TaxTMI 
TaxTMI 
Memorandums
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.... capital markets, widening of tax base, checking tax evasion and avoidance, rationalization of certain provisions and tax payer friendly measures. (iii) Amendment of the Wealth-tax Act, 1957. (iv) Amendment of the Gift-tax Act, 1958. (v) Amendment of the Expenditure-tax Act, 1987. 2. Subject to certain exceptions, which have been indicated while dealing with the relevant provisions, the Bill follows the principle that changes in the provisions of the tax laws, should ordinarily be made operative prospectively in relation to current incomes and not in relation to incomes of past years. The substance of the main provision in the Bill relating to direct taxes is explained in the following paragraphs :- INCOME-TAX I. Rates of income-tax in respect of incomes liable to tax for the assessment year 2003-2004. In respect of incomes of all categories of tax payers (corporate as well as non-corporate) liable to tax for the assessment year 2003-2004, the rates of income-tax have been specified in Part I of the First Schedule to the Bill and are the same as those laid down in Part III of the First Schedule to the Finance Act, 2002, for the purposes of computation of "advan....
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....e case of every artificial juridical person, at the rate of ten per cent. of such tax. III. Rates for deduction of income-tax at source from "Salaries", computation of "advance tax" and charging of Income-tax in special cases during the financial year 2003-2004. The rates for deduction of income-tax at source from "Salaries" during the financial year 2003-2004 and also for computation of "advance tax" payable during that year in the case of all categories of tax payers have been specified in Part III of the First Schedule to the Bill. These rates are also applicable for charging income-tax during the financial year 2003-2004 on current incomes in cases where accelerated assessments have to be made, e.g., provisional assessment of shipping profits arising in India to non-residents, assessment of persons leaving India for good during that financial year, assessment of persons who are likely to transfer property to avoid tax, or assessment of bodies formed for short duration, etc. The salient features of the rates specified in the said Part III are indicated in the following paragraphs :- A. Individuals, Hindu undivided families, etc. Paragraph A of Part III of the First S....
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....000 1,000 1,000 Nil Nil 60,010 1,010 * 1,002 (-)8 (-)0.79 60,020 1,020 * 1,004 (-)16 (-)1.57 60,050 1,050 * 1,010 (-)40 (-)3.81 60,100 1,071 1,020 (-)51 (-)4.76 60,200 1,092 1,040 (-)52 (-)4.76 75,000 4,200 4,000 (-)200 (-)4.76 1,50,000 19,950 19,000 (-)950 (-)4.76 2,00,000 35,700 34,000 (-)1,700 (-)4.76 3,00,000 67,200 64,000 (-)3,200 (-)4.76 5,00,000 1,30,200 1,24,000 (-)6,200 (-)4.76 7,50,000 2,08,950 1,99,000 (-)9,950 (-)4.76 8,00,000 2,24,700 2,14,000 (-)10,700 (-)4.76 8,50,000 2,40,450 2,29,000 (-)11,450 (-)4.76 8,55,000 2,42,025 2,34,000 # (-)8,025 (-)3.31 8,60,000 2,43,600 2,39,000 # (-)4,600 (-)1.88 8,65,000 2,45,175 2,44,000 # (-)1,175 (-)0.47 8,70,000 2,46,750 2,49,000 # 2,250 0.91 8,75,000 2,48,325 2,54,000 # 5,675 2.28 8,80,000 2,49,900 2,59,000 # 9,100 3.64 8,85,000 2,51,475 2,63,450 11,975 4.76 8,90,000 2,53,050 2,65,100 12,050 4.76 10,00,000 2,87,700 3,01,400 13,700 4.76 25,00,000 7,60,200 7,96,400 36,200 4.76 1,00,00,000 31,22,700 32,71,400 1,48,700 4.76 * Marginal relief would be provided to ensure that the additional income-tax payable, including surcharge, on the excess of income over Rs.....
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.... the aggregate of the amounts of the dividend distributed or paid or likely to be distributed or paid during the financial year does not exceed one thousand rupees. Further, under the existing provisions contained in section 194K, no tax is required to be deducted at source by the person responsible for making the payment of any income in respect of units of a Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India to the account of, or to, the payee where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year does not exceed one thousand rupees. With a view to give relief to small investors and senior citizens, it is proposed to provide that no deduction of tax at source shall be made from income by way of dividends or the income from units where the amount of dividend or income, as the case may be, does not exceed two thousand five hundred rupees. These amendments will take effect retrospectively from 1st August, 2002, and shall apply in respect of dividends declared, distributed or paid before 1st April, 2003. [Clauses 67 and 72....
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....r technical services is credited or paid is required to deduct tax at source while making the payment. Website: http://indiabudget.nic.in 4 The Bill proposes to insert a new proviso to the said sub-section so as to provide that no individual or a Hindu undivided family referred to in the second proviso shall be liable to deduct income-tax from the sum payable by way of fees for professional services in case such sum is credited or paid exclusively for personal purposes. This amendment will take effect from 1st June, 2003. [Clause 71] Exemption of amount received under VRS Compensation allowable even if it is receivable or received in instalments Under the existing provision contained in clause (10C) of section 10, any amount received by an employee of a public sector company or any other company or an authority established under a Central, State or Provincial Act or a local authority or a co-operative society, or a University, or Indian Institute of Technology, or State or Central Government, or an institution having national or state level importance, or a institute of management, notified by the Central Government, etc., at the time of voluntary retirement or....
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....ayers Under the provisions of clause (i) of section 16, deduction of a specified amount is available to an assessee having income from salary. As per the existing provisions, the amount of deduction in case of a salaried taxpayer having salary income upto one lakh fifty thousand rupees before allowing deduction under this clause, is equal to thirty-three and one-third per cent. of the salary or thirty thousand rupees, whichever is less. In case of an assessee whose income from salary exceeds rupees 1.5 lacs but is less than rupees 3 lacs before allowing deduction under this clause, the standard deduction is rupees 25,000. In case of an assessee whose income from salary exceeds rupees 3 lacs but is less than rupees 5 lacs before allowing deduction under this clause, the standard deduction is rupees twenty thousand. No deduction is allowed in case of an assessee whose income from salary exceeds rupees 5 lacs. It is proposed to increase the amount of deduction under this section with a view to provide tax relief to salaried taxpayers. Accordingly, an assessee, whose income from salary before allowing a deduction under this clause, does not exceed five lakh rupees, shall be allow....
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....ons with Disability (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 having any disability over 80%. It is also proposed to define the term 'dependant' so as to include in the case of an individual, the spouse, children, parents, brothers and sisters and in the case of a Hindu Undivided Family, a member thereof, who is wholly or mainly dependant on the assessee and has not claimed any deduction under section 80U in the computation of his income. For claiming the deduction, the assessee shall have to furnish a copy of the certificate issued by the medical authority under the Persons with Disability (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 along with the return of income filed under section 139. Where the condition of disability requires reassessment, a fresh certificate from the medical authority shall have to be obtained after the expiry of the period mentioned on the original certificate in order to continue to claim the deduction. The proposed amendment will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-2005 and subsequent years. [Clause 31] Deductio....
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....after the expiry of the period mentioned on the original certificate in order to continue to claim the deduction. The proposed amendment will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-2005 and subsequent years. [Clause 40] Increasing the amount of rebate of income-tax in case of individuals of sixty-five years or above Under the existing provision, individuals in the age group of sixty-five years or more are entitled to a deduction from the amount of income-tax on their total income in any assessment year, of an amount equal to hundred per cent of such income-tax or an amount of fifteen thousand rupees, whichever is less. With a view to provide tax relief to the senior citizens, it is proposed to enhance the said limit of tax rebate to twenty thousand rupees. Accordingly, a senior citizen having income upto rupees one lakh fifty-three thousand and where such senior citizen is a pensioner or a salaried taxpayer having income upto rupees one lakh eighty-three thousand, shall not have to pay any income tax. The proposed amendment will take effect from 1st April, 2004 and will, accordingly, apply in relation to ....
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....come is earned outside India, the deduction shall be allowed on so much of the income earned in foreign exchange, which is brought in India within six months from the end of previous year or within such further period as the competent authority may allow in this behalf. For this purpose, competent authority shall mean the Reserve Bank of India or such other authority as is authorized under any law for the time being in force for regulating payments and dealings in foreign exchange. It is proposed to provide that in order to claim deduction in such cases, a certificate in line with similar provisions existing in the Act to the effect that the deduction has been correctly claimed in accordance with the provision of this section would be required to be furnished. The proposed section will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-2005 and subsequent years. [Clause 38] Rebate for tuition fees paid for the education of any two children The existing provisions contained in section 88 provide for a deduction from the tax payable on the total income of an individual or a Hindu undivided family, which is equal to a fixed p....
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....ate, by whatever name called, constituted or established by a Central, State or Provincial Act for the objects and purposes authorized by the Act under which such corporation or body corporate was constituted or established shall be allowed as a deduction in computing the income under the head "Profits and gains of business or profession". This amendment will take effect retrospectively from 1st April, 2002 and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years. [Clause 15] Abolition of tax on dividends and levy of additional income-tax on distributed profits Under the existing provisions contained in section 115-O, domestic companies were liable to pay ten per cent. additional income- tax on profits distributed by them on or before the 31st March, 2002. The tax so paid by the company was treated as the final payment of tax in respect of the amount declared, distributed or paid by way of dividend. From 1.4.2002 dividend declared, distributed or paid was chargeable to income-tax in the hands of the recipients, i.e. the shareholders. Section 80L provided for deduction from the gross total income in respect of dividends received by a t....
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....f amounts declared, distributed or paid as dividends on or after 1st April, 2003. [Clauses 6, 29, 36, 37, 44, 45, 46, 47, 48, 49, 67, 73, 75 and 76] Abolition of tax on income from units and levy of additional income-tax on income distributed by Mutual Funds Under the existing provisions contained in section 115R, any amount of income distributed by the Unit Trust of India or a Mutual Fund to its unit holders on or before the 31st March, 2002 is chargeable to tax and the UTI or the Mutual Fund is liable to pay additional income-tax on such distributed income at the rate of ten per cent. From 1.4.2002 income from units referred to in section 115R is chargeable to income-tax in the hands of the recipient, i.e. the unit holder. Section 80L provided for deduction from the gross total income in respect of income received in respect of units from the UTI or a Mutual Fund. Under the provisions of section 194K, tax is required to be deducted at source from income in respect of units in the case of a unit holder who is resident in India. Tax is also required to be deducted at source under section 196A in respect of any income paid to a non-resident, not being a company, or....
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....n contained in sub-section (1) of section 44AE, in the case of an assessee, who owns not more than ten goods carriages and who is engaged in the business of plying, hiring or leasing such goods carriages, the income of such business chargeable to tax under the head "Profits and gains of business or profession" is deemed to be the aggregate of the profits and gains from all the goods carriages owned by him in the previous year. Website: http://indiabudget.nic.in 8 The Bill proposes to amend the said sub-section so as to clarify that the provisions of the section shall apply in the case of an assessee who owns not more than ten goods carriages at any time during the previous year. This amendment will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Clause 21] Rationalisation of the definition of income Under the existing provisions contained in sub-clause (xii) of clause (24) of section 2, sums referred to in clause (vii) of section 28 are included in the definition of income. The Bill proposes to amend the said sub-clause so as to give reference to clause (va) of section 28. The propo....
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....ovisions of this Act shall apply accordingly. With a view to rationalize the provisions relating to assessment of firms, the Bill proposes to substitute sub-section (5) of section 184 and section 185 so as to provide that notwithstanding anything contained in any other provision of this Act, where there is on part of the firm any failure as referred to in section 144 or, a firm does not comply with the provisions of section 184 for any assessment year, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession" and sum amount of interest, salary, bonus, commission or remuneration shall not be charged to tax in the hands of the partners under clause (v) of section 28. These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Clauses 63 and 64] Clarificatory amendments in respect of deduction of cost of repairs and current repairs Under....
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....ions contained in clause (3) of section 43 defines the expression "plant" in an inclusive manner and further excludes tea bushes or livestock. The coverage of the term 'plant' has been a subject matter of litigation, particularly on the issue, whether buildings or furniture and fittings constitute 'plant' It is proposed to provide for exclusion of the assets, namely, "buildings or furniture and fittings" from the definition of the expression “plant". Similarly, under the existing provisions of clause (6) of section 43, the use of the expression "as appearing in the books of account" was inadvertent. It is, therefore, proposed to omit the words "as appearing in the books of account" from Explanation 2B so as to clarify that the written down value of the block of assets in the case of the resulting company will be the written down value of the transferred assets of the demerged company. The proposed amendment will take effect from the 1st day of April, 2004 and will, accordingly apply in relation to assessment year 2004-2005 and subsequent years. [Clause 17] Charging of interest on excess refund granted at the time of summary assessment Under the provisions....
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....erest chargeable under sub-section (1), shall be reduced accordingly. It has also been provided that an assessment made for the first time under section 147 or section 153A shall be regarded as a regular assessment for the purposes of aforesaid section. This amendment will take effect from 1st June, 2003. [Clause 84] Clarification regarding the Credit Guarantee Fund Trust for Small Industries Under the existing provisions contained in clause (23EB) of section 10, the income of the Credit Guarantee Fund Trust for Small Scale Industries is exempt from tax for a period of five years relevant to the assessment years beginning on the 1st April, 2002 and ending on the 31st March, 2007. Website: http://indiabudget.nic.in 10 The Bill proposes to amend the said clause so as to clarify the name of the trust as being the "Credit Guarantee Fund Trust for Small Industries". This amendment will take effect retrospectively form 1st April, 2002 and will, accordingly, apply in relation to the assessment year 2002-03 and four subsequent years. [Clause 6] Rationalisation of provisions relating to direct payment of tax by the assessee when tax not deducted at source Un....
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....Clause (e) of the said section relates to any sum payable by the assessee as interest on any term loan from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan. The first proviso to the said section provides that the deduction shall be allowed if the sum is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income in respect of the previous year in which the liability to pay such sum was incurred and the evidence of such payment is furnished by the assessee along with such return. The second proviso to the said section provides that no deduction shall, in respect of any sum referred to in clause (b), i.e. any sum payable as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for welfare of employees be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realized within fifte....
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.... lines similar to the amendment of section 148 by the Finance Act, 1996. These amendments will take effect retrospectively from 1st April, 1989 and will, accordingly, apply in relation to notices issued on or after 1st April, 1989. [Clauses 93 and 94] Exemption of income by way of royalty received in pursuance of an agreement for providing services in connection with the security of India Under the existing provision contained in clause (6C), income arising to a foreign company, notified by the Central Government in the Official Gazette, by way of fees for technical services received in pursuance of an agreement entered into with the Government for providing services in or outside India in projects connected with security of India, is not included in computing its total income. Payments in the nature or royalty are, however, not covered by this provision. It is, therefore, proposed to amend the said clause (6C) so as to extend the exemption also to the income arising to a foreign company, notified by the Central Government in the Official Gazette, by way of royalty received in pursuance of an agreement for providing services in connection with the security of India. ....
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....pproved by the Central Government after 31st May, 2003. The proposed amendment will take effect from 1st April, 2004, and will, accordingly, apply in relation to the assessment year 2004-2005 and subsequent years. [Clause 6(d)] Change in the definition of 'not ordinarily resident' Under the existing provision contained in clause(6) of section 6, a person is said to be "not ordinarily resident" in India in any previous year if such person is an individual who has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more; or is a Hindu undivided family whose manager has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more. This definition has been subject to differing legal interpretations. In order to remove any doubts in this regard, it is proposed to substitute the existing definition wi....
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....held to be established in cases where the non-resident carries on business through a broker, general commission agent or any other agent of an independent status, provided that such a person is acting in the ordinary course of his business. It is further proposed to clarify that a broker, general commission agent or any other agent who does not work mainly or wholly on behalf of the non-resident or on behalf of that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident, shall be deemed to be a broker, general commission agent or an agent of an independent status. It is proposed to give a reference of this definition in section 163 also. The proposed amendments will take effect from 1st April, 2004, and will, accordingly, apply in relation to the assessment year 2004-2005 and subsequent years. [Clause 5] Deduction in respect of medical treatment etc. of specified diseases to be linked to the expenditure actually incurred on such treatment Under the existing provisions of section 80DDB, a deduction of forty thousand rupees is allowed to an assessee being an individual or Hindu undivided family, w....
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....s or maintains and operates a special economic zone referred to in clause (iii) of sub-section (4) of the said section. With the view to rationalise the provisions, it is proposed to provide that where an undertaking develops a special economic zone on or after 1st April, 2001 and transfers the operation and maintenance to another undertaking (transferee undertaking), the deduction to the transferee undertaking shall be available for the remaining period in the ten consecutive assessment years, in such a manner as would have been available to the transferred undertaking, as if the operation and maintenance were not so transferred to the transferee undertaking. It is also proposed to make consequential amendments in sub-section (2) by substituting the expression "or develops or develops and operates or maintains and operates a special economic zone", with "or develops a special economic zone". Website: http://indiabudget.nic.in 13 This amendment will take effect retrospectively from 1st April, 2002 and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent years. [Clause 33] Rationalization of the tax concessions in respect of insurance p....
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....red. It is also proposed to clarify that the value of any premiums agreed to be returned or of any benefit by way of bonus or otherwise, over and above the sum actually assured, which is to be or may be received under the policy by any person, shall not be taken into account for the purpose of calculating the actual capital sum assured under this clause. The proposed amendment will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-2005 and subsequent years. [Clauses 6 and 41] Re-computation of Capital Gains in case of reduction in compensation The existing provisions of sub-section (5) of section 45, provide for method of computation of capital gains arising from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, and where the compensation or the consideration for such transfer is enhanced or further enhanced by any court, Tribunal or other authority. The said sub-section provides that the capital gain shall be computed by taking the compensation or ....
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....s, as that would amount to repayment of loan. With a view to mitigate the hardships faced by the assessees, it is proposed to amend the aforesaid section by inserting a second proviso so as to provide that the provisions of this section shall not apply in case of repayment of any loan or deposit taken or accepted from (i) Government; (ii) any banking company, post office savings bank or co-operative bank; (iii) any corporation established by a Website: http://indiabudget.nic.in 14 Central, State or Provincial Act; (iv) any Government company as defined in section 617 of the Companies Act, 1956; (v) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette. This amendment will take effect retrospectively from 1st June, 2002. Section 269T was amended vide the Finance Act, 2002 and the scope of the section was extended to loans also. In view of the same, it is proposed to amend section 271E, so as to provide for levy of penalty on a person if he fails to repay any deposit or loan in accordance with the provisions of....
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.... clause (i) of sub-section (3) of section 143. It is proposed to discontinue the scheme of scrutiny assessment on limited issues by inserting a proviso in clause (i) of sub-section (2) of the said section so as to provide that no notice under clause (i) of the said sub-section shall be served on the assessee on or after the 1st June, 2003. This amendment will take effect from 1st June, 2003. [Clause 58] Assessment in search cases - Abolition of the special procedure in Chapter XIV-B and introduction of new provisions The existing provisions of the Chapter XIV-B provide for a single assessment of undisclosed income of a block period, which means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted and also includes the period up to the date of the commencement of such search, and lay down the manner in which such income is to be computed. The main objectives for the introduction of the Chapter XIV-B were avoidance of disputes, early finalisation of search assessments and reduction in multiplicity of proceedings. The idea was to have a cost-effective, efficient and meaningful search assessme....
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....sessment made under section 153A. In the assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year. The proposed new section 153B provides for the time limit for completion of search assessments. It provides that the Assessing Officer shall make an order of assessment or reassessment in respect of each assessment year, falling within six assessment years under section 153A within a period of two years from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed. This section also provides the time limit for completion of assessment in respect of the assessment year relevant to the previous year in which the search is conducted under section 132 or requisition is made under section 132A within a period of two years from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed. It also provides that in computing the period of limitation for completion of such asses....
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....on 132 of Income-tax Act, 1961, relates to search and seizure. The existing provisions of clause (iii) in sub-section (1) of section 132 provide for seizure of any books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of search. It is proposed to insert a proviso to the said clause so as to provide that any bullion, jewellery or other valuable article or thing being stock-in-trade of the business found as a result of search shall not be seized but the authorised officer shall make a note or inventory of such stock-in-trade of the business. The existing provisions of second proviso to sub-section (1) of section 132 provide that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, the same could be placed under deemed seizure whereby the Authorised Officer may serve an order on the owner or the person in immediate possession that he shall not remove or part with it except with the previous permission of the Authorised officer. It is al....
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.... respect of an application by a resident applicant referred to in sub-clause (ii) of the said clause (a), as it stood immediately before such date, such ruling shall be binding on persons specified in section 245S. This amendment will take effect from the date on which the Finance Bill, 2003 receives the assent of the President. [Clause 85] Time limit for imposing of penalty Under the existing provisions contained in clause (a) of sub-section (1) of the section 275, no order imposing a penalty shall be passed, in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals), or to the Appellate Tribunal after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or within six months from the end of the month in which the order of the Commissioner (Appeals), or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later. It is proposed to insert a proviso in the said clause so as to provide that in a case where the relevant assessment or other order ....
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....within the prescribed time, an annual information return in such form and manner, as may be prescribed, in respect of such financial transactions entered into by him during any previous year. This amendment will take effect from 1st April, 2004. [Clause 91] Rationalisation of provisions relating to profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc. Under the existing provisions of section 206C, sellers of certain goods are required to collect tax from a buyer at the rates specified in the Table below sub-section (1). The Table specifies a rate of ten per cent. for alcoholic liquor for human consumption (other than Indian made foreign liquor) and tendu leaves. The Explanation to the section provides that the "buyer" does not, inter alia, include a buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act. The Bill proposes to substitute the Table in sub-section (1), inter alia, to provide for collection of tax at source at the rate of ten per cent. in the case of Indian made foreign liquor and scrap. Website: http:/....
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....n which the liability to pay such sum was incurred. Further, where in respect of any such sum, tax has been deducted under Chapter XVII-B or paid after expiry of the time limit prescribed in sub-section (1) of section 200 in any subsequent year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been deducted and paid. The Bill also proposes to substitute sub-clause (iii) of clause (a) to provide that no deduction shall be allowed in respect of any payment which is chargeable under the head "Salaries", if it is payable outside India or within India to a non-resident, on which tax has not been deducted or, after deduction, has not been paid under Chapter XVII-B. These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Clause 16] Rationalisation of certain provisions for presumptive taxation in case of non-residents Under the existing provision contained in sub-section (1) of section 44BB of the Income-tax Act, income of a non-resident taxpayer who is engaged in the business of providing services or facilities in connecti....
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....s made to non-residents Under the existing provisions contained in section 193 of the Income-tax Act, the person responsible for paying any income by way of interest on securities is required to deduct tax at source at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or a draft or any other mode at the rates in force. Further, under the existing provisions contained in section 194-I, any person who is responsible for paying to any person any income by way of rent is required to deduct tax at source at the specified rates. Hence, the provisions of these sections apply in relation to payments made both to non-residents as well as residents. Under the existing provisions contained in section 195, any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest on securities) or any other sum chargeable under the provisions of the Income-tax Act (not being income chargeable under the head "Salaries") is required to deduct tax at source at the rates in force. The Bill proposes to provide that the person responsible for deducting tax u....
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....ees for technical services received from Government or an Indian concern in pursuance of an agreement made by a non-resident (not being a company) or a foreign company with Government or the Indian concern after the 31st day of March, 2003, where such non-resident (not being a company) or a foreign company carries on business in India through a permanent establishment situated therein, or performs professional services from a fixed place of profession situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of profession, as the case may be, would be computed under the head "Profits and gains of business or profession" in accordance with the provisions of the Income-tax Act. However, it is provided that no deduction shall be allowed, in respect of any expenditure or allowance which is not wholly and exclusively incurred for the business of such permanent establishment or fixed place of profession in India; or in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to its ....
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....nown as Deposit Account, in accordance with a scheme framed by the Coffee Board with the previous approval of the Central Government, such assessee shall be allowed a deduction of the amount so deposited during the previous year or forty per cent. of the profits from the business of growing or manufacturing coffee in India, whichever is less. It has also been provided that in the case of an assessee engaged in the business of growing and manufacturing coffee in India, in case where the sum standing to the credit of the assessee is released by the National Bank for Agriculture and Rural Development or is withdrawn from the Deposit Account and is utilized for the purchase of any machinery or plant to be installed in any office premises or residential accommodation including guest houses; any office appliances other than computers; any other plant or machinery which either is installed in an undertaking producing low priority items specified in the Eleventh Schedule of the Income- tax Act or is an item of plant and machinery, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise), the whole of such amount so utilized will be tr....
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....ed authority is the Secretary, Department of Scientific and Industrial Research, Ministry of Science & Technology, Government of India. With a view to give boost to the scientific research and development in the country, it is proposed to allow the deduction to companies carrying on scientific research and development, which are approved by the prescribed authority before 1st April, 2004. The proposed amendment will take effect from the 1st April, 2004 and will, accordingly apply in relation to assessment year 2004-05 and subsequent years. [Clause 34] Relaxing the conditions relating to completion and extending the time limit for obtaining approval for the purpose of tax holiday under section 80IB for approved housing projects Under the existing provision of sub-section (10) of section 80-IB, a deduction equal to one hundred per cent of the profits of an undertaking engaged in developing and building housing projects is allowed. The deduction is available to the housing projects approved by a local authority before the 31st day of March, 2001 and which are completed before the 31st day of March, 2003. With a view to allow housing projects to avail the benefit of tax ....
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....as to start providing telecommunication services, etc. to 31st March, 2004. The proposed amendment will take effect from the 1st April, 2004 and will, accordingly apply in relation to assessment year 2004-05 and subsequent years. [Clause 33] "Eligible issue of capital" to be allowed to be utilized in the business of development of industrial park or a special economic zone The existing provisions of section 88 provide for a deduction from the tax payable on the total income of an individual or a Hindu undivided family, which is equal to a fixed percentage of sums paid or deposited in specified schemes. For the purpose of this deduction, the aggregate sums paid or deposited in specified schemes, eligible for the deduction under this section, are limited to rupees seventy thousand. However, as per the provisions of clauses (xvi) and (xvii) of sub-section (2), where such sums include subscription to equity shares or debentures, or units of mutual funds forming part of eligible issue of capital, a higher limit of eligible investment of rupees one hundred thousand is available. For the purpose of this section, the term "eligible issue of capital" has been defined as an is....
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....nting of a license) in a patent, or for imparting of any information concerning the working or use thereof in India, or for rendering of any services in connection with the above. However, no deduction shall be available on any consideration for sale of product manufactured with the use of patented process or of the patented article per se for commercial use. Further, any consideration which is chargeable under the head "capital gains" shall not be eligible for deduction. Where a compulsory licence is granted in respect of any patent under the Patents Act, 1970, the income eligible for deduction under this section shall not exceed the amount of royalty under the terms and conditions of a licence settled by the Controller under that Act. It is also proposed to provide that where any income is earned from sources outside India on which the deduction under the proposed section is claimed, only so much of the income may be considered, as is brought into India by, or on behalf of the assessee Website: http://indiabudget.nic.in 21 in convertible foreign exchange within a period of six months from the end of the previous year or within such further period as the competent auth....
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....ction (7A) in section 10A and sub-section (7A) in section 10B, to provide that where an undertaking of an Indian company is transferred to another company under a scheme of amalgamation or demerger, the deduction shall be allowable in the hands of the amalgamated or the resulting company. However no deduction shall be admissible under these sections to the amalgamating company or the demerged company for the previous year in which amalgamation or demerger takes place. As a consequence, sub-sections (9), (9A) and Explanation thereafter in sections 10A and 10B, become redundant and are proposed to be omitted, so that the tax benefit is not lost on change of ownership of the eligible undertaking. The proposed amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-2005 and subsequent years. It is also proposed to insert the reference of sub-section (1A) in subsection (4) and the reference of "this section" instead of "sub- section (1)" in section 10A. The proposed amendments are consequential in nature and will take effect retrospectively from 1st April, 2003 and will, accordingly, apply in relation to the assessment ....
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....tantial expansion, in the States of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern States. For this purpose, substantial expansion is defined as increase in the investment in the plant and machinery by at least 50% of the book value of the plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken. Website: http://indiabudget.nic.in 22 It is proposed to provide the deduction to such undertakings or enterprises which manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth schedule and which commences operation in any Export Processing Zone, or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate, or Industrial Park, or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with schemes framed by the Central Government in this regard. Similar deduction shall be available to thrust sector industries, as specified in the Fourteenth Schedule. The amount of deduction in case of undertakings or enterprises in the States of Sikkim and the North-Easter....
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.... provisioning in respect of bad and doubtful debts in case of scheduled and non-scheduled banks Under the existing provisions contained in sub-clause (a) of clause (viia) of sub-section (1) of section 36, a scheduled bank (not being a bank incorporated outside India) or a non-scheduled bank is entitled to a deduction of an amount not exceeding seven and one-half per cent. of its gross total income before making any deduction under the said clause and an amount not exceeding ten per cent. of the aggregate average advances made by the rural branches of such bank, in respect of provision for bad and doubtful debts. Under the first proviso to sub-clause (a), such banks have an option to claim deduction in respect of any provision for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it not exceeding five per cent. of the amount of such assets. The second proviso to sub-clause (a), raises the amount of the optional deduction available under the first proviso to ten per cent. of the amount of the doubtful assets or loss assets shown in the books of account of such bank on the last day of the previous year. ....
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....ght to participate in the ownership of assets of the stock exchange by issuance of shares in the new corporate body; (ii) and the right to trade on stock exchanges. Thus, the membership card will be exchanged for the shares and the right to trade on the stock exchange. In order to make the process of demutualization and corporatisation of stock exchanges tax neutral, amendments are proposed in section 2, section 47 and section 55 of the Income-tax Act, 1961. Clause (xiii) of section 47 provides that any transfer of a capital asset, where an association of persons or body of individuals is succeeded by a company in the course of corporatisation of a recognised stock exchange in India in accordance with a scheme approved by the Securities and Exchange Board of India, shall not be regarded as a transfer for the purposes of capital gains. It is proposed to insert a new clause (xiiia) in the aforesaid section so as to provide that any transfer of a capital asset, being a membership right held by a member of a recognised stock exchange in India, for acquisition of shares and trading or clearing rights acquired by such member in that recognised stock exchange, in accordance with ....
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....ion 10 so as to provide that any income arising from the transfer of a capital asset being a unit of Unit Scheme, 1964 referred to in Schedule I of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 and where the transfer of such assets takes place on or after 1st April, 2002, shall be exempt from tax. This amendment will take effect retrospectively from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-04 and subsequent years. [Clause 6] TAXPAYER FRIENDLY MEASURES Tax clearance certificate to be required only in certain cases The existing provisions of sub-section (1) of section 230 provide for the requirement of tax clearance certificate in the case of a person who, leaves the territory of India by land, sea or air. Certain exceptions to this requirement have been specified by the central Government. It is proposed to substitute sub-section (1) of section 230 so as to provide that no person, subject to such exceptions as the Central government may, by notification in the Official Gazette, specify in this behalf, who is not domiciled in India and who has come to India in connection with business, profession or e....
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....y for any person who is domiciled in India to obtain a certificate under this section unless he records the reasons therefor and obtains the prior approval of the Chief Commissioner of Income-tax. This amendment will take effect from 1st June, 2003. [Clause 81] Filing of TDS returns on magnetic media Under the existing provisions contained in sub-section (1) of section 206, the prescribed person in the case of every office of Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax is required to prepare and deliver or cause to be delivered to the prescribed income-tax authority, such return in such form and verified in such manner and setting forth such particulars as may be prescribed within the prescribed time after the end of each financial year. Sub-section (2) of the said section further provides that the returns of tax deducted at source may be filed on computer readable media such as floppies, diskettes, magnetic cartridge tapes, etc. as may be specified by the Board and that the inf....
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.... Assessing Officer may, at his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, regardless of anything contained in any other provision of this Act, such return be treated as an invalid return and the provisions of this Act shall apply as if such person had failed to deliver the return. This amendment will take effect from 1st June, 2003. [Clause 79] Measures to facilitate the filing of return by the assessee Under the existing provisions contained in sub-section (1) of section 139, every company whether it has income or loss and every person other than a company, if the total income in respect of which he is assessable under this Act during the previous year exceeded the maximum amount not chargeable to income-tax, is required to furnish a return of such income on or before the due date in the prescribed form and manner. In order to enable the taxpayer to file his return of income in computer readable media, without interface with the Department, it is proposed to insert a new sub-section (1B) in section 139 so as to provide that any person may, at his option, on....
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....ding the scope to include agreements for developing mutual trade and investment Under the existing section 90, the Central Government may enter into an agreement with the Government of any country outside India for granting of relief in respect of income on which have been paid both income-tax under the Income-tax Act and income-tax in that country, or for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country, etc. In order to encourage international trade and commerce, it is proposed to insert a new clause in sub-section (1) of the section 90 so as to provide that the Central Government may also enter into an agreement with the Government of any country outside India for granting relief in respect of income-tax chargeable under this Act or under the corresponding law in that country to promote mutual economic relations, trade and investment. Certain terms used in the Double Taxation Avoidance Agreements (DTAAs) have not been defined either in the agreements or in the Income-tax Act. In order to address the problems arising due to conflicting interpretations of such terms, it is proposed to insert a new provision....
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....ical equipments, presently attracting 5% customs duty, has been reduced to Nil by exempting them from excise duty. 3) Customs duty on glucometers and glucometer test strips has been reduced from 10% to 5%. 4) Customs duty on rough ophthalmic blanks has been reduced from 25% to 5%. 5) Customs duty on specified veterinary drugs has been reduced from 15% to 10%. 6) Customs duty on imports of reference standards by the pharmaceutical industry has been reduced to 5%. 7) Customs duty on parts of CAPD fluid system has been reduced to 5%. 8) Drugs and materials for clinical trial have been exempted from customs duty. 9) Import of specified goods by Regional Cancer Research Centers registered with Department of Scientific and Industrial Research (DSIR) has been allowed at a concessional rate of customs duty of 5%. 10) Customs duty on hearing aids and their parts has been reduced from 15% to 5%. These have been exempted from SAD also. 11) Customs duty on crutches, wheel chairs, walking frames and tricycles (whether or not motorised) for disabled has been reduced to 5%. These have been exempted from SAD and CVD also. 12) Customs duty on parts of wheel chairs has ....
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....M. Tea : An additional duty of customs on tea and tea waste @ Re. 1 per Kg. has been levied for the purposes of the Union. N. Export Promotion Measures: 1) Customs duty on gold bars, serially numbered and weight expressed in metric units and gold coins has been reduced from Rs.250 to Rs. 100 per 10 grammes. The reduced rate on Rs.100 will not apply to tola bars. 2) Customs duty on cut and polished diamonds/gemstones has been reduced from 15% to 5%. 3) Rough coloured gemstones and semi-processed, half cut or broken diamonds have been exempted from customs duty. 4) Customs duty on refrigerated trucks has been reduced from 25% to 20%. O. Transport: 1) Except in CKD form, cars in all other forms, including completely built unit will attract customs duty at 60%. The second hand cars would continue to attract customs duty at 105%. 2) Customs duty on loco simulators has been reduced from 25% to 5%. 3) Customs duty on spares for diesel locomotives, parts for conversion of DC locos to AC locos has been reduced from 25% to 15%. P. National Calamity Contingent Duty: · For generating additional funds, a duty of Rs.50 per metric tonne has been imposed on i....
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....oms Act is being amended so as to provide that the relevant date for determination of rate of duty on home clearance of warehoused goods would be the date of presentation of the ex-bond bill of entry for home consumption. 3) Section 25(2) of the Customs Act is being amended so as to restore the powers to the Central Government to issue ad hoc exemption orders in circumstances of an exceptional nature. 4) Section 25 of the Customs Act, 1962 is being amended to provide that no duty will be collected if the total amount of duty leviable is Rs. 100 or less. 5) Section 27(2) of the Customs Act is being amended to enable an exporter to claim refund of duty and interest subject to the provisions of unjust enrichment. 6) Section 28 of the Customs Act is being amended so as to omit the requirement of prior approval of show cause notice by the Commissioner or the Chief Commissioner. 7) Section 28E and 28H of the Customs Act are being amended so as to provide that advance ruling may also be sought in respect of all notifications under the Customs Tariff Act and any other duty chargeable as customs duty. It is also proposed to allow wholly-owned subsidiary Indian company of a fo....
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.... the question of law instead of referring the matter to the Tribunal. Section 135 of the Customs Act is being amended so as to provide for prosecution in cases of misdeclaration of value and of fraudulent exports. 17) 18) Section 136 of the Customs Act is being amended so as to provide for prosecution of officers of Customs who connive at any act or thing whereby any fraudulent export is effected. 19) The time period for fulfilling the export obligation in terms of specified EPCG licenses, where the licence holders were affected by the earthquake in Gujarat, is being extended upto 31.3.2004. 20) The rate of interest in respect of specified notifications relating to export promotion schemes is being reduced to 15% with retrospective effect. 21) Section 3 of the Customs Tariff Act is being amended with effect from 1.3.2002 to clarify that for computation of additional duty of customs, the value of the imported goods including the landing charges and the customs duty chargeable on the said goods shall be taken into account. Other duties such as anti-dumping duty, safeguard duty, etc. shall not be taken into account. 22) Section 3A of the Customs Tariff Act is bein....
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....te building blocks. The 8% rate is being extended to aerated and cellular light weight concrete blocks and slabs 2) Laboratory glassware 3) Crankshafts for sewing machines 4) Power driven pumps for handling water 5) Medical equipments 6) Pre fabricated buildings C. IMPOSITION OF DUTY: Excise duty of 8% with CENVAT credit has been imposed on the following items: 1) Refined edible oils (branded and packed for retail sale) * 2) Vanaspati, margarine and other similar edible preparations (branded and packed for retail sale) * 3) Lay flat tubing 4) Chemical reagents for specified end use. 5) Wood free particles or fibre board made from agrowaste. Website: http://indiabudget.nic.in 31 6) Paper and paper board manufactured from atleast 75% non-conventional raw materials. 7) Populated printed circuit boards for black and white televisions. * In respect of these products, labelling or relabelling of containers and repacking or adoption of any treatment to render the goods marketable will amount to manufacture. D. NATIONAL CALAMITY CONTINGENT DUTY (NCCD): For replenishment of the National Calamity Contingent Fund, duty on following item....
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....1) Excise duty on cement has been increased from Rs.350/- per metric tonne to Rs.400/- per metric tonne. 2) Excise duty on cement clinkers has been increased from Rs.200/- to Rs.250/- per metric tonne. 3) Excise duty on cement made by mini cement plants has been increased from Rs.200 to Rs.250 per metric tonne. 4) Excise duty on cement cleared in bulk has been increased from Rs.332 per metric tonne to Rs.382 per metric tonne. K. MEDICINAL & TOILET PREPARATIONS: 1) 1st March, 2003 has been notified as the date on which the amendment to M&TP Act, 1955 carried out vide Finance Act, 2000 shall come into effect. 2) Duty on toilet preparations containing alcohol or narcotic substances has been reduced from 50% to 16%. 3) Duty on medicines containing alcohol or narcotic substances has been reduced from 20% or specific rates to 16%. 4) Full exemption on Ayurvedic/Unani/Indigenous medicines, containing self-generated alcohol and not capable of being consumed as alcoholic beverage, has been retained. 5) Toilet preparations containing alcohol or narcotic substances, will be assessed on retail sale price (RSP) basis, with an abatement of 40% on the RSP. L. MATCHES....
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.... RSP, the excise duty would be leviable on the basis of such higher RSP affixed later on. (b) Assume powers to enable the government to ascertain the RSP of goods having no RSP declared or the declared RSP being tampered with, obliterated or altered; and (c) Assume powers to make rules for such ascertainment. N. SERVICE TAX: 1) Rate of service tax is being raised from 5% to 8%. 2) Service tax @ 8% is being imposed on the following services (to be effective from a date to be notified). a) Commercial vocational institutes, coaching centers and private tutorials. b) Technical testing and analysis (excluding health and diagnostic testing), technical inspection and certification. c) Maintenance and repair services namely, Annual Maintenance Contracts (AMC) and authorized maintenance and repair services. d) Commissioning and installation services. e) Business promotion and support services including customer care services. These services include launching of products, customer education programmes, conduct of seminars, help desk services, managing front offices, enquiry bureaus, etc. However computer enabled services, namely, data processing, networking, bac....
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.... 24%. 4) Excise duty on all other filament yarns (such as viscose filament yarn, nylon filament yarn) has been reduced from 16% to 12%. 5) Specific duty rates on bleaching, dyeing and other processes done on spun and filament yarn has been withdrawn. Such yarns will attract duty at rates applicable to the corresponding yarns .* 6) Specific duty rates on texturizing or twisting of polyester filament yarn carried on by independent texturisers is being withdrawn. Such yarns will attract duty of 24% .* 7) SSI exemption benefit is being withdrawn for shoddy and woollen yarn .* *The above changes will come into effect from 1.4.2003. 2. Fabrics: 1) Excise duty on all woven cotton, manmade and woollen fabrics has been reduced from 12% to 10%; 2) Duty on knitted/crochetted fabrics of cotton has been reduced from 12% to 8%; 3) Duty on non-cotton knitted/crochetted fabrics has been reduced from 12% to 10%; 4) All industrial fabrics including knitted or crocheted rubberized textile fabrics presently attracting duty rates of Nil, 21%, 16% and 16% plus specific rates will be charged to duty at 16%; 5) Optional exemption on woven, crocheted or knitted fabrics is b....
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.... not intended for sale, have been exempted from excise duty. 7) Job work facility will be extended across the entire textile sector. The job worker will have the option of not being under excise registration if the supplier of the fibre, yarn, fabrics, undertakes to pay the duty. This would come into effect from 1.4.2003. Cenvat Credit Rules, 2002 have been amended to allow credit of AED (GSI) paid for payment of Cenvat duties and special excise duty. 8) 4. Textile Machinery Twelve textile machinery items, which are presently exempt from additional duty of customs, are being exempted from excise duty. P. Miscellaneous 1) For the purpose of charging excise duty on computers, the value of pre-loaded software will be excluded. Website: http://indiabudget.nic.in 34 2) Excise duty on CD-ROMs of educational nature etc. and on cell phone and their parts, has been exempted. 3) Goods supplied for construction of ships for coast guard have been exempted from excise duty. 4) Rope, twine and similar items are being exempted from excise duty. 5) Excise duty on chassis of motor vehicles has been increased from 16% to 16% plus Rs.10,000/- per chassis. 6) Exc....
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....d in addition to the cum-duty value will be deemed as consisting of value plus duty. 8) Powers of Central Government to issue adhoc exemption order under Section 5A(2) of the Central Excise Act in circumstances of an exceptional nature is being restored. 9) The nomenclature of the "Customs, Excise and Gold (Control) Appellate Tribunal" is being changed to "Customs, Excise and Service Tax Appellate Tribunal". 10) Section 11A(1) of the Central Excise Act is being amended so as to do away with the requirement for the prior approval of the Show Cause Notices for demand of duty by the Commissioner of the Chief Commissioner, as the case may be. 11) The provision to dispense with show cause notices and adjudication proceedings if short levy is paid with interest under Section 11A(2B) of the Central Excise Act being extended to cases where the department detects the short levy. 12) A new section 11DD is being inserted enabling recovery of interest on the amount recoverable under section 11D of the Central Excise Act. 13) Section 13 of Central Excise Act is being amended to provide that power of arrest can be exercised by a Central Excise Officer, not below the rank of Ins....
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.....nic.in 35 22) Averaged freight, determined in accordance with generally accepted principles of costing, would be admissible for deduction in respect of transportation beyond the place of removal, where price at the place of removal is not known. 23) Notional interest on advance deposit will not be included in the case of goods made to specification of the buyer unless there is specific evidence that such deposit has the effect of lowering the price. 24) Finance Act, 1989 is being amended to provide for punishment of specified persons if the carrier fails to pay the Inland Air Travel Tax collected from the passengers to the credit of the Central Government. R. Retrospective Amendments: 1) The Central Excise Rules are being retrospectively amended with effect from 23.7.1996 so as to omit the reference in rule 57R, to the manufacturer claiming deduction of the credit of duty paid on capital goods as revenue expenditure under the Income Tax Act. Accordingly, the credit of duty paid on capital goods will not be allowed only on that part of the duty paid on the capital goods on which the manufacturer claims depreciation under section 32 of the Income Tax Act. 2) The....