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The Finance Act, 1976--Explanatory notes on provisions relating to direct taxes
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....h deduction under the Income-tax Act; and the rates for the computation of "advance tax" and charging of income-tax on current incomes in certain cases where accelerated assessments are required to be made during the financial year 1976-77. (ii) Amendment of the Income-tax Act, 1961, with a view to providing greater incentive for savings and investment; providing for tax relief in certain cases; rationalisation of assessment of non-residents and a few other matters. (iii) Amendment of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, with a view to extending the requirement of making compulsory deposits for another year and modifying the rates of compulsory deposit. (iv) Amendment of the Companies (Profits) Surtax Act, 1964, with a view to raising the threshold for the levy of surtax and making a few other provisions. (v) Amendment of the Wealth-tax Act, 1957, with a view to lowering the rates of ordinary wealth-tax and dispensing with the levy of additional wealth-tax on urban lands and buildings; providing for greater incentive for construction of houses, especially for weaker sections, and for argumenting foreign exchange resources and making a few other provision....
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....uction of income-tax at source. The position in this regard is explained in paragraphs 5 to 7 of this circular. 4.2 The rates for deduction of income-tax at source (including surcharge on income-tax) in respect of other categories of income are the same as were prescribed for the purpose under the Finance Act, 1975. Deduction of income-tax from dividends paid by domestic companies to foreign companies 5. The rate for deduction of income-tax at source from dividends paid by a domestic company to a foreign company has been fixed at 25 per cent. as against 25.725 per cent. (income-tax 24.5 per cent. plus surcharge 1.225 per cent) under the Finance Act, 1975. Deduction of income-tax from royalties paid by Indian concerns to foreign companies 6. The rate for deduction of income-tax at source from royalties paid by Indian concerns to foreign companies will depend upon whether such royalties are payable under approved agreements or not, and where such royalties are payable under approved agreements, whether such agreements were made before the 1st April, 1976, or on or after that date. The rates specified in this behalf are as follows:- (a) Royalties payable under agreements [not be....
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....by the Central Government before that date. Under section 9(1)(vi) of the Income-tax Act, as inserted by section 4 of the Finance Act, an agreement made by a foreign company with an Indian concern on or after the 1st April, 1976, can, at the option of the foreign company, be regarded as an agreement made before that date if the agreement is made on the basis of proposals approved by the Central Government before that date. Where, by virtue of the aforesaid provision, an agreement made on or after the 1st April, 1976, is regarded as an agreement made before that date, the deduction of income-tax at source will be made on the same basis as in the case of royalties payable under agreements made before that date and explained in (b) above. (d) Royalties payable under agreements which have not been approved or which were made before the 1st April, 1961. From other royalties payable by Indian concerns to foreign companies, e.g., royalties payable under agreements which have not been approved by the Central Government or those which were made before the 1st April, 1961, income-tax will be deducted at the rate of 73.5 per cent. (income-tax 70 per cent. plus surcharge 3.5 per cent.). The....
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....ct, 1961, specifying the appropriate proportion of such fees chargeable under that Act and, in that case, the specified rates will be applied to the portion of the fees which is so chargeable. Further, while determining the chargeable portion of the technical service fees the Income-tax Officer will have to keep in view the provisions of new section 44D as explained in paragraph 26 of this circular. (iii) Rates for deduction of income-tax at source from "Salaries", computation of "advance tax" and charging of income-tax in special cases during the financial year 1976-77 8. Rates for deduction of income-tax at source from "Salaries" in the case of individuals during the financial year 1976-77, as also for computation of "advance tax" payable during that year in the case of all categories of taxpayers, have been specified in Part III of the First Schedule to the Finance Act. These rates are also applicable for deduction of income-tax at source during the financial year 1976-77, from retirement annuities payable to partners of registered firms engaged in certain professions (chartered accountants, solicitors, lawyers and architects) and for charging income-tax during 1976-77, on cur....
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....authorities, the rates of income-tax remain at the existing levels. 9.2 No separate rate schedule has been specified in the case of Life Insurance Corporation of India. This is in view of the position that the basis of taxation of profits from life insurance business has been modified and the rate of income-tax to be charged on the profits and gains of the life insurance business determined on the modified basis has been laid down in new section 115B of the Income-tax Act. These changes have been explained in paragraphs 37 and 40 of this circular. 9.3 In the case of other companies, the rates of income-tax, as also surcharge thereon, have been specified in Paragraph E of Part III of the First Schedule to the Finance Act. These rates are the same as specified in Paragraph F of Part I of the First Schedule to the Finance Act. It may, however, be noted that royalties and technical service fees received by foreign companies under approved agreements will be charged to tax at the rate of 52.5 per cent. (income-tax 50 per cent. plus surcharge 2.5 per cent.) in case where such income is received under agreements made before the 1st April, 1976. Royalties received under agreements which,....
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....nce tax is paid by the company on the basis of its own estimate, the company will not be required to pay surcharge on income-tax to the extent of the deposit made by it with IDBI. 10.2 It has also been provided that a company may make a deposit with the IDBI under a scheme to be notified by the Central Government in this behalf at any time during the financial year 1976-77 and if it does so, the surcharge on income-tax payable by it for the assessment year 1977-78 shall be reduced by the amount of the deposit so made. In this connection, it may be noted that the abatement in the liability towards surcharge on income-tax will be limited to the amount of deposit made during the financial year 1976-77 and the company will not be able to make any further deposit after the expiry of the financial year 1976-77 in lieu of its liability towards surcharge on income-tax, whether such liability arises on self-assessment or is determined on assessment or in any subsequent proceedings by way of rectification, appeal or revision. (iv) Partially integrated taxation of non-agricultural income with income derived from agriculture 11. As in the past, the Finance Act provides that in the case of i....
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.... of income by way of dividends, royalty and technical service fees received by foreign companies under approved agreements made by such companies with Indian concerns on or after the 1st April, 1976, and for the purpose of taxation of profits and gains of life insurance business. The effect of this amendment will be that in computing the advance tax payable by foreign companies, the tax on income by way of dividends, royalty and technical service fees received by foreign companies under such agreements as also on profits and gains of the insurance business in the case of all categories of taxpayers will be calculated in accordance with the provisions of the new sections 115A and 115B of the Income-tax Act. 13.2 The aforesaid amendment has come into force with effect from the 1st June, 1976, and is applicable for the purposes of calculating advance tax payable during the financial year 1976-77 and subsequent years. [Section 3(b) of the Finance Act] Source rule for "interest" - Section 9(1)(i) & (v). 14.1 A non-resident taxpayer is chargeable to tax in India in respect of income from whatever source derived which is received or is deemed to be received in India or which accrues or....
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....if a non-resident 'A' borrows moneys from a non-resident 'B' and invests the same in share of an Indian company, interest payable by 'A' to 'B' will not be deemed to accrue or arise in India. Similarly, if a lead bank obtains loans outside India from a consortium of foreign banks and lends the same to an Indian concern, interest paid by the lead bank to the members of the consortium will not attract liability towards income-tax in India. 14.3 The aforesaid amendment has come into force with effect from the 1st June, 1976, and is accordingly applicable for the deduction of income-tax at source from income by way of interest paid on or after that date and for assessment of such income for the assessment year 1977-78 and subsequent years [Section 4(a) & (b) (Part) of the Finance Act] Source rule for "royalty" - Section 9(1)(vi) 15.1 A non-resident taxpayer is chargeable to tax in India in respect of income by way of royalty which is received or is deemed to be received in India or which accrues or arises or is deemed to accrue or arise in India. The Income-tax Act, however, does not contain any definition of the term "royalty" not is there any clear-cut source rule specifying the c....
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....oreign company exercises an option by furnishing a declaration in writing to the Income-tax Officer that the agreement may be regarded as having been made before the 1st April, 1976. The option in this behalf will have to be exercised before the expiry of the time allowed under section 139(1) or section 139(2) (whether fixed originally or on extension) for furnishing the return of income for the assessment year 1977-78 or the assessment year in which the royalty income first became chargeable to tax, whichever assessment year is later. The option so exercised will be final not only for the assessment year in relation to which it is made but also for every subsequent year. [The intention of giving an option to foreign companies to claim that agreements made on or after the 1st April, 1976, may be regarded as agreements made before the date is that where exemption from income-tax in respect of lump sum royalty is allowed, the balance of the royalty income should be charged to tax at the rates applicable in the case of such income derived under approved agreements made before that date. In other words, taxpayers exercising the option will be placed on a par with taxpayers deriving ro....
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....embly, mining or like project undertaken by the recipient. Such consideration has been excluded from the definition on the ground that such activities virtually amount to carrying on business in India for which considerable expenditure will have to be incurred by a non-resident and accordingly it will not be fair to tax such consideration in the hands of a foreign company on gross basis or to restrict the expenditure incurred for earning the same to 20 per cent. of the gross amount as provided in new section 44D of that Act. Consideration for any construction, assembly, mining or like project will, therefore, be chargeable to tax on net basis, i.e., after allowing deduction in respect of costs and expenditure incurred for earning the same and charged to tax at the rates applicable to the ordinary income of the non-resident as specified in the relevant Finance Act. (ii) Consideration which will be chargeable to tax in the hands of the recipient under the head "Salaries" 16.4 The aforesaid amendment has come into force with effect from the 1st June, 1976, and will apply in relation to the assessment year 1977-78 and subsequent years. [Section 4(b)(Part) of the Finance Act] Exempti....
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....neys are borrowed under a loan agreement approved by the Central Government having regard to the need for industrial development in India and will be limited to only so much of the interest as does not exceed the amount of interest paid at the rate approved by the Central Government having regard to the terms of the loan and its repayment. 18.2 The proposed amendment has come into force with effect from the 1st June, 1976, and will apply in relation to the assessment years 1977-78, and subsequent years. [Section 5(b) of the Finance Act] Exemption from income-tax of Additional Facilities Allowance received by Members of Parliament - Section 10(17) 19.1 Under the Members of Parliament (Additional Facilities) Rules, 1975, members of Parliament are entitled to receive, in lieu of additional facilities, an allowance at the rate of Rs.500 per month. Section 10(17) of the Income-tax Act, has been amended in order to exempt from income-tax the allowance received under the aforesaid Rules. 19.2 This amendment has come into force with effect from the 1st April, 1976, and is accordingly applicable in relation to the assessment year 1976-77, and subsequent years. [Section 5(c) of the Fi....
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....on is allowed in respect of any ship or aircraft acquired after the 31st March, 1976, or any machinery or plant installed after that date. The other amendments to this section are consequential to the insertion of new section 32A in the Income-tax Act and the amendment of the Ninth Schedule to that Act as explained in later paragraphs. [Section 7(2) of the Finance Act] Investment allowance-Section 32A 23.1 As stated in the preceding paragraph, the Finance Act has replaced the scheme of initial depreciation allowance by a scheme of investment allowance. The new scheme is broadly on the lines of the development rebate scheme that was discontinued earlier. The main respects in which the new investment allowance scheme differs from the development rebate scheme are explained hereinbelow. 23.2 Whereas development rebate was allowed, at varying rates, in respect of ships and machinery or plant installed in all industries, investment allowance will be admissible at the uniform rate of 25 per cent., only in respect of the following assets:- (i) New ships and new aircraft acquired after the 31st March, 1976, by taxpayers engaged in the business of operation of ships or aircraft. For t....
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....7.5 lakhs for the purposes of initial depreciation allowance) and, in computing the value of such machinery for this purpose, the value of tools, jigs, dies and moulds will not be taken into account. 23.3 Development rebate was not admissible in respect of the following assets, namely:- (i) Machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house; (ii) Office appliances and road transport vehicles. Investment allowance will be inadmissable not only in respect of the assets referred to in (i) and (ii) above but also in respect of the following, namely:- (a) Machinery or plant the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the taxable income of any one previous year. Thus, no investment allowance will be admissible in respect of (i) any machinery or plant the actual cost whereof, being less than Rs.750, is allowed to be written off by way of depreciation allowance under the first proviso to section 32(1)(ii); (ii) any machinery or plant on which depreciation is admissible at the rate of 100 per cent. under the Income-tax ....
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....nt of total income with reference to which the admissibility of investment allowance has to be determined will, however, be the total income as computed after making deduction in respect of development rebate under section 33 and development allowance under section 33A but without making any deduction in respect of investment allowance or any deduction under Chapter VIA of the Income-tax Act. The combined effect of the provisions of sections 32, 32A, 33, 33A and 72 is that in a case where there are allowances in the nature of depreciation allowance, investment allowance, development rebate, development allowance and losses, such allowances and losses would be deductible in the order given below, in cases where the profits are insufficient to absorb all of them:- (i) Current depreciation [Section 32(1)]. (ii) Carried forward losses of earlier years [Section 72(1)]. (iii) Unabsorbed depreciation of earlier years [Section 32(2)]. (iv) Unabsorbed development rebate of earlier years [Section 33(2)(ii)]. (v) Current development rebate [Section 33(2)(i)]. (vi) Unabsorbed development allowance of earlier years [Section 33A(2)(ii)]. (vii) Current development allowance [Section 33A(2)....
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....utside India as profits or for creation of any asset outside India. Further, unlike the development rebate scheme, the requirement of creation of investment allowance reserve will apply even in the case of electricity companies licensed under the Electricity (Supply) Act, 1948. [As explained earlier, in a case where the total income (as computed before making any deduction in respect of development rebate under section 33 or development allowance under section 33A or under Chapter VIA of the Income-tax Act) was a loss, no development rebate was admissible for that year, and in a case where such total income was less than the amount of the development rebate otherwise admissible, the deduction on account of development rebate was limited to such total income. Since the obligation for creation of a statutory reserve was limited to 75 per cent. (50 per cent. in the case of ships) of the development rebate actually allowed, there was no obligation to create a statutory reserve in a year of loss. There was, however, some doubt regarding the correct legal position in this matter. The position has been clarified in relation to investment allowance in sub-section (4) of section 32A. A tax....
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....he Income-tax Officer arises out of the application of the proviso to section 145(1) or section 145(2) or the concealment of income by the taxpayer. 23.7 Where any of the conditions subject to which investment allowance was admissible is contravened, the investment allowance will be withdrawn by amending, under new section 155(4A), the assessment for the year in which the allowance was made. In other words, if the ship, aircraft, machinery or plant is sold or otherwise transferred, before the expiry of a period of eight years in which the ship or aircraft was acquired or the machinery or plant was installed, in violation of the conditions referred to in paragraph 23.5, or if the taxpayer does not utilise the amount transferred to the Investment Allowance Reserve Account within a period of 10 years from the end of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed for the purposes of acquiring a new ship or an aircraft or machinery or plant [other than machinery or plant referred to in clauses (a), (b) and (d) of the proviso to section 32A(1)] or if he utilises, before the expiry of the period of ten years aforesaid, the amount cred....
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....duced by not only development rebate, development allowance and entertainment expenditure but also by investment allowance admissible under the new section 32A. 24.3. This amendment will take effect from the 1st April, 1977, and will accordingly be applicable in relation to the assessment year 1977-78 and subsequent years. Ceiling limit in respect of head office expenses in the case of non-residents-New Section 44C. 25.1. Non-residents carrying on any business or profession in India through their branches are entitled to a deduction, in computing the taxable profits, in respect of general administrative expenses incurred by the foreign head offices in so far as such expenses can be related to their business or profession in India. It is extremely difficult to scrutinise and verify claims in respect of such expenses, particularly in the absence of account books of the head office which are kept outside India. Foreign companies operating through branches in India sometimes try to reduce the incidence of tax in India by inflating their claims in respect of head office expenses. With a view to getting over these difficulties, the Finance Act has inserted a new section 44C in the Inc....
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....ntral Government was taxed in the hands of foreign companies at the rate of 52.5 per cent. (income-tax 50 per cent. plus surcharge 2.5 per cent.). Income by way of technical service fees received under agreements made after the 29th February, 1964, and approved by the Central Government was also taxed at the same rate. In either case, the taxable income was determined on net basis, i.e., after allowing deduction in respect of costs and expenses incurred for earning the income. 26.2 The Finance Act has inserted a new section 44D in the Income-tax Act, 1961, which lays down special provisions for computing income by way of royalties and fees for technical services received by foreign companies from Indian concerns. Where such income is received under agreements made before the 1st April, 1976, the deduction in respect of expenses incurred for earning such income will be subject to a ceiling limit of 20 per cent. of the gross amount of such income, as reduced by the amount, if any, of so much of the royalty income as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or sp....
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.... Gallery or National Archives. The provision will also apply in relation to capital gains arising from the transfer of works of art, etc., to any such public museum or institution as may be notified by the Central Government in the Official Gazette to be of national importance or to be of renown throughout any State or States. 27.2 The aforesaid amendment will come into force with effect from the 1st April, 1977, and will accordingly apply in relation to the assessment year 1977-78 and subsequent years. [Section 11 of the Finance Act] Withdrawal of exemption in respect of capital gains arising on transfer of personal jewellery in certain cases-Section 54C. 28.1 Hitherto, under section 54C of the Income-tax Act, capital gains arising from the transfer of personal jewellery were exempted from tax if the whole of the full value of the consideration received for the transfer of the jewellery was utilised for acquiring new jewellery within six months of the transfer. Where only a part of this consideration was used in acquiring new jewellery proportionate part of the capital gains was exempted from tax. This exemption, not being in conformity with the Government objective of channe....
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....approved agreements is charged to tax in the hands of a foreign company under the head "Income from other sources." 30.2 This amendment has come into force with effect from the 1st June, 1976, and will apply in relation to the assessment year 1977-78 and subsequent years. [Section 14 of the Income-tax Act]. Withdrawal of certain concessions in the case of certain Hindu undivided families-Section 80A. 31.1 The Finance Act has amended section 80A of the Income-tax Act with a view to withdrawing the following concessions in the case of Hindu undivided families having at least one member with independent total income exceeding the exemption limit:- (i) Deduction in respect of donations to certain funds, charitable institutions, etc. [Section 80G] (ii) Deduction in respect of rent-paid for residential accommodation. [Section 80GG] (iii) Tax concessions in respect of industrial undertakings established in backward areas. [Section 80HH] (iv) Tax holiday profits of new industrial undertakings. [Section 80J] (v) Deduction in respect of income from dividends, interest on securities, bank deposits, etc., up to maximum of Rs.3,000. [Section 80L] [As explained in paragraph 54.1, the ....
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....ion or association as is approved in this behalf by the Central Government from 50 per cent. to 100 per cent. of the qualifying amount of such donations where such donations are to be utilised by the recipient for the purpose of promoting family planning. It should be noted that whereas the percentage deduction in respect of such donations has been raised from 50 per cent. to 100 per cent. of the qualifying amount, the qualifying amount itself will be subject to the existing overall ceiling limits specified in sub-section (4) of section 80G in respect of donations other than those made to the National Defence Fund, the Jawaharlal Nehru Memorial Fund and the Prime Minister's Drought Relief Fund. (ii) With a view to encouraging donations to State Housing Boards, Slum Clearance Boards, etc., an amendment has been made to secure that donations made by taxpayers to such authorities qualify for tax concession under section 80G of the Income-tax Act in the same manner as donations to charitable institutions generally. Donations made to authorities referred to in section 10(20A), namely, those which are constituted in India by or under any law enacted either for the purpose of dealing and....
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....eels; steel castings and forgings; electric motors; industrial and agricultural machinery; earth moving machinery; machine tools; commercial vehicles; ships; tyres and tubes; heavy chemicals (including soda ash and caustic soda) and industrial explosives. 34.3 The above amendments will take effect from the 1st April, 1977, and will accordingly apply in relation to the assessment year 1977-78 and subsequent years. [Section 18 of the Finance Act]. Modification of rates of capital gains tax in the case of companies-Section 115. 35.1 Under the Income-tax Act, capital gains relating to long-term capital assets, i.e., assets which are held by a taxpayer for a period exceeding 60 months before their transfer, are charged to tax on a concessional basis. In the case of companies, long-term capital gains relating to buildings and lands or any rights therein are charged to tax at the rate of 47 per cent. in the case of widely-held companies having total income not exceeding Rs.1 lakh and at the rate of 55 per cent. in the case of other companies. Long-term capital gains relating to other assets are charged to tax at the rate of 45 per cent. in the case of all classes of companies. 35.2 Th....
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.... The flat rates specified above will, however, not be applicable in relation to royalties received by a foreign company from an Indian concern in pursuance of an approved agreement made on or after the 1st April, 1976, if such agreement is regarded as an agreement made before the said date under section 9(1)(vi) of the Income-tax Act. Such royalties will be charged to tax on a net basis at the rates specified in the annual Finance Act in respect of income by way of royalties and technical service fees received by foreign companies from Indian concerns under approved agreements made before the 1st April, 1976. The deduction on account of expenses incurred for earning such royalties will, however, be limited to 20 per cent. of the gross amount of such income as explained in paragraph 26.2. 36.2 This amendment has come into force with effect from the 1st June, 1976, and will apply in relation to the assessment year 1977-78 and subsequent years. [Section 20 (Part) of the Finance Act] Rate of tax on profits and gains of life insurance business-New section 115B. 37.1 As explained in paragraph 40 of this circular, the Finance Act has substantially modified the basis for determining ....
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....ithin a period of four years from the end of the 10 years aforesaid. Where the taxpayer utilises, before the expiry of the aforesaid period of ten years, the amount credited to the Investment Allowance Reserve Account for distribution by way of dividends or profits or for making remittance outside India as profits or for any purpose other than a purpose of the business of the undertaking, the rectification of the original assessment order will be permissible within a period of 4 years from the end of the previous year in which the amount is so utilised. 38.2 This amendment has come into force with effect from the 1st April, 1976. [Section 21 of the Finance Act] Deduction of income-tax at source from taxable component of interest income paid to non-residents-Section 195. 39.1 Hitherto, income-tax was required to be deducted at source from the amount of interest paid to non-residents and the person responsible for paying such interest could not obtain an order from the Income-tax Officer determining the appropriate portion of such interest chargeable to tax. This position created difficulties in cases where the net amount of interest income chargeable in the hands of a non-resi....
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....to the annual average of the surplus so arrived at will be made. In other words, no further deduction will be allowed in respect of any portion of the amount paid or reserved or expended on behalf of the policy-holders nor will the expenditure and allowances which are not deductible under the provisions of sections 30 to 43A be added back. The profits and gains of life insurance business so arrived at will be charged to tax at the rate of 12 1/2 per cent. as explained in paragraph 37. 40.3 This amendment will come into force with effect from the 1st April, 1977, and will accordingly apply in relation to the assessment year 1977-78 and subsequent years. [Section 23 of the Finance Act] Extension of the list of backward areas--Eighth Schedule. 41.1 Under section 80HH of the Income-tax Act, all categories of taxpayers are entitled to a deduction equal to 20 per cent. of the profits derived by them from newly established industrial undertakings (other than those engaged in mining) and approved hotels set up in backward areas specified in the Eighth Schedule to that Act. The deduction is allowed in respect of each of the ten assessment years beginning with the assessment year releva....
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....dertaking was set up in the previous year relevant to the assessment year 1974-75, the deduction will be available for the assessment year 1976-77 and seven assessment years immediately following. [Section 24 of the Finance Act]. Amendment to the Ninth Schedule 42.1 The Ninth Schedule to the Income-tax Act has been amended and the effect of the amendments thereto, in so far as the provisions relating to investment allowance are concerned, has been explained in paragraph 23.2 of this circular. Another effect of the amendment will be that machinery or plant installed, during the previous year relevant to the assessment year 1976-77 but before the 1st April, 1976, for the purposes of business of manufacture of alloy and S.G. Iron castings will qualify for initial depreciation under section 32(1)(vi) of the Income-tax Act. 42.2 This amendment has come into force with effect from the 1st April, 1976, and will accordingly apply in relation to the assessment year 1976-77 and subsequent years. [Section 25 of the Finance Act]. AMENDMENTS TO THE COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Continuation of the Compulsory Deposit Scheme for another year and modifications in the ....
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....ngs are included in the capital base, the chargeable profits are correspondingly increased by the amount of interest paid on such debentures and borrowings. 44.2 As a result of increase in interest rates in recent years, the return on safe investments has considerably increased. In order to make risk bearing investment in shares of companies more remunerative, the Finance Act has raised the threshold for the determination of chargeable profits from 10 per cent. to 15 per cent. of the capital of the company. No change has, however, been made in the alternative limit of Rs. 2 lakhs. The new threshold will be reckoned with reference to the owned capital of the company. In other words, while development rebate reserve, investment allowance reserve and other reserves will form part of the capital, long-term borrowings and debentures will be excluded from the capital base. As a logical consequence, the interest paid on long-term borrowings and debentures will also not be added back in computing the chargeable profits. 44.3 The aforesaid amendment will take effect from the 1st April, 1977, and will, accordingly, apply in relation to the assessment year 1977-78 and subsequent years. [Sec....
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....nant to the dwelling unit. The exemption will be available for a period of five successive assessment years next following the date on which the construction of the dwelling unit or units is completed. The expression "dwelling unit" and "land appurtenant" have been defined in the new clause. It may be noted that the exemption is not limited to any specified number of dwelling units but will be available in respect of any number of such units which fulfil the aforesaid conditions. 46.2 This amendment will come into force with effect from the 1st April, 1977, and will, accordingly, apply in relation to the assessment year 1977-78 and subsequent years. [Section 27(2)(a) of the Finance Act] Exemption of outstanding fees in the case of lawyers, solicitors, etc. 47.1 Outstanding fees in the case of pleading advocates and senior advocates who are briefed by junior advocates are not legally recoverable and, as such, cannot be regarded as "assets" for the purposes of the Wealth-tax Act. The ascertainment of the correct amount of outstanding fees of advocates and solicitors also presents practical difficulties. In view of this position, the Finance Act has inserted a new clause (xa) in se....
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.... origin if he, or either of his parents or any of his grandparents, was born in undivided India. 49.2 This amendment will take effect from the 1st April, 1977, and will, accordingly, apply in relation to the assessment year 1977-78 and subsequent years. [Section 27(2)(e) (Part) of the Finance Act] Exemption of investment by non-resident Indian citizen in equity shares in certain priority industries-New section 5(1)(xxxiv). 50.1 With a view to providing incentives to non-resident Indian citizens to invest in equity shares of companies in the priority sector, the Finance Act has inserted a new clause (xxxiv) in section 5(1) of the Wealth-tax Act to provide for exemption from wealth-tax in respect of their investment in equity shares of the companies engaged in the business of manufacture or production of articles or things specified in the list in the new Schedule II to the Wealth-tax Act, as also in equity shares of companies which are certified by the prescribed authority to have undertaken to export the required percentage of their total production. The exemption will be available only where such shares form part of the initial issue of equity capital made by the company after ....
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....il, 1976, and will be applicable in relation to the assessment year 1976-77 and subsequent years. [Section 27(3) of the Finance Act] Reduction in the rates of wealth-tax in the case of individuals and Hindu undivided families-Schedule I. 52.1 At present, wealth-tax is charged in the case of individuals and Hindu undivided families (other than Hindu undivided families having one or more members with independent net wealth exceeding Rs.1 lakh) at the rate of 1 per cent. on the first slab of net wealth up to Rs.5,00,000; 3 per cent. on the next slab of Rs.5,00,001-10,00,000; 4 per cent. on the next slab of Rs.10,00,001-15,00,000; and 8 per cent. on the net wealth in excess of Rs.15,00,000. In the case of Hindu undivided families having one or more members with independent net wealth exceeding Rs.1,00,000, wealth-tax is charged at the rate of 3 per cent. on the first slab of net wealth up to Rs.5,00,000; 4 per cent. on the next slab of Rs.5,00,001-10,00,000 and 8 per cent. on the slab of net wealth over Rs.10,00,000. No wealth-tax is payable in the case of Hindu undivided families, if their net wealth does not exceed Rs.2 lakhs. In the case of individuals, no wealth-tax is payable wh....
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....5 of the Gift-tax Act to secure that donations made to such State Housing Boards, etc., are not charged to gift-tax under that Act. 53.2 This amendment will take effect from the 1st April, 1977, and will, accordingly, apply in relation to the assessment year 1977-78 and subsequent years. [Section 28 of the Finance Act] AMENDMENT TO THE INTEREST-TAX ACT, 1974 Exemption of interest on term loans. 54.1 The Interest-tax Act, 1974, imposes a special tax on the gross amount of interest received by scheduled banks on loans and advances made in India. As the incidence of this tax is passed on by the banks to the borrowers, this levy has the effect of raising the cost of borrowed funds from banks. In order to mitigate the effect of this tax on long-term borrowings for purposes of investment in industrial and agricultural sectors, the Finance Act has amended the definition of "interest" in section 2(7) of the Interest-tax Act so as to exclude from its purview interest payable on moneys lent for the creation of a capital asset in India where the agreement under which the moneys are lent provides for the repayment thereof during a period of not less than seven years. 54.2 This amendment ....