TaxTMI 
TaxTMI 
TaxTMI 
Finance Act, 2003 - Explanatory Notes on provisions relating to Direct Taxes
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....85BA and new Schedules Thirteenth and Fourteenth in the Income-tax Act, 1961; substituted new sections for sections 80DD, 80DDB, 80U and 185 of the Income-tax Act, 1961; omitted section 80M of the Income-tax Act, 1961; amended section 17 of the Wealth-tax Act, 1957; amended section 16 of the Gift-tax Act, 1958; amended sections 3 and 4 of the Expenditure Tax Act, 1987. 3. Provisions in brief 3.1 The provisions of the Act in the sphere of direct taxes relate to the following matters : (i) Prescribing the rates of income-tax on income liable to tax for the assessment year 2003-04; the rates at which the tax will be deductible at source in the financial year 2003-04 from interest (including interest on securities), winnings from lotteries or cross-word puzzles, winnings from horse races, insurance commission and other categories of income liable for tax deduction at source under the Income-tax Act, rates for computing advance tax, deduction of income-tax from Salaries and charging of income-tax on current incomes in certain cases for the financial year 2003-04. (ii) Amendment of the Income-tax Act, 1961, Wealth-tax Act, 1957, Gift-tax Act, 1958 and Expenditure-tax Act, 1987 with a....
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.... deducted at source; - clarify definitions of certain terms relevant to income from Profits and gains of business or profession; - modify provisions relating to deduction in respect of certain liabilities; - clarify provisions relating to presumptive income of truck owners; - rationalize provisions of sections 44BB and 44BBB relating to presumptive taxation in case of non-residents; - insert a new section 44DA relating to special provision for computing income by way of royalties, etc. in case of non-residents; - provide for re-computation of capital gains in case of reduction in compensation received; - exempt demutualisation and corporatisation of stock exchanges from capital gains; - extend incentive for amalgamation available under section 72A to hotel and certain banks; - substitute section 80DD to provide for deduction in respect of maintenance including medical treatment of a dependant being a person with disability or a person with severe disability; - substitute section 80DDB to provide for deduction in respect of medical treatment, etc. of specified diseases; - amend section 80G to extend the date for utilisation of donations made for providing relief to the vi....
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....ment of tax by the assessee when tax has not been deducted at source; - rationalize provisions of sections 193, 194-I and 195 in respect of payments made to non-residents; - enhance threshold limit for the purpose of deduction of tax at source from dividends and income from units; - amend section 194A to exempt interest on compensation paid to accident victims under the Motor Vehicles Act from deduction of tax at source; - amend section 194J to exclude payments of fees for professional services for personal purpose from the purview of the section; - rationalize provisions relating to certificate for tax deduction at lower rate; - amend section 197A to provide for filing of self-declarations by senior citizens; - amend section 206 to provide for compulsory filing of TDS returns on magnetic media by corporate assessees; - rationalize provisions relating to tax collection at source; - amend section 230 relating to tax clearance certificates; - insert a new section 234D to provide for charging of interest on excess refund granted at the time of summary assessment; - clarify the definition of Advance Ruling; - amend section 279T relating to mode of repayment of loans and dep....
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....of the Unit Scheme, 1961 where the transfer takes place after 1st April, 2002 and on transfer of equity shares of a company listed in a recognized stock exchange which are acquired on or after 1st March, 2003 but before 1st March, 2004. The tax deducted at source in each case shall be increased by a surcharge for purposes of the Union as follows : (i) in the case of every individual, Hindu undivided family, association of persons and body of individuals, at the rate of ten per cent of such tax where the income or the aggregate of such incomes paid or likely to be paid exceeds Rs. 8,50,000; (ii) in the case of every co-operative society, firm, local authority and company, at the rate of two and one-half per cent of such tax; and (iii) in the case of every artificial juridical person, at the rate of ten per cent of such tax. 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 2003-04 4.3 The rates for deduction of income-tax at source from Salaries during the financial year 2003-04 and also for computation of advance tax payable during that year in the case of all categories ....
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....come levels would be as under : Total income Existing Tax New Tax Additional Tax Additional liability liability Liability Tax (Rs.) (Rs.) (Rs.) (Rs.) (%) 50,000 Nil Nil Nil Nil 55,000 500 500 Nil Nil 60,000 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 ....
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....n of income. 5.2 The Act has amended the said sub-clause so as to give reference to clause (va) of section 28. The proposed amendment is consequential to the amendment of sections 2 and 28 of the Income-tax Act by the Finance Act, 2002. 5.3 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. [Section 3(a)] 6. Change in the definition of not ordinarily resident 6.1 Under the existing provision contained in sub-section (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 a....
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.... wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident. 7.3 The business connection, however, will not include cases where the business activity is carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business. 7.4 It has been further clarified that where a broker, general commission agent or any other agent works mainly or wholly on behalf of the non-resident or on behalf of such non-resident and other non-residents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal non-resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status. 7.5 It has been further explained that where a business is carried on in India through a person referred to in clauses (a), (b) and (c) of Explanation 2, only so much of income as is attributable to....
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....to them in instalments, over a number of years. 9.2 To solve this problem, clause (10C) of section 10 has been amended by the Finance Act, 2003 to provide that any amount not exceeding five lakh rupees received or receivable (i.e., even if received in instalments) by an employee on his voluntary retirement or termination of his service will not be included in computing the total income of such employee. Other conditions, as well as the overall limit shall, however, remain unchanged. 9.3 This amendment will take effect from 1st April, 2004, and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 6(b)] 10. Restriction of tax benefits in respect of certain insurance policies having premium of more than twenty per cent of the actual capital sum assured 10.1 Under the existing provisions contained in clause (10D) of section 10, any sum received under a life insurance policy including the sum allocated by way of bonus on such policy, (other than any sum received under a policy for the medical treatment, training and rehabilitation of a handicapped dependent under section 80DDA or any sum received under a keyman insurance policy), is ta....
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....ong term finance 11.1 Under the existing provisions in contained in clause (15)(iv)(g) of section 10, interest payable by a public company formed and registered in India with the main object of carrying on the business of providing long term finance for construction or purchase of houses in India for residential purposes, being a company eligible for deduction under clause (viii) of sub-section (1) of section 36 on any moneys borrowed by it in foreign currency from sources outside India under a loan agreement approved by the Central Government is not included in the total income. Exemptions of similar nature earlier available to Government or local authority, IDBI, NHB, SIDBI, ICICI, etc. w.e.f. 1-6-2001. 11.2 The Finance Act, 2003 has amended clause (15)(iv)(g) of section 10 so as to provide that this exemption, which is still available to housing finance companies, will not be available to them, where the loan agreement is approved by the Central Government after 31st May, 2003. 11.3 This amendment will take effect from 1st April, 2004, and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 6(d)] 12.1 Tax exemption to Asian Or....
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....his clause. To be eligible for this purpose, a hotel project should be for constructing a hotel of not less than three-star category and a hospital project should be for constructing a hospital with at least one hundred beds for patients. 14.3 Definitions of an infrastructure capital company or an infrastructure capital fund as provided in clauses (a) & (b) of Explanation 1 have also been amended so as to align them with the provisions of the main clause. Infrastructure capital company or an infrastructure capital fund has been defined as such company or fund as has made investments by way of acquiring shares or providing long term finance to an enterprise wholly engaged in the business referred to in this clause, i.e., business referred to in sub-section (4) of section 80-IA, a housing project, etc. 14.4 This amendment will take effect from 1st April, 2004, and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 6(j)(ii) and (iii)] 15. Exemption of the income of Ex-Serviceman Corporations 15.1 Under the existing provisions the income of the Ex-servicemen Corporations are subject to tax. 15.2 With a view to encourage welfare act....
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....public through a prospectus, whether by the company or by the existing shareholders of the company. 17.5 This amendment will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 6(m)] 18. Reinvestment allowance for units in Special Economic Zones 18.1 Under the existing provision contained in section 10A, a deduction is allowed on the export profits of an undertaking set up in a free trade zone, Software Technology Park, Electronic Hardware Technology Park or a special economic zone, which is engaged in the manufacture or production of articles or things or computer software. The deduction is available to an undertaking for a period of ten consecutive assessment years. No deduction is allowable to any undertaking beyond the assessment year 2009-10. However, for a unit set up in Special Economic Zone, the deduction is equivalent to one hundred per cent of export profits for five years and thereafter, fifty per cent of profits for next two years and is available even beyond the assessment year 2009-10. 18.2 With a view to promoting the development of Special Economic Zones, the existing sub-secti....
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.... and 10B, the undertakings operating in a Special Economic Zone (under section 10A) and 100% Export Oriented Units (EOUs) (under section 10B) are not permitted to carry forward their business losses and unabsorbed depreciation. 20.2 With a view to rationalize the existing tax incentives in respect of such units sub-section (6) in sections 10A and 10B has been amended to do away with the restrictions on the carry forward of business losses and unabsorbed depreciation. 20.3 The amendments have been brought into effect retrospectively from 1-4-2001 and have been made applicable to business losses or unabsorbed depreciation arising in the assessment year 2001-02 and subsequent years. [Sections 7(d) and 8(a)] 21. Allowing deduction under sections 10A and 10B to the resulting entity in the case of amalgamation or demerger 21.1 The deduction under sections 10A and 10B, are not allowed to the assessee where the ownership or the beneficial interest in the undertaking is transferred by any means, due to the provisions of sub-section (9) of section 10A and sub-section (9) of section 10B. However, this condition is not applicable in certain cases, such as where a firm or sole proprietary....
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....ection 10] 23. Income of political parties 23.1 Section 13A of the Income-tax Act provides for exemption of the following class of income derived by a political party: (i) Income from house property (ii) Income from other sources (iii) Donations received by a political party Therefore, income of the following nature alone is subjected to tax in the hands of a political party: (i) Income derived from business activities (ii) Capital gains 23.2 The Act has amended the said section to provide that capital gains arising to political parties shall also be exempt from income-tax. 23.3 This amendment will take effect retrospectively from 1st April, 1979. [Section 12] 24. Increasing the amount of standard deduction for salaried tax payers 24.1 Under the provisions 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 gross salary income upto one lakh fifty thousand rupees, is equal to thirty-three and one-third per cent of the salary of thirty thousand rupees, whichever is less. In case of an assessee having income from salary which i....
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....ion (1) of section 33AB, an assessee carrying on the business of growing and manufacturing tea in India is allowed a deduction in respect of the amount deposited by him in a special account with the National Bank for Agriculture and Rural Development or in the Tea Deposit Account within a period of six months from the end of the previous year or before furnishing the return of income, whichever is earlier. The special account with the NABARD as also the Tea Deposit Account are to be maintained or opened in accordance with and for the purposes specified in Scheme(s) approved in this behalf by the Tea Board. The deduction is limited to 40% of the profits of such business as computed before making deduction under the provisions. 26.2 The Act has amended the said section so as to extend the benefit available to the coffee and rubber industry also. Hence, if an assessee carrying on the business of growing and manufacturing coffee or rubber in India deposits any amount with the NABARD in a special account maintained by such assessee with that Bank in accordance with the scheme approved in this behalf by the Coffee Board or the Rubber Board, as the case may be, or if an assessee opens an....
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....ould be required to be utilized for the purchase of a new ship within one year from the end of the previous year in which the ship was sold or otherwise transferred. In case a new ship is not acquired within such period, the sale proceeds shall be deemed to be the profits in the year immediately following the previous year in which the ship was sold or otherwise transferred and taxed accordingly. 27.3 The amendments will take effect from 1st April, 2004 and will apply in relation to the assessment year 2004-05 and subsequent years. [Section 17 ] 28. Clarificatory amendments in respect of deduction for interest on borrowed capital 28.1 Under the existing provisions contained in clause (iii) of sub-section (1) of section 36, deduction of interest is allowed in respect of capital borrowed for the purposes of business or profession in the computation of income under the head Profits and gains of business or profession. 28.2 The existing provisions have been prone to unending litigation. 28.3 The Act has amended the said clause by way of insertion of a proviso to provide that no deduction will be allowed in respect of any amount of interest paid, in respect of capital borrowed for....
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....30.1 Under the existing provision contained in clause (x) of sub-section (1) of section 36, a deduction is allowed in respect of any sum paid by a public financial institution by way of contribution towards any fund specified under clause (23E) of section 10 for computing the business income. 30.2 The Act has amended the said clause (x) so as to provide that the deduction shall be allowable in respect of any sum paid by a public financial institution by way of contribution towards any Exchange Risk Administration Fund set up by public financial institution, either jointly or separately. The amendment is consequential to the omission of clause (23E) of section 10 by the Finance Act, 2002. 30.3 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. [Section 18(c)] 31. Deduction for expenditure incurred by entities established under any Central, State or Provincial Act 31.1 Entities that are created under an Act of Parliament have the basic object and function of carrying on developmental activities in the areas as specified in the said Acts. By the Finance Act, 2001 and Fi....
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....Act, no deduction shall be allowed in computing the income under the head Profits and gains of business or profession unless tax has been deducted from such income or, after deduction paid before the expiry of the time prescribed under sub-section (1) of section 200 and in accordance with other provisions of Chapter XVII-B. It has also been provided that where in respect of any such sum, tax has been deducted under Chapter XVII-B or paid 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 paid. 32.4 The Act has also substituted 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 in India to a non-resident, on which tax has not been deducted or, after deduction, has not been paid under Chapter XVII-B. 32.5 These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 19 ] 33. Clarificatory amendments regarding definitions of certain terms relevant to income from profits and....
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....y of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for welfare of employees 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. 34.4 The Act has amended clause (e) of the said section so as to provide that deduction for the interest on any loan or advances from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advances shall be allowed on actual payment basis only. 34.5 Similarly, in the case of payments made by the assessee as an employer by way of contribution to any provident fund or superannuation fund or any other fund for the welfare of the employees, deduction shall be allowed in computing the income of the year in which such sum is actually paid. The sums shall also be allowed as a deduction in the previous year in which the liability to pay the sum was incurred in case the same is paid before the due date of filing the return of income for the previous year. 34.6 These amendments will take effect from 1st April, 2004 an....
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....ose turnkey power projects also which are not financed under any international aid programme. 36.4 The Act has also amended sections 44BB and 44BBB to provide that an assessee may claim lower profits and gains than the profits and gains specified under sub-section (1) of the said sections if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB. The Assessing Officer shall then make an assessment of the total income or loss of the assessee under sub-section (3) of section 143. 36.5 Consequential amendments have been carried out in sections 44AA and 44AB so as to require such assessees to keep and maintain books of account and documents as may enable the Assessing Officer to compute their total income in accordance with the provisions of the Income-tax Act and to require such persons to get their accounts audited. 36.6 These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Sections 22, 23, 25 and 26 ] 37. Rationalisation of prov....
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....on, as the case may be. It has also been provided that no deduction shall be allowed (i) 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; and (ii) in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to its head office or to any of its other offices. 37.5 The section also requires that every non-resident (not being a company) or a foreign company shall keep and maintain books of account and other documents in accordance with the provisions of section 44AA and get the accounts audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and furnish along with the return of income, the report of such audit in the prescribed form duly signed and verified by such accountant. 37.6 Clause (b) of sub-section (1) of section 115A has also been amended to make it applicable to a non-resident (not being a company) or to a foreign company in respect of income by way of royalty or fees for technical services other than income referred to in sub-section (1) of sect....
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....ation and demutualization of the stock exchange would involve segregation of these twin rights into two separate and independent rights viz., (i) the right to participate in the ownership of assets of the stock exchange by issuance of shares in the new corporate body; and (ii) the right to trade on stock exchanges. 39.3 In order to make the process of demutualization and corporatisation of stock exchanges tax neutral, amendments have been made in section 2, section 47 and section 55 of the Income-tax Act, 1961. 39.4 Clause (xiii) of section 47 provides that any transfer of the 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. 39.5 A new clause (xiiia) has been inserted in section 47 providing 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 in that recognised stock exchange, in ac....
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.... the conditions which are required to be fulfilled for availing of the benefit under sub-section (1). 40.2 The Finance Act, 2003 has extended the benefits of carry forward and set off of accumulated losses and unabsorbed depreciation under section 72A to cases where amalgamation of a company owning a hotel takes place with another company or an amalgamation of a banking company takes place with a specified bank. 40.3 Sub-sections (1) and (2) have been substituted. It has been provided that accumulated losses shall not be set off or carry forward and the unabsorbed depreciation shall not be allowed in the assessment of amalgamated company unless certain conditions are fulfilled by both the amalgamating company and amalgamated company. Two additional conditions for amalgamating company to be fulfilled in order to take benefit of the section have been inserted. These conditions are that the amalgamating company should have been engaged in the business in which the accumulated loss has occurred or depreciation remains unabsorbed and it has held continuously as on the date of amalgamation at least three-fourths of the book value of fixed assets held by it two years prior to the date o....
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.... 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. 41.3 For claiming the deduction, the assessee is required 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(1). 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 claiming the deduction. 41.4 The amendment will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 34] 42. Deduction in respect of medical treatment, etc. of specified diseases to be linked to the expenditure actually incurred on such treatment 42.1 Under the existing provisions of section 80DDB, a deduction of for....
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..... Extension of date for the utilisation of donations made for providing relief to the victims of the Gujarat Earthquake 43.1 Under the existing provisions of section 80G, an assessee is allowed a 100% deduction for donations made during the period beginning on 26th January, 2001 and ending on 30th September, 2001 to certain approved charitable trusts, funds or institutions set up for providing relief to the victims of the Gujarat earthquake, subject to the condition that the funds are utilised for this purpose before 31st March, 2003. Otherwise, all unutilised amounts are required to be transferred to the Prime Ministers National Relief Fund before 31st March, 2003. These receipts are exempt in the hands of such trust, institution or funds under section 10(23C) or section 12 of the Income-tax Act. Further, the eligible bodies are required to submit their income and expenditure statement before the prescribed authority by 30th June, 2002. 43.2 With a view to provide further time for completion of the rehabilitation and reconstruction work, clauses (iii), (iv) and (v) of sub-section (5C) of section 80G have been amended to extend the time limit for utilization of the donations by o....
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....owed a deduction for any ten consecutive assessment years beginning from the year in which the undertaking starts providing telecommunication services. The amount of deduction is one hundred per cent of profits for the first five years, and thereafter at thirty per cent of profits for the next five years. 45.2 With a view to give incentives to the new telecom services or domestic satellite services to operate, the time-limit before which the eligible undertaking has to start providing telecommunication services, etc. has been extended to 31st March, 2004. 45.3 The amendment will take effect from the 1st April, 2004 and will, accordingly apply in relation to assessment year 2004-05 and subsequent years. 45.4 In sub-section (2) for the words or develops or develops and operates or maintains and operates a special economic zone, the words or develops a special economic zone have been substituted. 45.5 In clause (iii) to sub-section (4), the existing proviso has been amended to provide that where an undertaking develops a Special Economic Zone on or after the 1st day of April, 2001 and transfers the operation and maintenance of such Special Economic Zone to another undertaking, the....
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.....3 The amendments have been brought into effect retrospectively from 1st April, 2002 and have been made applicable to the assessment year 2002-03 and subsequent years. [Section 39(c)] 48. Extension of time limit for setting up and operating a cold chain facility for agricultural produce for claiming deduction under section 80-IB 48.1 Under the existing provision contained in sub-section (11) of section 80-IB, an industrial undertaking deriving profits from the business of setting up and operating a cold chain facility for agricultural produce is allowed a deduction of one hundred per cent of such profits for five years and subsequently twenty five per cent (thirty per cent in the case of companies) for the next five years, if such undertaking begins to operate such facility before 31st March, 2003. 48.2 With a view to given further boost to this sector, the time limit for commencement of operation of a cold chain facility has been extended to 31st March, 2004. 48.3 The amendment will take effect from 1st April, 2004 and will, accordingly apply in relation to assessment year 2004-05 and subsequent years. [Section 39(d)] 49. New provisions allowing a ten years tax holiday in....
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....as the case may be, exceeds ten assessment years. Further, in computing the total income of the assessee, no deduction shall be allowed under any other section contained in Chapter VIA or in section 10A or 10B, in relation to the profits and gains of the undertaking or enterprise. 49.5 A new Thirteenth Schedule has been inserted in the Income-tax Act to specify the list of articles and things, which are ineligible for the purpose of deduction under section 80-IC. Further, a new Fourteenth Schedule has also been inserted, which specifies the list of articles and things, being thrust sector industries, which are eligible for the purposes of availing deduction under this section. Consequent to these amendments, the provisions of section 10C and sub-section (4) of section 80-IB have been made inoperative in respect of the undertakings or enterprises in the State of Himachal Pradesh or in North-Eastern region including Sikkim, with effect from the 1st day of April, 2004. 49.6 These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Sections 9, 39(a), 40 and 99] 50. Increase in the deductio....
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....eduction has been correctly claimed and also a copy of the permission obtained under the Banking Regulation Act. 51.3 The terms convertible foreign exchange, Offshore Banking Unit, scheduled bank and special economic zone have been defined in the section. 51.4 The amendment will take effect from 1st April, 2004, and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 42] 52. New provision for allowing deduction upto rupees three lakhs in respect of royalty income, etc. of authors of certain books 52.1 With a view to provide tax relief to the authors in respect of their income from their profession of author, a new section 80QQB has been inserted in the Income-tax Act, 1961. 52.2 The new section 80QQB provides for a deduction up to rupees three lakhs to an individual resident, being an author, in respect of any income derived from the exercise of his profession, on account of any lump sum consideration for the assignment or grant of any of his interest in the copyright of any book, or of royalties or copyright fees (whether receivable in lump sum or otherwise) in respect of such book. The deduction shall be allowed in respect of....
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....which provides that where in the case of a resident individual, the gross total income includes any income by way of royalty in respect of a patent registered on or after 1st day of April, 2003 under the Patents Act, 1970, a deduction equal to the whole of such amount or a sum of rupees three lakhs, whichever is less, shall be allowed. The deduction shall be available to any individual resident in India, who is registered in the patents register under the Patents Act, 1970, as the true and first inventor in respect of an invention, including a co-owner of the patent. The tax benefit is not available to patentees who are assignees or mortgagees in respect of all or any rights in the patent. 53.2 The proposed deduction shall be allowed on any royalty income from working of or use of the patent and shall include consideration for the transfer of all or any rights (including the granting 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 in respect of any consideration for sale of product manufactured with the use of patent....
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....ident, is allowed a deduction of forty thousand rupees if he, at the end of the previous year, is suffering from a permanent physical disability (including blindness) or is subject to mental retardation, being a permanent physical disability or mental retardation specified in the rules made in this behalf by the Board, which is certified by a physician, a surgeon, an oculist or a psychiatrist, as the case may be, working in a Government hospital, and which has the effect of reducing considerably such individuals capacity for normal work or engaging in a gainful employment or occupation. For this purpose, various criteria for defining the eligible level of disability were notified in Rule 11D of the Income-tax Rules, 1962. These rules are at variance with the rules for defining disability under the Persons with disability (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995, under which disability means any disability over 40% and also includes in addition to physical disabilities, mental illness. 54.2 The existing section 80U has been substituted with a view to harmonize the criteria for defining disability as existing under the Income-tax Rules with the cr....
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....titution situated within India for the purpose of full-time education of any two children of an individual, of such sum as does not exceed an amount of twelve thousand rupees in respect of each such child. However, the eligible amount shall not include any payment towards any development fees or donation or payment of similar nature. The payment shall be within the eligible limit of rupees seventy thousand. 55.3 The amendment will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 47] 56. Increasing the amount of rebate of income-tax in case of individuals of sixty-five years or above 56.1 Under the existing provisions, 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. 56.2 With a view to provide tax relief to the senior citizens, the said limit of tax rebate as been enhanced to twenty thousand rupees. The amendment will take effect from 1st April, 2004 and will, acco....
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...., section 80M provided for a deduction to a domestic company which received dividend from another domestic company and again distributed dividend out of its profits. The amount of deduction on the dividends, so received by a domestic company from another domestic company, was limited to the extent of dividends distributed by the recipient company on or before the due date of filing of return. 58.4 Under the provisions of section 194, tax is required to be deducted at source from dividends in the case of a shareholder who is resident in India. Further, section 195 provides for tax deduction at source from dividends in the case of a shareholder who is a non-resident or a foreign company at the rates in force. Tax is also required to be deducted at source under section 196C on dividend income in respect of bonds or Global Depository Receipts. Section 196D provides for deduction of tax at source in respect of securities referred to in clause (a) of sub-section (1) of section 115AD. 58.5 The Act has substituted sub-section (1) of section 115-O of the Income-tax Act to provide that the amounts declared, distributed or paid on or after 1st April, 2003 by a domestic company by way of div....
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....tual funds or the specified company and income received from units shall be exempt in the hands of the unit-holder. 59.5 Hence, the Act has amended section 115R of the Income-tax Act to provide that any amount of income distributed by the specified company as defined in the Unit Trust of India (Transfer and Repeal) Act, 2002 or a Mutual Fund to its unit holders shall be chargeable to tax and the specified company or Mutual Fund shall be liable to pay additional income-tax at the flat rate of twelve and one-half per cent. 59.6 Income from units received by a unit holder from the administrator of the specified undertaking as defined in Unit Trust of India (Transfer and Repeal) Act, 2002 or Mutual Fund or the specified company on or after 1st April, 2003 shall be exempt from income-tax. Consequently, deduction under section 80L in respect of income from units has been discontinued. The provisions relating to tax deduction at source from income in respect of units have been suitably amended so as to provide for no deduction of tax at source from such income. 59.7 It has also been provided that the specified company or a Mutual Fund shall be liable to pay interest at the rate of one ....
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....m 1st June, 2003. [Section 59(a)] 61. Providing limitation of time for application for release of seized assets 61.1 The existing provision contained in the first proviso to clause (i) of sub-section (1) of section 132B provides for release of any asset seized during search under section 132 or requisitioned under section 132A, if the nature and source of acquisition of such asset is explained to the satisfaction of the Assessing Officer, after recovery therefrom of any existing tax liability, and after taking approval of the Chief Commissioner or Commissioner. 61.2 It has been provided that the asset referred to in the first proviso shall be released, inter alia, if the concerned person makes an application to the Assessing Officer within thirty days from the end of the month in which the asset was seized. 61.3 This amendment will take effect from 1st June, 2003. [Section 60(a)] 62. Modification of provisions relating to survey under section 133A 62.1 Under the existing provisions of section 133A of the Income-tax Act, an income-tax authority conducting a survey is authorised to verify and make an inventory of cash, stock or other valuable article, record the statement of....
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....m and calling upon the assessee to produce evidence and particulars in support thereof. After hearing such evidence and considering such particulars, the Assessing Officer shall make an assessment of total income or loss under clause (i) of sub-section (3) of section 143. 64.2 The Finance Act, 2003 has discontinued the scheme of scrutiny assessment on limited issues by providing that no notice under clause (i) of sub-section (2) of section 143 shall be served on the assessee on or after the 1st June, 2003. 64.3 This amendment will take effect from 1st June, 2003. [Section 64] 65. The special procedure for assessment of search cases under Chapter XIV-B be abolished 65.1 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. 65.2 The Finance Act, 2003 has provided that the provisions of this Chapter shall not apply where a search is....
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....der section 132 or for requisition under section 132A was executed. 65.7 This section also provides that 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 shall be completed 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. 65.8 It also provides that in computing the period of limitation for completion of such assessment or reassessment, the period during which the assessment proceeding is stayed by an order or injunction of any court; or the period commencing from the day on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending on the day on which the assessee is required to furnish a report of such audit under that sub-section, or the time taken in reopening the whole or any part of the proceeding or giving an opportunity to the assessee of being reheard under the proviso to section 129, or in a case where an application made before the S....
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.... an association of persons, and all the provisions of this Act shall apply accordingly. 66.3 With a view to rationalize the provisions relating to assessment of firms, the Act has substituted sub-section (5) of section 184 and section 185 so as to provide that in case a firm does not comply with the other provisions of section 184 or a best judgment assessment is made in the case of the firm as referred to in section 144, 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 business income of the firm. Such interest, salary, bonus, commission or remuneration shall not be chargeable to income-tax under clause (v) of section 28 of the Income-tax Act. 66.4 These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Sections 69 and 70] 67. Rationalisation of provisions relating to direct payment of tax by the assessee when tax not deducted at source 67.1 Under the existing provision contained in section 191, in the case of income in respect of which p....
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.... 68.5 These amendments will take effect from 1st June, 2003. [Sections 72, 77, 80(a)(i) and 80(b)] 69. Enhancement of threshold limit for the purpose of deduction of tax at source from dividends and income from units 69.1 Under the existing provisions contained in section 194, no tax is required to be deducted at source by a company in the case of a shareholder, being an individual, if the dividend is paid by the company by an account payee cheque and the amount of the dividend or, as the case may be, 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. 69.2 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 tho....
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....r personal purposes. 71.3 This amendment will take effect from 1st June, 2003. [Section 78(a)] 72. Rationalisation of section 197 relating to certificate for tax deduction at lower rate 72.1 Section 197 of the Income-tax Act provides that where, in the case of any income of any person, tax is required to be deducted at source under the provisions of sections 192, 193, 194A, 194D, 194H, 194-I, 194K, 194L and 195, and the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rate or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf give to him such certificate as may be appropriate. 72.2 The Act has amended the said section to include payments of any sum to contractors and sub-contractors referred to in section 194C, any income by way of commission, etc., on sale of lottery tickets referred to in section 194G and payment of any sum by way of fees for professional or technical services referred to in section 194J, within the scope of the said section. The reference of section 194L relating to payment of compensation on acquisition of....
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....s required to prepare and deliver or cause to be delivered to the prescribed income-tax authority, such returns 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. 74.2 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 information in such returns shall be admitted in evidence in any proceeding under the Income-tax Act. 74.3 Sub-section (3) of the said section provides for the requirement of checking and authenticating of the return by the Assessing Officer and due care by him for preservation of the return in the computer media by duplicating, transferring, mastering or storage without loss of data. 74.4 The Act has substituted sub-section (2) to provide that the person responsible for deducting tax under the provisions of Chapter XVII-B of the Income-tax Act, other than the principal officer in the case of every company may, at his option, deliver or cause to be delivered such ret....
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....n (other than Indian made foreign liquor) and tendu leaves. 75.2 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 and a buyer in the further sale of such goods obtained in pursuance of such sale. Further, the definition of seller in clause (b) of the Explanation excludes individuals and Hindu undivided families from the responsibility of collection of tax at source. 75.3 The Act has substituted 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. 75.4 The Explanation to the section has also been amended so as to make the provisions of the section applicable in the case of a buyer where he does not obtain the goods 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. It has also been provided that buyer shall not include a buyer in retail sale. The expression scrap has been defined for the purpose of section 2....
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....al Gazette specify in this behalf, who is domiciled in India at the time of his departure, shall furnish, to the income-tax authority or such other authority as may be prescribed his permanent account number allotted to him under section 139A or in case no such permanent account number has been allotted to him, or his total income is not chargeable to income-tax or who is not required to obtain permanent account number under this Act a certificate in the prescribed form; and the purpose of his visit; and the estimated period of his stay outside India. 76.4 It has also been provided that no person, who is domiciled in India at the time of his departure and in respect of whom circumstances exist which, in the opinion of an income-tax authority render it necessary form him to obtain a certificate under this section, shall leave the territory of India by land, sea or air unless he obtains a certificate from the income-tax authority or such authority as may be prescribed stating that he has no liabilities under this Act, the Wealth-tax Act, 1957, the Expenditure-tax Act, 1957, or the Gift-tax Act, 1958, or that satisfactory arrangements have been made for the payment of all or any of s....
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....t of refund to the date of such regular assessment. 77.5 Sub-section (2) of the section provides that where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 254D of the Income-tax Act, the amount of refund granted under sub-section (1) of section 143 is held to be correctly allowed, either in whole or in part, as the case may be, then the interest 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 shall be regarded as a regular assessment for the purposes of aforesaid section. 77.6 This amendment will take effect from 1st June, 2003. [Section 91] 78. Clarification in the definition of Advance Ruling 78.1 Under the existing provision contained in sub-clause (ii) of clause (a) of section 245N, the expression advance ruling, inter alia, means determination of any question of law or of fact specified in the application by the Authority in relation to a transaction which has been undertaken or is proposed to be u....
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....d in writing, notify in this behalf in the Official Gazette. 79.4 This amendment will take effect retrospectively from 1st June, 2002. 79.5 Section 269T was amended to include the term loan by the Finance Act, 2002. In consequence of the same, section 271E has also been amended by the Finance Act, 2003, so as to provide for levy of penalty on a person if he fails to repay any loan or deposit in accordance with the provisions of section 269T. 79.6 This amendment will take effect retrospectively from 1st June, 2003. [Sections 94 and 95] 80. Amendment of section 275 relating to time limit for imposing of penalty 80.1 Under the existing provisions contained in clause (a) of sub-section (1) of 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 A....