed five years;
(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5) of section 11; and
(c) the statement referred to in clause (a) is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year:
Provided that in computing the period of five years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded.
Explanation 4.—Any income referred to in Explanation 3, which—
(a) is applied for purposes other than wholly and exclusively to the objects for which the 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) is established or ceases to be accumulated or set apart for application thereto; or
(b) ceases to remain invested or deposited in any of the forms or modes specified in subsection (5) of section 11; or
(c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of Explanation 3; or
(d) is credited or paid to any trust or institution registered under section 12AA or section 12AB 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), shall be deemed to be the income of such person of the previous year––
(i) in which it is so applied or ceases to be so accumulated or set apart under clause (a); or
(ii) in which it ceases to remain so invested or deposited under clause (b); or
(iii) being the last previous year of the period, for which the income is accumulated or set apart under clause (a) of Explanation 3, but not utilised for the purpose for which it is so accumulated or set apart under clause (c); or
(iv) in which it is credited or paid to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution under clause (d).
Explanation 5.––Notwithstanding anything contained in Explanation 4, where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause (b) of Explanation 3 cannot be applied for the purpose for which it was accumulated or set apart, the Assessing Officer may, on an application made to him in this behalf, allow such person to apply such income for such other purpose in India as is specified in the application by that person and as is in conformity with the objects for which the 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) is established; and thereupon the provisions of Explanation 4 shall apply as if the purpose specified by that person in the application under this Explanation were a purpose specified in the notice given to the Assessing Officer under clause (a) of Explanation 3:
Provided that the Assessing Officer shall not allow application of such income by way of payment or credit made for the purposes referred to in clause (d) of Explanation 4:”;
(iii) for the tenth proviso, the following proviso shall be substituted with effect from the 1st day of April, 2023, namely:––
“Provided also that where the total income of the 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), without giving effect to the provisions of the said sub-clauses, exceeds the maximum amount which is not chargeable to tax in any previous year, such fund or institution or trust or any university or other educational institution or any hospital or other medical institution shall––
(a) keep and maintain books of account and other documents in such form and manner and at such place, as may be prescribed; and
(b) get its accounts audited in respect of that year by an accountant as defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB and furnish by that date, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed:”;
(iv) for the fifteenth proviso, the following proviso shall be substituted, namely:––
‘Provided also that where the fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) is approved under the said clause and subsequently—
(a) the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year; or
(b) the Principal Commissioner or Commissioner has received a reference from the Assessing Officer under the second proviso to subsection (3) of section 143 for any previous year; or
(e) such case has been selected in accordance with the risk management strategy, formulated by the Board from time to time, for any previous year, the Principal Commissioner or Commissioner shall—
(i) call for such documents or information from the fund or institution or trust or any university or other educational institution or any hospital or other medical institution, or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence of any specified violation;
(ii) pass an order in writing cancelling the approval of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution, on or before the specified date, after affording a reasonable opportunity of being heard, for such previous year and all subsequent previous years, if he is satisfied that one or more specified violation has taken place;
(iii) pass an order in writing refusing to cancel the approval of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution, on or before the specified date, if he is not satisfied about the occurrence of one or more specified violations;
(iv) forward a copy of the order under clause (ii) or clause (iii), as the case may be, to the Assessing Officer and such fund or institution or trust or any university or other educational institution or any hospital or other medical institution.
Explanation 1.––For the purposes of this proviso, “specified date” shall mean the day on which the period of six months, calculated from the end of the quarter in which the first notice is issued by the Principal Commissioner or Commissioner, on or after the 1st day of April, 2022, calling for any document or information, or for making any inquiry, under clause (i) expires.
Explanation 2.––For the purposes of this proviso, the following shall mean “specified violation”,––
(a) where any income of the fund or institution or trust or any university or other educational institution or any hospital or other medical institution has been applied other than for the objects for which it is established; or
(b) the fund or institution or trust or any university or other educational institution or any hospital or other medical institution has income from profits and gains of business, which is not incidental to the attainment of its objectives or separate books of account are not maintained by it in respect of the business which is incidental to the attainment of its objectives; or
(c) any activity of the fund or institution or trust or any university or other educational institution or any hospital or other medical institution—
(A) is not genuine; or
(B) is not being carried out in accordance with all or any of the conditions subject to which it was notified or approved; or
(d) the fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not complied with the requirement of any other law for the time being in force, and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality.
Explanation 3.––For the purposes of clause (b) of this proviso, where the Assessing Officer has intimated the Central Government or the prescribed authority under the first proviso of sub-section (3) of section 143 about the contravention of the provisions of sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of this clause by any fund or institution or trust or university or other educational institution or any hospital or other medical institution in respect of an assessment year, and the approval granted to such fund or institution or trust or university or other educational institution or any hospital or other medical institution has not been withdrawn, or the notification issued in its case has not been rescinded, on or before the 31st day of March, 2022, such intimation shall be deemed to be a reference received by the Principal Commissioner or Commissioner as on the 1st day of April, 2022, and the provisions of clause (b) of the second proviso to sub-section (3) of section 143 shall apply accordingly for such assessment year:’;
(v) for the nineteenth proviso, the following proviso shall be substituted, namely:––
“Provided also that where the fund or institution referred to in sub-clause (iv) or the trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) has been approved by the Principal Commissioner or Commissioner, and the approval is in force for any previous year, then, nothing contained in any other provision of this section, other than clause (1) thereof, shall operate to exclude any income received on behalf of such fund or institution or trust or university or other educational institution or hospital or other medical institution, as the case may be, from the total income of the person in receipt thereof for that previous year:”;
(vii) after the nineteenth proviso and before Explanation 1, the following provisos shall be inserted with effect from the 1st day of April, 2023, namely:––
‘Provided also that the 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) shall furnish the return of income for the previous year in accordance with the provisions of sub-section (4C) of section 139, within the time allowed under that section:
Provided also that where the income or part of income or property of 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), has been applied directly or indirectly for the benefit of any person referred to in sub-section (3) of section 13, such income or part of income or property shall, after taking into account the provisions of sub-sections (2), (4) and (6) of the said section, be deemed to be the income of such person of the previous year in which it is so applied:
Provided also that where 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) violates the conditions of the tenth proviso or twentieth proviso, or where the provisions of the eighteenth proviso are applicable, its income chargeable to tax shall be computed after allowing deduction for the expenditure (other than capital expenditure) incurred in India, for the objects of the fund or institution or trust or the university or other educational institution or the hospital or other medical institution, subject to fulfilment of the following conditions, namely:––
(a) such expenditure is not from the corpus standing to the credit of the fund or institution or trust or the university or other educational institution or the hospital or other medical institution as on the end of the financial year immediately preceding the previous year relevant to the assessment year for which the income is being computed;
(b) such expenditure is not from any loan or borrowing;
(c) claim of depreciation is not in respect of an asset, acquisition of which has been claimed as application of income in the same or any other previous year; and
(d) such expenditure is not in the form of any contribution or donation to any person.
Explanation.—For the purposes of determining the amount of expenditure under this proviso, the provisions of sub-clause (ia) of clause (a) of section 40 and subsections (3) and (3A) of section 40A shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head “Profits and gains of business or profession”:
Provided also that for the purposes of computing income chargeable to tax under the twenty-second proviso, no deduction in respect of any expenditure or allowance or set-off of any loss shall be allowed to the assessee under any other provision of this Act:’.
(vii) after Explanation 2, the following shall be inserted, namely:––
“Explanation 3.––For the purposes of this clause, any sum payable by 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) shall be considered as application of income during the previous year in which such sum is actually paid by it (irrespective of the previous year in which the liability to pay such sum was incurred by the fund or institution or trust or any university or other educational institution or any hospital or other medical institution according to the method of accounting regularly employed by it):
Provided that where during any previous year any sum has been claimed to have been applied by the fund or institution or trust or any university or other educational institution or any hospital or other medical institution, such sum shall not be allowed as application in any subsequent previous year;”.
16. Amendment of section 56.
In section 56 of the Income-tax Act, in sub-section (2),––
(a) in clause (viib), in the Explanation, in clause (aa), after the words and figures “Securities and Exchange Board of India Act, 1992”, the words and figures “or regulated under the International Financial Services Centres Authority Act, 2019” shall be inserted with effect from the 1st day of April, 2023;
(b) in clause (x),––
(i) in the proviso occurring after item (B) in sub-clause (c), after clause (XI) and before the Explanation, the following clauses shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2020, namely:––
‘(XII) by an individual, from any person, in respect of any expenditure actually incurred by him on his medical treatment or treatment of any member of his family, for any illness related to COVID-19 subject to such conditions, as the Central Government may, by notification in the Official Gazette, specify in this behalf;
(XIII) by a member of the family of a deceased person––
(A) from the employer of the deceased person; or
(B) from any other person or persons to the extent that such sum or aggregate of such sums does not exceed ten lakh rupees, where the cause of death of such person is illness related to COVID-19 and the payment is––
(i) received within twelve months from the date of death of such person; and
(ii) subject to such other conditions, as the Central Government may, by notification in the Official Gazette, specify in this behalf.
Explanation.––For the purposes of clauses (XII) and (XIII) of this proviso, “family”, in relation to an individual, shall have the same meaning as assigned to it in Explanation 1 to clause (5) of section 10.’;
(ii) for the Explanation, the following Explanation shall be substituted with effect from the 1st day of April, 2023, namely:––
‘Explanation.––For the purposes of this clause,––
(a) the expressions “assessable”, “fair market value”, “jewellery”, “relative” and “stamp duty value” shall have the same meanings as respectively assigned to them in the Explanation to clause (vii); and
(b) the expression “property” shall have the same meaning as assigned to it in clause (d) of the Explanation to clause (vii) and shall include virtual digital asset.’.
23. Amendment of section 80LA.
In section 80LA of the Income-tax Act, in sub-section (2), in clause (d), with effect from the 1st day of April, 2023,––
(i) after the words “being an aircraft”, the words “or a ship” shall be inserted;
(ii) in the Explanation, for the words ‘this clause, “aircraft” shall’, the words ‘this clause, “aircraft” and “ship” shall’ shall be substituted.
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