TaxTMI 
TaxTMI 
Finance Act, 2003 - Explanatory Notes on provisions relating to Direct Taxes
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....C, 80LA, 80QQB, 80RRB, 153A, 153B, 153C, 158BI, 234D and 285BA 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,....
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....on towards any Exchange Risk Administration Fund; - provide a deduction for expenditure incurred by entities established under any Central, State or Provincial Act; - rationalize provisions relating to disallowance of certain incomes paid to non-residents if tax has not been 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....
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.... Funds and exempt income from units from tax; - amend section 132 to provide that stock-in trade shall not be seized during search; - modify provisions relating to survey under section 133A; - amend section 139 to facilitate electronic filing of returns; - discontinue the assessment of income on limited issues; - abolish the special procedure for assessment of search cases under Chapter XIV-B; - rationalize provisions relating to assessment of firms; - rationalize provisions relating to direct payment 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....
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....e to the Act. These rates apply to income by way of interest on securities, interest other than interest on securities, insurance commission, winnings from lotteries or crossword puzzles, winnings from horse races and income of non-residents (including non-resident Indians). 4.2-2 These rates are broadly the same as those specified in Part II of the First Schedule to the Finance Act, 2002, for the purposes of deduction of income-tax at source during the financial year 2002-03. However, in the case of a non-resident Indian, a person who is not resident in India and a foreign company, no tax would be required to be deducted at source from long-term capital gains arising on the transfer of units 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 ....
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....e rates given in Paragraph A of Part III of the First Schedule to the Act. Table (a) (b) Income slab Rates as specified Income slab Rates as specified in Part I of First in Part III of Schedule to the First Schedule to Act (i.e., existing the Act (i.e., rates) proposed rates) Upto Rs. 50,000 Nil Upto Rs. 50,000 Nil Rs. 50,001 to 10% Rs. 50,001 to 10% Rs. 60,000 Rs. 60,000 Rs. 60,001 to 20% + Surcharge Rs. 60,001 to 20% Rs. 1,50,000 @5% Rs. 1,50,000 Above 30% + Surcharge Above 30% + Surcharge Rs. 1,50,000 @5% Rs. 1,50,000 @ 10% in cases where total income exceeds Rs. 8.5 lakhs 4.3-2 Effect of levy of surcharge - The impact of levy of surcharge in case of individuals, HUFs, etc. at different income levels would be as under : Total income Existing Tax New Tax Additional Tax Additional liability liability Liability Tax (....
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....e rate of income-tax has been specified in Paragraph C of Part III of the First Schedule to the Act. This rate remains at 35 per cent. The tax payable by firms would be enhanced by a surcharge for the purposes of the Union at the rate of two and one-half per cent of the tax payable. 4.3-5 Local authorities - In the case of local authorities, the rate of income-tax has been specified in Paragraph D of Part III of the First Schedule to the Act. This rate is the same as that specified in the corresponding Paragraph of Part I of the First Schedule to the Act. The tax payable would be enhanced by a surcharge for the purposes of the Union at the rate of two and one-half per cent of the tax payable. 4.3-6 Companies - In the case of companies, the rate of income-tax has been specified in Paragraph E of Part III of the First Schedule to the Act. There is no change in the existing rates of thirty-five per cent for domestic companies and forty per cent for foreign companies. The tax payable by all companies would be enhanced by a surcharge at the rate of two and one-half per cent of the tax payable. [Section 2 and Fir....
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....s or less. 6.3 The amendment is clarificatory in nature and will take effect from 1st April, 2004. [Section 4] 7. Definition of the term business connection 7.1 Under the existing provisions contained in sub-section (1) of section 9, all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situated in India, is deemed to accrue or arise in India. The term business connection has also been referred to in section 163 in relation to an agent. This term has, however, not been defined in the Income-tax Act. 7.2 In order to remove doubts regarding the expression business connection, and to align the provisions of the Act with those of the DTAAs, the Finance Act, 2003 has inserted two new Explanations to clause (i) of the said sub-section, clarifying that the expression business connection will include a person acting on behalf of the non-resident, who : (i) has and habitually or regularly exercises in....
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....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. 8.2 The Finance Act, 2003 has amended clause (6C) in order to extend the exemption 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. 8.3 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(a)] 9. Exemption of amount received under VRS Compensation allowable even if it is receivable or received in instalments 9.1 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....
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....n section 88 and clause (10D) of section 10. The existing clause (10D) of section 10 has been substituted so as to provide that the exemption available under the said clause shall not be allowed on any sum received under an insurance policy issued on or after the 1st day of April, 2003, in respect of which the premium payable in any of the years during the term of the policy, exceeds twenty per cent of the actual capital sum assured. In view of this, the income accruing on such policies (not including the premium paid by the assessee) shall become taxable. However, any sum received under such policy on the death of a person shall continue to remain exempt. The new provision also provides that the amounts received under sub-section (3) of section 80DD, shall not be exempt under this clause. 10.4 For the same reasons, a new sub-section (2A) has been inserted in section 88 which provides that the deduction in respect of the sums paid or deposited as premium under an insurance policy shall be available only on so much of any premium or other payment made on an insurance policy other than a contract for a deferred annuity as is not in excess of twenty per cent of the actual sum assur....
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....us years relevant to the assessment years beginning on the 1st day of April, 2001 and ending on the 31st day of March, 2004. 12.2 The organization has decided to keep its Secretariat in India upto December, 2006. Clause (23BBD) of section 10 has been accordingly amended by the Finance Act, 2003 so as to extend the exemption for a further period of four assessment years beginning on the 1st day of April, 2004 and ending on the 31st day of March, 2008. 12.3 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(e)] 13. Clarification regarding the Credit Guarantee Fund Trust for Small Industries 13.1 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 day of April, 2002 and ending on the 31st March, 2007. 13.2 The Act has amended the said clause so as to clarify the name of the trust as being the Cre....
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....the welfare and economic upliftment of the ex-servicemen, has been exempted from payment of income-tax by the Finance Act, 2003. 15.3 This amendment will take effect from 1st April, 2004, will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 6(k)] 16. Exemption of capital gain on transfer of a unit of Unit Scheme, 1964 (US 64) 16.1 The Finance Act, 2003 has introduced a new clause (33) in section 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 1 of Unit Trust of India (Transfer of Undertaking & Repeal) Act, 2002, where the transfer of such assets takes place on or after the 1st April, 2002, shall be exempt from tax. 16.2 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 6(l)] 17. Exemption of long term capital gains on transfer of listed equity shares 17....
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....d 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-section (1A) of section 10A has been substituted so as to provide for a further deduction for three consecutive years beyond the existing period eligible for deduction, which shall be equal to 50% of the profits, as are credited to a reserve account to be utilized for the purposes of the business. A new sub-section (1B) has also been inserted to provide that the reserve account is to be utilized for the acquiring a new machinery or plant which is put to use before the expiry of a period of three years. It has also been provided that until the acquisition of a new machinery or plant, the said reserve may be utilized for the purposes of the business of the undertaking other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India. 18.3 These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. 18.4 Further, the reference of sub-section (1A) in sub-s....
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....se 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 concern is succeeded by a company as a result of the reorganisation of the business, or where as a result of change in ownership, the resultant entity is a public limited company or a venture capital company. 21.2 With a view to give boost to the export-led growth, and to eliminate the hurdles in the Mergers and Acquisitions (M&A) and other modes of business restructuring, a new sub-section (7A) in section 10A and a new sub-section (7A) in section 10B have been inserted 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 this section to the amalgamating company or the....
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.... 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 is more than one lakh fifty thousand rupees but less than three lakh rupees, deduction of a sum of twenty-five thousand rupees is allowed. In the case of an assessee having income from salary which is more than three lakh rupees but less than five lakh rupees, a deduction of a sum of twenty thousand rupees is allowed. No deduction is allowed in the case of an assessee having gross income from salary which is more than five lakh rupees. 24.2 With a view to provide tax relief to salaried taxpayers, the amount of de....
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....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 account (to be known as Deposit Account) in accordance with a scheme framed by the Coffee Board or the Rubber Board, as the case may be, with the previous approval of the Central Government, 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 or rubber in India, wh....
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.... 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 acquisition of an asset for extension of existing business or profession (whether capitalized in the books of account or not) for the period beginning from the date on which the capital was borrowed for the acquisition of the asset till the date on which such a....
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....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 Finance Act, 2002, tax exemption of certain bodies set up through an Act of Parliament was withdrawn. Subsequent to the removal of the tax shield, a doubt has arisen that some of the activities having no profit motive being ....
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....f 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 gains from business or profession 33.1 The existing provisions contained in clause (3) of section 43 defines the expression plant in an inclusive manner and further excludes tea bushes or liv....
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....h 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 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 21] 35. Clarification of provisions relating to presump....
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....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 provisions relating to computing income by way of royalties, etc. 37.1 Section 44D of the Income-tax Ac....
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....(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 section 44DA. 37.7 These amendments will take effect from 1st April, 2....
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.... 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 a....
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....unabsorbed depreciation of the amalgamating company. Sub-section (2) of the section lays down 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 ....
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....bility (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 having any disability over 80%. The term dependant has been defined 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. 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. ....
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....r, or reimbursed by an employer, for the medical treatment of the assessee or the dependant. 42.3 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 35] 43. 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 t....
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....ion 37] 45. Extension of time limit for providing telecommunication services, etc. for the purpose of tax holiday under section 80-IA 45.1 Under the existing provision contained in clause (ii) of sub-section (4) of section 80-IA, an undertaking which has started or starts providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services, before the 31st day of March, 2003, is allowed 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 20....
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....n 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. 47.2 With a view to allow new housing projects to avail the benefit of tax holiday under this provision, the time limit for obtaining approval from the local authority has been extended to 31st March 2005. Further, to rationalize the provision, the time limit for completion of the project has been omitted. 47.3 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 profi....
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....or industries, as specified in the Fourteenth Schedule. 49.3 The amount of deduction in case of undertakings or enterprises in the States of Sikkim, and the North-Eastern States shall be one hundred per cent of the profits of the undertaking for ten assessment years. The amount of deduction in case of undertakings or enterprises in the States of Uttaranchal, Himachal Pradesh shall be one hundred per cent of the profits of the undertaking for five assessment years, and thereafter twenty-five per cent (thirty per cent for companies) for the next five assessment years. 49.4 The section also provides that no deduction shall be allowed to any undertaking or enterprise under this section, where the total period of deduction inclusive of the period of deduction under this section or under section 80-IB or under section 10C, 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 specif....
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....ssessee, being a scheduled bank (not being a bank incorporated by or under the laws of a country outside India) owning an offshore banking unit in a special economic zone, out of certain incomes from the offshore banking unit in a special economic zone with an undertaking located in the special economic zone or any other undertaking which develops, develops and operates or operates and maintains a special economic zone. The amount of deduction is equal to hundred per cent of such income received in convertible foreign exchange for three consecutive assessment years beginning with the assessment year relevant to the previous year in which the permission for setting up the Offshore Banking Unit was obtained under the Banking Regulation Act, and thereafter fifty per cent of such income for two consecutive assessment years. 51.2 In order to claim the deduction under this section, the assessee is required to furnish an audit report in the prescribed form certifying that the deduction 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 e....
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....d 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. 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 is required to be furnished. 52.5 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 44] 53. New provision for allowing deduction from the income in the nature of royalty on patents 53.1 Research and Development activities are highly cost-intensive, risky and time-taking often with a low success rate. With the view to encourage individual initiatives in carrying out new inventions, a new section 80RRB has been inserted, which provides that where in the case of a resident indiv....
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....ong with the return of income setting forth such particulars as may be prescribed. 53.5 Where any income is earned from sources outside India, a certificate certifying that the deduction has been correctly claimed in accordance with the provision of this section, in the prescribed form, is required. 53.6 The section further provides that in case the patent is subsequently revoked by the Controller or the High Court or the name of the assessee is subsequently excluded from the patents register as patentee in respect of that patent, the deduction relatable to royalty income in respect of the period for which the patentees claim was not valid, shall be withdrawn and the assessment may be rectified accordingly. For this purpose, suitable amendments under section 155 have been made. 53.7 The amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Sections 45 and 66] 54. Deduction in the case of a person with disability or a person with severe disability 54.1 Under the existing provisions contained in the section 80U,....
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....ificate in order to continue to claim the deduction. 54.4 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 46] 55. Rebate for tuition fees paid for the education of any two children 55.1 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 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. 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. 55.2 In order to provide necessary fiscal support for imparting education, the section has been amended to include within the purview of tax rebate, any sum paid, as tuition fees w....
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....tax chargeable under this Act and under the corresponding law in that country to promote mutual economic relations, trade and investment. 57.3 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, a new provision has been inserted empowering the Central Government to define such terms by way of notification in the Official Gazette. 57.4 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 49] 58. Abolition of tax on dividends and levy of additional income-tax on distributed profits 58.1 Under the 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. 58.2....
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....58.8 These amendments are effective in respect of amounts declared, distributed or paid as dividends on or after 1st April, 2003. [Sections 6(i), 6(j)(i), 6(m), 32, 41(a), 43, 50(i), 51, 52, 53, 54, 55, 73(b), 80(a)(ii), 82 and 83] 59. Abolition of tax on income from units and levy of additional income-tax on income distributed by Mutual Funds 59.1 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 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. 59.2 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 of a specified amount from the gross total income in respect of income received in respect of units from the UTI or a Mutual Fund. 59.3 Under the provisions of section 194K, tax is required to be de....
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.... respect of income distri-buted on or after 1st April, 2003. [Sections 6(g), 6(m), 41(a), 56, 57, 58, 79(b) and 81 ] 60. Amendment in section 132 to provide that stock-in-trade not to be seized during search 60.1 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. 60.2 The Finance Act, 2003 has amended section 132 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. Thus, stock-in-trade of business cannot be seized during search and seizure operations conducted on or after 1st June, 2003. 60.3 The existing provisions of second proviso to sub-section (1) of section 132 provide that where it is not possible to 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 nat....
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....ut obtaining the approval of the Chief Commissioner or Director General, as the case may be. Thus, the time period for which books can be retained has been reduced from 15 days to 10 days. Also approval of the Chief Commissioner or Director General is required for retention beyond 10 days. 62.3 It has been provided that no action under section 133A shall be exercised by Assistant Director or Deputy Director or Assessing Officer or a Tax Recovery Officer, or an Inspector of Income-tax without the prior approval of the Joint Director or the Joint Commissioner, as the case may be. 62.4 This amendment will take effect from 1st June, 2003. [Section 61] 63. Measures to facilitate electronic filing of return by the assessee 63.1 In order to enable taxpayers to file return of income in a computer readable media (electronic filing of return), the Finance Act, 2003 has inserted a new sub-section (1B) in section139 so as to provide that any person may at his option, on or before the due date, furnish a return of his income in accordance with such scheme as may be specified by the Board in this behalf, in such fo....
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....65.4 The new section 153A provides the procedure for completion of assessment where a search is initiated under section 132 or books of account, or other documents or any assets are requisitioned under section 132A after 31st May, 2003. In such cases, the Assessing Officer shall issue notice to such person requiring him to furnish, within such period as may be specified in the notice, return of income in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted under section 132 or requisition was made under section 132A. 65.5 The Assessing Officer shall assess or reassess the total income of each of these six assessment years. Assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under section 132 or requisition under section 132A, as the case may be, shall abate. It is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search under section 132 or requisition shall not abate. Save as otherwise provided in the proposed section 153A, section....
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....fter the exclusion of the aforesaid period, the period of limitation available to the Assessing Officer for making an order of assessment or reassessment, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the period of limitation shall be deemed to be extended accordingly. 65.9 The new section 153C provides that where an Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belong or belongs to a person other than the person referred to in section 153A, then the books of account, or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A. 65.10 An appeal against the order of assessment or reassessment under section 153A shall lie with the Commissioner of Income-tax (Appeals). 65.11 Consequential amendments have also been made in sections 132, 1....
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....ed in accordance with the provisions of the said Chapter, income-tax shall be payable by the assessee direct. 67.2 The Act has inserted an Explanation in the said section to clarify that if the principal officer or the company referred to in section 194 or the person referred to in section 200, does not deduct the whole or any part of the tax, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default as referred to in sub-section (1) of section 201 in respect of such tax unless such income-tax has been paid directly by the assessee himself. 67.3 This amendment will take effect from 1st June, 2003. [Section 71] 68. Rationalisation of certain provisions of tax deduction at source from payments made to non-residents 68.1 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 ....
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....ith a view to give relief to small investors and senior citizens, the Act has amended sections 194 and 194K of the Income-tax Act 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 income or incomes, as the case may be, does not exceed two thousand five hundred rupees. 69.4 These amendments will take effect retrospectively from 1st August, 2002. [Sections 73(a) and 79(a)] 70. Exemption from TDS on interest on compensation paid to the accident victims under the Motor Vehicles Act 70.1 Under the existing provisions contained in section 194A of the Income-tax Act, tax is required to be deducted at source on income by way of interest other than interest on securities where the aggregate amounts of such income credited or paid or likely to be credited or paid during the financial year exceeds Rs. 5,000. 70.2 Considering the practical difficulties of people involved in accidents as also the fact that the recipients are mostly people from rural or poor background who are not assessed to tax, the Act has amended section 194A....
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....t 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 capital asset in the said section has also been omitted. Consequential amendments have also been made in sections 194C, 194G and 194J of the Income-tax Act. 72.3 These amendments will take effect from 1st June, 2003. [Sections 75, 76, 78(b) and 84] 73. No deduction of tax at source to be made in certain cases on filing of self-declaration 73.1 Under the existing provisions contained in section 197A, no tax is deducted at source if an individual, who is resident in India, furnishes a declaration that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil. Sub-section (1B) of the aforesaid section provides that the provisions of the section shall not apply where the amount of any income from dividends, payments in respect of deposits under National Savings Schemes, etc. or income from interest on securities o....
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....ter 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 return to the prescribed income-tax authority in accordance with such scheme as may be specified by the Board in this behalf, by notification in the Official Gazette, and subject to such conditions as may be specified therein, on or before the prescribed time after the end of each financial year, on a floppy, diskette, magnetic cartridge etc. CD-ROM or any other computer media and in the manner as may be specified in that scheme. However, the filing of TDS returns on computer media under the said scheme has been made mandatory in the case where the principal officer in the case of a company makes the deduction. 74.5 Sub-section (3) has also been substituted to provide that a return filed on computer media shall be deemed to be a return for the purposes of this section and the rules made thereunder and shall be admis....
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....gn 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 206C to mean waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons. Further, the definition of seller has also been amended to include individuals and Hindu undivided families carrying on business and whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) are sold. 75.5 These amendments will take effect from 1st June, 2003. &nbs....
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....parture 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 such taxes which are or may become payable by that person. It is also proposed to provide that no income-tax authority shall make it necessary 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. 76.5 This amendment will take effect from 1st June, 2003. [Section 88] 77. Charging of interest on excess refund granted at time of summary assessment 77.1 Under the provisions of section 143(4), where a regular assessment under section ....
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....ced 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 undertaken by a resident applicant with a non-resident. 78.2 The Finance Act, 2003 has amended the said sub-clause so as to clarify that the determination of any question of law or fact by the Authority shall be in relation to the tax liability of a non-resident arising out of a transaction which has been undertaken or is proposed to be undertaken by a resident applicant with a non-resident and not in relation to the tax liability of the resident. 78.3 It has further been provided that w....
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....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 Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later. 80.2 The Finance Act, 2003 has inserted a proviso in the said clause so as to provide that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 o....