TaxTMI 
TaxTMI 
EXPLANATORY NOTES TO THE PROVISIONS OF THE FINANCE (No.2) ACT, 2014
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....ain cases, 9.1 - 9.5. 24 Deduction from income from house property, 10.1- 10.3. 32AC Investment Allowance to a Manufacturing Company, 11.1 - 11.4. 35AD Deduction in respect of capital expenditure on specified business, 12.1 - 12.10. 37 Corporate Social Responsibility (CSR), 13.1 - 13.4. 40 Disallowance of expenditure for non- deduction of tax at source, 14.1 - 14.8. 43 Speculative transaction in respect of commodity derivatives, 15.1 - 15.3. 44AE Business of Plying, Hiring or Leasing Goods Carriages, 16.1 - 16.2. 45 Capital gains arising from transfer of an asset by way of compulsory acquisition, 17.1 -17.4. 47 Transfer of Government Security by one non-resident to another non-resident, 18.1 - 18.3. 48 Cost Inflation Index, 19.1 - 19.3. 54 Capital gains exemption in case of investment in a residential house property, 20.1 - 20.5. 54EC Capital gains exemption on investment in Specified Bonds, 21.1 - 21.4. 56 Taxability of advance for transfer of a capital asset, 22.1 - 22.6. 73 Losses in Speculation Business, 23.1 - 23.3. 80C Raising the limit of deduction under section 80C, 24.1- 24.4. 80CC....
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....thority for Advance Rulings, 51.1-51.5. 269SS Mode of acceptance of loans and deposits, 52.1- 52.3. 269T Mode of repayment of loans and deposits, 52.1- 52.3. 271G Levy of Penalty under section 271G by Transfer Pricing Officers, 53.1 - 53.4. 276D Failure to produce accounts and documents, 54.1-54.3. 281B Provisional attachment under section 281B, 55.1-55.3. 285BA Obligation to furnish statement of Information, 56.1- 56.7. Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 13 Extension of income-tax exemption to Specified Undertaking of Unit Trust of India (SUUTI), 57.1 - 57.3. 1. Introduction 1.1 The Finance (No.2) Act, 2014 (hereafter referred to as 'the Act') as passed by the Parliament, received the assent of the President on the 6th day of August, 2014 and has been enacted as Act No. 25 of 2014. This circular explains the substance of the provisions of the Act relating to direct taxes. 2. Changes made by the Act 2.1 The Act has - (i) specified the rates of income-tax for the assessment year 2014-15 and the rates of income-tax on the basis of which tax has to be deducted at source and ....
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....ent in India, who is of the age of eighty years or more. (very senior citizen) Up to Rs. 2,00,000 Nil Nil Nil Rs. 2,00,001 - Rs. 2,50,000 10% Rs. 2,50,001 - Rs. 5,00,000 10% Rs. 5,00,001 - Rs. 10,00,000 20% 20% 20% Exceeding Rs. 10,00,000 30% 30% 30% The amount of income-tax so computed shall be increased by a surcharge at the rate of ten percent. of such income-tax in case of a person having a total income exceeding one crore rupees. However, marginal relief shall be available so the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. The Education Cess on income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed inclusive of surcharge. In addition, the amount of tax computed shall be further increased by an additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of one per cent of such income-tax inclusive of surcharge. No marginal relief shall be....
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....l be available in respect of Education Cess and Secondary and Higher Education Cess. 3.1.4 Firms - In the case of every firm, the rate of income-tax of thirty per cent has been specified in Paragraph C of Part I of the First Schedule to the Act. The amount of income-tax so computed shall be increased by a surcharge at the rate of ten percent. of such income-tax in case of a firm having a total income exceeding one crore rupees. However, marginal relief shall be available so that the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. The Education Cess on income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed inclusive of surcharge. In addition, the amount of tax computed shall be further increased by an additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of one per cent of such income-tax inclusive of surcharge. No marginal relief shall be available in respect of Education Cess and Secondary ....
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....en crore rupees. Surcharge at the rate of five per cent shall be levied if the total income of the company other than domestic company exceeds ten crore rupees. However, marginal relief shall be allowed in the case of every company to ensure that (i) the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees, (ii) the total amount payable as income-tax and surcharge on total income exceeding ten crore rupees shall not exceed the total amount payable as income-tax and surcharge on a total income of ten crore rupees, by more than the amount of income that exceeds ten crore rupees. Education Cess on income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed, inclusive of surcharge in the case of every company. Also, such amount of tax and surcharge shall be further increased by an additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of one per cent of the amount of tax computed, inclusive of surcharge. No marginal....
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....addition, the amount of tax deducted and surcharge shall be further increased by an additional surcharge called Secondary and Higher 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. 1,20,00,000, the surcharge is Rs. 2,40,000, the said Secondary and Higher Education Cess will be computed at the rate of one percent on Rs. 1,22,40,000 which works out to be Rs. 1,22,400. The total cess in this case will, therefore, amount to Rs. 3,67,200 (i.e., Rs. 2,44,800 + Rs. 1,22,400). 3.3 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 2014-15. 3.3.1 The rates for deducting income-tax at source from 'Salaries' and computing advance tax during the financial year 2014-15 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 2014-15 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, ass....
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.... additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of one per cent of such income-tax inclusive of surcharge. No marginal relief shall be available in respect of Education Cess and Secondary and Higher Education Cess. 3.3.3 Co-operative Societies In the case of every co-operative society, the rates of income-tax have been specified in Paragraph B of Part III of the First Schedule to the Act. The rates are as follows- Income chargeable to tax Rate Up to Rs. 10,000 10% Rs. 10,001- Rs. 20,000 20% Exceeding Rs. 20,000 30% The amount of income-tax so computed shall be increased by a surcharge at the rate of ten percent. of such income-tax in case of a co-operative society having a total income exceeding one crore rupees. However, marginal relief shall be available. Accordingly, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. Education Cess on income-tax and Secondary and Higher Education Cess on ....
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....igher Education Cess. 3.3.6 Companies- In the case of a company, the rate of income-tax has been specified in Paragraph E of Part III of the First Schedule to the Act. 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 five per cent where such domestic company has total income exceeding one crore rupees but not exceeding ten crore rupees. Surcharge at the rate of ten per cent shall be levied if the total income of the company exceeds ten crore rupees. In the case of a company other than a domestic company, royalties received from Government or an 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 per cent where such company has total income exceeding one crore rupee....
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....her it is capital gains or business income. Further, the fund manager managing the funds of such investor remained outside India under the apprehension that their presence in India may constitute permanent establishment (PE) and the income arising from transactions in securities held in India may be taxed as business income of PE. In this context, the Finance Minister, in his budget speech, had stated as under - "Foreign Portfolio investors (FPIs) have invested more than Rs. 8 lakh crore (about 130 billion US$) in India. One of their concerns is uncertainty in taxation on account of characterization of their income. Moreover, the fund managers of these foreign investors remain outside India under the apprehension that their presence in India may have adverse tax consequences. With a view to put an end ro this uncertainty and to encourage these fund managers to shift to India, I propose to provide that income arising to foreign portfolio investors from transaction in securities will be treated as capital gains." 4.2 Accordingly, clause (14) has been amended to provide that any security held by foreign institutional investor which has invested in such security in accordance wit....
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.... assessment years. 6. Clarification in respect of section 10(23C) of the Income-tax Act 6.1 The provisions of sub-clause (iiiab) and (iiiac) of section 10(23C) of the Income-tax Act provide exemption, subject to various conditions, in respect of income of certain educational institutions, universities and hospitals which exist solely for educational purposes or solely for philanthropic purposes, and not for purposes of profit and which are wholly or substantially financed by the Government. 6.2 Absence of a definition of the phrase "substantially financed by the Government" had led to litigation and varying decisions of judicial authorities who had, for this purpose, relied upon various other provisions of the Income-tax Act and other Acts. Thus, there has been lack of certainty in this regard. 6.3 Therefore, clause (23C) of section 10 has been amended by inserting an Explanation below sub-clause (iiiac) of the said clause. It provides that if the Government grant to a university or other educational institution, hospital or other institution referred to in section 10(23C)(iiiab) or 10(23C)(iiiac) during any previous year exceeds a prescribed percentage of the total rec....
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.... subject to which a charitable trust or institution is required to function in order to be eligible for exemption. They also provide for withdrawal of exemption either in part or in full if the relevant conditions are not fulfilled. 7.3 Several issues had arisen in respect of the application of exemption regime to trusts or institutions in respect of which clarity in law was required. 7.4 The first issue was regarding the interplay of the general provision of exemptions which are contained in section 10 of the Income-tax Act vis-a-vis the specific and special exemption regime provided in sections 11 to 13 of the said Act. As indicated above, the primary objective of providing exemption in case of charitable institution is that income derived from the property held under trust should be applied and utilised for the object or purpose for which the institution or trust has been established. In many cases it had been noted that trusts or institutions which are registered and have been availing benefits of the exemption regime do not apply their income, which is derived from property held under trust, for charitable purposes. In such circumstances, when the income becomes taxable,....
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....aritable purpose. As a result, double benefit was being claimed by the trusts and institutions. Therefore, these provisions were required to be rationalised to ensure that double benefit is not claimed and such notional amount does not get excluded from the condition of application of income for charitable purpose. 7.5.1 Accordingly, the Income-tax Act has been amended to provide that under section 11 and section 10(23C), income for the purposes of its application shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under these sections in the same or any other previous year. 7.6 Applicability:- These amendments take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years. 8. Applicability of the registration granted to a trust or institution to earlier years 8.1 The provisions of section 12A of the Income-tax Act, before amendment by the Act, provided that a trust or an institution can claim exemption under sections 11 and 12 only after registration under section 12AA....
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....n under two circumstances: (a) the activities of a trust or institution are not genuine, or; (b) the activities are not being carried out in accordance with the objects of the trust or institution. 9.1.1 The Commissioner was empowered to cancel the registration only if either or both of the above conditions were satisfied, and not otherwise. 9.2 There have been cases where trusts, particularly in the year in which they had substantial income claimed to be exempt under other provisions of the Income-tax Act though they deliberately violated the provisions of section 13 of the said Act by investing in modes other that specified modes, etc. Similarly, there have been cases where the income is not properly applied for charitable purposes or is diverted for the benefit of certain interested persons. However, due to restrictive interpretation of the powers of the Commissioner under the said section 12AA, registration of such trusts or institutions continued to be in force and these institutions continued to enjoy the beneficial regime of exemption. 9.3 Whereas under section 10(23C) of the Income-tax Act, which also allows similar benefits of exemption to a fund, Institutio....
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.... also gone up. Therefore, the second proviso to clause (b) of section 24 has been amended so as to increase the limit of deduction on account of interest in respect of property referred to in sub-section (2) of section 23 of the Income-tax Act to two lakh rupees. 10.3 Applicability:- This amendment takes effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years. 11. Investment Allowance to a Manufacturing Company 11.1 In order to encourage the companies engaged in the business of manufacture or production of an article or thing to invest substantial amount in acquisition and installation of new plant and machinery, Finance Act, 2013 inserted section 32AC in the Income-tax Act to provide that where an assessee, being a company, is engaged in the business of manufacture of an article or thing and invests a sum of more than Rs. 100 crore in new assets (plant and machinery) during the period beginning from 1st April, 2013 and ending on 31st March, 2015, then the assessee shall be allowed a deduction of 15% of cost of new assets for assessment years 2014-15 and 2015- 16. 11.2.1 As growth of the manufac....
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....l, accordingly, apply in relation to the assessment year 2015-16 and subsequent years. 12. Deduction in respect of capital expenditure on specified business 12.1 The provisions of section 35AD of the Income-tax Act, before its amendment by the Act, inter alia, provided for investment-linked tax incentive by way of allowing a deduction in respect of the whole of any expenditure of capital nature (other than expenditure on land, goodwill and financial instrument) incurred wholly and exclusively, for the purposes of the "specified business" during the previous year in which such expenditure is incurred. The following "specified businesses" are eligible for availing the investment-linked deduction under section 35AD as enumerated in clause (c) of sub-section (8) of the said section:- (i) setting up and operating a cold chain facility; (ii) setting up and operating a warehousing facility for storage of agricultural produce; (iii) laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network; (iv) building and operating, anywhere in India, a hotel of two-s....
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....6 If any asset on which a deduction under section 35AD has been allowed, is demolished, destroyed, discarded or transferred, the sum received or receivable for the same is chargeable to tax under clause (vii) of section 28 of the Income-tax Act. This does not take into account a case where asset on which deduction under section 35AD has been claimed is used for any purpose other than the specified business by way of a mode other than that specified above. Accordingly, sub-section (7B) has been inserted to provide that if such asset is used for any purpose other than the specified business, the total amount of deduction so claimed and allowed in any previous year in respect of such asset, as reduced by the amount of depreciation allowable in accordance with the provisions of section 32 as if no deduction had been allowed under section 35AD, shall be deemed to be income of the assessee chargeable under the head "Profits and gains of business or profession" of the previous year in which the asset is so used. Example: Deduction claimed under section 35AD on a capital asset Rs. 100 Depreciation eligible on such asset under section 32 Rs. 15 Profit chargeable to tax in ....
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.... only allowed as a deduction for computing taxable business income. 13.2 CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business. As the application of income is not allowed as deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for computing the taxable income of the company. Moreover, the objective of CSR is to share burden of the Government in providing social services by companies having net worth/turnover/profit above a threshold. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure. 13.3 The provisions of section 37(1) of the Income-tax Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Income-tax Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditures cannot be....
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....on for payments made to non-residents in the previous year of payment, if tax is deducted during the previous year and the same is paid on or before the due date specified for filing of return under section 139(1) of the Income-tax Act. 14.3 As mentioned above, in case of non-deduction of tax at source or non-payment of tax so deducted from certain payments made to residents, the entire amount of expenditure on which tax was deductible is disallowed under section 40(a)(ia) for the purposes of computing income under the head "Profits and gains of business or profession". The disallowance of whole of the amount of expenditure causes hardship, especially in case of payment made to a resident in whose case the withholding of tax is only a mode of collection of tax and does not result into final discharge of tax liability. 14.4 Accordingly, section 40(a)(ia) of the Income-tax Act has been amended to provide that in case of non-deduction of tax at source or non-payment of tax so deducted on payments made to residents as specified in section 40(a)(ia) of the Income-tax Act, the disallowance shall be restricted to 30% of the amount of expenditure claimed. 14.5 Further, the first p....
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....VII-B of the Income-tax Act. 14.8 Applicability:- These amendments takes effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years. 15. Speculative transaction in respect of commodity derivatives 15.1 The provisions contained in clause (5) of section 43 of the Income-tax Act define the term speculative transaction. The proviso to the said clause (5) of section 43 excludes certain category of transactions as speculative transactions. The Finance Act, 2013 made a provision for levy of commodities transaction tax on commodity derivatives in respect of commodities other than agricultural commodities. As a consequence to the levy of commodities transaction tax, clause (e) was inserted in the proviso to clause (5) of section 43 of the Income-tax Act to provide that eligible transaction in respect of trading in commodity derivatives carried out in a recognised association shall not be considered as speculative transaction. Vide Circular No. 3 dated 24-01-2014 explaining the provisions of the Finance Act, 2013, it was clarified that the eligible transaction shall include only those transactions in commodity derivatives....
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....arging of any profits or gains arising from transfer of a capital asset. Sub-section (5) of the said section provides for the manner of dealing with capital gains arising from transfer by way of compulsory acquisition and where the compensation is enhanced or further enhanced by the court, Tribunal or any other authority. Clause (b) of the said sub-section provides that where the amount of compensation is enhanced or further enhanced by the court it shall be deemed to be the income chargeable of the previous year in which such amount is received by the assessee. 17.2 There was uncertainty about the year in which the amount of compensation received in pursuance of an interim order of the court is to be charged to tax, due to court orders. 17.3 Therefore, sub-section (5) of section 45 of the Income-tax Act, has been amended to provide that the amount of compensation received in pursuance of an interim order of the court, Tribunal or other authority shall be deemed to be the income chargeable under the head 'Capital gains' in the previous year in which the final order of such court, Tribunal or other authority is made. 17.4 Applicability:-This amendment takes effect from 1st ....
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.... section 54 of the Income-tax Act, before its amendment by the Act, inter alia, provided that where capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house, then, the amount of capital gains to the extent invested in the new residential house is not chargeable to tax under section 45 of the Income-tax Act. 20.2 The provisions contained in sub-section (1) of section 54F of the Income-tax Act, before its amendment by the Act, inter-alia, provided that where capital gains arises from transfer of a long-term capital asset, not being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house, then, the portion of capital gains in the ratio of cost of new asset to the net consideration received on transfer is not chargeable to tax. 20.3 Certain ....
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....akes effect from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent assessment years. 22. Taxability of advance for transfer of a capital asset 22.1 The provisions contained in section 56 of the Income-tax Act, inter-alia, provide that income of every kind which is not to be excluded from the total income under the Income-tax Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any other head of income. 22.2 Sub-section (2) of section 56 of the Income-tax Act provides for the specific category of incomes that shall be chargeable to income-tax under the head "Income from other sources". 22.3 A new clause (ix) has been inserted in said sub-section (2) of section 56 to provide for the taxability of any sum of money, received as an advance or otherwise in the course of negotiations for transfer of a capital asset. Such sum shall be chargeable to income-tax under the head 'income from other sources' if such sum is forfeited and the negotiations do not result in transfer of such capital asset. 22.4 A consequential amendment in clause (24) of section (2) ....
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....ion of the Explanation shall also not be applicable to a company the principal business of which is the business of trading in shares. 23.3 Applicability:-This amendment takes effect from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent assessment years. 24. Raising the limit of deduction under section 80C of the Income-tax Act 24.1 Under the provisions of section 80C of the Income-tax Act, before amendment by the Act, an individual or a Hindu undivided family was allowed a deduction from income of an amount not exceeding one lakh rupees with respect to sums paid or deposited in the previous year, in certain specified instruments. 24.2 The investments eligible for deduction, specified under sub-section (2) of section 80C, include life insurance premia, contributions to provident fund, schemes for deferred annuities etc. The assessee had the freedom to invest in any one or more of the eligible instruments within the overall ceiling of Rs. 1 lakh. 24.3 The limit of above investments eligible for deduction under section 80C was fixed vide Finance Act, 2005. In order to encourage household savings, the limit of deduction ....
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.... 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, 2014; (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, 2014. 26.2 With a view to provide further time to the undertakings to commence the eligible activity to avail the tax incentive, the above provisions have been amended to extend the terminal date for a further period up to 31st March, 2017 i.e. till the end of the 12th Five Year Plan. 26.3 Applicability:- These amendments take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years. 27. Rationalisation of the definition of International Transaction 27.1 The provisions of section 92B of the Income-tax Act, before its amendment by the Act, defined 'International transaction' as a transaction in the nature of purchase, sale, lease, provision of services, etc. between two or more associated enterprises, either or both of whom are....
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....Internationally, most countries employ a "range" concept for determination of ALP where more than one price is determined. 28.3 With a view to introduce 'range concept' for determination of ALP, sub-section (2) of section 92C has been amended to provide that in respect of international transaction or specified domestic transaction undertaken on or after 01.04.2014, where more than one price is determined by the most appropriate method, the ALP shall be computed in the manner as may be prescribed. However, the arithmetic mean concept will continue to apply where number of comparables is inadequate. 28.4 Applicability:- This amendment takes effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years. 29. Roll back provision in Advance Pricing Agreement Scheme 29.1 Section 92CC of the Income-tax Act provides for Advance Pricing Agreement (APA). It empowers the Central Board of Direct Taxes, with the approval of the Central Government, to enter into an APA with any person for determining the Arm's Length Price (ALP) or specifying the manner in which ALP is to be determined in relation to an internationa....
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....e tax payable in respect of any income arising from transfer of a long-term capital asset, being listed securities (other than a unit) or zero coupon bond exceeds ten per cent of the amount of capital gains without indexation adjustment, such excess shall be ignored. However, where the tax payable in respect of any income arising from the transfer of a long-term capital asset, being a unit of a Mutual Fund specified under clause (23D) of section 10 of the Income-tax Act, during the period beginning on 1st April, 2014 and ending on 10th July, 2014, exceeds ten per cent of the amount of capital gains before giving effect to the provisions of the second proviso to section 48 of the Income-tax Act, then, such excess shall be ignored for the purpose of computing the tax payable by the assessee. 30.3 Applicability: - This amendment takes effect from 1st April, 2015 and will accordingly apply, in relation to the assessment year 2015-16 and subsequent assessment years. 31. Anonymous donations under section 115BBC of the Income-tax Act 31.1 The provisions of section 115BBC of the Income-tax Act, before amendment by the Act, provided for levy of tax at the rate of 30 per cent. in ca....
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....ect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years. 33. Alternate Minimum Tax 33.1 The provisions of section 115JC of the Income-tax Act, before its amendment by the Act, provide that where the regular income tax payable by a person, other than a company, for a previous year is less than the alternate minimum tax for such previous year, the person would be required to pay income tax at the rate of eighteen and one half per cent on its adjusted total income. The section further provides that the total income shall be increased by deductions claimed under Part C of Chapter VI-A, and under section 10AA to arrive at adjusted total income. 33.2 Under the Income-tax Act, the investment linked deductions have been provided in place of profit linked deductions. These profit linked deductions are subject to alternate minimum tax (AMT). 33.3 Accordingly, with a view to include the investment linked deduction claimed under section 35AD in computing adjusted total income for the purpose of calculating alternate minimum tax, section 115JC has been amended to provide that total income shall be increased by ....
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....g the conditions mentioned in sub-section (1) or (2) of section 115JEE. 34.4 Applicability: - This amendment takes effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years. 35. Dividend and Income Distribution Tax 35.1 Section 115-O of the Income-tax Act provides that a domestic company shall be liable for payment of additional income-tax at the rate of 15 per cent. on any amount declared, distributed or paid by way of dividends to its shareholders. This tax on distributed profits is final tax in respect of the amount declared, distributed or paid as dividends and no credit in respect of it can be claimed by the company or the shareholder. 35.2 Similarly, section 115 R of the Income-tax Act provides for levy of additional income-tax in respect of income distributed by the mutual fund to its investors at the rates specified in the said section. 35.3 Prior to introduction of dividend distribution tax (DDT), the dividends were taxable in the hands of the shareholder. The gross amount of dividend representing the distributable surplus was taxable, and the tax on this amount was paid by the shareho....
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....gime for Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (Invit) 36.1 The Securities and Exchange Board of India (SEBI) has notified regulations relating to two new categories of investment vehicles namely, the Real Estate Investment Trust (REIT) & Infrastructure Investment Trust (Invit) on 26th September, 2014. These are SEBI (Real Estate Investment Trusts) Regulations, 2014 and SEBI (Infrastructure Investment Trusts) Regulations, 2014. 36.2 The income-investment model of REITs and Invits (referred to as business trusts) has the following distinctive elements: (i) the trust would raise capital by way of issue of units (to be listed on a recognised stock exchange) and can also raise debts directly both from resident as well as nonresident investors; (ii) the income bearing assets would be held by the trust by acquiring controlling or other specific interest in an Indian company (SPV) from the sponsor. 36.3 Accordingly, the Income-tax Act has been amended to put in place a specific taxation regime which provides for the way the income in the hands of such trusts is to be taxed and the taxability of the income distributed by such business trusts....
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....n the hands of the unit holder. Any other income of the trust shall be taxable at the maximum marginal rate. (vii) The business trust is required to furnish its return of income. (viii) The necessary forms to be filed and other reporting requirements to be met by the trust shall be prescribed to implement the above scheme. 36.5 Applicability: - This amendment takes effect from 1st October, 2014. 37. Income-tax Authorities 37.1 Section 116 of the Income-tax Act specifies income-tax authorities for the purposes of the Income-tax Act and section 117 states that the Central Government may appoint such persons as it thinks fit to be income-tax authorities. The income-tax authorities enumerated under section 116 of the Income-tax Act include Central Board of Direct Taxes, Directors-General of Income-tax or Chief Commissioners of Income-tax, Directors of Income-tax or Commissioners of Income-tax etc. 37.2 In view of the creation of new income-tax authorities, section 116 of the Income-tax Act has been amended so as to include the newly created income-tax authorities. Further, clauses (34A), (34B), (34C) and (34D) in section 2 of the Income-tax Act have been inserted so a....
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....ions contained in section 133A of the Income-tax Act enable the Income-tax authority to enter any premises in which business or profession is carried out for the purposes of survey. An income-tax authority acting under this section may impound and retain in his custody any books of account or documents inspected by him during the course of survey. However, prior to its amendment by the Act, the said section provided that such income-tax authority shall not retain in his custody any such books of account or document for a period exceeding ten days (exclusive of holidays) without obtaining the approval of the Chief Commissioner or Director General therefor, as the case maybe. 39.2 An income-tax authority acting under section 133A has the powers as conferred upon it under sub-section (1) of section 131 of the Income-tax Act. With a view to align the time period and the authority for approval for retention of books of account or other documents beyond the specified time period, section 133A has been amended to provide that the income-tax authority shall not retain in his custody any such books of account or other documents for a period exceeding fifteen days (exclusive of holidays) ....
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.... to such person requiring him, on or before a date to be therein specified, to furnish information or documents, verified in the manner specified therein which may be useful for, or relevant to, any enquiry or proceeding under this Act. 40.2 Applicability: - This amendment takes effect from 1st October, 2014. 41. Mutual Funds, Securitisation Trusts and Venture Capital Companies or Venture Capital Funds to file return of income 41.1 The provisions contained in section 139 of the Income-tax Act provide that every person being a company or a firm or being a person (other than a company or firm) if his total income or the total income of any other person in respect of which he is assessable under the said Act during the previous year exceeds the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. Apart from the above, certain other entities, which are not chargeable to income-tax in accordance with the provisions of section 10 of the Income-tax Act, are req....
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....t the return under section 139 shall be signed and verified in the manner specified therein. 42.2 With a view to enable the verification of returns either by a sign in manuscript or by any electronic mode, section 140 of the Income-tax Act has been amended to provide that the return shall be verified by the persons specified therein. The manner of verification of return is prescribed under section 139 of the Income-tax Act. 42.3 Applicability:- This amendment takes effect from 1st October, 2014. 43. Estimate of value of assets by Valuation Officer and time limit for completion of assessments where reference made 43.1 The provisions contained in section 142A of the Income-tax Act, before its amendment by the Act, provided that the Assessing Officer may, for the purpose of making an assessment or reassessment, require the Valuation Officer to make an estimate of the value of any investment, any bullion, jewellery or fair market value of any property. On receipt of the report of the Valuation Officer, the Assessing Officer may after giving the assessee an opportunity of being heard take into account such report for the purposes of assessment or reassessment. 43.2 Sectio....
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.... of the Income-tax Act provides that the method of accounting for computation of income under the heads "Profits and gains of business or profession" and "Income from other sources" can either be the cash or mercantile system of accounting. The Finance Act, 1995 empowered the Central Government to notify Accounting Standards (AS) for any class of assessee or for any class of income. Since the introduction of these provisions, only two Accounting Standards relating to disclosure of accounting policies and disclosure of prior period and extraordinary items and changes in accounting policies have been notified. 44.2 The Central Board of Direct Taxes (CBDT) had constituted an Accounting Standard Committee in 2010. The Committee has submitted its Final Report in August, 2012. The Committee recommended that the AS notified under the Income-tax Act should be made applicable only to the computation of taxable income and a taxpayer should not be required to maintain books of account on the basis of AS notified under the Income-tax Act. The Final Report of the Committee was placed in public domain for inviting comments from stakeholders and general public. After examining the comments/sug....
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....tax Act. 45.2 Section 153C of the Income-tax Act has been amended to provide that notwithstanding anything contained in section 139, section147, section 148, section 149, section 151 and section 153 of the said Act, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to any person, other than the person referred to in section 153A of the said Act, then books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A if he is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A of the Income-tax Act . 45.3 Applicability:-This amendment takes effect from 1st Octob....
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..... 47.4 Section 206AA of the Income-tax Act provides for deduction of tax at source at a higher rate if the recipient of income does not provide his permanent account number to the deductor. An exception from applicability of section 206AA was made in respect of payment of interest on long-term infrastructure bonds eligible for benefit under section 194LC. 47.5 Consequent to amendment of section 194LC, amendment in section 206AA has also been made to provide that the provisions of the said section are not applicable in respect of the payment of interest on any long-term bond referred to in section 194LC. 47.6 Applicability:- These amendments take effect from 1st October, 2014. 48. Tax Deduction at Source 48.1 Under Chapter XVII-B of the Income-tax Act, a person is required to deduct tax on certain specified payments at the specified rates if the payment exceeds specified threshold. The person deducting tax ('the deductor') is required to file a quarterly statement of tax deduction at source (TDS) containing the prescribed details of deduction of tax made during the quarter by the prescribed due date. 48.2 Currently, a deductor is allowed to file correction statemen....
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.... for passing of an order under section 201(1) of the Income-tax Act in cases in which TDS statement has not been filed. However, notice under section 148 of the Income-tax Act may be issued for reassessment up to 6 years from the end of the assessment year for which the income has escaped assessment. Therefore, section 148 of the Income-tax Act allows reopening of cases of one more preceding previous year than specified under clause (ii) of subsection (3) of section 201of the Income-tax Act. Due to this, order under subsection(1) of section 201of the Income-tax Act could not be passed in respect of defaults relating to TDS which came to the notice during search/reassessment proceeding in respect of the previous year which were covered under section 148 of the Income-tax Act but not under section 201(3)(ii) of the Income-tax Act. In order to align the time limit provided under section 201(3)(ii) with that provided under section 148 of the Income-tax Act, , section 201 has been amended and accordingly the time limit provided under section 201(3)(ii) of the Income-tax Act for passing an order under section 201(1) of the income-tax Act has been extended by one more year. 48.3.4 The ....
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....ntinuation and Validation of Recovery Proceedings) Act, 1964. 49.3 It has been further provided that where as a result of an order under sections 154, 155, 250, 254, 260, 262, 264 or sub-section (4) of section 245D of the Income-tax Act, the amount on which interest was payable under section 220 had been reduced and subsequently as a result of an order under said sections or section 263, the amount on which interest was payable under section 220 is increased, the assessee shall be liable to pay interest under sub-section (2) of the said section on the amount payable as a result of such order, from the day immediately following the end of the period mentioned in the first notice of demand referred to in sub section (1) of the said section 220 and ending with the day on which the amount is paid. 49.4 Applicability:-These amendments take effect from the 1st October, 2014. 50. Enlarging the scope of Settlement Commission 50.1 Clause (b) of section 245A provides the definition of 'case' which means any proceeding for assessment under the Income-tax Act, of any person in respect of any assessment year or assessment years which may be pending before an assessing officer. Howev....
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....cated in Delhi. In order to handle the enlarged scope of the Authority for Advance Rulings, section 245-O of the Income-tax Act has been amended to provide for more than one benches of the Authority. It has also been provided that the Authority shall be located in the National Capital Territory of Delhi and its Benches shall be located at places notified by the Central Government.It has also been provided that besides the Chairman, revenue Member and law Member;the Authority shall consist of such number of Vice-chairmen, as the Central Government may, appoint. Qualification for appointment as Vice-Chairman has been provided to be a judge of a High Court. 51.5 Applicability:- These amendments take effect from the 1st October, 2014. 52. Mode of acceptance or repayment of loans and deposits 52.1 The provisions contained in section 269SS of the Income-tax Act, before its amendment by the Act, inter-alia, provided that no person shall take from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft, if the amount of such loan or deposit or aggregate of such loans or deposits is twenty thousand rupees or more. Similarly, the pr....
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....ber, 2014. 54. Failure to produce accounts and documents 54.1 The provisions of section 276D of the Income-tax Act, before amendment by the Act, provided that if a person wilfully fails to produce accounts and documents as required in any notice issued under sub-section (1) of section 142 of the Income-tax Act or wilfully fails to comply with a direction issued to him under sub-section (2A) of said section 142, he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine equal to a sum calculated at a rate which shall not be less than four rupees or more than ten rupees for every day during which the default continues, or with both. 54.2 The monetary limit in the section was fixed in the year 1971. The low limit has become irrelevant today. Accordingly, the provisions of section 276D of the Income-tax Act have been amended so as to provide that if a person wilfully fails to produce accounts and documents as required in any notice issued under sub-section (1) of section 142 of the Income-tax Act or wilfully fails to comply with a direction issued to him under sub-section (2A) of said section 142, he shall be punishable with rigorous....
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....o been provided that the statement of information shall be furnished within such time, and in such form and manner as may be prescribed. 56.3 It has further been provided that where any person, who has furnished a statement of information under sub-section (1),or in pursuance of a notice issued under sub-section (5) of the said section comes to know or discovers any inaccuracy in the information provided in the statement, then, he shall, within a period of ten days, inform the income-tax authority or other authority or agency referred to in subsection (1) of the said section, the inaccuracy in such statement and furnish the correct information in the manner as may be prescribed. 56.4 It has also been provided that the Central Government may, by rules, specify,- (a) the persons referred to in sub-section (1) of section 285BA to be registered with the prescribed income-tax authority; (b) the nature of information and the manner in which such information shall be maintained by the persons referred to in (a) above; and (c) the due diligence to be carried out by the persons referred to in (a) for the purpose of identification of any reportable account referred to in sub-section (1....