RECENT AMENDMENTS MADE BY

Transcription

1 RECENT AMENDMENTS MADE BY FINANCE ACT, 2016 PREPARED BY CA. SATISH MANGAL [Ph: ] (M.COM. F.C.A., LL.B)

2 SATISH MANGAL SMC (Ph.: ) INDEX FOR CONTENTS INDEX FOR CONTENTS (FINANCE ACT, 2016) S.NO. CHAPTER INDEX PAGE (i) Income Tax Rate Structure 1-2 (ii) Capital Gains 3-11 (iii) Profits and Gains of Business or Profession (iv) Taxation of Companies (Mat) (v) Taxation of Business Trusts (vi) Taxation of Securitisation Trusts (vii) Taxation of Foreign Companies (viii) Assessment of Trusts (ix) Tax Deducted At Source (TDS) (x) Tax Collected At Source (TCS) (xi) Advance Tax and Interest (xii) Transfer Pricing (xiii) Assessment Procedure (xiv) Appeals & Revisions (xv) Penalties (xvi) Collection, Recovery & Refunds (xvii) Deductions under Chapter VI-A (xviii) Salary and House property (xix) Taxation of Gifts and Miscellaneous Amendments ALL RIGHTS RESERVED WITH MR. SATISH MANGAL No part of this Book May be reproduced or transmitted in any form or by any means (including Photocopying) without the prior permission of MR. SATISH MANGAL

3 RECENT AMENDMENTS MADE BY FINANCE ACT, 2016 INCOME TAX RATES STRUCTURE Tax rates, Surcharge and Education cess, as applicable for assessment year , are summarized in the following table Type of Assessee Tax Rate Surcharge Education cess (Including SHEC) (1) Resident Individuals who is the age of 60 years or more (i.e. Senior Citizen) (2) Resident Individuals who is the age of 80 years or more (i.e. Super / Very Senior citizen) (3) Other Individuals, HUF, AOP, BOI (Whether resident Or non-resident) Up to ` 3,00,000/- : Nil ` 3,00,010 to 5,00,000/- : 10% ` 5,00,010 To 10,00,000/-: 20% Above ` 10,00,000/- : 30% Up to ` 5,00,000/- : Nil ` 5,00,010 To 10,00,000/-: 20% Above ` 10,00,000/- : 30% Up to ` 2,50,000/- : Nil ` 2,50,010 To 5,00,000/-: 10% ` 5,00,010 To 10,00,000/-: 20% Above ` 10,00,000/- : 30% 15% [Only where TI > 1 CRORE] 3% on (Tax + Surcharge) (4) Artificial Judicial Person --- Same as given in 3 rd Point (5) Firms (including LLP) 30% (6) Companies:- (i) Domestic company If its total turnover or Gross receipts in the P.Y > 5 Crores In otherwise case (ii) Foreign company 29% 30% 40% (7) Co-operative Societies Up to ` 10,000/- : 10% ` 10,010 To 20,000/- : 20% Above ` 20,000/- : 30% 15% [Only where TI > 1 CRORE] 12% [Only where TI > 1 CRORE] IF, in case of Domestic Co., TI > 1CRORE : NIL 10 CR. < TI > 1CRORE : 7% TI > 10CRORES : 12% IF, in case of Foreign Co., TI > 1CRORE : NIL 10 CR. < TI > 1CRORE : 2% TI > 10CRORES : 5% 12% [Only where TI > 1 CRORE] 3% on (Tax + Surcharge) 3% on (Tax + Surcharge) 3% on (Tax + Surcharge) % on (Tax + Surcharge) 3% On (Tax + Surcharge) (8) Local Authorities 30% 12% [Only where TI > 1 CRORE] 3% on (Tax + Surcharge) 1

4 *CIRCULAR NO. 28/2016 DATED : Higher tax exemption limits have been prescribed for resident senior citizen / very senior citizens under the Act. A doubt has been raised about the attainment of the aforesaid qualifying ages for availing higher exemption in cases of the persons whose date of birth falls on 1st April of calendar year. In other words, the broader question under consideration is whether a person born on 1st April of a particular year can be said to have completed a particular age on 31st March, on the preceding day of his/her birthday, or on 1st April itself of that year. Although specific provision does not exist in this regard under the Income-tax Act, 1961, the Hon'ble Supreme Court had an occasion to consider a similar issue in the case of Prabhu Dayal Sesma. In this judgment, Apex Court observed that while counting the age of the person, whole of the day should be reckoned and it starts from 12 O'clock in the midnight and he attains the specified age on the preceding, the anniversary of his birthday. In view of the aforesaid judgment, the Central Board of Direct Taxes hereby clarifies that a person born on 1st April would be considered to have attained a particular age on 31st March, the day preceding the anniversary of his birthday. Meaning there by, an individual who is born on 1/4/1957 or 1/4/1937 will be considered senior citizen (eligible for slab of ` 3,00,000) or super senior citizen (eligible for slab of ` 5,00,000) respectively for the previous year ended 31/3/ Amendment of Section 87A: Rebate of income-tax in case of certain individuals - Rebate under section 87A will be available if the following two conditions are satisfied- (1) Taxpayer is a resident individual (he may be ordinarily resident or not ordinarily resident). (2) His total income (i.e. GTI minus Deductions under section 80C to 80U) is ` 5 lakhs or less. Quantum of rebate: The amount of rebate is- 100 % of income tax payable on total income OR ` 2,000 ` 5,000, (whichever is less) This rebate will be available from income-tax (before adding education cess). EFFECT OF CHANGE IN THE RATE OF SURCHARGE, IN CASE OF INDIVIDUAL, ON MAXIMUM MARGINAL RATE (MMR): 30% + 3.6% (i.e. 12% of 30%) % (i.e. 3% of 33.6%) = % 30% + 4.5% (i.e. 15% of 30%) % (i.e. 3% of 34.5%) = %. 2

5 CAPITAL GAINS Amendment of Section 2 (14): Definition of Capital Asset :- Capital asset means Property of any kind... (i) (ii) (iii) (iv) But does not include. Any stock-in-trade... Personal Movable Assets Rural Agriculture land Gold deposit bonds issued under the Gold Deposit Scheme, 1999 or Deposit certificates issued under Gold Monetisation Scheme, 2015 notified by the CG. BOLD WORDS ADDED BY F. A., 2016 OBJECT FOR ABOVE AMENDMENT: With a view to give parity in tax benefit which are available to Gold Deposit Scheme, 1999 to the Gold Monetisation Scheme (as introduced by the Govt. of India), above amendment has been made. Corresponding theme has also been adopted in section 10(15), where interest income of these bonds is exempt. RESULT: Interest earned on Gold deposit bonds or Deposit certificates issued under Gold Monetisation Scheme, 2015 and Capital Gain arising from their transfer or redemption would be exempt from tax. TYPES OF CAPITAL ASSETS (1) Short term Capital asset: [Section 2(42A)] It means a capital asset held by an assessee for not more than 36 months immediately prior to its date of transfer. However, in the following cases, an asset, held for not more than 12 months, is treated as STCA: Security (other than unit) listed in a recognized stock exchange in India. Units of UTI or units of an equity oriented fund. Zero Coupon Bonds. AMENDMENT MADE BY FINANCE ACT, 2016: This section has been amended to provide that in case of unlisted shares, the term 36 Months shall be substituted by 24 Months. In other words, share in unlisted company will be a short term capital asset only if it is held for not more than 24 months immediately preceding date of transfer. (2) An asset other than short term capital asset is regarded as a long term capital asset. [Sec. 2(29A)] Minimum period of holding to become long-term capital asset and qualifying for all related benefits like indexation, concessional tax rate, and exemption u/s 54EC, etc.: 3

6 S. No. Capital Asset Holding period should more than.. (1) Listed shares (whether Equity or preference) 12 Months (2) Unlisted shares (whether Equity or preference) 24 Months (3) Listed security (OTHER THAN UNIT) like debenture, etc. 12 Months (4) Units of UTI (listed / unlisted) 12 Months (5) Units of Equity oriented mutual fund (listed / unlisted) 12 Months (6) Units of Debt oriented mutual fund (listed / unlisted) 36 Months (7) Zero coupon bonds (listed / unlisted) 12 Months (8) Any other capital asset (like units of business trust,etc.) 36 Months Amendment of Section 47: Certain transactions not regarded as transfer : AMENDMENT NO. 1: This Finance Act has inserted a new clause (viic) to provide that- Any redemption of Sovereign Gold Bond issued by RBI under the Sovereign Gold Bond scheme, 2015, by an individual shall not be considered as transfer. EXPLANATORY REMARKS:- (1) The exemption is available only to an individual and not to other assessees such as HUFs, etc. (2) The transfer is exempt only if it is by way of redemption. In other words, a transfer before redemption by the original subscriber or transferee of bonds is not exempt. However, if the transferee holds the bonds till redemption then, he would be eligible for the exemption. (3) Practically, the Sovereign Gold Bond bears 2.75% per annum. No exemption is provided to such interest. AMENDMENT NO. 2: This Finance Act has amended clause (xiiib) which deals with conversion of Private Company or unlisted public company companies into LLP. Under the existing provisions: If a private company or unlisted public company is converted into an LLP, then on fulfillment of certain conditions, such conversion is not treated as transfer and hence no capital gain tax arises. Under the amended version: A new condition, in addition to existing conditions, has been added which is as follows: The total value of the assets as appearing in the books of account of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed five crore rupees. 4

7 AMENDMENT NO. 3: Exemption in case of Merger of mutual fund plans with in a scheme: REASON AND CORRESPONDING AMENDMENT:- The SEBI has issued guidelines for consolidation of mutual fund plans with in a scheme. In order to facilitate consolidation of such plans of mutual fund scheme in the interest of the investors and to provide tax neutrality to unit holders upon consolidation / merger of plans of mutual fund scheme, a new clause (xix) is inserted by Finance Act, 2016 in section 47 which provides as follows: Any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating plan of a mutual fund scheme, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated plan of that scheme of the mutual fund, shall not be treated as transfer. Explanation: For the purposes of this clause (a) Consolidating plan means the plan with in a scheme of a mutual fund which merges under the process of consolidation of the plans within a scheme of mutual fund in accordance with the SEBI (Mutual Funds) Regulations, 1996 made under the SEBI Act, (b) Consolidated plan means the plan with which the consolidating plan merges or which is formed as a result of such merger. OMISSION ABOUT COST OF ACQUISITION OF NEW UNITS AND ADOPTION OF PERIOD OF HOLDING OF OLD UNITS: No corresponding amendment has been made in section 49 to the effect that for the purposes of computation of capital gains upon sale of the new units obtained, the cost of acquisition shall be the cost of acquisition of old units. Further, no amendment has been made in section 2(42A) to provide that in determining the period for which the new unit is held by the assessee, there shall be included the period for which the old unit was also held. The aforesaid omission appears to be inadvertent (i.e. unintentional). Rationally, cost of acquisition of old units and the period for which the old units was held should be considered at the time of computation and determining the nature of capital gain on transfer of new units. Amendment of Section 48: Method of computation of capital gain:- AMENDMENT NO. 1: As per IIIrd proviso to section 48- benefit of Indexation shall not be allowed in the computation of long term capital gain arising from the transfer of bonds and debentures other than- (a) Capital indexed bonds issued by the Government; or (b) Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold 5

8 Bond Scheme, AS INSERTED BY F. A., 2016 AMENDMENT NO. 2: The Reserve Bank of India has recently permitted Indian corporates to issue Rupee Denominated Bonds (RDB) outside India as a measure to enable them to raise funds from outside India. With a view to provide relief to non-resident investor who bears the risk of currency fluctuation, a new proviso i.e. IVth proviso has been inserted in section 48 which provides as follows: In case of an assessee being a non-resident, any gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company subscribed by him, shall be ignored for the purposes of computation of full value of consideration under this section. In other words, the capital gains arising in case of appreciation of rupee against the foreign currency between the date of issue and the date of redemption shall be exempt. For Example: A Ltd. (an Indian company) issues Rupee Denomiunated Bonds of ` 10,000/- each. Mr. P (nonresident) subscribed such bonds of `13,80,000/- as on (on which date exchange rate was 1$ = ` 69), accordingly Mr. P remitted $ 20,000. the Bonds were redeemed at par on when 1$ = ` 66. Mr. P receives `13,80,000/- from A Ltd. and remit $ to foreign country. In this case, by virtue of new proviso as inserted by Finance Act, 2016, capital gain of $909 (`60,000/-viz. 3 x $20,000) arising on account of appreciation in rupee, will be exempt. NOTIFIED COST INFLATION INDEX FOR FINANCIAL YEAR IS Amendment of Section 55 : Cost of Acquisition and Cost of Improvement:- (1) In relation to a capital asset being: - goodwill of a business,. - Right to carry on any Business or PROFESSION, UNDERLINED WORDS ARE ADDED BY F. ACT, 2016 cost of acquisition means- (i) in case such asset is acquired by the assessee by purchase from a previous owner: the amount of purchase price (ii) in any other case: Nil. (2) In relation to a capital asset being: - goodwill of a business,. - Right to carry on any Business or PROFESSION, UNDERLINED WORDS ARE ADDED BY F. ACT, 2016 cost of improvement shall be taken as NIL. 6

9 ANALYSIS OF AMENDMENT:- Provisions relating to cost of acquisition as well as cost of improvement (as provided in section 55) separately refers to goodwill of a business and right to carry on any business. Means, section distinguish between goodwill of a business and right to carry on any business. While right to carry on any profession has been added, there is no amendment to provide that goodwill of a profession shall also be reckoned in the said definition. The CBDT vide Circular No. 495 dated , has also clarified that section 55 does not apply to goodwill of professional firms. Hence on a plain reading of the provision and upon application of the Board Circular, it is evident that the goodwill of a profession not governed by the aforesaid section 55 and its treatment would be governed by general principles. In the case of CIT v/s B. C. Srinivasa Setty, the Supreme Court has held that where computation provisions fails then there is no use of charging section. Since cost of goodwill of profession is indeterminable, the said principle continues be applicable, means, there will be no charge on transfer of goodwill of a profession, even after the amendment, the gain arising upon transfer of goodwill of a profession are not taxable. Amendment of Section 49: Deemed cost of acquisition:- Observation and corresponding insertion:- Under the income declaration scheme, 2016, a person may declare asset acquired out of undisclosed income. In such case, the fair market value of the asset on the date of commencement of scheme (i.e. 1 st June, 2016) shall be deemed to be undisclosed income and assessee will be required to pay tax (viz. 30% of FMV), surcharge (viz. 25% of Tax) and penalty (viz. 25% of Tax), which comes to 45% of FMV of asset. Corresponding insertion: A new sub-section (5) in section 49 has been inserted to provide for cost of acquisition of asset declared under the income declaration scheme, 2016, which is as follows: Where the capital gain arises from the transfer of an asset declared under the Income Declaration Scheme, 2016, and the tax, surcharge and penalty have been paid in accordance with the provisions of the Scheme on the FMV of the asset as on the date of commencement of the Scheme (i.e. 1 st June, 2016), the cost of acquisition of the asset shall be deemed to be the fair market value of the asset which has been taken into account for the purposes of the said Scheme. Amendment of Section 50C: Special provisions for sale consideration in certain cases: Existing Legal Position: 7

10 Where the consideration received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed or assessable by the stamp valuation authority (i.e. stamp duty value) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall be deemed to be the full value of consideration, and capital gains shall be computed on the basis of such consideration u/s 48 of the Income tax Act. INSERTION MADE BY FINANCE ACT, 2016: Observation and corresponding amendments about Date of determination of stamp duty value: Generally, stamp duty value is taken on the date of registration of the immovable property. Prior to amendment, where an assessee had entered into an agreement to sell an immovable property at a value not less than stamp duty value and subsequently when the registry was done, the stamp duty value increased and it exceeded the sale consideration fixed in the agreement to sell, In such a case, there was no relief / option to take stamp duty value of the date of agreement. But this Finance Act has amended this section as follows: Where the date of the agreement fixing the amount of consideration for the transfer of the capital asset and the date of registration are not the same, the value adopted or assessed or assessable by the stamp valuation authority (i.e. stamp duty value) on the date of agreement may be taken for computing full value of consideration for such transfer However, the said proviso shall apply only in a case where the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of the agreement for transfer. Amendment in Chapter VII of Finance Act, 2004 Securities Transaction Tax ('STT') is not applicable on transactions entered into by a person on a recognized stock exchange located in International Financial Services Centre (IFSC), where consideration is paid or payable in foreign currency. Amendment of Section 10(38): LTCG Exempt in case of securities covered by STT:- Existing Legal Position: Any long term capital gain arising from the transfer of an equity share in a company or a unit of an equity oriented fund or a unit of Business trust, shall be exempt, Provided such transaction is chargeable to Securities Transaction Tax. Under the amended version:- 8

11 A proviso has been inserted in this section to provide that even if a transaction is not chargeable to STT, the exemption under this section shall still be available if: (1) It is undertaken on a recognised stock exchange located in any International Financial Service Centre, and (2) The consideration for such transaction is paid or payable in foreign currency. For this purpose, International Financial Service Centre means an International Financial Service Centre which has been approved by the Central Government u/s 18(1) of SEZ Act, Amendment of Section 111A: Tax On Short Term Capital Gains In Certain Cases:- Existing Legal Position: Any short term capital gain arising from the transfer of an equity share in a company or a unit of an equity oriented fund or a unit of Business trust shall be chargeable to 15% Provided such transaction is chargeable to Securities Transaction Tax. Under the amended version:- A proviso has been inserted in this section to provide that even if a transaction is not chargeable to STT, above concessional tax rate i.e. 15% shall still be applicable if: (1) It is undertaken on a recognised stock exchange located in any International Financial Service Centre, and (2) The consideration for such transaction is paid or payable in foreign currency. Amendment of Section 112: Tax on long term capital gains :- Prior to amendment- In case of a non-resident, the amount of income tax on long-term capital gains arising from the transfer of unlisted securities 10% on such capital gains as computed without giving effect to the first and second proviso to section 48. For this purpose, unlisted securities mean securities other than those which are listed on any recognised stock exchange in India. A dispute has been arisen on the issue that whether shares in a private company are securities? With a view to clarify the position, the above provision has been amended to provide that apart from unlisted securities, unlisted shares shall also be covered and accordingly, the capital gains in respect of such shares shall also be 10% without giving effect to the first & second proviso to section 48. Amendment of Section 54GB: Capital gain on transfer of residential house property:- Relevant conditions for claiming exemption:- This exemption is available to an individual or a Hindu undivided family. 9

12 Assessee transfers a long-term capital asset, being a residential property (a house or a plot of land). The transfer should take place on or before 31 st March, Provided that in case of an investment in eligible start-up, this provision has been extended to cover transfer of residential property upto 31 st March, The assessee will have to utilize the net sale consideration for subscription in equity shares in an "eligible company" before the due date of furnishing of return of income u/s 139 (1). The "eligible company" should utilize this amount for the purchase of a "new asset" within one year from the date of subscription in equity shares. If, however, the company does not utilize this amount for the purchase of a "new asset" before the due date of furnishing of return of income by the assessee (i.e. transferor of residential property), it shall be deposited by the company in capital gain deposit account. In such a case, exemption would be available on the basis of amount deposited in the deposit account. Eligible company" means a company which satisfies the following conditions- (1) It is incorporated on or after April 1 (of the previous year in which residential property is transferred) but on or before the due date of submission of return of income under section 139(1) by the assessee (i.e. transferor of residential property). (2) It is engaged in the business of manufacture of any article or thing or in an eligible business. (3) The assessee (i.e. transferor of residential property) has more than 50 percent share capital (or voting right) after subscription in shares by the assessee. (4) The company qualifies to be a SME (i.e. small or medium enterprise) under the Micro, Small and Medium Enterprises Act, 2006 (i.e. where the investment in plant and machinery is more than 25 lakhs but not more than 10 crore), or is an eligible start-up. Eligible business means a business which involves innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property. Eligible start-up means a company engaged in eligible business which fulfils the following conditions, namely: (a) it is incorporated on or after the 1 st April, 2016 but before 1 st April, 2019; (b) the total turnover of its business does not exceed ` 25 crore rupees in any of the previous years between 1 st April, 2016 to 31 st March, 2021; and (c) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified by the Central Government. 10

13 New asset means new plant and machinery but does not include the following- (1) Any plant or machinery which is used in India or outside India by any person before its installation by the eligible company. (2) Any plant or machinery which is installed in office premises/ residential accommodation or guest houses. (3) Any office appliance. (4) Computers or Computer software* (5) Any vehicle (6) Any plant or machinery which is allowed 100 per cent deduction (by deprecation or otherwise) in any previous year. * AMENDMENT MADE BY FINANCE ACT, 2016:- With a view to avoid the incidence of the aforesaid condition on start-ups where computers or computer software form the core asset base owing to nature of business activity, this section has been amended to provide that the expression new asset includes computer or computer software in case of technology driven start ups so certified by the Inter-Ministerial Board of Certification as notified by the Central Government. (2) Quantum of exemption:- Investment in "new asset" by the eligible company Capital gains X Net sale consideration Net sale consideration is sale consideration minus expenditure on transfer incurred by the transferor. (3) Withdrawl of exemption:- In the following cases, exemption will be taken back and the amount of exemption (or proportionate exemption) given earlier under section 54GB will become long-term capital gain of the assessee (i.e. transferor of residential property). It shall be taxable in the year in which the assessee or the eligible company commits the following defaults- 1. If the equity shares in the eligible company are sold or otherwise transferred by the assessee within 5 years from the date of acquisition. 2. If the "new asset" is sold or otherwise transferred by the eligible company within 5 years from the date of acquisition. 3. If the deposit account is not utilized fully or partly by the eligible company for purchasing the new asset within 1 year from the date of subscription in equity shares (by the assessee). Insertion of Section 54EE: Capital gain exempt on investment in units of specified fund: 11

14 Conditions for applicability of this section:- (1) The assessee has transferred a long term capital asset. (2) He has invested the whole (or any part) of capital gain in long-term specified asset For this purpose, Long- term specified asset means a unit or units, issued before 1 st April, 2019, of such fund as may be notified by the Central Govt. in this behalf to promote / finance start-ups. Such investment can be made at any time with in 6 months from the date of transfer of original asset. The amount of such investment by an assessee during any financial year can not exceed `50,00,000. Moreover, investment made by an assessee in long-term specified asset, out of capital gains arising from transfer of one or more original assets, during the financial year in which the original asset / assets are transferred and in the subsequent financial year should not exceed `50,00,000. Quantum of exemption: Amount of capital gain OR amount invested in long-term specified assets, WHICHEVER IS LOWER. Withdrawl of exemption: The long-term specified assets should not be transferred (not even loan or advance is taken on security of such assets) with in 3 years from the date of acquition. If long-term specified assets are transferred (or loan / advance is taken on security of such assets) with in 3 years, the amount of exemption given earlier will be withdrawn and it shall be chargeable to tax as long-term capital gain in the year in which such specified assets are transferred (or loan / advance is taken). "PROFITS AND GAINS OF BUSINESS OR PROFESSION" Amendment of Section 28: Chargeability:- This section, inter alia, provides as follows: Any sum received or receivable in cash or in kind under an agreement for Not carrying out any activity in relation to any business OR PROFESSION shall be chargeable to tax under the head Profits or gains of business or profession. However, the above provision shall not apply in the following case- Any sum, whether received or receivable, in cash or kind on account of transfer of the right to carry on any business OR PROFESSION, which is chargeable under the head "capital gains. Amendment of Section 32 (1) (iia) : Additional Depreciation:- Presently, any person who is engaged in the business of: Manufacture or production of any article or thing, or 12

15 in the business of generation or generation and distribution of power is entitled to claim depreciation in respect of cost of new plant and machinery. Observation and corresponding amendment:- The benefit of additional depreciation is not available in respect of new plant and machinery installed by an assessee who is in the business of only transmission or distribution of power. But, after the amendment:- An assessee who is engaged in the business of only transmission or distribution of power shall also be eligible to claim additional depreciation at the rate of 20% of actual cost of new machinery or plant. Amendment of Section 32AC: Investment allowance for acquisition and installation of new P & M :- Existing Legal Position: (1A) Relevant conditions for claiming deduction under section 32AC (1A) i.e. 25 Crores Scheme: Investment allowance will be available if the following conditions are satisfied- The assessee is a company. It is engaged in the business of manufacture or production of any article or thing. It has acquired and installed a new asset. New asset for this purpose is a new plant or machinery. But it does not include the following: (a) Any plant or machinery which before its installation by the assessee was used either within or outside India by any other person. (b) Any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house.; (c) Any office appliances including computers or computer software; (d) Any vehicle; (e) Ship or aircraft; or (f) Any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any previous year. The amount of actual cost of such new asset acquired and installed during any previous year exceeds 25 CRORES. Observation and corresponding Amendment:- The dual condition of acquisition and installation in the same year caused genuine hardship in cases in which assets acquired could not be installed in the same previous year, to remove this hardship, this section has been amended for the assessment year and

16 Under the modified version: Deduction shall be allowed if - (a) Actual cost of new asset acquired by a company in a previous year should be more than ` 25 crores, and (b) Installation of the above asset should be completed on or before 31 st March, Deduction will be available in the year of acquisition of new asset. However, where the installation of the new asset is in a year other than the year of acquisition, deduction will be allowed in the year in which the new asset is installed. QUANTUM OF DEDUCTION:- 15 % of the ACTUAL COST of such NEW ASSETS. (1B) No deduction under sub-section (1A) shall be allowed for any assessment year onwards. Insertion of Section 35ABA: Expenditure for obtaining right to use spectrum for telecommunication services:- This section provides for tax treatment of spectrum fee paid by an assessee pursuant to airwaves. Where spectrum fees for acquiring any right to use spectrum for telecommunication services being in the nature of capital expenditure has actually been paid before the date of commencement of business, deduction under this section shall begin from the previous year in which business is commenced, but Where it has actually been paid after the commencement of business, deduction under this section shall begin from the previous year in which spectrum fees is actually paid. And in both the above cases, it shall be allowed up to the previous year in which the spectrum comes to end. Has actually been paid means the actual payment of expenditure irrespective of the previous year in which the liability for the expenditure was incurred according to the method of accounting regularly employed by the assessee or payable in such manner as may be prescribed. QUANTUM OF DEDUCTION:- (i) (ii) Where payment has been made before the commencement of business:- Spectrum fees paid = P/Y in which business commences TO the P/Y in which Spectrum expires Where payment has been made after the commencement of business:- = Spectrum fees paid P/Y in which Spectrum Fee actually paid TO the P/Y in which Spectrum expires Where, in a previous year, any deduction has been claimed and granted to the assessee under this section, and, subsequently, there is failure to comply with any of the provisions of this section, then, 14

17 (a) The deduction shall be deemed to have been wrongly allowed; (b) The Assessing Officer may re-compute the total income of the assessee for the said previous year and make the necessary rectification; (c) Such rectification can be made with in 4 years from the end of the previous year in which the failure to comply with the provisions of this section takes place. THE PROVISIONS CONTAINED IN SUB-SECTION (2) TO (8) OF SECTION 35ABB (i.e. TREATMENT RELATING TO AMALGAMATION OR DEMERGER AND SALE OF LICENCE AS GIVEN IN SECTION 35ABB), SHALL APPLY AS IF FOR WORD LICENSE THE WORD SPECTRUM HAD BEEN SUBSTITUTED. Amendment of Section 36(1)(viia): Deduction of Provision of bad & doubtful debts:- Eligible Assessee Quantum of deduction (1) Banks incorporated with in India 7.5% of Gross Total Income (before deduction under this clause); and 10% of Aggregate Average Advances as made by Rural branches. (2) Banks incorporated outside India 5% of GTI (before deduction under this clause) (3) Public Financial Institutions; or State Financial Corporations; or State Industrial Investment Corporations. 5% of Gross Total Income (before deduction under this clause) INSERTION MADE BY FINANCE ACT, 2016: (4) Non banking financial company 5% of GTI (before deduction under this clause) Reason for above amendment: In the case of Art Leasing Ltd. v/s CIT, the Kerala High Court has held that NBFCs are not covered by section 36(1)(viia) and therefore, they are not entitled to deduction of any provision created for bad & doubtful debts, even though such provision is created based on guidelines issued by RBI. Considering the fact that NBFCs are also engaged in financial lending to different sectors of society, the scope of above provision has now been extended. Amendment of section 2(24)(xviii): Definition of income:- Assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than - 15

18 (a) the subsidy or grant or reimbursement which is taken into consideration for determination of actual cost of the asset in accordance with the provisions of Explanation 10 to section 43(1),or (b) the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government, as the case may be will be taxable as income. EXPLANATORY REMARKS: To place outside from tax net the subsidy or grant provided by the Central Government for budgetary support of a trust or any other entity formed specifically for operationalizing certain Govt. schemes, this section has further been amended by Finance act, However, the following are not covered by this amendment (or in the following cases, grant or subsidy is treated as income in the hands of recipient)- (a) Subsidy or grant by the Central Govt. for the purpose of corpus of a trust or institution established by a local authority. (b) Subsidy or grant by a State Govt. the purpose of corpus of a trust or institution established by the State Govt. or local authority. Insertion of Section 40(a)(ib): Amounts not deductible:- - Any consideration paid or payable to a non-resident - for specified services - on which equalisation levy is deductible under chapter VIII of Finance Act, 2016, and - such levy has not been deducted or - after deduction, has not been paid on or before the due date specified in section 139(1) - shall not be allowed as deduction. Provided that where in respect of any such consideration, The equalisation levy has been deducted in any subsequent year, or has been deducted during the previous year but has been paid after the due date specified in section 139(1), such sum shall be allowed as a deduction in computing the income of the previous year in which such levy has been paid. Meaning of specified services: Specified service means online advertisement, any provision for digital advertising space or any other facility / service for the purpose of online advertisement and includes any other service as may be notified by the Central Government in this behalf. CONCEPT OF EQUALISATION LEVY Since business may be conducted in digital domain without regard to national boundaries, it has been seen that certain non-residents not having permanent establishment i.e. fixed place of 16

19 business in India like Google, etc. receives payments for online advertisement and digital marketing i.e. providing cyber space, etc. from- (1) Person resident in India and carrying on business or profession; (2) Non-resident having permanent establishment i.e. fixed place of business in India, are not taxable in their hands in India (in accordance with DTAAs) because they do not permanent establishment in India. On the other hand, payer i.e. Indian resident or non-resident having permanent establishment in India claims the deduction of his payment which is ordinarily allowable. Rationally, if expense is being allowed to payer in aforesaid situation then, even if this receipt is not liable for income tax in the hands of recipient (non-resident not having permanent establishment in India), certain revenue should be collected on such amount to the Govt. of India. With this object, the concept of equalisation levy has been introduced through Chapter VIII of Finance Act, Relevant Extract of this Chapter VIII of Finance Act, 2016 Charge of equalisation levy: Equalisation levy shall be charged at the rate of 6% of the amount of consideration for any specified service received or receivable by a person, being a non-resident from (i) a person resident in India and carrying on business or profession; or (ii) a non-resident having a permanent establishment in India. The equalisation levy is not applicable in the following cases (a) If the non-resident specified service provider has a permanent establishment in India and income from specified service is effectively connected with this permanent establishment; (b) Where the payment for the specified service by the person resident in India, or the permanent establishment in India is not for the purposes of carrying out business or profession; or (c) If the aggregate amount of consideration for specified services received or receivable in a previous year by the non-resident from a person resident in India, or from a non-resident having a permanent establishment in India, does not exceed one lakh rupees. Collection and recovery of equalisation levy: Every person, being a resident and carrying on business or profession or a non-resident having a permanent establishment in India (here in this Chapter referred to as assessee) shall deduct equalisation levy from the amount paid / payable to a non-resident in respect of specified service. The equalisation levy so deducted by the payer shall be paid to the credit of the Central Govt. by the 7 th day of the month immediately following the month in which such levy is collected. Any assessee (i.e. payer) who fails to deduct the equalisation levy shall be liable to pay the levy to the credit of the Central Government as above. 17

20 Section 10(50): Any income arising from any specified service provided on or after 1/6/2016 and chargeable to Equalisation levy SHALL BE EXEMPT FROM INCOME TAX Amendment of Section 43B: Certain deduction to be only on actual payment:- With a view to ensure prompt payment of dues to railways for use of railway assets, the scope of above section has been extended i.e. following insertion has been made. Any sum payable by the assessee to the Indian Railways for the use of railway assets shall be allowed as deduction only if payment is actually made either during the relevant previous year or on or before the due date for furnishing of return of income. However, if the payment is made after the due date for filing the return, deduction can be claimed only in the year of actual payment, not in the year in which liability was incurred Amendment of Section 44AD: Special Provisions For Computing Profits & Gains Of BUSINESS On Presumptive Basis:- AMENDMENT NO. 1: INCREASE IN THRESHOLD TURNOVER LIMIT:- To qualify for presumptive tax under this section, one of the condition was: Total turnover / gross receipt in the previous year of the eligible business should not exceed 100 lakhs. After the amendment, This limit has been increased to 200Lacs. AMENDMENT NO. 2: DISCONTINUENCE OF DEDUCTION OF PARTNER S INTEREST & REMUNIRATION, AND EXEMPTION OF ADVANCE TAX PAYMENT: Under this section, the income from the eligible business is estimated at 8% of the gross receipt or total turnover. All deductions under section 30 to 38 including depreciation and unabsorbed depreciation, are deemed to have been already allowed. However, in the case of a firm, the normal deduction in respect of salary and interest to partners [subject to section 40(b)] shall be allowed. An assessee opting for the above scheme is exempted from payment of advance tax related to such business. But, After the amendment, No deduction in respect of salary and interest to partners shall be allowed to the firm. Advance tax payment exemption will not be available from assessment year Such an assessee will have to pay advance tax during the financial year immediately prior to the assessment year (100% of tax relating to such business shall be paid by way of advance tax on or before 15 th March of the financial year immediately prior the assessment year). AMENDMENT NO. 3: OPTION TO DECLARE LOWER INCOME AND ITS CONSEQUENCES:- 18

21 A tax payer can declare his income to be lower than the deemed profits and gains as stated above. The following consequences are applicable if the tax payer declares his income which is lower than the deemed profits and gains as stated above:- (1) The tax payer will have to maintain the books of account as per section 44AA (irrespective of income or turnover) if his total income exceeds the exemption limit. (2) The tax payer will have to get his books of account audited under section 44AB (irrespective of turnover) if his total income exceeds the exemption limit. Under the amended version Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section (i.e. 8% of the total turnover) and he declares profit for any of the five consecutive subsequent assessment years not in accordance with the provisions of this section, he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of this section. Sub-section (4) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required- (1) To keep and maintain such books of account and other documents as required under section 44AA (irrespective of income or turnover); and (2) To get them audited and furnish a report of such audit as required under section 44AB (irrespective of turnover). Sub-section (5) Consequential amendments have been made in section 44AA And 44AB:- (1) Section 44AA: Where the person carrying on eligible business, is covered u/s 44AD(4), and if his total income exceeds the maximum amount which is not chargeable to tax, Then such person is required to maintain such books of account or other documents as may enable the AO to compute their taxable income. (2) Section 44AB: Where the person carrying on eligible business, is covered u/s 44AD(4), and if his total income exceeds the maximum amount which is not chargeable to tax, Then such person gets his accounts audited and furnishes the report of such audit in prescribed form, duly signed and verified by a Chartered Accountant, on or before the due date for filing the return of income u/s 139(1). PRESS RELEASE, DATED Section 44AB makes it obligatory for every person carrying on business to get his accounts of any 19

22 previous year audited if his total sales, turnover or gross receipts exceed one crore rupees. However, if an eligible person opts for presumptive taxation scheme as per section 44AD, he shall not be required to get his accounts audited if the total turnover or gross receipts of the relevant previous year does not exceed two crore rupees. The higher threshold for non-audit of accounts has been given only to assessees opting for presumptive taxation scheme under section 44AD Insertion of Section 44ADA: Special provision for computing profits and gains of CONDITIONS FOR APPLICABILITY OF NEW SECTION:- profession on presumptive basis:- (1) The assessee is resident and engaged in a profession referred to in section 44AA(1) like legal, medical, engineering, etc. (2) Gross receipts of the assessee from the profession do not exceed ` 50 lacs. If the above two conditions are satisfied, the income of the assessee is estimated at 50% of the gross receipt. The following points should be noted- (a) The assessee can voluntarily declare a higher income in his return. (b) All deductions under section 30 to 38 including depreciation and unabsorbed depreciation, are deemed to have been already allowed. The written down value is calculated, where necessary, as if depreciation as applicable has been allowed. Moreover, it will be assumed that disallowance, if any, under sections 40, 40A and 43B has been considered while calculating the estimated 50 percent. OPTION TO DECLARE LOWER INCOME: An assessee can declare his income to be lower than the deemed profits and gains as stated above. The following consequences are applicable if the tax payer declares his income which is lower than the deemed profits and gains as stated above:- (i) The tax payer will have to maintain the books of account as per section 44AA (irrespective of income or turnover) if his total income exceeds the exemption limit. (ii) The tax payer will have to get his books of account audited under section 44AB (irrespective of turnover) if his total income exceeds the exemption limit. Consequential clarificatory amendment in section 44AB:- Where any person carrying on profession referred to in section 44ADA and claming his income from any such profession to be lower than the income prescribed under this relevant section and if his total income exceeds the maximum amount which is not chargeable to tax Then such person gets his accounts audited and furnishes the report of such audit in prescribed form, duly signed and verified by a Chartered Accountant, on or before the due date for filing the return of income u/s 139(1). 20

23 Other amendment in section 44AB: In addition to amendments as discussed with section 44AD and 44ADA, one more amendment has been brought in section 44cAB relating to increase in threshold limit in case of profession. `25Lacs. The threshold limit, in case of profession, has been increased to `50Lacs from the existing ASSESSMENT OF COMPANIES Amendment of Section 115JB: "MINIMUM ALTERNATIVE TAX" :- AMENDMENT NO. 1: Following amendments have been made in the definition of computation of Book profit (liable for MAT): (i) Amount of expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF, will be added back in computing Book profit. [New Clause (fd)] (ii) The amount of income by way of royalty in respect of patent chargeable to tax under section 115BBF, will be reduced in computing Book profit. [New Clause (iig)] Crux of these insertions Royalty income in respect of patent chargeable to tax under section 115BBF, will not be liable for MAT. AMENDMENT NO. 2: INSERTION OF NEW EXPLANATION: EXCLUSION OF CERTAIN FOREIGN COMPANIES FROM MAT:- With a view to provide certainty in taxation of foreign companies, it is proposed to amend the income tax Act so as to provide that with effect from assessment year , the provisions of section 115JB i.e. MAT shall not be applicable to a foreign company if- (i) the assessee is a resident of a country or a specified territory with which India has an agreement u/s 90 or 90A and the assessee does not have a permanent establishment in India in accordance with the provisions of such agreement; or (ii) the assessee is a resident of a country with which India does not have an agreement under section 90 or section 90A and the assessee is not required to seek registration under any law for the time being in force relating to companies. AMENDMENT NO. 3: MAT AT LOWER RATE IN CASE OF UNIT LOCATED IN IFSC:- - Notwithstanding anything contained in sub-section (1), - In case of a company being a unit located in an International Financial Services Centre and - derives its income solely in convertible foreign exchange, - the rate of MAT shall be 9% instead of 18.5%. 21