TaxTMI 
TaxTMI 
Income-tax Explanatory Notes to the provisions of the Finance Act, 2010
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....unts and for presumptive taxation, 11.1-11.5 32, 47, 35DDA, 43, 47A, 49, 72A, 115JAA Conversion of a private company or an unlisted public company into a limited liability partnership (LLP), 12.1-12.9 56 Taxation of certain transactions without consideration or for inadequate consideration, 13.1-13.7 80C Deduction in respect of long-term infrastructure bonds, 14.1-14.2 80D Deduction in respect of contribution to the Central Government Health Scheme (CGHS), 15.1-15.4 80-IB(10) Deduction for developing and building housing projects, 16.1-16.5 80-ID Deduction of profits of a hotel or a convention centre in the National Capital Territory (NCT), 17.1-17.3 115JB Minimum Alternate Tax under Section 115JB, 18.1-18.3 143 Centralised Processing of Returns, 19.1-19.4 194B, 194BB, 194C, 194D, 194H, 194-I, 194J Rationalisation of provisions relating to Tax Deduction at Source (TDS), 20.1-20.3 203, 206C Certificate of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS), 21.1-21.3 245A, 245C, 245D Settlement Commission, 22.1-22.5 256, 260A Power of the High Court to condone delay in filing of....
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....ity and company) as under :- Income chargeable to tax Rate of income-tax Individual (other than individual woman resident in India and senior citizen resident in India), HUF, association of persons, body of individuals and artificial juridical person Individual woman, resident in India and below the age of sixty-five years Individual senior citizen, resident in India, who is of the age of sixty- five years or more Up to Rs. 1,60,000 Nil Nil Nil Rs. 1,60,001 - Rs. 1,90,000 10% Nil Nil Rs. 1,90,001 - Rs. 2,40,000 10% 10% Nil Rs. 2,40,001 - Rs. 3,00,000 10% 10% 10% Rs. 3,00,000 - Rs.5,00,000 20% 20% 20% Rs.5,00,000 and above 30% 30% 30% In the case of every individual, Hindu undivided family, association of persons or body of individuals, no surcharge shall be levied. An additional surcharge called the Education Cess on income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed, in all cases. For instance, if the income-tax computed is Rs. 1,00,000, then the education cess of two per cent is to be computed on Rs. 1,00,000 which works out to R....
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....y has total income exceeding one crore rupees. In the case of a company other than a domestic company, royalties received from Government or Indian concern under an approved agreement made after 31-3-1961, but before 1-4-1976 shall be taxed at fifty per cent. Similarly, fees for technical services received by such company from Government or Indian concern under an approved agreement made after 29-2-1964, but before 1-4-1976, shall be taxed at fifty per cent. On the balance of the total income of such company, the tax rate shall be forty per cent. The tax computed shall be enhanced by a surcharge of two and one-half per cent only in the cases where such company has total income exceeding one crore rupees. However, marginal relief shall be allowed in the case of every company to ensure that the additional amount of income-tax payable, including surcharge, on the excess of income over one crore rupees is limited to the amount by which the income is more than one crore rupees. Also, in the case of every company having total income chargeable to tax under section 115JB of the Income-tax Act and where such income exceeds one crore rupees, marginal relief shall be provided. Educa....
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.... Education Cess on income-tax at the rate of one per cent in all such cases. Thus in the earlier illustration, where the amount of tax deducted is Rs. 1,00,000, the surcharge is Rs. 10,000, the Education Cess of two per cent is Rs. 2,200, the said Secondary and Higher Education Cess will be computed on Rs. 1,10,000 which works out to be Rs. 1,100. The total cess in this case will amount to Rs. 3,300 (i.e., Rs. 2,200 + Rs. 1,100). 3.3 Rates for computation of advance tax, deduction of income-tax at source from Salaries and charging of income-tax in certain cases during the financial year 2010-11. 3.3-1 The rates for deducting income-tax at source from Salaries and computing advance tax during the financial year 2010-11 have been specified in Part III of the First Schedule to the Act. These rates are also applicable for charging income-tax during the financial year 2010-11 on current incomes in cases where accelerated assessments have to be made, e.g., provisional assessment of shipping profits arising in India to non-residents, assessment of persons leaving India for good during that financial year, assessment of persons who are likely to transfer property to avoid tax, assess....
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....rgeable to tax Rate Up to Rs. 10,000 10% Rs. 10,001 - Rs. 20,000 20% Exceeding Rs. 20,000 30% No surcharge shall be levied. Education Cess on income-tax and Secondary and Higher Education Cess on income-tax shall be levied at the rate of two per cent and one per cent respectively of the amount of tax computed. No marginal relief shall be available in respect of Education Cess. 3.3-4 FIRMS - In the case of every firm, the rate of income-tax of thirty per cent has been specified in Paragraph C of Part III of the First Schedule to the Act. No Surcharge shall be levied. The Education Cess on Income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed. In addition, such amount of tax shall be further increased by an additional cess called Secondary and Higher Education Cess on income-tax computed at the rate of one per cent on the amount of tax, in all cases. No marginal relief shall be available in respect of Education Cess. 3.3-5 LOCAL AUTHORITIES - In the case of every local authority, the rate of income-tax has been specified at thirty per cent in Paragraph D of Part III of the First Schedule to the Act. No sur....
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....ndering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. 4.3 The absolute restriction on any receipt of commercial nature may create hardship to the organizations which receive sundry considerations from such activities. Therefore, section 2(15) has been amended to provide that "the advancement of any other object of general public utility" shall continue to be a "charitable purpose" if the total receipts from any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business do not exceed Rs.10 lakhs in the previous year. 4.4 Applicability - This amendment has been made effective retrospectively from 1st April, 2009 and will, accordingly, apply in relation to the assessment year 2009-10 and subsequent years. 5. Income deemed to accrue or arise in India to a non-resident 5.1 Section 9 provides for situations where income is deemed to accrue or arise in India. Vide Finance Act, 1976, a source rule was provided in section 9 through insertion....
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....under section 9. It has been held that on a plain reading of the Explanation, the criteria of rendering services in India and the utilization of the service in India laid down by the Supreme Court in its judgment in the case of Ishikawajima-Harima Heavy Industries Ltd.(supra) remains untouched and unaffected by the Explanation. 5.3 In order to remove any doubt about the legislative intent of the aforesaid source rule, this Explanation has been substituted with a new Explanation to specifically state that the income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) of section 9 and shall be included in his total income, whether or not, (a) the non-resident has a residence or place of business or business connection in India; or (b) the non-resident has rendered services in India. 5.4 Applicability - This amendment has been made effective retrospectively from 1st June, 1976 and will, accordingly, apply in relation to the assessment year 1977-78 and subsequent years. 6. Computation of exempted profits in the case of units in Special Economic Zones (SEZs) 6.1 Section 10AA was inserted in the Inco....
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....pment 8.1 The existing provisions of section 35(1)(ii) of the Income-tax Act provide for a weighted deduction from the business income to the extent of 125 per cent of any sum paid to an approved scientific research association that has the object of undertaking scientific research or to an approved university, college or other institution to be used for scientific research. Further, under section 35(2AA) of the Act, weighted deduction to the extent of 125 per cent is also allowed for any sum paid to a National Laboratory or a university or an Indian Institute of Technology (IIT) or a specified person for the purpose of an approved scientific research programme. 8.2 In order to encourage more contributions to such approved entities for the purposes of scientific research, the Act has been amended to increase this weighted deduction from 125 per cent to 175 per cent. 8.3 Section 35(1)(iii) provide for a weighted deduction from business income to the extent of 125 per cent of any sum paid to an approved and notified university, college or other institution to be used to carry on research in social science or statistical research. Section 80GGA allows deductions for donations....
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....ss" during the previous year in which such expenditure is incurred. Such "specified business" includes the business of setting up and operating cold chain facilities, warehousing facilities for storage of agricultural produce and laying and operating a cross-country natural gas or crude or petroleum oil pipeline network. 9.1.2 The benefit of investment linked tax incentive under section 35AD has now been extended to the following specified businesses in addition to the existing businesses:- (i) building and operating, anywhere in India, a new hotel of two-star or above category as classified by the Central Government and commencing operations on or after the 1st day of April, 2010; (i) (ii) building and operating, anywhere in India, a new hospital with at least one hundred beds for patients and commences operation on or after the 1^st April, 2010; (iii) developing and building a housing project under a scheme for slum re-development or rehabilitation framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf....
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....re to deduct tax or payment of tax after deduction. 10.2.2 In order to discourage the practice of delaying the deposit of tax after deduction, the Act has been amended to increase the rate of interest for non-payment of tax after deduction from the present one per cent to one and one-half per cent for every month or part of month. 10.2.3Applicability - This amendment takes effect from 1st July, 2010. 11. Limit of turnover or gross receipts for the purpose of audit of accounts and for presumptive taxation 11.1 Under the existing provisions of section 44AB, every person carrying on business is required to get his accounts audited if the total sales, turnover or gross receipts in business exceed forty lakh rupees in the previous year. Similarly, a person carrying on a profession is required to get his accounts audited if the gross receipts in profession exceed ten lakh rupees in the previous year. 11.2 In order to reduce the compliance burden of small businesses and professionals, the Act has been amended to increase the threshold limit from forty lakh rupees to sixty lakh rupees in the case of persons carrying on business and from ten lakh rupees to fifteen lakh rupees....
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....ars from the date of conversion; (v) the total sales, turnover or gross receipts in business of the company [which are taxable under the head "Profits and gains of the business or profession"] do not exceed sixty lakh rupees in any of the three preceding previous years; and (vi) no amount is paid, either directly or indirectly, to any partner out of the accumulated profit of the company for a period of 3 years from the date of conversion. 12.3 The Act has been amended to allow carry forward and set-off of business loss, unabsorbed depreciation and amortisation of expenditure incurred under voluntary retirement scheme to the successor LLP which fulfils the above mentioned conditions. 12.4 The Act has been amended to provide that if the conditions stipulated above are not complied with, the benefit availed by the company or by the shareholders, shall be deemed to be the profits and gains of the successor LLP or the shareholder of the predecessor company, as the case may be, chargeable to tax for the previous year in which the requirements are not complied with. 12.5 The Act has been amended to provide that the aggregate depreciation allowable to the Predecessor Co....
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....sion In order to prevent the practice of transferring unlisted shares at prices much below their fair market value, section 56 was amended to also include within its ambit transactions undertaken in shares of a company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration where the recipient is a firm or a company (not being a company in which public are substantially interested). It is also provided to exclude the transactions undertaken for business reorganization, amalgamation and demerger which are not regarded as transfer under clauses (via), (vic), (vicb), (vid) and (vii) of section 47 of the Act. 13.3 Applicability -This amendment has been made effective from 1st June, 2010 and accordingly, apply in relation to the assessment year 2011-12 and subsequent years. 13.4 The provisions of section 56(2) (vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income. The provisions were intended to extend the tax net to such transactions in kind. The intent is not to tax the transactions entered into in the normal course of business or trade, the profits of which a....
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.... April, 2011 and will apply only to the assessment year 2011-12. 15. Deduction in respect of contribution to the Central Government Health Scheme (CGHS) 15.1 Under the earlier provisions of section 80D, deduction in respect of premium paid towards a health insurance policy upto a maximum of Rs. 15,000 is available for self, spouse and dependent children. A further deduction of Rs. 15,000 is also allowed for buying an insurance policy in respect of dependent parents. The deduction is enhanced to Rs. 20,000 in both cases if the person insured is of age of 65 years or above. 15.2 The Central Government Health Scheme (CGHS) is a medical facility available to serving and retired Government servants. This facility is similar to the facilities available through health insurance policies. 15.3 Deduction from the total income has now been allowed in respect of any contribution made to CGHS by including such contribution under the provisions of section 80D. The deduction will be limited to the current aggregate as mentioned in the section. 15.4 Applicability - This amendment has been made applicable with effect from 1^st April, 2011 and will accordingly apply to the assessment....
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....g profit from partial completion of the project in every year. In case it is found that the condition of completing the project within the specified time limit of 4 years as stated in section 80-IB(10) has not been satisfied, the deduction granted to the assessee in the earlier years should be withdrawn. The conditions regarding the time-limit for completion of the project and for the permissible built up area of shops and other commercial establishments included in the housing project have been relaxed as indicated above. Accordingly, the deduction granted to an assessee in the earlier years should be withdrawn only if the revised conditions are not satisfied. 17. Deduction of profits of a hotel or a convention centre in the National Capital Territory (NCT) 17.1 Section 80-ID of the Income-tax Act provides for 100 per cent deduction for five years, of profits derived by an undertaking from the business of a two-star, three-star or four-star category hotel or from the business of building, owning and operating a convention centre located in the National Capital Territory of Delhi and the districts of Faridabad, Gurgaon, Gautam Budh Nagar and Ghaziabad, provided....
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.... more functionalities in the processing of returns may need to be added to make it a complete end-to-end process. Therefore, it is proposed to extend the time limit for issue of such notification under section 143 (1B) from 31st March, 2010 to 31st March 2011. 19.3 Consequential amendments on similar lines are proposed to be made in section 115WE of the Income-tax Act. 19.4 Applicability - These amendments are proposed to take effect retrospectively from 1st April, 2010. 20. Rationalisation of provisions relating to Tax Deduction at Source (TDS) 20.1 Under the scheme of deduction of tax at source as provided in the Income-tax Act, every person responsible for payment of any specified sum to any person is required to deduct tax at source at the prescribed rate and deposit it with the Central Government within the specified time. However, no deduction is required to be made if the payments do not exceed prescribed threshold limits. 20.2 In order to adjust for inflation and also to reduce the compliance burden of deductors and taxpayers, the Act has been amended to raise the threshold limit for payments mentioned in sections 194B, 194BB, 194C, 194D, 194H, 194-I and 194J....
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.... 5,000 20,000 5. 194H Commission or Brokerage 2,500 5,000 6. 194-I Rent 1,20,000 1,80,000 7. 194J Fees for professional or technical services &....
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....esult of requisition of books of account or other documents or any assets. 22.2 Under the existing provisions of section 245C of the Income-tax Act, an application could be filed before the Settlement Commission, if the additional amount of income-tax payable on the income disclosed in the application exceeds three lakh rupees. The proviso to section 245C has been substituted so as to provide that an application can be filed before the Settlement Commission, in cases where proceedings for assessment or reassessment have been initiated as a result of search or as a result of requisition of books of account or other documents or any assets, if the additional amount of income-tax payable on the income disclosed in the application exceeds fifty lakh rupees. It is further proposed that, in other cases, an application can be made before the Settlement Commission, if the additional amount of income-tax payable on the income disclosed in the application exceeds ten lakh rupees. 22.3 Under the existing provisions of section 245D (4A) of the Income-tax Act, Settlement Commission shall pass an order within twelve months from the end of the month in which the application was made. Furthe....
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.... appeal before the High Court against such refusal of the Tribunal within a period of six months from the date on which he was served with an order of refusal. Sub-section (2A) in section 256 has been inserted retrospectively so as to empower the High Court to admit an application after the expiry of the period of six months, if it is satisfied that there was sufficient cause for not filing the same within such period. 23.6 Consequential amendments on similar lines have been made in section 27 of the Wealth-tax Act. 23.7 Applicability - These amendments take effect retrospectively from 1st June, 1981. 24. Document Identification Number 24.1 Section 282B (Allotment of Document Identification Number) is a new section inserted by the Finance (No. 2) Act, 2009 in the Income-tax Act with effect from 1st October, 2010. Under the provisions of this section, an income-tax authority is required to allot a computer generated Document Identification Number before issue of every notice, order, letter or any correspondence to any other income-tax authority or assessee or any other person and such number shall be quoted thereon. It also provides that every document, lette....