Summary of Union Budget Proposals

Transcription

1 Summary of Union Budget Proposals Proposals related to Direct Tax as proposed by the Honourable Finance Minister of India during presenting the Union Budget in July 2014 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

2 Direct Tax Proposals Union Budget, July 2014 A. The DISHES most talked in the Finance (No. 2) Bill, 2014 THALI is - Tax Rates, Deduction u/s 80C and Interest on Housing Loan 1. A Beacon of hope for individual/huf tax payers - No change in basic tax rate and rate of surcharge/cess. - Basic exemption limit in case of individual, HUF and AOP has been increased from Rs. 2 lacs to Rs lacs. - In case of senior citizens of the age of 60 years or more but less than 80 years, basic exemption limit increased from Rs lacs to Rs.3 lacs - Rebate u/s 87A for individuals having income upto Rs.5 lacs to continue - The proposed slab and the corresponding tax rate for individual, HUF, AOP for A.Y is thus as under:- Individual (male or female below the age of 60 years), HUF, AOP, BOI Upto Rs.2,50,000 Nil Rs.2,50,001 to Rs.5,00,000 10% Rs.5,00,001 to Rs.10,00,000 20% Above Rs.10,00,000 30% Senior Citizens (Age of 60 years or more but less than 80 years) Upto Rs.3,00,000 Nil Rs.3,00,001 to Rs.5,00,000 10% Rs.5,00,001 to Rs.10,00,000 20% Above Rs.10,00,000 30% 2. Raising the limit of deduction u/s 80C - Section 80C of the Act provides deduction of an amount not exceeding Rs. 1 lacs to an individual or a HUF with respect to the sums paid or deposited in the previous year, in certain specified instruments like life insurance premium, contribution to PF, schemes for deferred annuities etc. - It is proposed to raise the limit of deduction allowed u/s 80C from Rs. 1 lacs to Rs. 1.5 lacs. It is corresponding to raising the limit of deposit in PPF a/c from Rs. 1 lacs to Rs.1.50 lacs - Consequential amendments proposed in sec. 80CCD and 80CCE of the Act Sec. 80CCD provides that where an assessee, being an individual, has paid or deposited any amount in his account under a pension scheme notified by the CG, he is allowed a deduction of such amount not exceeding 10% of his salary/gti as the case may be. This is subject to a limit of Rs. 1 lacs provided u/s 80CCE. It is

3 proposed to insert sub-section (1A) so as to provide that the amount of deduction shall not exceed Rs. 1 lacs. The effect of this amendment proposed is that the benefit u/s 80CCD can be claimed only upto Rs. 1 lacs even if the limit of deduction u/s 80CCE has been proposed to be raised to Rs lacs. Sec. 80CCE provides that aggregate amount of deduction u/s 80C, 80CCC and 80CCD shall not exceed Rs. 1 lacs. It is proposed to amend this section so as to raise the limit of deduction from Rs. 1 lacs to Rs.1.50 lacs. - Amendment effective from i.e. A.Y Deduction from income from house property - Section 24(b) of the Act provides that where the house property is acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital is allowed as deduction in computing the income from house property. However, the 1 st proviso to clause (b) provides that in case of SOP, deduction shall not exceed Rs.30,000/- and 2 nd proviso provides that in case SOP is acquired or constructed with capital borrowed and such acquisition or construction is completed within 3 years from the end of the F.Y. in which the capital was borrowed, the amount of deduction shall not exceed Rs lacs. - It is proposed to amend 2 nd proviso to clause (b) of sec. 24, so as to increase the limit of deduction on account of interest from Rs lacs to Rs. 2 lacs. - Amendment effective from i.e. A.Y Dividend and Income Distribution Tax to be paid after grossing up of Dividend/Income Distributed - Section 115O of the Act provides that a domestic company shall be liable for payment of additional on any amount declared, distributed or paid by way of dividends to its shareholders. Similarly sec. 115R of the Act provides for levy of additional income-tax in respect of income distributed by the mutual funds to its investors at the rates provided. - This rate of 15% is on the net amount of dividend paid by the company or the income distributed by the mutual funds. As an illustration, where the amount of dividend declared, distributed or paid by a company is Rs.100, then DDT under the existing provision is Rs.100*16.995% = Rs It is proposed to amend sec. 115O/115R to provide that the DDT/Income distribution tax is to be paid after grossing up of dividend/income distributed. Thus, in the above mentioned illustration, the under the proposed provision would be on Rs i.e. Rs Thus, the effective rate of DDT is 20.47%. - Amendment effective from Tax rate on certain dividend received from foreign companies The concessional rate of 15% on dividend received by an Indian company from specified foreign company has been extended without limiting it to a particular A.Y. which at present was only upto A.Y

4 6. Alternate Minimum Tax (AMT) Presently AMT is on adjusted total income. Adj. TI = TI + deduction claimed under Part C of Chapter VIA + deduction u/s 10AA. It is proposed to also add deduction claimed u/s 35AD to arrive at the adjusted TI on which AMT would be payable. B. Sweet and Bitter Proposals for Charitable/Religious trust/institutions 7. Applicability to earlier years of the registration granted to a trust or institution - Sec. 12A(2) provides that sec. 11 and 12 shall apply to the income of the trust or institution from the A.Y. immediately following the F.Y. in which the application for registration is made. - It is proposed to insert three provisos to the said section as under:- Where registration to the trust or institution is granted u/s 12AA, sec.11 and 12 shall apply in respect of any income derived from property held under trust of any A.Y. preceding the aforesaid A.Y., for which assessment proceedings are pending before the AO on the date of registration and the objects and activities of such trust or institution remain the same for such preceding A.Y. No action u/s 147 shall be taken by the AO in case of such trust or institution for any A.Y. preceding the aforesaid A.Y. only for non-registration of such trust or institution for the said A.Y. The above benefits shall not apply in case of any trust or institution which was refused registration or the registration granted to it was cancelled at any time u/s 12AA. - Amendment effective from Interplay of exemption u/s 10 vis-à-vis u/s 11 to 13 - It is proposed to provide that where a trust or an institution has been granted registration for purposes of availing exemption u/s 11 and the registration is in force for a previous year, then such trust or institution cannot claim any exemption under any provision of section 10 [other than that relating to exemption of agricultural income and income exempt u/s 10(23C)]. - Similarly, entities which have been approved or notified for claiming benefit of exemption u/s 10(23C) would not be entitled to claim any benefit of exemption under other provisions of section 10 (except the exemption in respect of agricultural income). - The effect of this proposal is that a trust or an institution claiming exemption u/s 11 or u/s 10(23)(iv),(v),(vi) and (via) cannot claim exemption in respect of income from dividend u/s 10(34) or income from mutual funds u/s 10(35) or LTCG on sale of shares u/s 10(38) etc. The amendment overrules the decision of Jamsetji Tata Trust Vs. JDIT (Exemption) 101 DTR 305/148 ITD 388 (Mum.) (Trib.). 9. Depreciation not to be considered as application of income, if assets on which depreciation is charged has already been considered as application of income earlier

5 Following decisions overruled:- DIT Vs. Vishwa Jagriti Mission (2012) 73 DTR 195 (Del.) (HC) CIT vs. Shri Gujrati Samaj (2011) 64 DTR 76 (MP) (HC) Following decisions approved:- Lissie Medical Institution Vs. CIT (2012) 76 DTR 377 (Ker.) (HC) DIT Vs. Charanjiv Charitable Trust (2014) 102 DTR 1 (Del.) (HC) 10. Definition of the phrase substantially financed by the Government for section 10(23C)(iiiab)/(iiiac) of the Act - Section 10(23C)(iiiab)/(iiiac) of the Act provides exemption of income of university or other educational institution/hospital or other institution existing solely for educational/philanthropic purpose respectively and not for the purpose of profit and which is wholly or substantially financed by the Government. - It is proposed to insert an Explanation in the said section to provide that university or other educational institution/hospital or other institution shall be considered as substantially financed by the Government for any previous year, if the Government grant to them during the previous year exceeds such percentage (to be prescribed) of the their total receipts including any voluntary contribution. - Amendment effective from i.e. A.Y Sweeping powers of cancellation of registration of the trust or institution in certain cases - Section 12AA(3) empowers the CIT to cancel the registration of the trust or institution if he is satisfied that (i) the activities of such trust or institution are not genuine or (ii) are not being carried out in accordance with the objects of the trust or institution. Thus, only if either or both the above conditions are met, the CIT can cancel the registration, and not otherwise. - It is proposed to amend section 12AA of the Act to provide that where a trust or an institution has been granted registration, and subsequently it is noticed that its activities are being carried out in such a manner that,- (i) its income does not enure for the benefit of public; (ii) it is for benefit of any particular religious community or caste; (iii) any income or property of the trust is applied for the benefit of specified persons like author of the trust, trustees etc.; or (iv) its funds are invested in prohibited modes then the Principal CIT or CIT may cancel the registration if such trust or institution does not prove that there was a reasonable cause for the activities to be carried out in the above manner. - Amendment effective from 1 st October, Taxation of Total Income which includes anonymous donations u/s 115BBC of the Act - The tax payable by certain assessees whose total income includes any income by way of anonymous donation is calculated as under:- 30% of [anonymous donations received - higher of (i) 5% of the total donations received by the assessee or (ii) Rs. 1 lacs] + tax on [total income - anonymous donations received]. To

6 illustrate, Total income of assessee (including anonymous donation of Rs. 2 lacs) Tax on anonymous donation = 30% of Rs.1 lacs [2lacs 1lacs] Tax on remaining income of Rs.3 lacs [5lacs 2lacs] Tax Liability Rs.5,00,000/- Rs.30,000/- Rs.5,000/- Rs.35,000/- - It is proposed to amend the above calculation as under:- 30% of [anonymous donations received - higher of (i) 5% of the total donations received by the assessee or (ii) Rs. 1 lacs] + tax on [total income amount of anonymous donations Total income of assessee (including anonymous donation of Rs. 2 lacs) Tax on anonymous donation = 30% of Rs.1 lacs [2lacs 1lacs] Tax on remaining income of Rs.4 lacs [5lacs 1lacs] Tax Liability Rs.5,00,000/- Rs.30,000/- Rs.15,000/- Rs.45,000/- - Amendment effective from i.e. A.Y C. Amendments relating to computation of income under the head PGBP 13. Investment Allowance to a Manufacturing Company - Sec. 32AC of the Act provides that where a manufacturing company invests more than Rs.100 crore in acquisition & installation of new plant or machinery during the period from to , it shall be allowed deduction of 15% of actual cost of P&M. - It is proposed that where a manufacturing company on or after acquires and installs new assets during any previous year and the amount of which exceeds Rs. 25 crores, it shall be allowed a deduction of 15% of the actual cost of such new assets. This deduction would be available upto Amendment effective from i.e. A.Y Deduction in respect of capital expenditure on specified business - Sec. 35AD allows deduction of whole of the capital expenditure (other than expenditure on land, goodwill or financial instrument) incurred on specified business carried on by an assessee. It is proposed to include two new business as specified business as under:- laying and operating a slurry pipeline for transportation of iron ore setting up and operating a semi-conductor wafer fabrication manufacturing unit, if such unit is notified by CBDT in accordance with the prescribed guidelines. - It is also proposed that asset in respect of which deduction is claimed and allowed shall be used for the specified business for a period of 8 years. If this condition is not adhered to, the deduction claimed as reduced by eligible depreciation u/s 32 shall be deemed to be the income of the assessee chargeable under the head PGBP of the previous year in which this condition is violated. Provision not applicable to sick industrial company.

7 - It is also proposed that where deduction is claimed and allowed u/s 35AD, no deduction shall be allowed u/s 10AA and vice-versa. - Amendment effective from i.e. A.Y Speculative transaction in respect of commodity derivatives - Proviso to sec.43(5)(e) is proposed to be amended to provide that eligible transaction in respect of trading in commodity derivatives carried out in recognized association and chargeable to CTT shall not be regarded as speculative transaction. - Amendment effective from i.e. A.Y Losses in Speculation Business - Explanation to section 73 provides that in case of a company deriving its income mainly under the head business (other than a company whose principal business is business of banking or granting of loans and advances), and where any part of its business consists of purchase and sale of shares, such company shall be deemed to be carrying on speculation business to the extent to which the business consists of purchase and sale of shares. - The proviso to section 43(5) exempts transaction in respect of trading in derivatives on a recognized stock exchange from the definition of term speculative transaction. - It is proposed to amend Explanation to section 73 so as to provide that company whose principal business is the business of trading in shares or banking shall not be deemed to be carrying on speculation business. Thus, the effect of the amendment is that the losses incurred by such company would be regarded as business loss and not speculative loss. - Amendment effective from i.e. A.Y Corporate Social Responsibility (CSR) Expenditure - Sec. 135 of the Companies Act, 2013 requires that every company having net worth of Rs. 500 crores or more or turnover of Rs.1000 crores or more or net profit of Rs.5 crore or more during any F.Y. shall spend in every F.Y. at least 2% of average net profits of the company made during the 3 immediately preceding F.Y.s. - Explanation 2 to section 37 is proposed to be inserted to clarify that expenditure on CSR referred in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred for the purpose of business or profession. Thus, CSR expenditure not covered u/s 30 to 36 would be disallowed in computing the total income. - The effect is that if expenditure is incurred in respect of eligible project or scheme u/s 35AC or on rural development programmes u/s 35CCA or for carrying out programme of conservation of natural resources u/s 35CCD or on agriculture extension project u/s 35CCC or on skill development project u/s 35CCD which qualifies for CSR expenditure, there would be no disallowance - Amendment effective from i.e. A.Y Presumptive Income in business of plying, hiring or leasing goods carriages

8 - As per sec. 44AE, the presumptive income in case of assessee who is engaged in the business of plying, hiring or leasing goods carriages and owning not more than 10 goods carriages is higher of following:- Rs. 5,000 p.m. or part of month for heavy good vehicles (HGV)/Rs.4,500/- p.m. or part of month for vehicle other than HGV or Amount actually earned from such vehicle - It is proposed to provide that the presumptive income from goods carriage shall be higher of Rs.7,500/- p.m. or part of month or amount actually earned from such vehicle - Amendment effective from A.Y Extension of sunset date u/s 80IA for the power sector It is proposed to amend provisions of sec. 80IA(4)(iv) allowing tax holiday benefit for 10 years to undertakings engaged in generation or transmission or distribution of power so as to extend the terminal date by a further period of three year i.e. up to i.e. till the end of the 12 th five year plan. 20. Disallowance of expenditure for non-deduction of tax at source - In case of payment to NRs without deduction of tax at source, expenditure is disallowed u/s 40(a)(i) if it is not paid within the time prescribed u/s 200(1). It is proposed that if tax deducted during the P.Y. is paid before due date of filing of return u/s 139(1), expenditure would not be disallowed. Thus, period for payment of withholding tax is extended. - Chapter XVII-B mandates deduction of tax at source from certain other payment such as salary, director fee, which are currently not specified u/s 40(a)(ia). It is proposed that disallowance u/s 40(a)(ia) shall extend to all expenditure on which tax is deductible u/s Chapter XVIIB of the Act. - In case of payment to resident without deduction of tax at source, presently entire expenditure is disallowed u/s 40(a)(ia). It is proposed that such disallowance should be restricted to 30% of the expenditure as against 100% disallowance presently made. - Amendment effective from i.e. A.Y D. Amendments proposed in connection with deduction of tax at source 21. Tax deduction at source from non-exempt payments made under life insurance policy - Section10(10D) provides that any sum received under a life insurance policy is exempt other than any sum received under an insurance policy in respect of which the premium payable for any of the years during the term of policy exceeds 10% of the actual capital sum assured. - A new section 194DA is proposed to be inserted to provide for deduction of tax at on sum paid under a life insurance policy which are not exempt u/s 10(10D) of the Act.

9 - No deduction of tax at source to be made if the aggregate sum paid in a financial year to an assessee is less than Rs. 1 lacs. - Amendment effective from Concessional rate of tax on overseas borrowing - Section 194LC of the Act provides for lower withholding tax rate of 5% on interest paid by an Indian company to non-residents on monies borrowed by it in foreign currency from a source outside India under a loan agreement or through issue of long-term infrastructure bonds at any time on or after but before subject to certain conditions. - It is proposed to amend section 194LC to extend the benefit of this concessional rate of withholding tax to borrowings by way of issue of any long-term bond, and not limited to a long term infrastructure bond. It is further proposed to extend the period of borrowing by 2 years. Thus, the borrowings can be made before instead of currently provided cut-off date of Section 206AA of the Act provides for levy of higher rate of withholding tax in case the recipient of income does not provide permanent account number to the deductor. An exception from applicability of section 206AA in respect of payment of interest on long-term infrastructure bonds eligible for benefit under section 194LC is currently provided in sub-section (7) of this section. - Consequential amendment also proposed in section 206AA to ensure that even if the recipient has no PAN, withholding tax would be at the rate prescribed in sec. 194LC is extended to payment of interest on any long-term bond. - Amendment effective from Filing of Correction Statement - Currently, a deductor is allowed to file correction/updation of information furnished in original TDS statement but there is no express provision in the Act for filing such correction statement. - Therefore, to bring clarity in the matter, sec. 200 is amended to allow the deductor to file the correction statement. Effective from Extension of time for passing order u/s 201(1) - As per sec. 201(3), no order u/s 201(1) is to be passed after expiry of 2 yrs from the end of F.Y. in which statement referred in sec. 200 has been filed & 6 yrs from the end of F.Y. in other cases - To align the time limit of passing order u/s 201(1) with time limit of passing order u/s 147, sec. 201(3) is proposed to be substituted to provide that no order u/s 201(1) shall be passed after the expiry of 7 yrs from end of F.Y. in which payment is made or credit is given. - Amendment effective from Authority competent to levy penalty u/s 271H

10 Existing provision don t specify the authority who would be competent to levy penalty u/s 271H for failure to furnish TDS/TCS statement. It is now proposed that AO would be the authority to levy penalty under this section. E. Amendments relating to taxation of Capital Gain 26. Capital gains exemption on investment in specified bonds - Section 54EC provides exemption from capital gain arising from the transfer of a long term capital asset where assessee makes investment in the specified capital asset within a period of 6 months. The amount of investment during any financial year is fixed at Rs.50 lacs. - Where an assessee has transferred the LTCA after December, it is claimed that he can make investment of Rs. 50 lacs before 31 st March and Rs.50 lacs before 30 th June as both these investments are made within a period of 6 month from the date of transfer and the amount of investment during any financial year does not exceed Rs.50 lacs. Certain Tribunals have approved this contention as a result of which assessee gets the benefit of investment upto Rs. 1 crores. - It is proposed to add proviso to sec. 54EC to provide that the investment made by an assessee in the long-term specified asset, during the financial year in which the original asset is transferred and in the subsequent financial year will not exceed Rs.50 lacs. - The proposal overrules the decision of ITO Vs. Ms. Ramia Faleiro 142 ITD 769 (Panaji)(Trib.) & Aspi Ginwala Vs. ACIT 20 taxmann.com 75 (Ahm.)(Trib.) and approved the decision of ACIT Vs. Sh. Raj Kumar Jain & Sons (HUF) 2012-TIOL-179 (Jpr.)(Trib.) - Amendment effective from i.e. A.Y Capital gains exemption in case of investment in a residential house property - Sub-Section (1) of section 54 and 54F provides exemption from capital gain arising from transfer of long-term capital asset where assessee makes investment in purchase/construction of a residential house within the prescribed time. - Various Courts have held that even if investment is made in more than one residential unit, it would constitute investment in a residential house [Gita Duggal Vs. CIT 214 Taxman 51 (Del.)(HC), CIT Vs. Syed Ali Adil 352 ITR 418 (2013)(AP)(HC), Smt. V.R. Karpagam Vs. ITO (2013) 143 ITD 126 (Chennai)(Trib.), Vittal Krishna Conjeevaram Vs. ITO (2013) 144 ITD 325 (Hyd.)(Trib.), CIT & Anr. Vs. Smt. K.G. Rukmini Amma (2011) 331 ITR 211 (Kar.)(HC)] - Further, it is held that even if investment is made in house outside India, it would be entitled for benefit of sec.54/54f [Vinay Mishra vs. ACIT 20 ITR(Trib.)129(Bang.) & Mrs. Prema Shah vs ITO 100 ITD 60 (Mum.)] - It is proposed to provide that the exemption is available if the investment is made in one residential house in India. - Amendment effective from i.e. A.Y Taxability of advance forfeited on transfer of capital asset

11 - Section 51 provides that where a capital asset was subject to negotiations for its transfer on any previous occasions, any advance retained or received shall be reduced from the cost of acquisition of the asset or the written down value or the fair market value of the asset in computing the cost of acquisition. - It is now proposed that if such money is forfeited and the negotiation does not result in the transfer of the capital asset, the same would be charged to tax u/s 56(2)(ix) as income from other sources. Consequential amendment is made in the definition of income u/s 2(24) and u/s Amendment effective from A.Y Holding period of certain securities/mutual funds - Sec. 2(42A) of the Act provides that shares of a company or security listed in a recognized stock exchange or a unit of the UTI or a unit of a mutual fund or a zero coupon bond would be considered for LTCG if it is held for more than 12 months. - To block the tax arbitrage opportunity as compared to investment in bank & other debt instrument, it is proposed to amend said sec. providing a holding period of 12 months only for listed securities, unit of UTI, units of equity oriented fund & zero coupon bond. Thus, unlisted shares & units of debt equity fund would be considered as STCA unless it is held for more than 36 months prior to transfer - Amendment effective from i.e. A.Y Tax on LTCG on units - Sec. 112 of the Act provides that where the tax payable on LTCG arising on transfer of listed securities or units or zero coupon bonds exceeds 10% of the amount of capital gain before indexation adjustment, excess shall be ignored. Thus, this benefit was available to the units also. - It is proposed to amend sec. 112 to provide that the concessional rate of tax of 10% on LTCG would be available to listed securities (other than units) and zero coupon bonds. Thus, units of mutual funds are taken out from the concessional rate of 10%. The effect of this amendment is that the units of debt oriented fund would not get the benefit of this section. - Amendment effective from i.e. A.Y Securities held by Foreign Institutional Investors (FIIs) granted status of capital asset - Sec. 2(14) of the Act defines capital asset to mean property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal effects or agricultural land in India. - It is proposed to expand the meaning of the term capital asset by including any securities held by FIIs which has invested in such security in accordance with the regulations made under the SEBI Act, 1992 and by excluding it from stock in trade. - Amendment effective from i.e. A.Y Transfer of Government Security by one non-resident to another non-resident

12 - Sec. 47 provides that certain transactions shall not be considered as transfer for the purpose of charging capital gain. - It is proposed to insert clause (viib) in the said section so as to provide that any transfer of a capital asset, being a Government Security carrying a periodic payment of interest, made outside India through an intermediary dealing in the settlement of securities, by a non-resident to another non-resident shall not be considered as transfer for the purpose of charging capital gains. - Amendment effective from i.e. A.Y CG arising from transfer of asset by compulsory acquisition - Sec. 45(5) provides that where the amt. of compensation is enhanced or further enhanced by the Court/Tribunal, it is chargeable to tax in P.Y in which such amt. is received. - There is uncertainty about year in which compensation received in pursuance of interim order of Court is to be charged to tax, due to Court order. Therefore, it is proposed to provide that such amt. would be charged to tax in the year in which the final order of the Court/Tribunal is made F. Amendments proposed in connection with AIR/ROI 34. Obligation to furnish statement of specified financial transaction or reportable account - Sec. 285BA of the Act provides for furnishing an Annual Information Return (AIR) by the specified persons in respect of specified financial transactions which are registered or recorded by them and information relating to which is required for the purpose of the Act to the prescribed IT authority. - It is proposed to substitute the said section so as to provide for furnishing of statement by the specified persons (a prescribed reporting financial institution also proposed to be included in person) in respect of specified financial transaction or reportable account which are registered or recorded by them and information relating to which is required for the purpose of the Act to the prescribed IT authority. - It is further proposed that such statement shall be furnished for such period, within such time and in the form and manner, as may be prescribed. It is also proposed that where the statement is not furnished within the specified time, the prescribed IT authority may serve upon such person a notice requiring him to furnish such statement within a period not exceeding 30 days (at present 60 days) from the date of service of such notice and he shall furnish the statement within the time specified in the notice. - It is further proposed that if any person who has furnished a statement comes to know or discovers any inaccuracy in the information provided in the statement, then, he shall within a period of 10 days, inform the prescribed IT authority, the inaccuracy in such statement and furnish the correct information in such manner as may be prescribed. - It is also proposed that the CG may, by rules, specify (a) the specified persons to be registered with the prescribed IT authority (b) the nature of information and the manner in which such information shall be maintained by such specified persons and (c) due diligence to be carried out by such specified persons for the purpose of identification of any reportable account.

13 - Consequential amendment proposed in sec. 271FA for substituting the marginal heading Penalty for failure to furnish AIR with Penalty for failure to furnish a statement of financial transaction or reportable account and substituting the words AIR/return with the words a statement of financial transaction or reportable account/statement respectively. - A new section 271FAA proposed to be inserted to provide that if a person, being a prescribed reporting financial institution, provides inaccurate information in the statement, and where the (a) inaccuracy is due to a failure to comply with the due diligence requirement or is deliberate on the part of that person or (b) the person knows of the inaccuracy at the time of furnishing the statement of financial transaction or reportable account, but does not inform the prescribed IT authority or (c) the person discovers the inaccuracy after the statement of financial transaction or reportable account is furnished and fails to inform and furnish correct information within the time specified, then the prescribed IT authority may direct such person to pay penalty of Rs.50,000/-. - Amendment effective from Signing and verification of return of income Section 140 of the Act provides that the return u/s 139 shall be signed and verified in the manner specified therein. Amendment is proposed to provide that the return shall be verified to enable the verification of the return either by sign in manuscript or by an electronic mode. Amendment effective from Mutual Funds, Securitization Trust and Venture Capital Co. or Venture Capital Fund to file ROI - Income of mutual fund, securitization trust, VCC/VCF is exempt u/s 10(23D), 10(23DA) and 10(23FB) respectively. They are not obliged to furnish ROI u/s 139 of the Act. Instead, they are required to furnish a statement giving details of the nature of income paid or credited during the previous year and such other relevant details as may be prescribed. - It is proposed to amend sec. 139(4C) to provide that mutual fund, securitization trust, VCC/VCF shall, if the total income in respect of which such fund, trust or company is assessable, without giving effect to the provision of sec.10, exceeds the maximum amount which is not chargeable to income tax, furnish a ROI of the previous year and all the provisions of the Act apply as if it were a return required to be furnished u/s 139(1). - It is further proposed to dispense the requirement of filing of statements before an IT authority by the mutual funds and securitization funds by omitting sec. 115R(3) and 115TA(3). - Amendment effective from G. Amendments proposed relating to compliance and procedures 37. Estimate of value of assets by Valuation Officer - Sec. 142A is proposed to be substituted to provide that AO may make a reference to the VO to estimate the value of any asset, property or investment. Such reference

14 can be made even when he is satisfied about the correctness or completeness of the accounts. The VO has to send the copy of the report to the AO and the assessee within a period of 6 months from the end of the month in which the reference is made. Thereafter, the AO after giving the assessee an opportunity of hearing and considering the report make the assessment or reassessment. The period from the date of making the reference to the date on which the report of VO is received by the AO would be excluded from the time limit for making the assessment or reassessment. - This substitution has overruled the decision of Supreme Court in case of Sargam Cinema vs. CIT (2011) 197 Taxman 203 where it was held that AO cannot refer any matter to DVO without rejecting the books of accounts. - Amendment is effective form Income computation and disclosure standards - Sec. 145 provides that CG may notify in the official gazette, the accounting standard to be followed. - The CBDT had constituted an accounting standard committee in The Committee recommended that AS notified under the Act should be applicable only to the computation of taxable income and taxpayer would not be required to maintain the books of account on the basis of AS notified under the Act. - It is therefore proposed to provide that the CG may notify in the official gazette income computation and disclosure standards to be followed by any class of assessee or in respect of any class of income and if the same is not regularly followed by the assessee or income is not computed in accordance with those standards, AO may make the assessment in the manner provided in sec Amendment effective from i.e. A.Y Interest payable u/s Sec. 220 is proposed to be amended to provide that where any notice of demand is served and any appeal is filed in respect of the amount specified in the notice of demand, such demand shall be deemed to be valid till disposal of appeal by the last appellate authorities. The amendment is based on the theory of continuity of proceedings and the doctrine of relate back. - The amendment is made to overcome the decision of Supreme Court in Vikrant Tyres Ltd. Vs. ITO (2001) 247 ITR 821 where it was held that if tax is refunded pursuant to first appeal but later on restored and paid in second appeal, interest cannot be levied on the refund made. - The amendment is effective from Inquiry by prescribed IT authorities Sec. 133C proposed to be inserted to provide that prescribed IT authorities may for the purpose of verification of information in his possession relating to any person, issue notice to such person to furnish information or documents as may be useful or relevant to any enquiry or proceeding under this Act.

15 41. Power of Survey - The period of retention of books of accounts is extended from 10 days to 15 days without obtaining the approval of the CIT. - Power of survey is also extended for verifying that tax has been deducted or collected at source in accordance with the provision of Chapter XVIIB or XVIIBB. However, in such survey, the IT authority shall not impound and retain books of accounts or documents inspected by him or make inventory of cash, stock or other valuables. - Amendment is effective form Mode of acceptance or repayment of loans and deposits - It is proposed to amend sec. 269SS/269T to provide that acceptance or repayment of loan or deposit by use of electronic clearing system through a bank account shall not be prohibited. - Amendment effective from A.Y Assessment of income of a person other than the person who has been searched - As per sec. 153C where in search of a person, the AO is satisfied that books of accounts or valuables etc. belong to any other person, then he shall hand over the same to the AO of such other person and that AO shall proceed to complete the assessment of such person. - It is proposed that where the AO of searched person hand over the documents or valuables etc. of other person to the AO of that person, the AO of that person is to satisfy himself that these documents or valuables etc. has a bearing on the determination of the total income of such person and then only he would proceed to complete the assessment of that person. - The amendment is effective from Provisional attachment u/s 281B - The period of provisional attachment for a total period of 2 years is proposed to be extended as a period of 2 years or upto 60 days from the date of assessment or reassessment whichever is later. - The amendment is effective from Prosecution for failure to produce accounts and documents - Sec. 276D provides that where assessee willfully fails to produce accounts and documents in response to notice u/s 142(1) or direction u/s 142(2A), he is punishable with rigorous imprisonment upto 1 year or with fine of Rs.4 to Rs.10 per day or both. - Sec. is proposed to be amended to provide for punishment with rigorous imprisonment upto 1 year and fine H. Amendments proposed in provisions of Transfer Pricing

16 46. Introduction of Rollback provision in Advance Pricing Agreement (APA) Scheme - Sec. 92CC(1) of the Act provides that the CBDT may enter into an APA with any person for determining the arm s length price (ALP) or specifying the manner in which the ALP is to be determined in relation to an international transaction to be entered into by that person. The agreement entered into is valid for five consecutive previous years. The ALP of any international transaction in respect of which the APA has been entered into shall be determined in accordance with the APA so entered. - It is proposed to insert sec. 92CC(9A) to provide that an APA may, subject to such conditions, procedure and manner as may be prescribed, provide for determining the ALP or specifying the manner in which the ALP shall be determined in relation to an international transaction entered into by the person during any period not exceeding four P.Y. s preceding the first of the P.Y. for which the APA applies in respect of international transactions to be undertaken in future. - Amendment effective from Rationalization of the definition of International Transaction - Sec. 92B defines international transaction as a transaction between two or more associated enterprises (AEs), either or both of whom are non-residents. It further provides that a transaction entered into by an enterprise with a person other than an AE shall be deemed to be a transaction entered into between two AEs, if there exists a prior agreement in relation to the relevant transaction between such other person and the AE, or the terms of the relevant transaction are determined in substance between such other person and the AE. - It is proposed to amend the said section so as to provide that the relevant transaction shall be deemed to be an international transaction where the enterprise or the AE or both of them are non-residents irrespective of whether such other person is a non-resident or not. - Amendment effective from i.e. A.Y Levy of penalty u/s 271G by TPOs - Sec. 271G provides that if any person who has entered into an international transaction or specified domestic transaction, fails to furnish any such information or document as required u/s 92D(3), then such person shall be liable for penalty which may be levied by the AO or the CIT(A). - It is proposed to amend the said section to include TPO as referred to in sec. 92CA, as an authority competent to levy the penalty u/s 271G in addition to the AO or the CIT(A). - Amendment effective from I. Taxation of Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (INVIT) - A new Chapter XIIFA is proposed for taxation of REIT and INVIT (business trust or BT) as and when the relevant regulations are notified by SEBI. The income investment model of these trusts has following features:-

17 The trust would raise capital by way of issue of units (to be listed on recognized stock exchange) and can also raise debts directly from residents and nonresidents investors. Income bearing assets would be held by the trust by acquiring controlling or other specific interest in an India Company (SPV) from the sponsor. - The key tax implications on these BT are as under:- Sec. 2(13A) is introduced to define business trust to mean a trust registered as REIT/INVIT listed on recognized stock exchange There would be a single level taxation on income of BT. For this, BT is exempted from income tax on interest received from Special Purpose Vehicles (SPV) Instead, BT will need to withhold income-tax, when it distributes such interest income to its investors. The withholding tax for distributions to nonresidents is proposed to be 5 percent, while that on distribution to resident investors is proposed to be 10 percent. Any dividend income from the SPV which owns the real estate asset/ infrastructure project would be liable to Dividend Distribution Tax ( DDT ) for the SPV. There shall be no further income-tax on such dividends either for the BT, or upon distribution to its investors. Any capital gains from sale of assets/ investments shall be liable to tax as income of the BT. Any distribution of such capital gain income subsequently would not attract any further income-tax for the investors. Considering that the units of the BT will be required to be listed on a recognized Indian stock exchange, it is proposed that an exemption from capital gains tax on income arising from sale of such units on the floor of the stock exchange is provided if the units are held for a minimum period of 36 months. If the units are held for a lesser time period, short term capital gains tax would be levied at the rate of 15 percent. Securities Transaction tax would also apply at the time such units are traded on the stock exchange. To facilitate promoters and sponsors to transfer their existing real estate and infrastructure assets to a BT and raise funding, it is proposed that there would be no income-tax when a sponsor of a BT contributes shares of SPVs holding such assets into the BT, in exchange for units in the BT. Capital gains tax would, however, be levied at the full rates (20 percent and 30 percent for capital gains arising on sale of long term and short term units respectively) when the units are eventually sold, even if such sale takes place on the floor of the stock exchange. For computing such gains the cost basis and the period of holding of the sponsor s initial investment into shares of the SPV will be considered and no tax exemption/concessional tax rate is provided for the increase in the value of the unit post contribution of the assets to the BT. Further, interest on any foreign currency borrowings by a BT shall be subject to a beneficial withholding tax rate of 5 percent. Such reduced rate will be applicable until June 30, 2017.

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