TaxTMI 
TaxTMI 
Finance Act, 2011 - Explanatory notes to the provisions of the Finance Act, 2011.
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....ucture bonds 11.1 - 11.3 80-IA(4)(iv) Extension of sunset clause for tax holiday for power sector 12.1 - 12.3 80-IB(9) Deduction in respect of profits and gains from undertakings engaged in commercial production of mineral oil 13.1 - 13.5 92C, 92CA, 92CA(7), 139 Rationalisation of provision relating to Transfer Pricing 14.1 - 14.3.2 94A Tool box of counter measures in respect of transactions with persons located in a Non-co-operative jurisdiction 15.1 - 15.2 115BBD Taxation of certain foreign dividends at a reduced rate 16.1-16.3 115R(2) Tax on Distributed Income to unit holders 17.1 - 17.3 115JB Minimum Alternate Tax 18.1.1 - 18.2.5 115JB(6), 115-0(6), 10(34) Provisions relating to Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) in case of Special Economic Zones 19.1.1 -19.3.2 115JC, 115JD, 115JE, 115JF Alternate Minimum Tax for certain Limited Liability Partnerships 20.1 -20.7 131,133 Collection of information on requests received from tax authorities outside India 21.1 -21.5 139, 296 Exemption to a class or classes of persons from furnishing a return of income 22.1 -22.5 143 Centralised Proce....
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....pect of income of all categories of taxpayers liable to tax for the assessment year 2011-12, the rates of income-tax have been specified in Part 1 of the First Schedule to the Finance Act, 2011. These rates are the same as those laid down in Part III of the First Schedule to the Finance Act, 2010 for the purposes of computation of advance tax, deduction of tax at source from Salaries and charging of tax payable in certain cases during the financial year 2010-11. The major features of the rates specified in the said Part I are as follows: 3.1.2 Individual. Hindu Undivided Family, Association of Persons, Body of Individuals or Artificial Juridical Person. - Paragraph A of Part I of the First Schedule specifies the rates of income-tax in the case of every individual, Hindu undivided family, association of persons, body of individuals or artificial juridical person (other than a co-operative society, firm, local authority 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 Indi....
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....hall be further increased by an additional surcharge 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. 3.1.5 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 I of the First Schedule to the Finance Act, 2011. No surcharge shall be levied. However, 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. 3.1.6 Companies - In the case of a company, the rate of income-tax has been specified in Paragraph E of Part I of the First Schedule to the Finance Act, 2011. In case of a domestic company, the rate of income-tax is thirty per cent of the total income. The tax computed shall be enhanced by a surcharge of seven and one-half per cent of such income tax only where the domestic company 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....
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....come-tax at source shall be five per cent as mentioned in the newly inserted section 194LB of the Income-tax Act, 1961. 3.2.2 Surcharge - The tax deducted at source in each case shall be increased by a surcharge for purposes of the Union as follows:- (i) In the case of every individual, Hindu undivided family, association of persons and body of individuals, no surcharge shall be levied. (ii) In the case of every artificial juridical person, no surcharge shall be levied. (iii) No surcharge shall be levied on the amount of income-tax deducted in the case of a co-operative society and local authority. (iv) In the case of every firm and domestic company, no surcharge shall be levied. (v) The surcharge on TDS shall be levied only on payments made to foreign companies. The rate of surcharge in such cases is two per cent of such income tax. 3.2.3 Education Cess - The additional surcharge, called the Education Cess on income-tax shall continue to be levied for the purposes of the Union at the rate of two per cent of income-tax and surcharge, if any, in the case of salary payments to residents and in the case of all payments to non resident....
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.... and below the age of 60 years of age is Rs. 1,90,000. Further, the exemption limit for every individual resident in India and of the age of 60 years or more but less than eighty years at any time during the previous year has been raised from Rs. 2,40,000 to Rs. 2,50,000. The exemption limit for every individual resident in India and of the age of 80 years or more is Rs. 5,00,000 and thereafter tax rate of 20% shall be applicable for income less than Rs. 8,00,000. The rates of tax during the financial year 2011-12 in the case of persons mentioned above are as follows:- 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 years. Individual, resident in India. who is of the age of sixty years or more but less than eighty years. Individual resident in India, who is of the age of eighty years or more. Up to Rs. 1 ;80,000 Nil Nil Nil Nil Rs. 1,80,001 -Rs. 1,90,000 10% Rs. 1,90,001 -Rs. 2,50,000 10....
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....estic company 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, in the case of 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 per cent only 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. However, 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 including....
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.... from income-tax to any specified income of body, authority, board, trust or commission which is set up or constituted by Central, State or Provincial Act or constituted by the Central Government or a State Government with the object of regulating or administering an activity for the benefit of general public, which is not engaged in any commercial activity, and is notified by the Central Government in this behalf. Such notified entities shall also file its return of income under section 139(4C)(g) of the Act. 6.2 Applicability - This amendment has been made effective from lst June, 2011. 7. Infrastructure Debt Fund 7.1 In order to augment long-term, low cost funds from abroad for the infrastructure sector, incentives have been introduced in the Act to facilitate setting up of dedicated debt funds. 7.2 Section 10 of the Act excludes certain incomes from the ambit of total income. A new section 10(47) has been inserted in the Act, so as to provide enabling power to the Central Government to notify any infrastructure debt fund which is set up in accordance with prescribed guidelines. Once notified, the income of such debt fund would be exempt from tax. It will, however, b....
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....g and operating, anywhere in India, a new hotel of two-star or above category as classified by the Central Government: (v) building and operating, anywhere in India, a new hospital with at least one hundred beds for patients; (vi) developing and building a housing project under a scheme for slum redevelopment or rehabilitation, framed by the Central Government or a State Government, as the ease may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed. 9.1.2 Two new businesses have been added as "specified business" under section 35AD, namely.- (a) developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be. and notified by the Board in this behalf in accordance with the guidelines as may be prescribed; and (b) production of fertilizer in India. 9.1.3 The date of commencement of operations for eligibility under section 35AD, in the case of the two "specified businesses'' of affordable housing projects and production of fertilizer in a new plant or in a newly installed capacity in an existing plant shal....
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....efits for New Pension System (NPS) 10.1 Section 80CCD of the Income-tax Act provides, inter alia, a deduction under section 80CCD(1), in respect of contribution made by an employee, and a deduction under section 80CCD(2) in respect of the contribution made by the employer on behalf of the employee, to the New Pension System (NPS) account. In view of the existing provisions of section 80CCE, the aggregate deduction under sections 80C, 80CCC and 80CCD cannot exceed one lakh rupees. 10.2 Section 80CCE has been amended so as to provide that deduction under section 80CCD(2) in respect of the contribution made by the employer, on behalf of the employee, to the New Pension System (NPS) account, shall be excluded from the limit of one lakh rupees provided under section 80CCE.The contribution of the employer therefore will be available as a further deduction to the assessees over and above the deduction of Rs one Lakh under section 80CCE. 10.3 Under the existing provisions of the Act, the contribution made by an employer towards a recognised provident fund, an approved superannuation fund or an approved gratuity fund is allowable as a deduction from business income under clauses (i....
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.... up for the generation and distribution of power if it begins to generate power at any time during the period beginning on 1st April, 1993 and ending on 31st March, 2011; (b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on 1st April, 1999 and ending on 31st March, 2011: (c) undertakes substantial renovation and modernization of existing network of transmission or distribution lines at any time during the period beginning on 1st April, 2004 and ending on 31st March, 2011. 12.2 The above terminal date has been extended for a further period of one year, i.e., up to 31st March, 2012. 12.3 Applicability - This amendment takes effect from 1st April, 2012 and will accordingly apply in relation to the assessment year 2012-13 and subsequent years. 13. Deduction in respect of profits and gains from undertakings engaged in commercial production of mineral oil 13.1 Under the existing provisions of sub-section (9) of section 80-IB of the Income-tax Act, 1961, a seven-year profit-linked deduction of hundred per cent, is available to an undertaking if it fulfils any of the fo....
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....ll accordingly apply in relation to the assessment year 2012-13 and subsequent assessment years. 14. Rationalization of provisions relating to Transfer Pricing The provisions related to transfer pricing have been rationalized in the following way:- 14.1.1 Section 92C of the Act provides the procedure for computation of the Arm's Length Price (ALP). The section provides the methods of computing the ALP and mandates that the most appropriate method should be chosen to compute ALP. It is also provided that if more than one price is determined by the chosen method, the ALP shall be taken to be arithmetical mean of such prices. The second proviso to section 92C(2) of the Act has been amended to provide that if the variation between the actual price of the transaction and the ALP (i.e. allowable variation), as determined above, does not exceed such percentage, as may be notified by Central Government in this behalf, of the actual price, then, no adjustment will be made and the actual price shall be treated as the ALP. 14.1.2 Applicability - This amendment has been made effective from 1st April, 2012 and it shall accordingly apply in relation to the Assessment Year 2012-13 and....
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....s been inserted in the Act to specifically apply to transactions undertaken with persons located in such country or area. The section provides- (i) an enabling power to the Central Government to notify any country or territory outside India. having regard to the lack of effective exchange of information by it with India, as a notified jurisdictional area; (ii) that if an assessee enters into a transaction, where one of the parties to the transaction is a person located in a notified jurisdictional area, then all the parties to the transaction shall be deemed to be associated enterprises and the transaction shall be deemed to be an international transaction and accordingly, transfer pricing regulations shall apply to such transactions; (iii) that no deduction in respect of any payment made to any financial institution shall be allowed unless the assessee furnishes an authorization, in the prescribed form, authorizing the Board or any other Income-tax authority acting on its behalf, to seek relevant information from the said financial institution; (iv) that no deduction in respect of any other expenditure or allowance (including depreciation) arisi....
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....ditional income-tax on distributed income at the rate of- (a) 25% if the recipient is an individual or a HUF in case of distribution by money market mutual fund or liquid fund; (b) 30% if the recipient is any other person in case of distribution by money market mutual fund or liquid fund: (c) 12.5% if the recipient is an individual or a HUF in case of distribution by debt fund other than money market mutual fund or a liquid fund; and (d) 30% if the recipient is any other person in case of distribution by a fund other than money market mutual fund or a liquid fund. 17.2 There is no change in the rate of income-tax in case of distribution of income to any individual or HUF. Distribution by an equity oriented fund shall continue to be exempt from tax. 17.3 Applicability - This amendment has been made effective from 1st June 2011. 18. Minimum Alternate Tax 18.1.1 Under the existing provisions of sub-section (1) of section 1 I5JB, a company is required to pay a minimum alternate tax (MAT) at the rate of 18% on its book profit, if the income-tax payable on the total income, as computed under the Act in respect of any previous year relevant ....
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....ndred per cent is allowed in respect of profits and gains derived by a unit located in a Special Economic Zone (SEZ) from the export of articles or things or from services for the first five consecutive assessment years; of fifty per cent for further five assessment years; and thereafter, of fifty per cent of the ploughed back export profit for the next five years. 19.1.2 Further, under section 80-IAB. a deduction of hundred per cent is allowed in respect of profits and gains derived by an undertaking from the business of development of an SEZ notified on or after 1st April, 2005 from the total income for any ten consecutive assessment years out of fifteen years beginning from the year in which the SEZ has been notified by the Central Government. 19.1.3 Under the existing provisions of sub-section (6) of section 115JB, an exemption is allowed from payment of minimum alternate tax (MAT) on book profit in respect of the income accrued or arising on or after 1st April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone (SEZ), as the case may be. 19.1.4 Further, under the existing provisions of sub-sec....
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.... Liability Partnership, being treated as a firm for taxation, has the following tax advantage over a company under the Income-tax Act:- (i) it is not subject to Minimum Alternate Tax; (ii) it is not subject to Dividend Distribution Tax; and (iii) it is not subject to surcharge. 20.3 In order to preserve the tax base vis-a-vis profit-linked deductions, a new Chapter XII-BA containing special provisions relating to certain limited liability partnerships has been inserted in the Act. 20.4 As per the provisions of new Chapter XII-BA, where the regular income-tax payable for a previous year by a limited liability partnership is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of such limited liability partnership and it shall be liable to pay income-tax on such total income at the rate of eighteen and one-half per cent. 20.5 For the purpose of the above, (i) "adjusted total income" shall be the total income before giving effect to this newly inserted Chapter XII-BA as increased by the deductions claimed under any section included in Chapter VI-A under th....
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....come Tax, as notified by the Board in this behalf, to exercise the powers currently conferred on income-tax authorities referred to in section 131(1). The authority so notified by the Board shall be able to exercise the powers under section 131(1) notwithstanding that no proceedings with respect to such person or class of persons are pending before it or any other income-tax authority. 21.3 Further section 131(3) of the Act was amended to empower the aforesaid authority, as notified by the Board, to impound and retain books of account and other documents produced before it in any proceedings under the Act. 21.4 Similar amendments have also been made to the provisions of section 133 of the Act. 21.5 Applicability - These amendments take effect from 1st June, 2011. 22. Exemption to a class or classes of persons from furnishing a return of income 22.1 Under the existing provisions contained in section 139(1) of the Income-tax Act, every person, if his total income during the previous year exceeds the maximum amount which is not chargeable to income-tax, is required to furnish a return of his income. 22.2 In the case of a salaried taxpayer, entire tax liability is dis....
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....dictions situated outside India, under an agreement referred to in section 90 or 90A, from the statutory time limit prescribed for completion of assessment or reassessment, a new clause (viii) was inserted in Explanation 1 to section 153. 24.3 It provides that the period commencing from the date on which a reference for exchange of information is made by an authority competent under an agreement referred to section 90 or 90A and ending with the date on which the information so requested is received by the Commissioner, or a period of six months, whichever is less, shall be excluded. 24.4 Similar amendments have also been made to the provisions of section 153B of the Act. 24.5 Applicability - These amendments take effect from 1st June, 2011. 25. Modification in the condition for filing an application before the Settlement Commission 25.1 The existing provisions contained in the proviso to section 245C(1) allow an application to be made before the Settlement Commission, if- (i) the proceedings have been initiated against the applicant under section 153A or under section 153C as a result of search or a requisition of books of account, as the case may be, ....
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....pose of rectifying any mistake apparent from the record. 26.3 A new sub-section (6B) has been inserted in section 245D so as to specifically provide that the Settlement Commission may, at any time within a period of six months from the date of its order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under section 245D(4). 26.4 It is further provided that a rectification which has the effect of modifying the liability of the applicant shall not be made unless the Settlement Commission has given notice to the applicant and the Commissioner of its intention to do so and has allowed the applicant and the Commissioner an opportunity of being heard. 26.5 Consequential amendments have also been made in section 22D of the Wealth Tax Act. 26.6 Applicability - These amendments take effect from 1st June, 2011. 27. Omission of the requirement of quoting of Document Identification Number 27.1 Under section 282B of the Income-tax Act, every income-tax authority shall, on or after the 1st day of July, 2011, allot a computer-generated Document Identification Number (DIN) in respect of every notice, order, letter or any correspondence....