TaxTMI 
TaxTMI 
Tax Rates and TDS Rates under Income-tax
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....ns). The tax so computed for deduction at source in the case of individuals (for income above Rs. 60,000), companies, firms, co-operative societies and local authorities (except foreign companies) will be enhanced by a surcharge calculated at the rate of two per cent of such tax. 4.2.2 These rates are broadly the same as those specified in Part II of the First Schedule to the Finance Act, 2000, for the purposes of deduction of income-tax at source during the financial year 2000-2001 except that the rate of tax to be deducted from winnings from lotteries or crossword puzzles and winnings from horse races has been reduced from forty per cent to thirty per cent. 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 2001-2002. 4.3 The rates for deduction of income-tax at source from "Salaries" during the financial year 2001-2002 and also for computation of "advance tax" payable during that year in the case of all categories of tax payers have been specified in Part III of the First Schedule to the Act. These rates are also applicable for charging income-tax during the finan....
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.... 4.3.2 Effect of levy of surcharge - The effect of levy of surcharge in the case of individuals, HUFs, etc., at different income levels would be as under :- Total income Existing tax New Tax Tax saving Tax saving liability liability (Rs.) (Rs.) (Rs.) (Rs.) (%) 50,000 Nil Nil Nil Nil 55,000 500 500 Nil Nil 60,000 1,000 1,000 Nil Nil 60,010 1,010 1,010 Nil Nil 60,020 1,020 1,020 Nil Nil 60,050 1,050 1,030 20 1.90 60,100 1,100 1,040 60 5.45 60,120 1,120 1,045 75 6.70 60,130 1,130 1,047 83 7.35 60,150 1,150 1,051 99 8.61 60,170 1,156 1,054 102 8.82 61,200 1,165 1,061 104 8.93 65,000 2,240 2,040 200 8.93 75,000 4,480 4,080 400 8.93 1,50,000 21,280 19,380 1,900 8.93 1,50,100 21,290 19,411 1,900 8.93 ....
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.... association of persons has agricultural income exceeding Rs. 600, in addition to total income which exceeds Rs. 50,000 then the agricultural income is taken into account for determining the rate of tax chargeable on the total income. The amount of Rs. 600 for aggregation of agricultural income was fixed in 1973 when this provision was introduced. At that time, the basic exemption limit was Rs. 5,000 and the minimum width of each slab was Rs. 5,000. Now, the basic exemption limit is Rs. 50,000 and the minimum width of income slab is Rs. 10,000. Hence, through Finance Act, 2001, the minimum amount of agricultural income has been increased to Rs. 5,000, for the aggregation of such agricultural income for rate purposes. [Section 2 & First Schedule] Defining of 'Books of Account' and 'Document' so as to include electronic records, etc. 5.1 With the passing of the Information Technology Act, 2000, the Act has provided definitions of 'books of account' and 'document' in section 2 of the Income-tax Act, so as to include electronic records within the meaning of these terms. 5.2 A new clause (12A) has been inserted in section 2 to define "books of....
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....n the aforesaid Explanation. The result is that income from the leasing of industrial, commercial or scientific equipment becomes taxable in the source country as business income only. Consequently, there is no withholding tax on such payments as the taxpayer takes shelter under the definition of the term 'Royalty' as provided in the Income-tax Act since the same is more beneficial to the assessee. 7.3 Section 9 has therefore been amended so as to widen the scope of the term 'royalty' as provided in Explanation 2 of clause (vi) of sub-section (1) of section 9 so as to include in its ambit consideration for the use of, or the right to use, industrial, commercial or scientific equipment. However, this will not include the amounts referred to in section 44BB, that is, profits and gains arising from the business of exploration etc., of mineral oils. 7.4 This amendment will take effect with effect from 1st April, 2002, and will accordingly, apply in relation to the assessment year 2002-2003 and subsequent assessment years. [Section 4] Exemption of amount received under VRS extended to Central and State Government employees 8.1 Under the existing provisions....
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....ause (15) of section 10 has been amended so as to limit the exemption in respect of income by way of interest payable by an industrial undertaking in India on moneys borrowed by it under a loan agreement entered before 1st June, 2001 with an approved financial institution in a foreign country. (iii) Part (c) of sub-clause (iv) of clause (15) of section 10 has been amended so as to limit the exemption in respect of income by way of interest payable by an industrial undertaking in India on moneys borrowed or debts incurred by it in a foreign country in respect of certain purchases to interest related to such moneys borrowed or debts owed before 1st June, 2001. (iv) Part (d) of sub-clause (iv) of clause (15) of section 10 has been amended so as to limit the exemption in respect of income by way of interest payable by specified financial institutions on money borrowed from sources outside India to interest related to such moneys borrowed or debts owed before 1st June, 2001. (v) Part (e) of sub-clause (iv) of clause (15) of section 10 has been amended so as to limit the exemption in respect of income by way of interest payable by financial institutions ....
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....as to exempt the income of the Secretariat of the Asian Organisation of the Supreme Audit Institutions which has been registered as ASOSAI - Secretariat under the Societies Registration Act, 1860 (21 of 1860) for a period of three previous years relevant to the assessment years beginning on the 1st day of April, 2001. 11.2 This amendment takes effect retrospectively from 1st April, 2001, and applies in relation to the assessment years 2001-2002, 2002-2003 and 2003-2004. [Section 5(d)] Exemption of the income of the Insurance Regulatory and Development Authority 12.1 Through Finance Act, 2001, a new clause (23BBE) has been introduced in section 10 of the Income-tax Act so as to exempt the income of the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999. 12.2 This amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment years 2002-2003 and subsequent assessment years. [Section 5(d)] Educational and medical institutions not required to invest their funds being part of corpus before 1st day of June, 1998 in sp....
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....sp; notified trust set up wholly for public religious purposes or notified institution wholly for public religious purposes; (c) approved University or other educational institution existing solely for educational purposes; and (d) approved hospital or other medical institution existing solely for philanthropic purposes. The third proviso to the said clause provides that the aforesaid fund or trust or institution or educational or medical institutions shall apply its income, or accumulate it for application, wholly and exclusively for the purposes for which they are established. No maximum period for which such income can be accumulated has been provided. 14.2 Through Finance Act, 2001, the third proviso to clause (23C) of section 10 has been amended so as to provide that the maximum period for accumulation of income, in excess of twenty-five per cent of the income earned during the year, if such income is accumulated after the 1st day of April, 2001, by any such fund or trust or institution or any university or other educational institution or any hospital or other medical institutions, as the case may be, will be five years only. If, however,....
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..... As the Unit Trust of India, has been established under an Act of Parliament, namely, the Unit Trust of India Act, 1963, it is not a trust registered under the provisions of the Registration Act. Therefore, a Venture Capital Scheme floated by Unit Trust of India will not be covered within the definition of VCF. 16.2 Clause (23FB) of section 10 has been amended so as to provide that a venture capital scheme floated by the UTI will also be covered within the definition of VCF in section 10 (23FB). 16.3 This amendment takes retrospective effect from 1st April, 2001, and will accordingly, apply in relation to the assessment year 2001-2002 and subsequent assessment years. [Section 5(f)] Definition of 'Infrastructure facility' in section 10(23G) to be same as that in section 80-IA(4) 17.1 Under theexisting provisions contained in clause (23G) of section 10, any income of an infrastructure capital fund or an infrastructure capital company by way of interest, dividend (other than dividends referred to in section 115-O) and long term capital gains from investment made by way of equity or long-term finance in an approved enterprise wholly engaged in the business of (i....
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....ation to the assessment year 2002-03 and subsequent assessment years. [Section 5(g)] Income by way of fee or guarantee commission received by financial institutions for providing financial guarantee to be exempt 19.1 Under theexisting provisions contained in clause (23G) of section 10, any income of an infrastructure capital fund or an infrastructure capital company by way of interest, dividends (other than dividends referred to in section 115-O) and long term capital gains from investment made by way of equity or long-term finance in an approved enterprise wholly engaged in the business of (i) developing, (ii) maintaining and operating, or (iii) developing, maintaining and operating an infrastructure facility shall not be included in computing the total income. 19.2 Finance Act, 2001, has amended clause (23G) of section 10 so as to extend the exemption under this clause to income received by way of credit enhancement fees or guarantee commission by a financial institution from an approved enterprise. 19.3 This amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent assessment years. ....
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....from export of products or articles or things or computer software for a period of ten consecutive assessment years in a manner that the deductions are gradually phased out over the subsequent period. The definition of "export turnover" has been amended to clarify that the working of the proportionate deduction on export profits are meant to be of the undertaking, and not of the business, as a whole. 21.2 The Finance Act, 2001, clarifies that in the event of conversion of a free trade zone into a Special Economic Zone the period of ten years shall be reckoned from the date the unit first began to manufacture or produce articles or things or computer software. The Act also omits the proviso to sub-section (1), under which upto 25% of production sold in domestic tariff area was also treated as eligible for deduction. The effect of this amendment would be that the profits derived from domestic sales of articles or things or computer software would be liable to tax. The proposed amendment will take effect from the assessment year 2002-03. 21.3 Sub-section (9) provides that where during any previous year, the ownership or beneficial ownership interest in the undertaking is transfe....
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....or to its substitution by section 7 of the Finance Act, 2000. It has been clarified that where an undertaking derived profits and gains from the production of computer programmes these shall include profits and gains from processing or management of electronic data. 22.2 These amendments will take effect from 1st April, 1994, and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. [Section 10BB] Period of accumulation for income not applied for charitable purposes, etc., to be prescribed as five years in case of trusts 23.1 Under the existing provisions contained in section 11, income from property held under a trust and used wholly and exclusively for charitable or religious purposes is exempt from payment of income-tax. This exemption is confined only to that portion of income which is applied for charitable or religious purposes or is accumulated for such purposes, provided such accumulation is not more than 25% of the total income of the trust and the money is accumulated or set apart for application for charitable or religious purposes. If the trust does not apply 75% of its income for charitable purposes, then the exemption is....
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....come, before giving effect to the exemption available under sections 11 and 12, in excess of rupees one crore in the relevant previous year. It has also been provided that the above-mentioned requirements will be applicable only for educational or medical institutions referred to in sub-clauses (iv), (v), (vi) and (via) where the annual receipt is above rupees one crore. 24.4 These amendments will take effect from 1st April, 2002, and will accordingly, apply in relation to the assessment year 2002-2003 and subsequent assessment years. [Sections 5(e) and 10] No deduction for expenditure incurred in respect of exempt income against taxable income 25.1 Certain incomes are not includible while computing the total income, as these are exempt under various provisions of the Act. There have been cases where deductions have been claimed in respect of such exempt income. This in effect means that the tax incentive given by way of exemptions to certain categories of income, is being used to reduce also the tax payable on the non-exempt income by debiting the expenses incurred to earn the exempt income against taxable income. This is against the basic principles of taxation whereb....
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....enty thousand rupees is to be allowed. 26.3 The amendment shall come into effect from 1st April, 2002, and shall, accordingly, apply to the assessment year 2002-03 and subsequent years. 26.4 A deduction to the extent of the entertainment allowance or 1/5th of salary or Rs. 7,500, whichever is the least is available to an assessee not being in receipt of salary from Government, and who is in receipt of entertainment allowance continuously in the same employment since 1st April, 1955. 26.5 The Finance Act, omits this deduction under section 16. [Section 16] Clarifications in respect of Stock Options 27.1 Prior to the amendments effected by the Finance Act, 2000, stock options were taxed at two stages. Firstly, as perquisite on the amount representing the difference between the price at which option was exercised and the fair market value on the date of exercise and secondly, as capital gains. The Finance Act, 2000, sought to tax stock options only once, at the time of sale as capital gains, if such shares, debentures or warrants were issued to such employees under the Employees Stock Option Plan or Scheme. Since these provisions did not specify the nature of such pl....
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....en rewritten and notified vide No. 940(E), dt. 25-9-2001. 28.4 These amendments shall come into effect from 1st April, 2002, and shall, accordingly, apply to the assessment year 2002-03 and subsequent years. [Section 17] Rationalization of provisions relating to income from house property 29.1 The existing provisions contained in section 23 of the Income-tax Act provide for determination of annual value of the property in certain circumstances including where the property is let, or is self-occupied, or is vacant, or is partially let, or is let for part of the year. The annual value so determined was subject to deductions allowable under section 24, including deductions on account of vacancy for any part of the year in respect of the property let, and on account of rent which could not be realized. With the various amendments made over the years in this section, the provisions had become quite complicated, disjointed and difficult for the taxpayer to understand. With a view to rationalize these provisions, the Act has substituted section 23 so as to provide for a simplified determination of annual value after allowing deductions in computing the annual value itself on a....
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....the annual value in respect of repairs of, and collection of rent from the property, interest on capital borrowed for acquiring, constructing, repairing, renewing or reconstructing the property, as also a number of other deductions on account of insurance premium, ground rent, annual charge, etc. The various deductions made the computation of income from house property a cumbersome process. 29.6 With a view to rationalize the deductions and simplify the computation, the Act has substituted the said section so as to provide for only two deductions, namely a deduction of thirty per cent of the annual value (which takes into account all expenses and outgoings for maintaining the property), and interest paid on capital borrowed for acquiring, constructing, repairing, renewing or reconstructing the property. The limit on deduction of interest payable on housing loans for acquiring or constructing a self-occupied house has been enhanced from the existing Rupees one lakh to Rupees one lakh fifty thousand in cases where the capital is borrowed on or after 1st April, 1999. In other cases, the existing limit of Rupees thirty thousand shall continue. 29.7 A new section 25AA has been int....
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....k for Agriculture and Rural Development or in the Tea Deposit Account, any amount in accordance with and for the purposes specified in the approved scheme, the assessee shall be allowed a deduction of the amount so deposited or twenty per cent of the profits of such business, whichever is less. 31.2 The Act has enhanced the limit for the purpose of deduction from twenty per cent to forty per cent with a view to enable the tea industry to generate additional resources for rejuvenation & replantation and modernizing of processing facilities so as to enhance its productivity and competitiveness. 31.3 The amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent years. [Section 22] Tax concessions for scientific research 32.1 Section 35 of the Income-tax Act relates to expenditure on scientific research. Sub-section (2AA) of the section allows for a weighted deduction of one and one-fourth times of the sum paid by an assessee to an approved National Laboratory or a University or an Indian Institute of Technology for carrying out approved programme of scientific research. Sub-section (2AB) all....
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....h any scheme or schemes of voluntary retirement are only covered within the purview of the said section. Such payments are normally in the nature of ex gratia payments and are made over and above the regular terminal benefits like pension, gratuity, leave encashment, etc., in respect of which normal provisions of the Act will apply. 33.3 The amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent years. [Section 24] Clarification regarding allowability of bad debts 34.1 With a view to avoid litigation, the Act has inserted an Explanation in clause (vii) of sub-section (1) so as to clarify that any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee. 34.2 The amendment will take effect retrospectively from 1st April, 1989, and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent years. [Section 25] Capital gains not to arise on transfer of capital assets of a Stock Exchange under an approved scheme of corporatisation 35.1....
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....y an employer in lieu of any leave at the credit of his employee shall also be allowed only on actual payment basis. 36.3 The amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent years. [Section 27] Modification of provisions relating to audit of accounts of certain persons 37.1 Under the existing provisions of section 44AB of the Income-tax Act, every person carrying on business or profession is required to get his accounts audited by an "accountant", as defined in the Explanation below section 288(2), if his total sales, turnover or gross receipts in business or profession are in excess of certain limits or the profits are lower than the prescribed presumptive profits. Such person is required to get his accounts audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant. The second proviso to the said section lays down that where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of the said secti....
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....y the National Bank for Agriculture and Rural Development (NABARD) or by the National Highways Authority of India (NHAI). 39.2 Since rural electrification, including electrification of villages and energization of pump sets in rural areas is a matter of priority for the Government, the Act has amended the Explanation in section 54EC to provide that a long-term specified asset for the purposes of this section shall also include bonds redeemable after 3 years issued on or after the 1st day of April, 2001 by the Rural Electrification Corporation Ltd. 39.3 This amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent years. [Section 31] Long-term capital gains on securities and units exempt if reinvested in primary issues 40.1 With a view to promote development of the primary market, the Act has inserted a new section 54ED in the Income-tax Act, to provide that the capital gains arising from transfer of a long-term capital asset, being listed securities or units of a mutual fund or of the Unit Trust of India shall be exempt from tax to the extent such capital gain is invested in equity share....
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....il in any other case. It was pointed out that certain similar self-generated intangible assets like brand name or a trade mark may not be considered to form part of the goodwill of a business, and consequently it may not be possible to compute capital gains arising from the transfer of such assets. 42.2 The Act has therefore amended clause (a) of sub-section (2) to provide that the cost of acquisition in relation to trade mark or brand name associated with a business shall also be taken to be the purchase price in case the asset is purchased from a previous owner and nil in any other case. 42.3 This amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent years. [Section 34] Providing for a definition of the term "industrial undertaking" in section 72A 43.1 Under the existing provisions contained in sub-section (1) of section 72A (as substituted by Finance Act, 2000), the set-off and carry forward of loss and allowance for depreciation under the Income-tax Act is allowed in the case of amalgamation of a company owning an industrial undertaking or a ship with another company. However, the....
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....s allowed. 45.2 For alleviating the hardships of those suffering with autism, cerebral palsy, mental retardation and multiple disabilities, the benefit of 100% deduction to donations made to the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities has been provided by amending section 80G of the Income-tax Act. 45.3 The amendment will take effect from the 1st day of April, 2002, and will, accordingly apply to the assessment year 2002-03 and subsequent years. [Section 39] Change in rate of phasing out of deductions for export 46.1 Sections 80HHC, 80HHE and 80HHF provide for deductions in respect of profits retained for export business, profits from export of computer software etc., and profits from export or transfer of film software etc. The Finance Act, 2000, amended these provisions to the effect that the extent of deduction would be reduced to 80% for the assessment year 2001-2002, 60% for the assessment year 2002-2003, 40% for the assessment year 2003-2004 and 20% for the assessment year 2004-2005. The deduction would cease to be available from the assessment year 2005-2006 and onwards. 46.2 To cushion....
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....l system, highway project, water supply project, sanitation, sewerage and solid waste management system shall be allowed a ten year tax holiday in place of a two-tier tax holiday. Such an enterprise may avail of the tax holiday consecutively for any ten years out of twenty years beginning from the year in which the undertaking begins operating the infrastructure facility. 47.3 In the case of other infrastructure, namely, for airport, port, inland port and inland waterways, section 80-IA has been further amended to relax the existing two tier fiscal incentive. Instead, an identical ten year tax holiday may be availed of in a block of initial fifteen years. 47.4 The condition that such infrastructure facility shall be transferred to the Central Government, State Government or local authority has also been removed. However, the agreement with such authorities for creation of such infrastructure will have to be entered into. 47.5 Under sub-section (8) of section 80-IA, where any goods are transferred for a consideration to any other business of the assessee, the consideration should correspond to the market value of such goods. As in certain cases, the transfer may relate to s....
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....rospectively from 1st April, 2001, and will apply in relation to the assessment year 2001-02 and subsequent years. [Section 44] Tax holiday for power generation, transmission and distribution networks 49.1 Under the provisions of section 80-IA, a five year tax holiday and a deduction of 25% (30% in the case of companies) of profits in the subsequent five years is allowed to an undertaking engaged in the business of generation, or generation and distribution of power, which commences generation of power on or before 31.3.2003. 49.2 As the generation of power is still to reach targeted levels, the tax holiday period has now been extended to undertakings commencing generation of power or laying a network of new transmission and distribution lines on or before 31.3.2006. The fiscal benefit available has been further relaxed and such undertakings shall now be entitled to a ten year tax holiday in place of the existing two tier tax benefit. The ten year tax holiday can be availed of consecutively in the block of initial fifteen years. 49.3 The amendment will take effect from the 1st day of April, 2002, and will apply in relation to the assessment year 2002-03 and subsequen....
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....d transportation shall be allowed hundred per cent deduction for the first five years and a deduction of 25% of profits (30% in case of companies) for the next five years. 51.4 The amendment will come into effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years. [Section 45] Modification of provisions relating to deduction of interest from certain specified investments 52.1 Under the existing provisions of sub-section (1) of section 80L of the Income-tax Act, 1961, deduction is allowed in computing the total income of an assessee, being an individual or a Hindu Undivided Family in respect of income derived from certain specified deposits and securities etc. The deduction is, however, subject to a ceiling of Rs.12,000. An exclusive amount of Rs. 3,000 can be availed of if it is derived from interest on any security of the Central or State Government. 52.2 The amendment reduces the limit of Rs. 12,000 to Rs. 9,000. The deduction of Rs. 3,000 for Government securities shall continue to be available. 52.3 The amendment will come into effect from 1st April, 2002, and will, accordingly, apply in relation ....
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....ealing specifically with cross border transactions, an adjustment could be made to the profits of a resident arising from a business carried on between the resident and a non-resident, if it appeared to the Assessing Officer that owing to the close connection between them, the course of business was so arranged so as to produce less than expected profits to the resident. Rule 11 prescribed under the section provided a method of estimation of reasonable profits in such cases. However, this provision was of a general nature and limited in scope. It did not allow adjustment of income in the case of non-residents. It referred to a "close connection" which was undefined and vague. It provided for adjustment of profits rather than adjustment of prices, and the rule prescribed for estimating profits was not scientific. It also did not apply to individual transactions such as payment of royalty, etc., which are not part of a regular business carried on between a resident and a non-resident. There were also no detailed rules prescribing the documentation required to be maintained. 55.3 With a view to provide a detailed statutory framework which can lead to computation of reasonable, fair....
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....tion 92 is, therefore, not intended to be applied in cases where the adoption of the arm's length price determined under the regulations would result in a decrease in the overall tax incidence in India in respect of the parties involved in the international transaction. 55.6 The substituted new sections 92A and 92B provide meanings of the expressions "associated enterprise" and "international transaction" with reference to which the income is to be computed under the new section 92. While sub-section (1) of section 92A gives a general definition of associated enterprises, based on the concept of participation in management, control or capital, sub-section (2) specifies the circumstances under which the two enterprises shall be deemed to be associated enterprises. 55.7 Section 92B provides a broad definition of an international transaction, which is to be read with the definition of transaction given in section 92F. An international transaction is essentially a cross border transaction between associated enterprises in any sort of property, whether tangible or intangible, or in the provision of services, lending of money, etc.. At least one of the parties to the transactio....
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....ppropriate method to different sets of comparable data can possibly result in computation of more than one arm's length price. With a view to avoid unnecessary disputes, the proviso to section 92C(2) provides that in such a case the arithmetic mean of the prices shall be adopted as the arm's length price. In the normal course, if the different sets of comparable data are equally reliable there may not be any significant divergence between the various arm's length prices determined. 55.11 Under the new provisions the primary onus is on the tax-payer to determine an arm's length price in accordance with the rules, and to substantiate the same with the prescribed documentation. Where such onus is discharged by the assessee and the data used for determining the arm's length price is reliable and correct, there can be no intervention by the Assessing Officer. This is made clear by sub-section (3) of section 92C which provides that the Assessing Officer may intervene only if he is, on the basis of material or information or document in his possession, of the opinion that the price charged in the international transaction has not been determined in accordance with s....
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....lity that the entire amount claimed earlier would have actually been received by the entity located abroad. It has therefore been made clear in the second proviso that income of one associated enterprise shall not be recomputed merely by reason of an adjustment made in the case of the other associated enterprise on determination of arm's length price by the Assessing Officer. 55.14 The new section 92D provides that every person who has undertaken an international transaction shall keep and maintain such information and documents as may be specified by rules made by the Board. The Board may also specify by rules the period for which the information and documents are required to be retained. The documentation required to be maintained has been prescribed under Rule 10D. Such documentation includes background information on the commercial environment in which the transaction has been entered into, and information regarding the international transaction entered into, the analysis carried out to select the most appropriate method and to identify comparable transactions, and the actual working out of the arm's length price of the transaction. The documentation should be availa....
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....7 to sub-section (1) of section 271 provides that where in the case of an assessee who has entered into an international transaction, any amount is added or disallowed in computing the total income under sub-sections (1) and (2) of section 92, then, the amount so added or disallowed shall be deemed to represent income in respect of which particulars have been concealed or inaccurate particulars have been furnished. However, no penalty u/s 271(1)(c) shall be levied where the assessee proves to the satisfaction of the Assessing Officer or the Commissioner (Appeals) that the price charged or paid in such transaction has been determined in accordance with section 92C in good faith and with due diligence. 55.19 The new section 271AA provides that if any person who has entered into an international transaction fails to keep and maintain any such information and documents as specified under section 92D, the Assessing Officer or Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two per cent of the value of the international transaction entered into by such person. 55.20 The new section 271BA provides that if any person fails to furnish a ....
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....eclaration of dividend or distribution of income in respect of the securities or units, and sells or transfers the same within a period of three months after such record date, and the dividend or income received or receivable is exempt, then, the loss, if any, arising from such purchase or sale shall be ignored to the extent such loss does not exceed the amount of such dividend or interest, in the computation of the income chargeable to tax of such person. 56.4 Definitions of the terms "record date" and "unit" have also been provided in the Explanation after sub-section (7) of section 94. 56.5 This amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent years. [Section 50] SEBI to be approving authority for "overseas financial organisation" 57.1 Under the existing provisions contained in section 115AB, "overseas financial organisation" has been defined to mean any fund, institution, association or body, whether incorporated or not, established under the laws of a country outside India, which has entered into an agreement for investment in India with any public sector bank or public fina....
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....l issue of underlying shares of an Indian company and purchased by the non-resident in foreign currency through an approved intermediary; or (b) GDRs issued against the shares of a public sector company sold by the Government and purchased by the non-resident in foreign currency through an approved intermediary; or (c) GDRs re-issued against the existing underlying shares of an Indian company in accordance with such scheme as the Central Government may notify in the Official Gazette, and purchased by the non-resident in foreign currency through an approved intermediary; or (d) GDRs issued against the shares of a listed Indian company on the disinvestment of such company of its shareholdings in its listed subsidiary company, in accordance with such scheme as the Central Government may notify in the Official Gazette, and purchased by the non-resident in foreign currency through an approved intermediary. 58.4 Consequential amendments have also been made in sections 47 and 196C of the Income-tax Act. 58.5 These amendments will take effect with effect from 1st April, 2002, and will accordingly, apply in relation to the assessment yea....
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....ncome-tax at the rate of twenty per cent. 61.2 This rate was increased from 10% to 20% through Finance Act, 2000. To provide a boost for the capital market, Section 115-O has been amended through Finance Act, 2001, so as to reduce the tax on distributed profits of domestic companies from twenty per cent to ten per cent. 61.3 This amendment will take effect from the 1st day of June, 2001. [Section 55] Rationalization of interest chargeable from the assessees 62.1 Under the existing provisions, the rates of interest chargeable from the assessees for various defaults vary from 15% to 24% per annum. In order to rationalize these rates, the Act has prescribed a uniform rate of 15% per annum for various defaults. Accordingly, the rates have been decreased from 1.5% or 2% for every month or part of a month, as the case may be, to 1.25% for every month or part of a month in respect of interest chargeable under sections 115P, 115S, 158BFA(1), 206C(7), 220(2), 234A, 234B and 234C of the Income-tax Act. In respect of interest chargeable under sub-section (1A) of section 201, the rate has been reduced from 18% to 15% per annum. 62.2 These amendments will take effect from 1st ....
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....001-2002 and subsequent years. [Section 59] Compulsory filing of returns by companies 65.1 Under the existing provisions contained in sub-section (1) of section 139 of the Income-tax Act, every person, if the total income, in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, is required to file a return of such income on or before the due date in the prescribed form and manner. It has been observed that a number of companies have not been filing returns on the plea that they have not earned any income. The Act, therefore, amends section 139(1) to provide that every company is required to file a return, whether it is a return of income or of loss. 65.2 This amendment takes effect retrospectively from 1st April, 2001, and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 59] Compulsory quoting of Permanent Account Number (PAN) by every person deducting or collecting tax at source in certain returns and certificates 66.1 Persons responsible for deducting tax from certain payments, and persons responsible for collecting tax f....
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....234A and 234B to clarify that the assessee shall be liable to pay interest under the said sections with reference to tax on the assessed income and not on returned income. It has further been clarified that for the purposes of section 140A, interest payable under sections 234A and 234B shall be computed with reference to tax on returned income. 67.3 The amendments will take effect retrospectively from 1st April, 1989, and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent years. [Sections 61, 78 & 79] Rationalisation of time-limits for issue of refunds, re-assessment, rectification and re-opening of assessments 68.1 A period of two years for sending an intimation alongwith refund or demand notice, if any, to the assessee is provided for in section 143(1). With a view to expedite issue of refunds as also to ensure early collection of taxes, and considering the computer aids now available in the Department, the Act has amended the second proviso to sub-section (1) of section 143 to provide that such intimations shall be sent within one year from the end of the financial year in which the return of income is made. The existing time-limit of ....
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....e absence of any specific time-limits regarding disposal of application for rectification under section 154, and with a view to ensure time-bound disposal of rectification applications, the Act has inserted a new sub-section (8) in section 154 to provide that where an application for amendment under this section is made by an assessee on or after 1st June, 2001 to an income-tax authority referred to in the said section, the authority shall pass an order within six months from the end of the month in which the application is received by it, either making the amendment or refusing to allow the claim. The overall time-limit of four years provided in the section for passing any rectification order shall however continue to apply. In other words, the period of six months mentioned in the new sub-section (8) cannot extend, under any circumstances, beyond the overall time-limit of four years from the end of the financial year in which the order sought to be rectified was passed. 68.6 These amendments will take effect from 1st June, 2001. [Sections 62, 63, 64 & 65] Rationalising the block period 69.1 Under the existing provisions contained in clause (a) of section 158B of the I....
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.... cases. 71.2 As a measure of rationalization, the Act has amended the said section to provide monetary limit of Rs. 5,000 in all cases. 71.3 The amendment will take effect from 1st June, 2001. [Section 69] TDS on winnings from card game and other game of any sort 72.1 Under the existing provisions of section 194B of the Income-tax Act, tax is required to be deducted at source at the rates in force in respect of income by way of winnings from any lottery or crossword puzzle. 72.2 With a view to widen its scope the Act has amended the section so as to make it applicable to any income by way of winnings from card game and other game of any sort. 72.3 The amendment will take effect from 1st June, 2001. [Section 70] Insertion of a new provision for deduction of tax at source from payments in the nature of commission or brokerage 73.1 An effective method of widening the tax base is to enlarge the scope of deduction of income-tax at source. Apart from bringing in more persons in the tax net, it also helps in the reporting of correct income. An item of income which needs to be covered within the scope of deduction of income-tax at source is the income by way o....
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....perty in certain cases abolished 75.1 Under the existing provision of section 230A, any document purporting to transfer, assign, limit, or extinguish the right, title or interest of any person to a property valued at more than five lakh rupees, could not be registered unless the Assessing Officer certified that such person has either paid or made satisfactory provision for payment of all existing tax liabilities or that the registration of the document will not prejudicially affect the recovery of any existing tax liability. This procedural requirement resulted, in many cases, in delay in registration of the relevant documents. Further, the relevant information sought to be obtained through the application could always be collected from the Registrar of Properties, as PAN is required to be quoted in all documents pertaining to such transfer. With a view to simplify procedures, the Act has omitted section 230A. 75.2 This amendment takes effect from 1st June, 2001. [Section 77] Withdrawal of power to withhold refunds 76.1 Under the existing provisions of section 241 of the Income-tax Act, the Assessing Officer may, with the previous approval of the Chief Commissioner o....
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....ing of additional facts or evidence. 78.2 This amendment will take effect from 1st June, 2001. [Section 83] Stay orders granted by Appellate Tribunal to be inoperative if appeal not disposed of in certain period 79.1 Under the existing provision of section 254, an advisory time-limit of four years has been prescribed for disposal of appeals by the Tribunal. However, in many cases, a stay granted on recovery of demand till the disposal of appeal, makes the demand irrecoverable for several months or even years. It has been observed that many assessees file appeals to the Tribunal only to obtain stay of demand and avoid payment of justified taxes. In order to discourage this practice, and ensure speedier collection of outstanding tax, the Act has amended section 254 to provide that where, in an appeal filed by the assessee, the Appellate Tribunal passes an order granting stay, the Tribunal shall hear and decide such appeal within a period of one hundred and eighty days from the date of passing such order granting stay, failing which the stay granted shall stand vacated on the expiry of the aforesaid period. 79.2 This amendment takes effect from 1st June, 2001. [Secti....
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.... to failure to answer questions, produce books of account, comply with the provisions relating to permanent account number, etc., so as to provide for a fixed amount of penalty of ten thousand rupees for each such default or failure, instead of the existing penalty of a sum ranging from five hundred rupees to ten thousand rupees for each such default or failure; (iv) section 272BB relating to failure to apply for tax-deduction account number or to quote such number in certain documents, so as to enhance the penalty and to provide for levy of a fixed amount of penalty of a sum of rupees ten thousand, as against the existing penalty, which could extend to five thousand rupees; (v) section 271F, to enhance the penalty for failure to furnish return of income as required under section 139(1) before the end of the assessment year, and under the proviso to section 139(1) before the due date, from one thousand rupees to five thousand rupees and from five hundred rupees to five thousand rupees, respectively. 81.3 These amendments take effect from 1st June, 2001. [Sections 86, 87, 90, 92 and 93] Wealth-tax Rationalisation of ....
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....e existing provisions of section 34A of the Wealth-tax Act, interest is payable to the assessee at the rate of 1% for every month or part of a month or 15% per annum, as the case may be. 84.2 As a measure of rationalization the Act has reduced the aforesaid rate of interest payable under section 34A of the Wealth-tax Act from one per cent to three-fourth per cent for every month or part of a month and from 15% to 9% per annum, as the case may be. 84.3 The amendments will take effect from 1st June, 2001. [Section 100] expenditure-tax Rationalization of interest chargeable from the assessee 85.1 Under the existing provisions of section 14 of the Expenditure-tax Act, interest is chargeable from the assessee at the rate of 1.5% for every month or part of a month. 85.2 As a measure of rationalization, the Act has reduced the rate of interest chargeable to 1.25% for every month or part of a month. 85.3 The amendment will take effect from 1st June, 2001. [Section 101] National Bank for Agriculture and Rural Development, National Housing Bank and Small Industries Development Bank of India liable to pay income-tax 86.1 Certain statutory bodies have....
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....d other taxes on any income, profits or gains derived or any amount received by it, under section 55 of the National Bank for Agriculture and Rural Development Act, 1981. National Housing Bank (NHB) is exempted from payment of income-tax and other taxes on any income, profits or gains derived or any amount received by it, under section 48 of the National Housing Bank Act, 1987. Small Industries Development Bank of India (SIDBI) and Small Industries Development Assistance Fund is exempted from payment of income-tax and other taxes on any income, profits or gains derived or any amount received by it, under section 50 of the Small Industries Development Bank of India Act, 1989. 86.3 These institutions are in existence for a considerable period and are working on commercial basis and there is no rationale for providing them tax exemption while similar institutions are paying taxes. Finance Act, 2001, has amended these Acts by omitting section 55 of the National Bank for Agriculture and Rural Development Act, 1981, section 48 of the National Housing Bank Act, 1987, and section 50 of the Small Industries Development Bank of India Act, 1989. 86.4 These amendments will take effect fr....