TaxTMI 
TaxTMI 
The Finance Act, 1976--Explanatory notes on provisions relating to direct taxes
X X X X Extracts X X X X
X X X X Extracts X X X X
....ossword puzzles and other categories of income liable to such 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 arg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7 from incomes, other than "Salaries" and retirement annuities payable to partners of registered firms engaged in the specified professions, are set forth in Part II of the First Schedule to the Finance Act. As explained in paragraphs 26, 29, 30, 34 and 36 of this circular, the Finance Act has made several modifications in the scheme of taxation of income by way of dividends, royalties and technical service fees in the case of foreign companies. These modifications are reflected in the rate schedule for deduction 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Income-tax Act, 1961, specifying the appropriate proportion of such royalty chargeable under that Act and, in that case, the above rate will be applied to the portion of the royalty income which is so chargeable. While determining the chargeable portion of the royalty income, the Income-tax Officer will have to keep in view the special provisions of new section 44D relating to computation of income by way of royalty, etc., in the case of foreign companies as explained in paragraph 26 of this circular. (c) Royalties payable under agreements made on or after the 1st April, 1976, in cases where agreements are made on the basis of proposals approved 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; agreements made on or after 1-4-1976 40 per cent of the gross amount. 2. *From technical service fees payable under appproved agreements made after 29-2-1964 but before 1-4-1976 52.5 per cent (income- tax 50 per cent plus 2.5 per cent surcharge). 3. *From technical service fees payable under agreements which have not been approved by the Central Government or those which were made before1-3-1964 73.5 per cent (income- tax 70 per cent plus3.5 per cent surcharge). * In either of these cases, the deduction at the specified rate will be made with reference to the gross amount of technical service fees unless the person responsible for paying such fees has obtained a certificate under section 195(2) of the Income-tax Act, 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....edule to the Finance Act Per cent Rate as specified in Part III of the First Schedule to the Finance Act Per cent Up to Rs. 8,000 Nil Nil Rs. 8,001 - Rs.15,000 17 15 Rs.15,001 - Rs. 20,000 20 18 Rs. 20,001 - Rs. 25,000 30 25 Rs. 25,001 - Rs. 30,000 40 30 Rs. 30,001 - Rs. 50,000 50 40 Rs. 50,001 - Rs. 70,000 60 50 Rs. 70,001 - Rs. 1,00,000 70 55 Over Rs. 1,00,000 70 60 The income-tax calculated on the basis of the above rates will, in either case, be increased by a surcharge of 10% of such income-tax. (b) In the case of Hindu undivided families, having one or more members with independent income exceeding Rs.8,000, the rates of income-tax applicable in respect of various slabs of income are the same as those specified for the next higher slab in the case of individuals, other Hindu undivided families, unregistered firms, etc. (c) In the case of co-operative societies, registered firms and local 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of advance tax falls due on the 15th December, 1976, the deposit will have to be made on or before the 14th December, 1976, Similarly, where the last instalment is due on the 15th March, 1977, the deposit will be required to be made on or before the 14th March, 1977. The liability towards payment of surcharge on income-tax will stand reduced only to the extent of the deposit made within the time allowed and surcharge on income-tax will be payable to the extent of shortfall in the deposits, if any. In making an order under section 210 of the Income-tax Act for payment of advance tax, the Income-tax Officer will take into account the full amount of surcharge on income-tax payable by the company and where the company makes any deposit with the IDBI, the order made by the Income-tax Officer under section 210, as also the notice of demand issued in pursuance thereof, shall have effect as if the surcharge on income-tax specified therein had been reduced by the amount of deposit made by the company. Where the advance 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 IDB....
X X X X Extracts X X X X
X X X X Extracts X X X X
....payable in any manner in respect of loans, debts, deposits, claims and other similar rights or obligations. It also includes any service fees or other charges in respect of such loans, debts, deposits, etc., as also fees in the nature of commitment charges on unutilised portion of credit facilities. This definition will be applicable for all purposes of the Income-tax Act. 12.2 The aforesaid amendment has come into force with effect from the 1st June, 1976, and is accordingly applicable for the purpose of 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 3(a) of the Finance Act]. Definition of "rate or rates in force" or "rates in force" - Section 2(37A). 13.1 The definition of the expression "rate or rates in force" or "rates in force" in clause (37A) has been amended in the context of the special rates of income-tax specified in sections 115A and 115B for the purpose of taxation of income by way of dividends, royalty and technical service fees received by foreign companies under approved agreements made by such companies with Indian c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owed and used, for the purposes of making or earning any income from any source outside India. It may be noted that where moneys borrowed by a resident for the purposes of a business or profession carried on by him outside India are actually used for any other purpose, interest payable thereon will be deemed to accrue or arise in India. Similarly interest payable on moneys borrowed by a resident for the purposes of making or earning any income from any source outside India will be deemed to accrue or arise in India if the moneys are actually used for any purpose in India. (c) Interest payable by a non-resident in respect of any debt incurred, or money borrowed and used, for the purposes of a business or profession carried on by him in India. It may be noted that interest payable by a non-resident in respect of any debt incurred, or moneys borrowed and used, for the purposes of making or earning any income from any source, other than a business or profession carried on by him in India, will not be deemed to accrue or arise in India. Thus, 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' ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n, drawings or specifications relating to any patent invention, model, design, secret formula or process or trade mark or similar property, will ordinarily become chargeable to tax in India. In order, however, to ensure that foreign suppliers of technical know-how who had entered into agreements or had finalised proposals for the receipt of such lump sum royalties with the approval of the Central Government on the understanding that such payment would be exempt from income-tax, it has been provided that such lump sum payments received under approved agreements made before 1st April, 1976, will not be deemed to accrue or arise in India, and for this purpose, an agreement made on or after 1st April, 1976, will be deemed to have been made before that date if the following conditions are fulfilled:- (i) in the case of a taxpayer other than a foreign company, if the agreement is made in accordance with proposals approved by the Central Government before that date; (ii) in the case of a foreign company, if the conditions referred to in (1) above is satisfied, and the foreign company exercises an option by furnishing a declaration in writing to the Income-tax Officer that the agreem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....come-tax Act. 16.2 Under the new provision, income by way of "fees for technical services" of the following types will be deemed to accrue or arise in India:- (a) Fees for technical services payable by the Central Government or any State Government. (b) Fees for technical services payable by a resident, except where the payment is relatable to a business or profession carried on by him outside India or to any other source of his income outside India or to any other source of his income outside India; and (c) Fees for technical services payable by a non-resident if the payment is relatable to a business or profession carried on by him in India or to any other source of his income in India. 16.3 The expression fees for technical services" has been defined to mean any consideration (including any lump sum consideration) for the rendering of managerial, technical or consultancy services, including the provision of services of technical or other personnel). It, however, does not include fees of the following types, namely:- (i) Any consideration received for any construction, assembly, mining or like project undertaken by the recipient. Such consideration has been excl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ption from income-tax under section 10(15)(iv) of the Income-tax Act in the following cases:- (i) Interest payable by an industrial undertaking in India on moneys borrowed by it under a loan agreement entered into with any approved financial institution in a foreign country. [Section 10(15)(iv)(b)] (ii) Interest payable by an industrial undertaking in India on any moneys borrowed or debt incurred in a foreign country in respect of purchase outside India of raw materials or capital plant and machinery, to the extent such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf. [Section 19(15)(iv)(c)] In order to enable our industrial undertakings to raise loans in foreign currency even for purposes not covered by the existing provisions, a new item (f) has been inserted in sub-clause (iv) of clause 15 of section 10 so as to provide for exemption from income-tax of interest payable by an industrial undertaking in India on any moneys borrowed by it in foreign currency from sources outside India. The exemption will be available only where moneys are borrowed under a loan agreement approved by the Central Go....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Income-tax Act, a taxpayer is entitled to a deduction on account of initial depreciation allowance in respect of buildings newly erected by him which are solely used for the purposes of residence of his low-paid employees or are mainly used for the welfare of such employees as hospitals, creches, canteens, etc. The initial depreciation allowance in respect of such buildings is allowed at the rate of 20 per cent. of the actual cost thereof. For the purposes, of this concession, employees having incomes chargeable under the head "Salaries" up to Rs.7,500 were hitherto regarded as low-paid employees. The Finance Act has raised the aforesaid monetary limit to Rs.10,000. 21.2 The aforesaid amendment will take effect from 1st April, 1977, and will accordingly apply in relation to the assessment year 1977-78 and subsequent years. [Section 7(1) of the Finance Act] Initial depreciation allowance in respect of machinery or plant-Section 32(1)(vi) 22. The Finance Act has replaced the scheme of initial depreciation allowance by a scheme of "investment allowance". Section 32(1)(vi) has, therefore, been amended to ensure that no initial depreciation is allowed in respect of any ship....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ash and caustic soda. [Soda ash and caustic soda are already covered by items 12 and 13 of the list]. 3. Organic heavy chemicals. 4. Synthetic rubber and rubber chemicals (including carbon black). 5. Industrial explosives. 6. Basic drugs. 7. Industrial sewing machines. 8. Finished leather and leather goods, including footwear made wholly or mainly of leather. Besides, item 4 in the Ninth Schedule which read as "Steel castings and foreigns and malleable iron and steel castings" has been substituted by a new item, namely:- "Steel castings and forgings and alloy, malleable and S.G. iron castings." As a result of this change, alloy and S.G. iron casting will also qualify for investment allowance. (iv) New machinery or plant installed in a small scale industrial undertaking for the purposes of business of manufacture or production of any articles or things, including articles or things specified in the Ninth Schedule. For this purpose, an industrial undertaking will be regarded as a small scale industrial undertaking if the aggregate value of machinery or plant installed therein, as on the last date of the previous year, does not exceed Rs.10 lakhs (as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., development rebate was allowed in such immediately following year. Further, 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 any deduction under Chapter VIA of the Income-tax Act) for the assessment year relevant to the previous year in which the ship was acquired or the machinery or plant was installed, or the immediately following previous year, as the case may be, was nil or less than the full amount of development rebate otherwise admissible for that year, the sum to be allowed by way of development rebate for that assessment year was restricted to such amount as would have been sufficient to reduce the total income so computed to nil. The unabsorbed development rebate was allowed to be carried forward for a period of eight years to be set off against profits of subsequent years. In manner referred to above 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 development rebate otherwise admissible, the deduction was limited to such total income. The position in regard to investment allowanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ansferred during the period of eight years from the end of the year of acquisition or installation, except to the Government, a local authority, a statutory corporation or a Government company or in connection with amalgamation or succession covered by sub-sections (3) and (4) of section 33. The condition at (i) above regarding furnishing of prescribed particulars has been retained in respect of investment allowance as well. The condition at (ii) above regarding creation of a special reserve has been slightly modified inasmuch as the amount credited to the "Invest Allowance Reserve Account" will now be required to be utilised for acquiring new ships or new aircraft or new machinery or plant [other than machinery or plant referred to in clauses (a), (b) and (d) of the proviso to section 32A(1)] for the purposes of business of the undertaking during a period of ten previous years next following the previous year in which the ship or aircraft was acquired or the machinery or plant was installed. During the interregnum, the amount credited to the Investment Allowance Reserve Account could be utilised for any purposes of the business of the undertaking other than (a) for distribut....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ount transferred by the taxpayer to the Investment Allowance Reserve Account is not less than the amount required to be so transferred on the basis of the amount of investment allowance claimed in the return of income. For this purpose, the Income-tax Officer will be required to give a notice in writing giving the taxpayer an opportunity to transfer further amounts to the Investment Allowance Reserve Account either out of the profits of the previous year in which notice is served or out of the profits of the immediately preceding year if the accounts for that year have not been made up. If the taxpayer transfers the requisite further amount to such account within the time allowed by the Income-tax Officer, the amount so transferred will be regarded as having been transferred to the Investment Allowance Reserve Account of the previous year in which the deduction is admissible. Such transfer will, however, not be taken into account in determining the adequacy of the reserve required to be created by the taxpayer in respect of the previous year in which such further transfer is made. This provision will, however, not apply in a case where the difference in the total income returned by....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....g., Ramnaumi year, Baisakhi year. [Section 8 of the Finance Act]. Deduction in respect of entertainment expenditure - Section 37(2A). 24.1. Hitherto, no deduction in respect of any entertainment expenditure incurred within India was admissible in computing the taxable profits from a business or profession. Such expenditure incurred outside India was, however, allowed as deduction, subject to the following limits:- (a) on the first Rs. 10,00,000 of profits and gains of the business or profession (computed before making any allowance for development rebate or development allowance or in respect of entertainment expenditure) ½ per cent or Rs. 5,000, which ever is higher (b) on the next Rs. 40,00,000 of such profits and gains ¼ per cent (c) on the next Rs. 1,20,00,000 1/8 per cent (d) on the balance of such profits and gains Nil. 24.2 The Finance Act has amended section 37 of the Income-tax Act in order to provide for deduction in respect of entertainment expenditure whether within or outside India within the existing ceiling limits applicable in respect of entertainment exp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....", as defined for the purposes of this provision, means executive and general administration expenditure incurred by the non-resident taxpayer outside India, including expenditure in respect of- (a) rent, rates, taxes, repairs or insurance of any premises outside India used for the purposes of the business or profession; (b) salary, wages, annuity, pension, fees, bonus, commission, gratuity, perquisites or profits in lieu of or in addition to salary, which are paid to any employee or other person employed in, or managing the affairs of, any office outside India; (c) travelling by any such employee or other person outside India; (d) such other matters connected with executive and general administration as may be prescribed by the Board. The expression "adjusted total income", "average adjusted total income" and "average head office expenditure" have been defined in the Explanation to the new section. 25.3 The aforesaid amendments have come into force with effect from 1st June, 1976, and will apply in relation to the assessment year 1977-78 and subsequent years. [Section 10(Part) of the Finance Act]. Special provision for computing income by way of roya....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng been made before that date as explained in paragraph 26.2) no deduction will be allowed in computing the income from the aforesaid sources, regardless of whether the agreement has been approved by the Central Government or not. Such royalties and technical service fees will, if payable under agreements which have been approved by the Central Government, be charged to tax at the flat rates specified in new section 115A of the Income-tax Act. 26.4 These amendments have 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 10(Part) of the Finance Act]. Tax exemption in respect of capital gains arising on transfer of works of art, etc.-Section 47. 27.1 The Finance Act has inserted a new clause (ix) in section 47 of the Income-tax Act with a view to exempting from income-tax capital gains arising from the transfer of a capital asset, being any work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photograph or print, in cases where such asset is transferred by the taxpayer to the Government or a University established or incorporated by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te of 25.725 per cent. on the dividend income included in the taxable income. 29.2 The Finance Act has amended section 57 of the Income-tax Act so as to specifically provide that no deduction will be allowed in computing income by way of dividends received by a foreign company. The gross amount of dividends will, however, be charged to tax at the rate of 25 per cent. as provided in new section 115A of the Income-tax Act. 29.3 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 13 of the Finance Act]. Special provision for computing income by way of royalties and technical service fees chargeable to tax under the head "Income from other sources" in the case of foreign companies-Section 58. 30.1 As explained in paragraph 26 of this circular, new section 44D of the Income-tax Act has placed a ceiling limit over the deductible amount of expenditure incurred by foreign companies in earning income by way of royalties and technical service fees. The provisions of the aforesaid section will apply where income by way of royalties or technical service fees ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d media, e.g., life insurance, provident funds, etc. Savings through these media qualify for deduction within certain overall ceiling limits specified in this behalf in sub-section(4). Apart from these overall ceiling limits, there is an internal ceiling limit specified in section 80C(2)(d) in relation to contributions made by an employee to his account in a recognised provident fund which restricts the qualifying amount of such contributions to one-fifth of the salary, or Rs.8,000, whichever is less. The Finance Act has amended section 80C(2)(d) in order to raise the aforesaid monetary ceiling limit of Rs.8,000 to Rs.10,000. 32.2 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 16 of the Finance Act] Tax concession in respect of donations made to State Housing Boards, Slum Clearance Boards, etc., and for family planning work-Section 80G. 33.1 The Finance Act has made the following amendments to section 80G of the Income-tax Act:- (i) At present an amount equal to 50 per cent. of the qualifying amount of donations made by a taxpayer to certain fu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... added in section 80G in order to clarify that no deduction will be allowed under that section unless the donation is of a sum of money, that is to say, it is made in cash (or by cheque, bank draft, etc.) and not in kind. 33.2 The amendments referred to at (i) and (ii) and above will take effect from the 1st April, 1977, and will accordingly apply in relation to the assessment year 1977-78, and subsequent years. The amendment referred to at (iii) has come into force with effect from the 1st April, 1976, and is applicable in relation to the assessment year 1976-77 and subsequent years. [Section 17 of the Finance Act] Deduction in respect of inter-corporate dividends-Section 80M. 34.1 As explained in paragraph 29.2 of this circular, income by way of dividends received by a foreign company will now be charged to tax on gross basis, i.e., without allowing any deduction whatsoever in respect of expenditure incurred for earning such income. The deduction currently available under section 80M of the Income-tax Act in respect of 65 per cent. of the dividend income derived from domestic companies is also being discontinued. Section 80M has been amended accordi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sp; [Section 19 of the Finance Act] Rates of income-tax on dividends, royalty and technical service fees in the case of foreign companies-New section 115A. 36.1 Dividends received by foreign companies, as also income by way of royalty or fees for technical services received by them from Indian concerns in pursuance of approved agreements made on or after the 1st April, 1976, will now be charged to tax at flat rates applicable on the gross amount of such income. The rates of income-tax to be applied in respect of such income have been specified in new section 115A of the Income-tax Act and are as follows:- (i) Income by way of dividends will be charged to tax in the hands of the foreign company at the rate of 25 per cent. on gross basis. (ii) Income by way of royalties received under approved agreements made on or after the 1st April, 1976, will be charged to tax at 40 per cent. on gross basis, except that so much of such income as represent lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nbsp; [Section 20 (Part) of the Finance Act] Withdrawal of investment allowance where prescribed conditions are contravened-New section 155(4A). 38.1 As explained in paragraph 23.7 of this circular, the investment allowance granted in respect of any assessment year will be withdrawn if any of the conditions subject to which the investment allowance was allowed is contravened. Section 155 of the Income-tax Act has been amended to provide the machinery for rectification of assessment in such cases. Where the ship, aircraft, machinery or plant is sold or otherwise transferred before the expiry of eight years from the end of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed to any person other than the Government, a local authority, a statutory corporation or a Government company or in connection with any amalgamation or succession covered by sub-sections (6) and (7) of section 32A it will be open to the Income-tax Officer to amend the relevant assessment order at any time before the expiry of a period of 4 years from the end of the previous year in which the sale or transfer took place. Where the taxpayer does not utili....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ule to the Income-tax Act with a view to simplifying the determination of profits from life insurance business. Broadly, the profits and gains of a life insurance business are computed at the higher of the two following figures.- (a) the gross external incomings of the nature of rent, interest, etc., of the previous year (but exclusive of premiums received from the policy-holders and interest and dividends on any annuity fund) less the management expenses of that year; (b) the annual average of the valuation surplus disclosed by the last valuation made under the Insurance Act, 1938, after excluding from it any surplus or deficit relating to any earlier inter-valuation period and deducting 80 per cent. of the amount paid to or reserved for or expended on behalf of the policy-holders. The figure so arrived at is increased by the amount of expenditure and allowances which are not deductible under the provisions of sections 30 to 43A in computing income chargeable under the head "Profits and gains of business or profession". 40.2 Under the amendment made by the Finance Act, the method of determining the profits on the basis of gross external incomings, as stated at (i) in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the purposes of the tax concession under the Income-tax Act as well. The new districts added to the list of backward areas are as follows: State Districts Bihar : New districts of Aurangabad, Begusarai, Bhojpur, Gaya, Monghyr, Nalanda and Nawadah. Punjab : Ferozepur. Uttar Pradesh : Rampur. Sikkim : The whole of the territory of the State of Sikkim. 41.3 The above 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. In this connection, it may be noted that industrial undertakings and hotels set up in the areas which have now been included in the Eighth Schedule will qualify for the deduction under section 80HH for the assessment year 1976-77 and subsequent years even if these were set up before the commencement of the previous year relevant to the assessment year 1976-77 provided other conditions specified in section 80HH are fulfilled. In the case of industrial undertakings which began to manufacture or produce articles during the previous year relevant to the assessment year 1976-77 as also in the case of hotels which s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ontinuing the compulsory deposit scheme in the case of income-tax payers for another year with certain modifications in rates. Hitherto, the rate of compulsory deposit on the initial slab of Rs. 25,000 of current income was 4 per cent.; on the slab of Rs. 25,001-70,000, 6 per cent. and on the slab over Rs. 70,000, 8 per cent. The rate of compulsory deposit for the assessment year 1977-78 on the initial slab of Rs. 25,000 has been retained at the existing level and the rate on the slab of Rs.25,001 - 70,000 has been raised from 6 per cent. to 10 per cent. and on the slab over Rs. 70,000 from 8 per cent. to 12 per cent. 43.2 This amendment has come into force with effect from the 1st April, 1976. [Section 43 of the Finance Act]. AMENDMENTS TO THE COMPANIES (PROFITS) SURTAX ACT, 1964 Raising of threshold for charging surtax 44.1 The Companies (Profits) Surtax Act, 1964, provides for the levy of a special tax called "surtax" on "chargeable profits" of companies in excess of the "statutory deduction". For this purpose, the chargeable profits broadly comprise the profits as computed for the purposes of income-tax as reduced by the income-tax payable thereon. At present,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies (Profits) Surtax Act to provide that in a case where the company has not made any credit in any account in its books in respect of provisions for taxation or proposed dividends, or where the Income-tax Officer is of opinion that the amount credited in the accounts in respect of such provisions falls short of the amount which should have been reasonably credited, the amount of the capital of the company will be reduced by the amount which has not been so credited, or as the case may be, the amount of such shortfall. For this purpose, where a provision for proposed dividends has not been made or where the provision made falls short of the amount of dividends declared or paid by the company for the previous year immediately preceding the previous year relevant to the assessment year, the reasonable credit to the "proposed dividend" account will be taken to be the amount of dividend declared or paid in relation to that previous year. Any interim dividend which has been paid before the commencement of the relevant previous year will, however, not be taken into account for this purpose. 45.2 This amendment has come into force with effect from the 1st April, 1975, and will, accordi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the assessment year 1975-76 and subsequent years. [Section 27(2)(b) of the Finance Act] Exemption of houses built for low-paid employees-New section 5(1)(xxxa). 48.1 With a view to encouraging the construction of residential houses for low-paid employees, the Finance Act has inserted a new clause (xxxa) in section 5(1) of the Wealth-tax Act to provide for exemption from wealth-tax in respect of the value of buildings used solely for the purposes of residence of low-paid employees of the taxpayer employed in any plantation or industrial undertaking belonging to the taxpayer. For this purpose, employees having income chargeable under the head "Salaries" up to Rs.10,000 will be regarded as low-paid employees and the expression "industrial undertaking" will have the same meaning as in the Explanation to section 5(1)(xxxi). 48.2 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 27(2)(c) and (d)(i) of the Finance Act] Exemption in respect of assets, etc., brought into India by persons of Indian origin-New section 5(1)(xxxiii). 49.1 The Finance A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....] Special provision for valuation of self-occupied house property-Section 7. 51.1 For the purposes of levy of wealth-tax, the value of any asset owned by a taxpayer is ordinarily taken to be the price which, in the opinion of the Wealth-tax Officer, it would fetch if sold in the open market on the relevant valuation date. This involves the valuation of all the assets owned by a taxpayer on each valuation date year after year. The valuation of self-occupied house properties from year to year results in certain practical difficulties and inconvenience to taxpayers. With a view to getting over these difficulties, the Finance Act has amended section 7 of the Wealth-tax Act in order to freeze the valuation of such property as on a particular date ignoring subsequent variations in its real value. Under the amendment, the value of one house belonging to the taxpayer and exclusively used by him for residential purposes may, at the option of the taxpayer, be taken to be the price which, in the opinion of the Wealth-tax Officer, it would fetch if sold in the open market on the valuation date next following the date on which he became the owner of the house, or on the valuation date rel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th independent net wealth exceeding Rs.1 lakh) the rate of wealth-tax on the first slab of net wealth up to Rs.5,00,000 has been reduced from 1 per cent. to 1/2 per cent.; the rate on the next slab of Rs.5,00,001-10,00,000 has been reduced from 3 per cent. to 1 1/2 per cent.; on the slab of Rs.10,00,001-15,00,000 from 4 per cent. to 2 per cent.; and on the slab of net wealth over Rs.15,00,000, from 8 per cent. to 2 1/2 per cent. In the case of Hindu undivided families having one or more members with independent net wealth exceeding Rs.1,00,000, the existing rate of 3 per cent. has been reduced to 1 1/2 per cent.; the existing rate of 4 per cent. has been reduced to 2 per cent. and the existing rate of 8 per cent. has been reduced to 2 1/2 per cent. (ii) The higher exemption limit of Rs.2 lakhs in the case of Hindu undivided families has been done away with, so that a uniform exemption limit of Rs. 1 lakh will apply in the case of both individuals as well as Hindu undivided families. (iii) The additional wealth-tax leviable on lands and buildings situated in "urban areas" has been discontinued. 52.3 The aforesaid amendments will take effect from the 1st April, 1977, and wil....