It is our immense pleasure to present the wide analysis of the Finance Bill 2017 (Union Budget 2017) on the very same day of the Budget Speech.
This budget is historic one in the Indian Parliamentary history because of the following two reasons:
- For the first time, the General budget was presented on the 1st day of February instead of the 28th / 29th day of February.
- It is also for the first time where the Railway Budget has been merged with the General budget and there is no separate railway budget.
The demonetization scheme of the Govt. has been regarded a mixed success scheme and not truly an effectively implemented scheme. During the 50 days of demonetization, common people have suffered a lot and so there was much expectation by the common man from the General Budget.
Below, we have tried to analyze the various provisions of the Union Budget 2017. The analysis of Union Budget 2017 unfolds into following categories:
- Provisions for Non Corporate assesses
- Corporate Taxation provisions
- TDS Provisions
- Provisions related Income from Capital Gain
- Provisions related to Income from House Property
- Provisions related to Income from other sources
- Start Up Incentives
- Promotion of Digital Economy
- Transparency in Electoral Funding
- Presumptive taxation
- Assessment related provisions etc
-:FOR NON CORPORATE ASSESSES:-
Change in the Income Tax rate for individuals:
There is reduction in the rate of income tax for every individual, HUF, AOP, BOI and every artificial judicial person from 10% to 5% in case the income is not exceeding Rs. 5,00,000/-.
This is considered as big step for middle class of the country after the demonetization scheme.
The Hon’ble Prime Minister has announced the demonetization scheme. However the scheme was so not effective as expected by the Govt.
Because of the demonetization scheme, the common people of the country has suffered a lot and as there was not much success of the scheme, so there is need to give incentives to them which is in latin referred to as quid pro quo.
Also, it was admitted the Hon’ble Finance Minister that in the income category up to Rs. 2.50 Lacs, major assesses are the salaried persons and they are honest in paying the tax. So, there is need to reward the honest tax payers and therefore, he has reduced the tax rate to 5% from an existing 10% in case income is not exceeding Rs. 5 Lacs.
This is the only change in the income tax rate and which is in the welcoming nature. Other rates of income tax are same.
Rebate allowable under Section 87A
The existing provisions of section 87A provide for a rebate up to Rs. 5000 from the income-tax payable to a resident individual if this total income does not exceed Rs. 5,00,000.
As there is proposed rationalization of tax rates for individuals in the income slab of Rs. 2,50,000 to Rs.5,00,000, it is proposed to amend section 87A so as to reduce the maximum amount of rebate available under this section from existing Rs. 5000 to Rs. 2500.
It is also proposed to provide that this rebate shall be available to only resident individuals whose total income does not exceed Rs. 3,50,000.
Therefore, there will not be any rebate available to the individuals whose income exceeds Rs. 3.50 Lacs as earlier it was Rs. 5.00 Lacs.
Rationalisation of deduction under section 80CCD for self-employed individual
The existing provisions of section 80CCD provide that employee or other individuals shall be allowed a deduction for amount deposited in National Pension System trusts (NPS). The deduction under section 80CCD (1) cannot exceed 10% of salary in case of an employee or 10% of gross total income in case of other individuals.
However, under the provisions of section 80CCD (2) of the Act, further deduction to an employee in respect of contribution made by his employer is allowed up to 10% of salary of the employee. Thus, in case of an employee, the deduction allowed under section 80CCD adds up to 20% of salary whereas in case of other individuals, the total deduction under section 80CCD is limited to 10% of gross total income.
In order to provide parity between an individual who is an employee and an individual who is self-employed, it is proposed to amend section 80CCD so as to increase the upper limit of ten per cent of gross total income to twenty per cent in case of individual other than employee.
As the rate of income has been lowered from 10% to 5% in case of specified income, there is loss to the revenue appr. of Rs. 12000 Cr.
So, to compensate the said loss, the Hon’ble Finance Minister has introduced the surcharge at the rate of 10% of such income-tax in case of a person having a total income exceeding 50 Lacs rupees but not exceeding 1 Crore rupees.
Change in tax rate:
The rate of taxation for the companies in India is very high as compared to other Asian countries. There is need to provide the competitive tax rates to the companies in India.
Therefore, in case of domestic company, the rate of income-tax shall be 25% of the total income if the total turnover or gross receipts of the previous year 2015-16 does not exceed Rs. 50 Cr and in all other cases the rate of Income-tax shall be thirty per cent.
With the reference to the analysis of the Govt., Hon’ble Finance Minister informed the parliament that out of total companies registered, almost 96-97 percentage of the companies are falling in the above criteria and are MSME.
MSME enterprises contribute huge value to the India’s GDP. So, there is need to provide the incentives for the MSME enterprises.
Also there is need to provide the incentive to the unorganized sector to the formal sector of the economy and this reduction in tax rate will provide the incentive to them.
Rationalization for provisions of MAT credit
Section 115JAA contains provisions regarding carrying forward and set off of tax credit in respect of Minimum Alternate Tax (MAT) paid by companies under section 115JB. Currently, the tax credit can be carried forward up to tenth assessment years.
It is proposed to extend the same to fifteenth assessment year.
TDS on Rent (194 I / 194 IB)
Under the present provisions of Section 194 I of the Income Tax Act, 1961, an Individual or HUF who is liable for tax audit under section 44AB for any financial year immediately preceding the financial year is liable for deduction of tax on the rent paid by him exceeding the specified limit.
Therefore, Section 194I of the act is applicable for the individuals and HUF if they are liable for Audit u/s 44AB of the Act during the previous financial year.
The Hon’ble Finance Minister proposed to extent the scope of TDS on rent. Therefore, he has introduced Section 194 IB of the Act, the summarized provisions of which are as below:
- Applicable to Individual and HUF other than covered u/s 44AB
- Rent paid is more than Rs. 50,000/- for the month or part of the month.
- TDS to be deducted @5%,
- It is required to be deducted from the rent amount of the last month of the previous year or last month of the tenancy.
- It is one time deduction only.
- No need to obtain TAN.
- The TDS amount should not exceed the rent amount of the last month of the previous year or last month of the tenancy.
This amendment will take effect from 1st June, 2017.
Enabling of Filing of Form 15G/15H for commission payments specified under section 194D
U/s 194D of the Act, TDS @5% is required to be deducted for payments in the nature of insurance commission beyond a threshold limit of Rs. 15,000 per financial year.
It is proposed that a person can file Form 15G/15H if his income is below the exemption limit and thereby no TDS is required to be deducted.
Simplification of TDS u/s 194J for a person engaged only in the business of operation of call center.
In order to promote ease of doing business, it is proposed to amend section 194J to reduce the rate of deduction of tax at source to two per cent from ten per cent. in case of payments received or credited to a payee, being a person engaged only in the business of operation of call center
Interest on refund due to deductor
It is proposed to provide that where refund of any amount becomes due to the deductor, such person shall be entitled to receive, in addition to the refund, simple interest on such refund, calculated at the rate of one-half per cent. for every month or part of a month comprised in the period, from the date on which claim for refund is made in the prescribed form or in case of an order passed in appeal, from the date on which the tax is paid, to the date on which refund is granted.
Disallowance for non-deduction of tax from payment to resident
Section 58 describes the amounts which are not deductible in computing the income under the head “Income from other sources”.
However, it doesn’t include the disallowance on account of non deduction of TDS from payment to resident.
Section 40(a)(ia) of the act provides for disallowance on account of non deduction of TDS for computing income under the head Profits and Gains from Business and Profession.
Therefore, it is proposed to amend the said section so as to provide that provisions of section 40(a)(ia) shall, so far as they may be, apply in computing income chargeable under the head “income from other sources” as they apply in computing income chargeable under the head “Profit and gains of business or Profession”.
Definition of ‘person responsible for paying’ in case of payments covered under sub-section (6) of section 195
In order to bring clarity to the meaning of ‘person responsible for paying’ in case of payment by a resident to a non-resident in accordance with section 195(6) of the Act, it is proposed to amend the said section of the Act to provide that in the case of furnishing of information relating to payment to a non-resident, not being a company, or to a foreign company, of any sum, whether or not chargeable under the provisions of this Act, ‘person responsible for paying’ shall be the payer himself, or, if the payer is a company, the company itself including the principal officer thereof.
-:CAPITAL GAIN PROVISIONS:-
Reduction of period for long term gain in case of land, building or both:
Due to demonetization, real estate is one of the sector which has suffered a lot. Therefore, there is a need to provide incentive to boost the real estate industry.
With a view to promote the real-estate sector and to make it more attractive for investment, it is proposed to amend section 2 (42A) of the Act so as to reduce the period of holding from the existing 36 months to 24 months in case of immovable property, being land or building or both, to qualify as long term capital asset.
Rationalisation of Provisions of Section 80-IBA to promote Affordable Housing
During the last year, Hon’ble Finance Minister has introduced Section 80 IBA of the act to provide 100% deduction in respect of the profits and gains derived from developing and building certain housing projects subject to specified conditions.
There is change in the terms and conditions of the section which are as below:
- The size of residential unit shall be measured by taking into account the “carpet area” as defined in Real Estate (Regulation and Development) Act, 2016 and not the “built-up area”.
- The restriction of 30 square meters on the size of residential units shall not apply to the place located within a distance of 25 kms from the municipal limits of the Chennai, Delhi, Kolkata or Mumbai.
- The condition of period of completion of project for claiming deduction under this section shall be increased from existing three years to five years.
Computation of capital gains in case of joint development agreement
Under the existing provisions of section 45, capital gain is chargeable to tax in the year in which transfer takes place except in certain cases.
With a view to minimise the genuine hardship which the owner of land may face in paying capital gains tax in the year of transfer, it is proposed to insert a new sub-section (5A) in section 45 so as to provide that in case of an assessee being individual or Hindu undivided family, who enters into a specified agreement for development of a project, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority.
It is further proposed to provide that the stamp duty value of his share, being land or building or both, in the project on the date of issuing of said certificate of completion as increased by any monetary consideration received, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.
It is also proposed to provide that benefit of this proposed regime shall not apply to an assessee who transfers his share in the project to any other person on or before the date of issue of said certificate of completion. It is also proposed to provide that in such a situation, the capital gains as determined under general provisions of the Act shall be deemed to be the income of the previous year in which such transfer took place and shall be computed as per provisions of the Act without taking into account this proposed provisions.
It is also proposed to define the following expressions “competent authority”, “specified agrement” and “stamp duty value” for this purpose.
It is also proposed to make consequential amendment in section 49 so as to provide that the cost of acquisition of the share in the project being land or building or both, in the hands of the land owner shall be the amount which is deemed as full value of consideration under the said proposed provision.
These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.
It is also proposed to insert a new section 194-IC in the Act so as to provide that in case any monetary consideration is payable under the specified agreement, tax at the rate of ten per cent shall be deductible from such payment.
Shifting base year from 1981 to 2001 for computation of capital gains
For an asset acquired before 01.04.1981, the assessee has been allowed an option of either to take the fair market value of the asset as on 01.04.1981 or the actual cost of the asset as cost of acquisition.
As the base year for computation of capital gains has become more than three decades old, assessees are facing genuine difficulties in computing the capital gains in respect of a capital asset, especially immovable property acquired before 01.04.1981 due to non-availability of relevant information for computation of fair market value of such asset as on 01.04.1981.
Therefore, it is proposed to amend section 55 of the Act so as to provide that the cost of acquisition of an asset acquired before 01.04.2001 shall be allowed to be taken as fair market value as on 1st April, 2001
Expanding the scope of Section 54EC of the Act
Currently, investment made in bond issued by NHAI and REC is eligible for exemption.
It is proposed to amend section 54EC so as to provide that investment in any bond redeemable after three years which has been notified by the Central Government in this behalf shall also be eligible for exemption.
No capital gain on conversion of preference shares to equity shares
It is proposed to amend section 47 to provide that the conversion of preference share of a company into its equity share shall not be regarded as transfer
Clarification regarding the applicability of section 112
Section 112(1)(c) to provide concessional rate of taxation of ten per cent for long-term capital gains arising from the transfer of unlisted securities in case of non-resident as inserted vide Finance Act, 2013.
There was an uncertainty as to whether the provision of section 112(1)(c)(iii) is applicable to the transfer of share of a private company or not.
Finance Act, 2016 amended section 112(1)(c) to clarify that the share of company in which public are not substantially interested shall also be chargeable to tax at the rate of ten per cent with effect from 1st April, 2017.
As the concessional rate was provided with effect from 1st April, 2013, there was uncertainty about the applicability of the amendment to the intervening period.
Therefore, it is hereby clarified that the benefit will be available from retrospective period i.e. from 01.04.2013 onwards and not from 01.04.2017.
Exemption of long term capital gains tax u/s 10(38)
There is little amendment in the section. The words ‘if the acquisition of share is chargeable to Securities Transactions Tax’ have been inserted to prevent the abuse use of fake exemption.
-: PROVISIONS RELATED TO INCOME FROM HOUSE PROPERTY:-
Notional income from the house property
Section 23 of the Act provides for the manner of determination of annual value of house property and it also considers the notional income from the house property.
As said earlier, there is need to provide boost up to the real estate industry as after demonetization there is fall in the real estate industry and the property remains unsold for the builder and liable for the notional income.
It is proposed to amend the said section so as to provide that where the house property consisting of any building and land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.
Restriction on set-off of loss from House property
Section 71 of the Act relates to set-off of loss from one head against income from another.
It is proposed to insert sub-section (3A) in the said section to provide that set-off of loss under the head “Income from house property” against any other head of income shall be restricted to Rs. 2 Lacs for any assessment year.
However, the unabsorbed loss shall be allowed to be carried forward for set-off in subsequent years in accordance with the existing provisions of the Act.
-:INCOME FROM OTHER SOURCES:-
Amendment in Section 56(2)(vii)
Present provisions of Section 56(2)(vii) of the Act are applicable only to Individual and HUF and to Firm / Company for certain cases.
Therefore, there is chance that other assesses may take undue advantage of these provisions.
Therefore, it has been proposed to insert a new clause (x) in sub-section (2) of section 56 so as to provide that receipt of the sum of money or the property by any person without consideration or for inadequate consideration in excess of Rs. 50,000 shall be chargeable to tax in the hands of the recipient under the head “Income from other sources”.
Taxation of dividend income
During the Budget Speech of 2016, Hon’ble Finance Minister has introduced Section 115BBDA by way of taxing income from dividend in excess of Rs. 10 lakh is chargeable to tax at the rate of 10% on gross basis.
However, during the present budget speech, it is proposed to amend section 115BBDA so as to provide that the provisions of said section shall be applicable to all resident assessees except domestic company and certain funds, trusts, institutions, etc.
This amendment is applicable from A Y 18-19 onwards.
-:START UP INCENTIVE:-
Set off and carry forward of losses
During the initial period of Start Up ventures, generally they are incurring losses.
At the same time, they also raise the funds from various investors as start ups are mainly dependent on the funding from investors. The said funding is obtained against the issuance of equity stake in the company. So there will be dilution in the equity of the existing shareholders.
Section 79 of the Act, specified certain terms and conditions regarding maintenance of shareholding to allow set off and carry forward of losses.
So, for the start up ventures, it is very difficult to have the benefit of set off and carry forward of losses.
Therefore, in order to facilitate ease of doing business and to promote start up India, it is proposed to amend section 79 of the Act.
It provides that where a change in shareholding has taken place in an eligible start-up, loss shall be carried forward and set off against the income of the previous year, if all the shareholders of such company which held shares carrying voting power on the last day of the year or years in which the loss was incurred, being the loss incurred during the period of seven years beginning from the year in which such company is incorporated, continue to hold those shares on the last day of such previous year.
Extending the period for claiming deduction by start-ups
Section 80 IAC of the act provides the deduction of 100% profit to an eligible start up for three consecutive three years out of five years.
It is proposed to extent the period of five years to seven years.
-:MEASURES TO PROMOTE DIGITAL ECONOMY:-
Disallowance of expenditure incurred in cash:
Under the existing provisions of the Act, revenue expenditure incurred in cash exceeding Rs. 20,000/- is not allowable as per sub-section (3) of section 40A of the Act.
However, there is no provision to disallow the capital expenditure incurred in cash.
In order to discourage cash transactions even for capital expenditure, it has been proposed that such expenditure incurred in cash in excess of Rs. 10,000/- will be ignored for the determination of the actual cost of the asset.
The same limit of Rs.10,000/- is also fixed for revenue transactions from Rs. 20,000/-.
Digital payments in case of small unorganized businesses:
Under existing provisions of Section 44AD of the Act, presumptive income scheme has been specified @8%.
To encourage cash less transactions, it has been proposed that the rate of presumptive income will be 6% instead of 8% in respect of the amount of such total turnover or gross receipts received by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account.
Restriction on cash transactions
In India, the quantum of domestic black money is huge which adversely affects the revenue of the Government creating a resource crunch for its various welfare programmes. Black money is generally transacted in cash and large amount of unaccounted wealth is stored and used in form of cash.
In order to achieve the mission of the Government to move towards a less cash economy to reduce generation and circulation of black money, it is proposed to insert section 269ST in the Act to provide that no person shall receive an amount of three lakh rupees or more,—
- in aggregate from a person in a day;
- in respect of a single transaction; or
- in respect of transactions relating to one event or occasion from a person,
otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account.
It is further proposed to provide that the said restriction shall not apply to Government, any banking company, post office savings bank or co-operative bank or other notified persons.
Penalty is also prescribed for non compliance for the same.
-:TRANSPARENCY IN ELECTORAL FUNDING:-
Restricting cash donations
Present Govt. is showing too much enthusiasm regarding the steps taken by them to curb the black money. However, when it comes to political funding which is the core grey area for black money generation, there is no major changes made by the Govt.
There is also failure or less success of the demonetization scheme. Therefore, there was also need to rationalize or to say to bring transparency in the funding of the political parties.
In order to provide cash less economy and transparency, it is proposed to amend section 80G so as to provide that no deduction shall be allowed under the section 80G in respect of donation of any sum exceeding Rs. 2000 (from existing limit of Rs. 20000/-) unless such sum is paid by any mode other than cash.
Limit for cash donations
No donations of Rs.2000/- or more is received otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through electoral bonds.
-:PRESUMPTIVE TAXATION PROVISIONS:-
Exclusion of certain specified person from requirement of audit of accounts under section 44AB
It is proposed that specified persons, who declare income under presumption scheme up to a turnover of Rs. 2 Cr, are not required to get their books of accounts audited u/s 44AB of the Act.
Rationalisation of section 211 and section 234C relating to advance tax
For the persons covered under section 44AD is liable to pay advance tax in a single instalment on or before the 15th of March every financial year.
Under Finance Act, 2016, presumptive taxation regime has been extended to professionals also u/s 44ADA. Therefore, advance tax provisions are also made applicable to them as applicable for the persons covered u/s 44AD.
Section 115BBDA of the Act provides taxability of the certain the dividend income. However, in view of the uncertain nature of declaration and receipt of dividend incomes, an assessee liable to pay advance tax may not be able to correctly determine such liability.
It is hence proposed to provide that that if shortfall in payment of advance tax is on account of under-estimation or failure in estimation of income of the nature referred to in section 115BBDA, the interest under section 234C shall not be levied subject to fulfilment of conditions specified therein.
This amendment is applicable from A Y 17-18 onwards.
-:PROVISIONS RELATED TO ASSESSMENT:-
Processing of return within the prescribed time and enable withholding of refund in certain cases
Section 143(1D) of the Act provides that the processing of a return shall not be necessary, where a notice has been issued to the assessee under sub-section (2) of the said section.
In order to address the grievance of delay in issuance of refund in genuine cases which are routinely selected for scrutiny assessment, it is proposed that provisions of section 143(1D) shall cease to apply in respect of returns furnished for assessment year 2017-18 and onwards.
However, in case of doubtful cases of recovery of revenue, the A O may hold the refund for the reasons to be recorded in writing and with the prior approval of Commissioner or Principal Commissioner.
Amendments to the structure of Authority for Advance Rulings
With a view to promote ease of doing business, it has been decided by the Government to merge the Authority for Advance Ruling (AAR) for income-tax, central excise, customs duty and service tax. Accordingly, necessary amendments, have been made to Chapter XIX-B to allow merger of these AARs.
Amendment of Section 253
It is proposed to expand the scope of the said section to provide that the orders passed by the prescribed authority under sub-clauses (iv) and (v) of sub-section (23C) of section 10 shall also be appealable before the Appellate Tribunal.
Rationalisation of time limits for completion of assessment, reassessment and re-computation and reducing the time for filing revised return.
The existing provisions of section 153 specify time limit for completion of assessment, reassessment and re-computation of cases mentioned therein.
The revised time limits are as under:
|Sr. No.||Particulars||Applicable Sections||Revised time limit for assessment|
|1||A Y 18-19||143/144||18 months|
|2||A Y 19-20 onwards||143/144||12 months|
|3||147||For the notices issued after 01.04.2019 – 12 months|
|4||F Y 19-20 onwards||254/263/264||12 months|
|5||F Y 18-19||153A||18 months|
|6||F Y 19-20 onwards||153A||12 months|
It is proposed to amend the provisions of sub-section (5) of section 139 to provide that the time for furnishing of revised return shall be available up to the end of the relevant assessment year or before the completion of assessment, whichever is earlier.
Reason to believe to conduct a search, etc. not to be disclosed
It is proposed to insert an Explanation to sub-section (1) and to sub-section (1A) of section 132 and to sub-section (1) of section 132A to declare that the ‘reason to believe’ or ‘reason to suspect’, as the case may be, shall not be disclosed to any person or any authority or the Appellate Tribunal.
This amendment is against the various judicial pronouncements which lays down that the reason to believe should be disclosed.
Also, this amendment has been made with retrospective effect i.e. from 1st day of October, 1975. Therefore, it may lead to serious consequence to existing cases which are in appeal on the facts of disclosure of reason to believe.
Rationalisation of provisions of the Income Declaration Scheme, 2016 and consequential amendment to section 153A and 153C
The existing provisions of clause (c) of the section 197 of the Finance Act, 2016 provide that where any income has accrued, arisen or been received or any asset has been acquired out of such income prior to commencement of the Income Declaration Scheme, 2016 (the Scheme), and no declaration in respect of such income is made under the Scheme, then, such income shall be deemed to have accrued, arisen or received, as the case may be, in the year in which a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or section 148 or section 153A or section 153C of the Income-tax Act is issued by the Assessing Officer, and provisions of the said Act shall apply accordingly.
In view of the various representations received from stakeholders citing genuine hardships if the said provision is made applicable, it is proposed to omit clause (c) of section 197 of the Finance Act, 2016.
This amendment will take effect retrospectively from lst June, 2016.
However, in order to protect the interest of the revenue in cases where tangible evidence(s) are found during a search or seizure operation (including 132A cases) and the same is represented in the form of undisclosed investment in any asset, it is proposed that section 153A relating to search assessments be amended to provide that notice under the said section can be issued for an assessment year or years beyond the sixth assessment year already provided upto the tenth assessment year if—
- the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in one year or in aggregate in the relevant four assessment years(falling beyond the sixth year);
- such income escaping assessment is represented in the form of asset;
- the income escaping assessment or part thereof relates to such year or years.
It is however proposed that the amended provisions of section 153A shall apply where search under section 132 is initiated or requisition under section 132A is made on or after the 1st day of April, 2017.
It is also proposed to consequentially amend section 153C to provide a reference to the relevant assessment year or years as referred to in section 153A.
Restriction on exemption in case of corpus donation by exempt entities to other exempt entities
Donation given by these exempt entities to another exempt entity, with specific direction that it shall form part of corpus, is though considered application of income in the hands of donor trust but is not considered as income of the recipient trust. Trusts, thus, engage in giving corpus donations without actual applications.
Therefore, it is proposed to insert a new Explanation to section 11 of the Act to provide that any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1) of section 11, being contributions with specific direction that they shall form part of the corpus of the trust or institution, shall not be treated as application of income.
It is also proposed to insert a proviso in clause (23C) of section 10 so as to provide similar restriction as above on the entities exempt under sub-clauses (iv), (v), (vi) or (via) of said clause in respect of any amount credited or paid out of their income.
Rationalisation of provisions of Section 10AA
It is proposed to clarify that the amount of deduction referred to in section 10AA shall be allowed from the total income of the assessee computed in accordance with the provisions of the Act before giving effect to the provisions of the section 10AA and the deduction under section 10AA in no case shall exceed the said total income.
Scope of Section 92B of the Income-Tax Act relating to Specified Domestic Transactions
The existing provisions of section 92BA of the Act, inter-alia provide that any expenditure in respect of which payment has been made by the assessee to certain “specified persons” under section 40A(2)(b) are covered within the ambit of specified domestic transactions.
As a matter of compliance and reporting, taxpayers need to obtain the chartered accountant’s certificate in Form 3CEB providing the details such as list of related parties, nature and value of specified domestic transactions (SDTs), method used to determine the arm’s length price for SDTs, positions taken with regard to certain transactions not considered as SDTs, etc. This has considerably increased the compliance burden of the taxpayers.
In order to reduce the compliance burden of taxpayers, it is proposed to provide that expenditure in respect of which payment has been made by the assessee to a person referred to in under section 40A(2)(b) are to be excluded from the scope of section 92BA of the Act. Accordingly, it is also proposed to make a consequential amendment in section 40(A)(2)(b) of the Act.
Income from transfer of Carbon Credits
Carbon credits is an incentive given to an industrial undertaking for reduction of the emission of GHGs (Green House gases).
Income-tax Department has been treating the income on transfer of carbon credits as business income which is subject to tax at the rate of 30%. However, divergent decisions have been given by the courts on the issue as to whether the income received or receivable on transfer of carbon credit is a revenue receipt or capital receipt.
Therefore, it is provided that such income shall be taxable at the concessional rate of 10% (plus applicable surcharge and cess) on the gross amount of such income.
No expenditure or allowance in respect of such income shall be allowed under the Act.
PROCEDURAL CHANGES / AMENDMENT:
Fee for delayed filing of return
There are very few tax payers in the country. Also out of the total income tax return fillers, many assesses are filing the belated return i.e. return filed after the due date.
Existing provision of Section 271F of the act prescribes that the income tax officer may levy the penalty of Rs. 5000/- for late filing of return. However, there are very rare cases where the penalty has been levied in small income tax returns.
To avoid all these practices, it is proposed to insert a new section 234F in the Act to provide that a fee for delay in furnishing of return shall be levied for assessment year 2018-19 and onwards in a case where the return is not filed within the due dates specified for filing of return under sub-section (1) of section 139. The proposed fee structure is as follows:—
- a fee of Rs. 5000/- shall be payable, if the return is furnished after the due date but on or before the 31st day of December of the assessment year;
- a fee of Rs. 10000/- shall be payable in any other case.
However, in a case where the total income does not exceed Rs. 500000/-, it is proposed that the fee amount shall not exceed Rs. 1000/-.
In view of above, it is proposed to make consequential amendment in section 140A to include that in case of delay in furnishing of return of income, along with the tax and interest payable, fee for delay in furnishing of return of income shall also be payable.
It means that at the time of filing of return, the system will automatically reflect the amount of penalty to be paid along with the tax which was not there in the present case as the power to levy the penalty is available with the jurisdictional assessing officer.
It is also proposed to make consequential amendment in sub-section (1) of section 143, to provide that in computation of amount payable or refund due, as the case may be, on account of processing of return under the said sub-section, the fee payable under section 234F shall also be taken into account.
It is therefore to be noted that, processing u/s 143(1) of the act will be done after considering the late filing fees and therefore, there will be liability to pay late fees or there will be less refund if the return has been filed belatedly without paying the late fees.
Consequentially, it is also proposed that the provisions of section 271F in respect of penalty for failure to furnish return of income shall not apply in respect of assessment year 2018-19 and onwards.
Penalty on professionals for furnishing incorrect information in statutory report or certificate
Under the Income Tax Act, 1961, the legislature has put a thorough thrust on the Chartered Accountant, merchant banker, registered valuer etc for certification of various reports and documents.
In order to ensure that the person furnishing report or certificate undertakes due diligence before making such certification, it is proposed to insert a new section 271J so as to provide that if an accountant or a merchant banker or a registered valuer, furnishes incorrect information in a report or certificate under any provisions of the Act or the rules made thereunder, the Assessing Officer or the Commissioner (Appeals) may direct him to pay a sum of Rs. 10000/- for each such report or certificate by way of penalty.
Strengthening of PAN quoting
In order to strengthen the PAN mechanism, it is proposed to insert new section 206CC to provide the following:
- any person paying any sum or amount, on which tax is collectable at source under Chapter XVII BB (hereafter referred to as collectee) shall furnish his Permanent Account Number to the person responsible for collecting such tax (hereafter referred to as collector), failing which tax shall be collected at the twice the rate mentioned in the relevant section under Chapter XVII BB or at the rate of five per cent. whichever is higher.
- that the declaration filed under sub section (1A) of section 206C shall not be valid unless the person filing the declaration furnishes his Permanent Account Number in such declaration.
- that in case any declaration becomes invalid under sub-section (2), the collector shall collect the tax at source in accordance with the provisions of sub-section (1)
- no certificate under sub section (9) of section 206C shall be granted unless it contains the Permanent Account Number of the applicant.
- the collector knows about the correct PAN of the collectee it is also proposed to provide for mandatory quoting of PAN of the collectee by both the collector and the collectee in all correspondence, bills and vouchers exchanged between them.
- that the collectee shall furnish his Permanent Account Number to the collector who shall indicate the same in all its correspondence, bills, vouchers and other documents which are sent to collectee.
- where the Permanent Account Number provided by the collectee is invalid or it does not belong to the collectee, then it shall be deemed that Permanent Account Number has not been furnished to the collector.
- to exempt the non-resident who does not have permanent establishment in India from the provisions of this proposed section 206CC of the Act.
- Extension of eligible period of concessional tax rate on interest in case of External Commercial Borrowing and Extension of benefit to Rupee Denominated Bonds
- Extension of eligible period of concessional tax rate under section 194LD
- Clarity relating to Indirect transfer provisions
- Modification in conditions of special taxation regime for off shore funds under section 9A
- Exemption of income of Foreign Company from sale of leftover stock of crude oil from strategic reserves at the expiry of agreement or arrangement
- Rationalization of provisions of section 115JB in line with Indian Accounting Standard (Ind-AS) Various clarifications have also been made by the Hon’ble Finance Minister.
- Extension of scope of section 43D to Co-operative Banks
- Increase in deduction limit in respect of provision for bad and doubtful debts
- Non-deduction of tax in case of exempt compensation under RFCTLAAR Act, 2013
- Exemption from tax collection at source under sub-section (1F) of section 206C in case of certain specified buyers
- Cost of acquisition in Tax neutral demerger of a foreign company
- Extension of capital gain exemption to Rupee Denominated Bonds
- Enabling claim of credit for foreign tax paid in cases of dispute