TaxTMI 
TaxTMI 
FINANCE ACT, 1989
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....ount of income-tax computed in accordance with the provisions of section 115B of the Income-tax Act on any income from winnings from lotteries, etc., shall be increased by a surcharge calculated at the rate of 5 per cent of the income-tax. No surcharge shall, however, be payable by a non-resident. Finance Act, 1989 Rates for deduction of income-tax at source during the financial year 1989-90 from incomes other than "salaries" 5.1 The rates of deduction of income-tax at source during the financial year 1989-90 from incomes other than "salaries", have been specified in Part II of the First Schedule to the Finance Act, 1989. These rates apply to income by way of interest on securities, interest other than interest on securities, dividends, insurance commission, winnings from lotteries, crossword puzzles and horse races and income of non-residents (including non-resident Indian) other than salary income. These rates are basically the same as those specified in Part II of the First Schedule to the Finance Act, 1988 for purposes of deduction of tax at source during the financial year 1988-89. In respect of payments referred to above as also payments made to a contractor or a sub....
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.... of income-tax have been specified in Paragraph A of Part III of the First Schedule. In the case of co-operative societies, and local authorities the rates of income-tax have been specified in Paragraph B and Paragraph C respectively, of Part III of the First Schedule to the Act, which is the same as in Part I of the First Schedule to the Finance Act, 1988. The rate Schedule applicable in the case of individuals, Hindu undivided families (other than those having at least one member with independent total income exceeding the exemption limit), unregistered firms, associations of persons, bodies of individuals and artificial juridical persons has been restructured for reducing the rate of tax in the slab of income from Rs. 18,000 to Rs. 25,000 from 25 per cent to 20 per cent. The impact of this relief on income up to Rs. 50,000 is as under: TABLE Total income Tax relief Total income Tax relief Rs. Rs. Rs. Rs. 18,000 Nil 24,000 300 19,000 50 25,000 350 20,000 100 30,000 350 21,000 150 40,000 350 22,000 200 50,000 350 23,000 250 Finance Act, 1989 Rates of tax applicabl....
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....sation, it has been clarified by way of insertion of an Explanation to clause (1A) of section 2 that capital gains arising from the transfer of the aforesaid agricultural land will not constitute 'revenue' within the meaning of section 2(1A)(a) of the Income-tax Act. Finance Act, 1989 10.3 This amendment will take effect retrospectively from 1st April, 1970 and will, accordingly, apply in relation to the assessment year 1970-71 and subsequent years. [Section 3 of the Finance Act, 1989] Finance Act, 1989 Incentives under the Exchange Risk Administration Scheme 11.1 The Finance Minister, in his Budget Speech for 1988-89, had announced the framing of a Scheme for exchange risk protection to borrowers of foreign currency from the financial institutions. In accordance with the said announcement, a scheme known as the Exchange Risk Administration Scheme (ERAS) has been evolved. Finance Act, 1989 11.2 Under the ERAS, a separate fund known as the 'Exchange Risk Administration Fund' (ERAF) can be set up by the financial institutions which will make a suitable initial contribution to the corpus of the Fund. Finance Act, 1989 11.3 The benefit of coverage of excha....
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.... the assessment year 1989-90 and subsequent assessment years. [Sections 4 & 8 of the Finance Act, 1989] Finance Act, 1989 Tax concessions in respect of new deposit scheme for retiring employees 12.1 With a view to obviate the need for retiring Government employees to seek alternative sources for investment of their retirement benefits and also to maintain the level of funds in various employees welfare schemes, a new deposit scheme has been formulated in which a retiring Government employee may invest the whole or part of his retirement benefits for a lock-in period of three years. The scheme will apply to all Central or State Government employees. The following tax concessions are allowable in respect of the deposits made under the scheme: (i) the interest earned in respect of deposits shall be exempt from income-tax [Section 10(15)(iv)(i)]; and (ii) the deposits made shall be fully exempt from wealth-tax [Section 5(1)(xxviic)]. Finance Act, 1989 12.2 These amendments will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. [The relevant notifications and Press Note i....
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....76(2) has been amended to raise the ceiling of professional tax from Rs. 250 to Rs. 2,500 per annum with the object of enabling the State Government to raise additional resources. The payment of Rs. 2,500 per annum by way of professional tax would have caused hardship to salaried employees, if a separate deduction was not allowed to them. Persons deriving income from business or profession are allowed to claim deduction in respect of such tax as business expenses. Finance Act, 1989 13.4 With a view to providing relief to the salaried taxpayers, it has been provided by amending section 16 of the Income-tax Act that the tax on employment, by whatever name called, levied by a State under article 276 of the Constitution shall be allowed as a deduction in computing their income under the head "Salaries". Finance Act, 1989 13.5 These amendments will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. [Sections 5 and 6 of the Finance Act, 1989] Finance Act, 1989 Modification of provisions relating to Investment Deposit Account 14.1 Under the existing provisions of section 32A....
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...., 1989 14.3 In order to give adequate notice to the taxpayers, these amendments have been made effective from 1st April, 1991 and will, accordingly, apply in relation to the assessment year 1991-92 and subsequent years. Finance Act, 1989 14.4 Sub-section (5A) of section 32AB of the Income-tax Act provides that the amounts deposited with the Development Bank in accordance with the Scheme, shall not be permitted to be withdrawn before the expiry of a period of five years from the date of deposit except in the case of (a) closure of business, (b) death of the taxpayer, (c) partition of Hindu undivided family, (d) dissolution of the firm, (e) liquidation of the company, and (f) in such other circumstances as may be specified in the Scheme. This sub-section is being interpreted in a manner that in a case withdrawal is made by a taxpayer of any amount standing to his credit in the deposit account after a period of five years from the date of deposit, the condition regarding the purposes for which a withdrawal can be made as specified in the Scheme do not have to be complied with, and no tax will be levied on the amount of withdrawal. Such an interpretation is against the legisla....
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....revious year, the original provisions of section 43B will unnecessarily involve disallowance of the payment for the last quarter. Finance Act, 1989 15.2 Certain Courts have interpreted the provisions of section 43B in a manner which may negate the very operation of this section. The interpretation given by these Courts revolves around the use of the words "any sum payable". The interpretation given to these words is that the amount payable in a particular year should also be statutorily payable under the relevant statute in the same year. Thus, the sales tax in respect of sales made in the last quarter was held to be totally outside the purview of section 43B since the same is not statutorily payable in the financial year to which it relates. This is against the legislative intent and, therefore, by way of inserting an Explanation it has been clarified that the words"any sum payable", shall mean any sum, liability for which has been incurred by the taxpayer during the previous year irrespective of the date by which such sum is statutorily payable. Finance Act, 1989 15.3 This amendment will take effect retrospectively from 1st April, 1984 and will, accordingly, apply in ....
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....ey power projects. Finance Act, 1989 16.2 The new section 44BBB provides that, notwithstanding anything to the contrary contained in sections 28 to 44AA of the Income-tax Act, the income of foreign companies as are engaged in the business of civil construction or erection or testing or commissioning of plant or machinery in connection with a turnkey power project shall be deemed at 10 per cent of the amount paid or payable to such assessee or to any person on his behalf, whether in or out of India. For this purpose, the turnkey power project should be approved by the Central Government and should be financed under any international aid programme. It is also clarified that erection of plant or machinery or testing or commissioning thereof will include laying of transmission lines and systems. Finance Act, 1989 16.3 This amendment will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91. [Section 10 of the Finance Act, 1989] Finance Act, 1989 Incentives for venture capital undertakings 17.1 The Finance Minister, in his Budget Speech for 1988-89 had referred to the difficulties faced by new en....
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.... Act to provide that the deposits made in the Home Loan Account Scheme of the National Housing Bank will qualify for deduction from the gross total income of taxpayers subject to the existing ceiling and rates; (ii) by amending clause (h) of sub-section (2) of section 80C of the Income-tax Act to provide that the re-payment of loan to the National Housing Bank will qualify for deduction to the extent of Rs. 10,000 under the overall ceiling of Rs. 40,000. (iii) by amending section 54E of the Income-tax Act to provide that the taxpayers will now get tax exemption/concession on capital gains, if the net consideration is invested in the bonds and debentures issued by the National Housing Bank; (iv) by amending section 5 of the Wealth-tax Act to provide that the investment made in the National Housing Bank will be exempt from wealth-tax subject to the overall ceiling of Rs. 5 lakhs. Finance Act, 1989 18.2 The amendments will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. [Sections 12, 14 and 27 of the Finance Act, 1989] Finance Act, 1989 Providing standard deduction in....
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.... in relation to the assessment year 1990-91 and subsequent years. [Section 15 of the Finance Act, 1989] Finance Act, 1989 Tax incentives for poultry farming 21.1 Section 80JJ of the Income-tax Act, which, inter alia, provided a deduction of Rs. 15,000 in respect of income from poultry farming was omitted by the Finance Act, 1985 with effect from 1st April, 1986. Lately, however, it has been brought to the notice of the Government that persons engaged in poultry farming have been facing hardship because of various adverse circumstances. Therefore, as a measure of fiscal support to persons engaged in poultry farming, a deduction at the rate of thirty-three and one-third per cent of the income from poultry farming is being provided by insertion of the new section 80JJ in the Income-tax Act. The deduction under this section would be available also to persons engaged in poultry breeding. Finance Act, 1989 21.2 This amendment will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. [Sections 16 and 25 of the Finance Act, 1989] Finance Act, 1989 Extending the tax concessio....
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.... per cent, if two and one-half per cent of its profits and gains and thirty-three and one-third per cent of the income-tax so payable is deposited in the Social Security Fund notified by the Central Government. The provisions of sub-section (2) of section 115B were made applicable only in respect of the assessment year 1989-90. With a view to ensure continuity of flow of funds to the Social Security Fund, it has been provided that the assessee engaged in the life insurance business will be taxed at the rate of ten per cent of its actuarial surplus for another year, i.e., assessment year 1990-91, if it deposits two and one-half per cent of its profits and gains and thirty-three and one-third per cent of the income-tax so payable during the relevant previous year, in the Social Security Fund set up and notified by the Government of India. Finance Act, 1989 23.2 This amendment will take effect from 1st April, 1990 and will be applicable only for one year, i.e., for the assessment year 1990-91. [Section 18 of the Finance Act, 1989] Finance Act, 1989 Amendment of the provisions relating to levy of minimum tax on 'book profits' of certain companies 24.1 Under the existi....
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....avoidance device, it has been provided that the "book profits" will be allowed to be reduced by the amount withdrawn from reserves or provisions only in two situations, namely :— (i) if the reserves have been created or provisions have been made in a previous year relevant to the assessment year commencing before 1st April, 1988; or (ii) if the reserves have been created or provisions have been made in a previous year relevant to the assessment year commencing on or after 1st April, 1988 and have gone to increase the book profits in any year when the provisions of section 115J of the Income-tax Act were applicable. Finance Act, 1989 24.5 This amendment will come into force with effect from 1st April, 1988 and will, accordingly, apply in relation to assessment year 1988-89 and subsequent years. [Section 19 of the Finance Act, 1989] Finance Act, 1989 Modification of provisions relating to time limit for completion of assessment and reassessment 25.1 Under the existing provisions of section 153 of the Income-tax Act, no order of assessment can be made at any time after the expiry of two years from the end of the assessment year in which income is first assess....
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....ect from 1st April, 1989. [Sections 20, 28 and 31 of the Finance Act, 1989] Finance Act, 1989 Modification of provisions relating to tax deduction at source 26.1 Under the existing provisions of sub-section (2A) of section 192, relating to deduction of tax at source on any income chargeable under the head "Salaries", the employer has been given power to deduct tax at source after taking into consideration relief allowable under sub-section (1) of section 89 of the Income-tax Act in respect of salary paid in arrears or in advance to employees of Government or public sector undertakings. Finance Act, 1989 26.2 With a view to reduce infructuous work in the Income-tax Department, sub-section (2A) of section 192 has been amended so as to give similar powers to other employers being a company, co-operative society, local authority, institution, association or body. Finance Act, 1989 26.3 Under the existing provisions of section 193 of the Income-tax Act, tax has to be deducted at source by the person responsible for making any payment in the nature of interest on securities at the time of payment. The liability to deduct tax at source was being postponed by making....
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....th effect from 1st June, 1988 to the relevant sections of the Income-tax Act, Wealth-tax Act and Gift-tax Act, to clarify that the term 'record' would include all records relating to any proceeding available at the time of examination by the Commissioner. Further, it was also clarified that the Commissioner is competent to revise an order of assessment passed by an Assessing Officer on all matters except those which have been considered and decided in an appeal. The above Explanation was incorporated in the Finance Act, 1988 to clarify this legal position to have always been in existence. Some appellate authorities have, however, decided that the Explanation will apply only prospectively, i.e., only to those orders which are passed by the Commissioner after 1-6-1988. Such an interpretation is against the legislative intent and section 263 of the Income-tax Act has been amended so as to clarify that the provisions of the Explanation shall be deemed to have always been in existence. Finance Act, 1989 27.2 Sections 24 and 25 of the Gift-tax and Wealth-tax Acts have also been amended on the above lines. [Sections 23, 30 and 32 of the Finance Act, 1989] Finance Act, 1989 ....
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....rresponding to the Income-tax Act, 1961 which was in force in the State of Sikkim will be deemed never to have ceased to have effect in relation to the previous year commencing on 1st April, 1988 and ending on the 31st of March, 1989. Such a provision became necessary as the earlier notification issued by the Ministry of Home Affairs had extended the Income-tax Act, 1961 to the State of Sikkim with effect from 1st April, 1989, i.e., from the assessment year 1989-90 and accordingly the law already in existence in the State of Sikkim stood repealed from 1-4-1988. Finance Act, 1989 29.2 The Wealth-tax Act, 1957 and the Gift-tax Act, 1958 stand extended to the State of Sikkim pursuant to the Central Government's notification No. SO 148(E), dated 23rd February, 1989. The Wealth-tax Act will, therefore, apply to the net wealth of the residents of Sikkim on the valuation date being 31st March, 1990 or thereafter. The Gift-tax Act, 1958 also will have effect from 1st April, 1990 so as to apply in respect of gifts made by a person residing in the State of Sikkim on or after the first day of April, 1989. Finance Act, 1989 29.3 A new clause has been inserted in section 10 of the I....
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....xcluded from the purview of that section which provides for taxation of association of persons at the maximum marginal rate. As a measure of rationalisation, the Finance Act has excluded societies registered under the Societies Registration Act, 1860 from the purview of section 21AA of the Wealth-tax Act. Finance Act, 1989 31.2 This amendment will come into force with effect from 1st April, 1989 and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent years. [Section 29 of the Finance Act, 1989] EXPENDITURE TAX Finance Act, 1989 Enhancing the rate of tax 32.1 Under the provisions of section 4 of the Expenditure Tax Act, 1987, tax is chargeable at the rate of ten per cent of any chargeable expenditure incurred in a hotel to which the Act applies. By amendment, the rate of tax has been enhanced from ten per cent to twenty per cent. Finance Act, 1989 32.2 This amendment will take effect from 1st June, 1989. [Section 33 of the Finance Act, 1989] Finance Act, 1989 ANNEXURE A-1 NOTIFICATION The Government of India hereby notifies following Deposit Scheme with effect from 1st July, 1989 until further order....
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....(d) Date of realisation of the cheque, pay order or demand draft shall be the date of deposit and the deposit shall be deemed to be made on that date only. (e) A depositor may open only one account under this scheme, provided that where the retirement benefits have been received on different dates, more than one deposit can be made in this account. Such deposits shall be made within three months from the date of receiving that retirement benefit from the Government. Deposits and withdrawal 5. (a) The account shall be opened with a deposit of a minimum of one thousand rupees, and all deposits will be in the multiples of one thousand rupees. (b) All withdrawals shall be in the multiple of one thousand rupees. (c) A depositor may, at his option, withdraw by applying in Form 3 or as near thereto as possible, the entire balance or part thereof after the expiry of three years from the date of deposits. Where depositor elects to make part withdrawal, the balance amount will be held as a deposit in the account. (d) The depositor may also make premature withdrawal of principal amount subject to the conditions speci....
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....ll be valid from the date of such registration, the particulars of which shall be entered in the Pass Book. Closure of account 9. (a) The account may be closed by the depositor on or after the expiry of three years from the date of initial deposit or last deposit where more than one deposit is made in the account. (b) If the depositor dies within the period of three years, or thereafter, the account shall be closed as soon as death is reported to the bank and the amount paid to the nominee. Where, however, the deposit account is held jointly with the spouse or where the sole nominee is the spouse of the depositor, the spouse may, at his/her option, request for continuance of the account and the account then shall be continued in the name of such spouse on same terms and conditions as applicable to account. Pass book 10. The pass book shall be presented to accounts office at the time of collecting interest and also at the time of withdrawal and closure. Transfer from one accounts office to another 11. A depositor may apply for transfer of his account from one accounts office to another accounts office due to change of his residence....
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....i/Smt./Kumari...................... ..........……………………........................................................ Address................................................................................................................................... ............................................................................................................................................…to receive the sum due under the said account in the event of my death during the minority of the nominee(s). Date.................... Depositor Signature of witness: Name and address : FOR THE US....
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....sp; of nominee in case of minor (Signature of issuing authority) Manager (Name of the bank) Form of pages inside the book : Date Particulars Amount Amount&nb....
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.............................................. Amount available for withdrawal in accordance with para............................ of the Scheme. Withdrawal of a sum of Rs.....................................................................sanctioned. Signature of Official........................................................................................................... RECEIPT Received a sum of Rs.......................................... (Rupees............................................) by way of withdrawal from Deposit Scheme for Retiring Government Employees, 1989. Date: Place: Signature or Thumb Impression of Depositor FINANCE ACT, 1989 FORM 4 [See para 8] Nomination under the deposit scheme for retiring Government Employees, 1989 To The Manager, Bank of................................. I...............................hereby nominate the person(s) mentioned below to whom, to the exclusion of all other persons, in the event of my death, the amount standing to my credit in the account under Deposit Scheme for Retiring Government Employees, 1989 Account No................at the time of my....
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..................... under Deposit Scheme for Retiring Government Employees, 1989. To The Manager, Bank of....................... ........................................ I, ..........................the depositor under Deposit Scheme for Retiring Government Employees, 1989 Account No............................ hereby cancel the nomination dated............................... made by me in respect of the aforesaid account. *In place of the cancelled nomination, I hereby nominate the person(s) mentioned below who shall on my death, become entitled to the payment of the sum due on the above account, to the exclusion of all other persons. _______________________________________________________________________ Sl. Name(s) of Full address(es) Date of birth Propertionate No. the nominee(s) &nb....
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....chemes will be open for investment by retired/retiring Central/State Government employees and the investments may be made up to the maximum of total of the retirement benefits received. The Scheme provides for a period of three months from the date of receiving the retirement benefits for deposit, in case of the employees retiring in future and for those who have already retired, investment up to the maximum of retirement benefits already received may be deposited within three months from 1st July, 1989. 3. Retirement benefits which can be deposited in the Scheme will include:— (i) Balance at the credit of the employees in any of the Government Provident Funds. (ii) Retirement/Superannuation gratuity. (iii) Commuted value of pension. (iv) Cash equivalent of leave, and (v) Savings element of Government Insurance Scheme payable to employee on retirement. Any employee desiring to open an account under this Scheme will be required to produce a certificate from employer indicating the retirement benefits. 4. No withdrawals will be permitted for a period of three years from the date of deposit although pre....
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....amount of deposit does not exceed Rs. five lakhs, an affidavit on stamped paper signed by the depositor indicating the amount of retirement benefits received by him shall be accepted in lieu of a certificate from the employer." (ii) In Form 1— (a) for paragraph (4), the following paragraph shall be substituted, namely:— "4. A copy of certificate from employer indicating retirement benefits is enclosed*/An affidavit on stamped paper indicating retirement benefits is enclosed (applicable for deposits not exceeding Rupees Five lakhs)." (b) The following footnote may be added at the end, namely:— "*Delete whichever is not applicable" 2. These amendments shall take effect from the date of publication of the notification in the Official Gazette. FINANCE ACT, 1989 ANNEXURE A4 NOTIFICATION Deposit Scheme for Retiring Government Employees, 1989 The following amendments shall be made in the Government of India, Ministry of Finance (Department of Economic Affairs) Notification No. F. 2/14/89-NS.II, dated 7th June, 1989: ....
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....istry of Finance, or such authority as may be nominated by the Government, and applications for such approvals should be made with a suitable explanatory note and details of the proposal and addressed to CCI/Jt. Secretary (Investments) in Department of Economic Affairs. (iii) Applications for issue of capital by companies should be made under the Capital Issues (Control) Act to the CCI, composite applications for approval to establish the Fund and for the issue of capital can also be made. (iv) All India Public Sector Financial Institutions, SBI and other scheduled banks, including foreign banks operating in India, and the subsidiaries of the above would be eligible to start Venture Capital Funds/Companies, subject to such approval as may be required from the Reserve Bank of India in respect of banking companies. Joint ventures between them, or between non-institutional promoters and them would be permitted, but the equity holding of such promoters shall not exceed a total of 20% and must not be the largest single holding. Management 2. (i) It is required that the Venture Capital Funds/Companies are managed by professionals such as bankers....
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....ival of sick units, would be permitted as a part of venture capital activity, and the above parameters will not apply. The recipient venture should be established as a limited company and must employ professionally qualified persons to maintain its accounts. (ii) The VCP/VCC should invest at least 75% of its funds into venture capital activity as explained in para 3(i). (iii) During the first 12 months, any permissible investments may be made (including leasing up to 15% of the funds), but a level of 30% should be reached for venture capital activity by the end of the second year, and 60% by the end of the third year, and 75% by the end of the fifth year of operations. The balance amounts may be invested in any new issue, by an existing or a new company, of equity, CCPS debentures, bond or other securities approved for this purpose by CCI. A part of this may also be employed for leasing but this should not, at any stage, exceed 15% of the total funds deployed, including in the first year. Activities such as money market operations, bill re-discounting, broking, portfolio investments and fund management, financial services and consultancy, intercorporate lending woul....