Amendment in Sec.80-IBA: Deductions in respect of profits and gains from housing projects:

Existing Provision:

  • The existing provisions of section 80-IBA provides for 100% deduction in respect of the profits and gains derived from developing and building certain housing projects subject to specified conditions.
  • The conditions specified, inter alia, include the limit of 30 square meters for the built-up area of residential unit in respect of project located in the 4 Metro cities or within 25 kms from the municipal limits of these four cities.
  • It is also provided that in order to be eligible to claim deductions, the project shall be completed within a period of three years.

New Provision:

  • The size of residential unit shall be measured by taking into account the “carpet area” and not the “built-up area”.
  • The restriction of 30 square meters on the size of residential units shall not apply to the place located within a distance of 25 kms from the municipal limits of the 4 Metro cities.
  • The condition of period of completion of project for claiming deduction under this section shall be increased from existing three years to five years.
  • This amendment will be effective from F.Y. 2017-18.

Amendment in Sec.54EC: Investment in long term bonds for claiming exemption under Sec.54EC:

  • Currently, investment in bonds issued by the National Highways Authority of India or by the Rural Electrification Corporation Limited is eligible for exemption under this section.
  • It is proposed that investment in any bond redeemable after three years which has been notified by the Central Government in this behalf shall also be eligible for exemption.
  • This amendment will be effective from F.Y. 2017-18.

Notional Taxability under House Property head in case of Builders/ real estate developers:

  • With a smart move, the government has proposed to tax the unsold House Properties, held as Stock in Trade by real estate developers.
  • Where the House Properties consisting of any building and land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period upto one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil. (Amendment in Sec.23)
  • Meaning thereby after expiry of one year from the end of the F.Y. in which the Completion certificate is obtained, the Annual Value of such House Property will be taxable under the head Income From House Property.
  • This amendment will be effective from F.Y. 2017-18.

Relaxation of 51% share holding limit for carry forward of Losses in case of certain companies: (Sec.79)

  • As per the existing provision of Sec.79, in case of closely held companies, for being eligible to carry forward the losses, the 51% of voting power should remain with same persons.
  • The limit of 51% is proposed to be relaxed in case of eligible start-ups, and they will be eligible to carry forward the losses of 7 years from their incorporation if all the shareholders carrying voting power on the last day of the year in which loss incurred continue to hold those shares on the last day of the previous year in which change in shareholding takes place.
  • This amendment will be effective from F.Y. 2017-18.

Extension in the period for claiming deduction by Start-ups:

  • Under the existing provisions of section 80-IAC, 100% deduction of the profits and gains derived from eligible business for 3 consecutive assessment years out of 5 years beginning from the year in which such eligible start-up is incorporated is available to an eligible Start-up.
  • It is proposed to provide that deduction under section 80-IAC can be claimed by an eligible start-up for any 3 consecutive assessment years out of 7 years beginning from the year in which such eligible start-up is incorporated.
  • This amendment will be effective from F.Y. 2017-18.

Extension of eligible period of concessional tax rate on interest in case of External Commercial Borrowing and Extension of benefit to Rupee Denominated Bonds:

  • The existing provisions of section 194LC of the Act provide that the interest payable to a non-resident by a specified company on borrowings made by it in foreign currency from sources outside India under a loan agreement or by way of issue of any long-term bond including long-term infrastructure bond shall be eligible for concessional TDS of 5%.
  • The cut-off date of such concessional TDS rate was 01.07.2017.
  • The same is proposed to be extended till 01.07.2020.
  • Further interest payable on monies borrowed from a source outside India by way of issue of rupee denominated bonds is also proposed to be covered under concessional TDS rate of 5%.

Extension of eligible period of concessional tax rate under Sec.194LD:

  • The existing provisions of section 194LD of the Act provide for lower TDS rate of 5% in case of interest payable to FIIs and QFIs on their investments in Government securities and rupee denominated corporate bonds.
  • The cut-off date of such concessional TDS rate was 01.07.2017.
  • The same is proposed to be extended till 01.07.2020.

Tax incentive for the development of capital of Andhra Pradesh:

  • In case of acquisition of land, specified compensation received by the land owner in lieu of acquisition of land is exempt from income tax.
  • The Land Pooling Scheme is an alternative form of arrangement made by the Government of Andhra Pradesh for formation of new capital city of Amaravati to avoid land-acquisition disputes and lessen the financial burden associated with payment of compensation under that Act.
  • In Land pooling scheme, the compensation in the form of reconstituted plot or land is provided to landowners.
  • However, the existing provisions of the Act do not provide for exemption from tax on transfer of land under the land pooling scheme as well as on transfer of Land Pooling Ownership Certificates (LPOCs) or reconstituted plot or land.
  • With a view to provide relief to an individual or Hindu undivided family who was the owner of such land, and has transferred such land under the land pooling scheme notified, a new clause (37A) in section 10 has been inserted to exempt such transfers.
  • This exemption will be effective retrospectively from Financial Year 2014-15.
  • However Sale of reconstituted plot or land by said persons after 2 years from the end of the financial year in which the possession of such plot or land was handed over to the said persons are not exempt by Sec.10(37A). In such cases, the cost of acquisition of such plot or land shall be deemed to be its stamp duty value on the last day of that 2nd financial Year. (Amendment in Sec.49 proposed)

(Disclaimer: This write up is based on the understanding and interpretation of author and the same is not intended to be a professional advice.)

[The author is a Chartered Accountant and can also be reached at canitingoyal1994@gmail.com]

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One response to “Union Budget 2017: Quick Analysis of Proposed Amendments in Tax Laws: (Part-B)”

  1. Ajit kumar Tulsian says:

    Can we raise our queries at this plateform

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