INCOME TAX PROPOSALS in UNION BUDGET 2017

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1 INCOME TAX PROPOSALS in UNION BUDGET 2017 LUNAWAT & CO. Chartered Accountants 10 th February 2017, Bhiwani CA. PRAMOD JAIN FCA, FCS, FCMA, LL.B, MIMA, DISA

2 THE CRUX

3 TIMELY FILING OF RETURNS No exemptions if return not filed within due date in case of: Charitable Trusts u/s 12A Political Parties u/s 13A Time for furnishing of revised return - end of the relevant AY or before the completion of assessment, whichever is earlier

4 FILING OF RETURNS / ASSESSMENT No exemptions if return not filed in case of: Specified Person u/s 10(23AAA) Investor Protection Fund u/s 10(23EC) /(23ED), Core Settlement Guarantee Fund u/s 10(23EE) Any Board or Authority u/s 10(29A) For AY time limit for making assessment order u/ss 143 or 144 reduced from existing 21 months to 18 months from the end of AY, and for the AY and onwards, 12 months from the end of the AY. Same for 147 / 158BC

5 RECTIFICATION S. 155 credit for foreign taxes paid is not given in relevant AY in case of a dispute, AO shall rectify the assessment order or intimation u/s 143(1) within 6 months from end of month in which dispute is settled on furnishing of proof by assessee regarding settlement of dispute and undertaking that credit has not been claimed of such foreign tax paid

6 TIMELY COMPLIANCES Fee introduced for late filing of returns u/s 234F Late but by 31st December Rs. 5000/- After 31st December Rs /- However, if TI < Rs. 5 Lakhs Rs S. 44AD amended to provide deeming profit of 6% in case of amount of total turnover or gross receipts received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in 139(1)

7 CASH RESTRICTIONS Deduction u/s 80G restricted if donation in cash exceeding Rs by a person (old 10k) Expenditure u/s 40A(3) / 40A(3A) disallowed in payment made in cash exceeding Rs /- per person per day (Old 20k) Depreciation disallowed on cash component of asset cost exceeding Rs /- per person per day. CG? S. 35AD benefit not allowed on expenditure incurred exceeding Rs /- per person per day

8 CASH RESTRICTIONS S. 269 ST inserted w.e.f No person to receive an amount > Rs. 3 L in cash in aggregate from a person in a day; or in respect of a single transaction; or in respect of transactions relating to one event or occasion from a person Not to apply to Govt., bank, post office savings bank or co-operative operative bank, S. 269SS transactions Penalty of equal amount u/s 271DA

9 TAX RATES No. of ITR filers Individuals, HUF, AOP, BOI & AJP 1st Slab 5% 10% from Rs. 50 Lakhs to Rs. 1 15% above Rs. 1 Cr. Rebate u/s 87A from Rs to Rs with income limit reduced from Rs. 5 Lakhs to Rs L S. No. Type of Company Tax Rate 1 Companies whose total turnover or gross 25% receipts in the previous year does not exceed Rs. 50 Crores 2 All Other domestic companies 30%

10 ADVANCE TAX /REFUND Single advance tax installment for S. 44ADA too. No Intt. u/s 234C if PGBP 1st time conditions for 44ADA too No intt. u/s 234C if dividend u/s 115BBDA subject to fulfilment of conditions specified Interest on refund u/s 244A not be allowed for period for which delay attributable to deductor New s. 241A - refund processed u/s 143(1) - AO may, for reasons recorded in writing & with previous approval of Pr. CIT / CIT, withhold refund upto assessment

11 TDS S. 194 IB introduced for rent payments W.e.f % Deductor to be Individual /HUF (other than u/s 194 I). Exceeding Rs. 50k p.m. TDS only once in a year No TAN requirement If 206AA applicable tax not to exceed last month rent Is Mr. A having turnover Rs Cr u/s 44AD covered? No tax audit in this case. Is Mr. B having turnover Rs. 80Lacs not covered u/s 44AD covered, hence covered u/s 44AB covered?

12 TDS S. 194 LC 5% TDS on interest on ECB borrowing date extended from to S. 194 LD 5% TDS on interest to FII & QFI borrowing date extended from to J - TDS reduced to 2% from 10% in case of business of operation of call center Deduction u/s 57 not allowed if no TDS (if applicable) s. 40(a)(ia ia) added in S. 58

13 TDS S. 194LA to provide that no deduction shall be made where payment is made in respect of any award or agreement which has been exempted from levy u/s 96 (except those made u/s 46) of RFCTLARR Act Form.No.15G/15H for non-deduction of tax at source in respect insurance commission referred in section 194D

14 TCS Jewellery sale above Rs. 5 Lakhs excluded from TCS levy 206CC introduced if without PAN for TCS: twice or 5% whichever is high Exemption to non-residents CG, SG, embassy, High Commission, legation, commission, consulate & trade representation of foreign State; local authority exempted from TCS on Motor Vehicle

15 HOUSE PROPERTY No Notional rent in case of property being held as stock in trade upto 1 year from end of FY in which the certificate of completion of construction of the property is obtained from the competent authority Loss from HP restricted to be adjusted against other heads of income exceeding Rs. 2 Lakhs

16 IMMOVABLE PROPERTY Land / Building / Both Long Term if held for more than 24 months S. 54 / 54F?? S. 80-IBA affordable housing 30 sq. mtr / 60 sq mtr to be carpet area and not bulit up area 30 sq. mtr only in metro. 25km condition waived Period of completion increased from 3 years to 5 years

17 IMMOVABLE PROPERTY - JDA S. 45(5A) Joint Development Agreement Has to be a registered agreement Individual / HUF - CG in PY in which certificate of completion for whole / part of project is issued by competent authority Value of full consideration - Stamp duty value of his share in property in project on date of issue of said certificate as increased by any monetary consideration received. If transfer his share before completion, normal provisions 10% TDS on consideration paid

18 CAPITAL GAINS Base year for indexation shifted to S. 54EC to include other than REC / NHAI bonds Rupee denominated bond of Indian company issued outside India, by a non-resident to another non-resident shall not be regarded as transfer Conversion of preference share of a company into its equity share shall not be regarded as transfer. Consequently the cost of acquisition and period of holding shall be the date of acquisition of preference shares

19 CAPITAL GAINS No transfer in case of consolidation of Mutual funds - Consequently the cost of acquisition and period of holding shall be the date of acquisition of specific units Cost in certain cases: where the CG arises from the transfer of asset held by a trust or an institution in respect of which accreted income has been computed u/s 115TD cost of acquisition - fair market value of the asset

20 CAPITAL GAINS Cost in certain cases: Cost in case of specified capital asset u/s 10(37A), shall be its stamp duty value on the last day of the 2 nd FY after the end of FY in which the possession of such asset was handed over to the assessee In case of demerger cost of acquisition of shares of Indian company in hands of resulting foreign company shall be same as it was in hands of demerged foreign company

21 CO-OPERATIVE OPERATIVE BANKS S. 43D benefit extended to co-operative operative banks other than a primary agricultural credit society or a primary co-operative operative agricultural & rural development bank - interest of bad or doubtful debts taxed in year in which it is credited to its PL year or actually received. Interest payable to co-operative operative bank other than a primary agricultural credit society / primary co-operative operative agricultural & rural development bank covered u/s 43B. Provision for bad & doubtful debts u/s 36 for banks etc increased from 7 ½%. to 8 ½%

22 START UPS Deduction u/s 80-IAC from Finance Act 2016 Block of exemption from 3 out of 5 years amended to 3 out of 7 years Losses carried forward 51% restriction u/s 79 51% restriction not applicable but all shareholders to remain same in yr of profit and loss should be of first 7 years from incorporation Change due to death /gift to relative not to apply Change in Indian co. being subs. of foreign co. due to amalgamation / demerger if 51% shareholders of amalgamating / demerged foreign co. continue not to apply

23 BOOKS OF ACCOUNTS / AUDIT Turnover limit increased from Rs. 10 Lakh to Rs. 25 Lakhs Income from PGBP increased from Rs Lakhs to Rs Lakhs Increases only in case of individual & HUF No. 44AB audit under clause (i) if covered u/s 44AD w.e.f.. AY

24 POLITICAL PARTIES No donations in cash exceeding Rs. 2000/- Return to be filed within time to avail IT exemption Electoral Bonds can be accepted by them

25 CHARITABLE Return on time for exemption u/s 11 / 12 In case of modifications of objects which do not conform to the conditions of registration; fresh registration within 30 days Corpus donation made by a trust or institution to another trust or institution u/s 11 or u/s 10(23C) shall not be treated as application of income. Corpus donation made by a trust or institution u/s 10(23C) to another trust or institution u/s 11 or 10(23C) shall not be treated as application of income

26 MAT & AMT Credit period increased from 10 years to 15 year Specific MAT provisions where a company complies with Ind AS Credit relating to difference between amount of foreign tax credit (FTC) allowed against MAT/ AMT and FTC allowable against the tax computed under regular provisions of Act other than the provisions relating to MAT/AMT not allowed to be carried forward

27 DIVIDEND S. 115BBDA so as to provide that income by way of dividend in excess of Rs.10 lakh is chargeable to tax at the rate of 10% on gross basis in case of all assessees except: Domestic company Trusts, institutions u/s 10(23)(C) (iv) / (v) / (vi) / (via) Trust etc u/s 12AA Deemed dividend u/s 2(22)(e) excluded

28 SECTION 56 New clause (x) inserted in S. 56(2) to replace clauses (vii) & (viia viia) now all assessees covered All receipts including capital receipts Receipts by trusts u/s 12AA excluded. Receipts by trusts etc u/s 10(23C) (iv), (v), (vi) & (via) only exempt. Others?? More clauses of S. 47 added. Earlier 56(2)(vii) - (vicb vicb), (vid), (vii). 56(2)(viia viia) - (via), (vic vic), (vicb vicb), (vid), (vii)

29 SECTION 56 Now 47 (i), (vi), (via), (viaa viaa), (vib vib), (vic vic), (vica vica), (vicb vicb), (vid), (vii) Added (i) HUF capital distribution (vi) - amalgamation, (viaa viaa) amalgamation banks, (vib vib) - demerger, (vica vica) reorganisation co-op. op. bank S. 56 left out (iii) gift, (iv) holding to subsidiary, (v) subs. to holding, (viab viab) / (vicc vicc) indirect transfer foreign Co.,.. conversions

30 EXEMPTIONS Exemption on partial withdrawal from National Pension System not exceeding 25% of the contribution made by the employee earlier 40% on closure Income accruing or arising to a foreign co. on a/c of sale of leftover stock of crude oil, from a facility in India after expiry of an agreement / arrangement u/s 10(48A) exempt subject to notified conditions

31 EXEMPTIONS S. 10(37A) inserted - individual or HUF who was owner of land on , and has transferred the same under land pooling scheme - AP Capital City Land Pooling Scheme (Formulation & Implementation) Rules, 2015: Transfer of capital asset being land or building or both, under land pooling scheme. Sale of LPOCs by the said persons received in lieu of land transferred. Sale of reconstituted plot or land within 2 years from the end of the FY in which the possession of such plot or land was handed over to the said persons

32 DEDUCTIONS Section 10AA deduction allowed from the total income before giving effect to section 10AA and the deduction in no case shall exceed the said total income S. 80CCD(1) in respect of contribution towards NPS cannot exceed 10% of salary in case of an employee or 10% of gross total income in case of other individuals. Limit of 10% of GTI increased to 20% in case of other than employee Sunset clause for 80CCG from AY

33 EQUITY SHARES 10(38) Equity LTCG - transfer of equity share acquired or on after available only if acquisition of share is chargeable to STT. Earlier STT was required only in case of sale of shares. To notify exemptions (could be IPO, FPO, Right Issue, Bonus, etc). S. 50CA for other than quoted shares sold below FMV quoted share means share quoted on any recognised SE with regularity from time to time, where quotation of such share is based on current transaction made in ordinary course of business

34 SEARCH In case of search initiated after , notice can be issued for AY(s) beyond 6 th AY already provided upto 10th AY if AO has in his possession books of a/cs / other documents /evidence which reveal income escaping assessment amounts to / likely to be Rs. 50 Lacs or more in 1 yr or in agg. in 4 AYs (beyond 6 th yr); is in form of asset; income escaping assessment or part thereof relates to such year(s) S. 197(c) of Finance Act omitted w.e.f

35 SEARCH Reason to believe' or 'reason to suspect', u/s 132 / 132A, not be disclosed to any person or any authority or ITAT. HC? Amended retrospectively since inception Provisional attachment with the prior approval of property belonging to assessee during search / within 60 days from which last authorisations for search. Provisional attachment to cease after 6 months Reference to a Valuation Officer - furnish valuation report within 60 days

36 INQUIRY / SURVEY Sec 133(6) in case of pending proceedings - power of inquiry or proceeding by the Jt. Director, the Dpty. Director and the Assistant Director also. 2nd Proviso where no proceedings pending by Jt. Director, the Dpty. Director and the Assistant Director without seeking prior approval of higher authorities Power to survey S. 133A- place, at which charitable activity is carried on included. S. 133C Centralised issuance of notice calling for information and documents and making outcome thereof available to Assessing Officer for necessary action, if any.

37 PENALTY S. 271DA inserted contravention of s. 269ST (Rs Rs. 3 Lakhs other than cash).. S. 271J inserted - Accountant (CA) or a merchant banker or a registered valuer, furnishes incorrect information in a report or certificate - AO or CIT (A) penalty Rs /- for each such report or certificate. reasonable clause u/s 273B available S. 271F for failure to furnish return of income to be omitted

38 TP / INTERNATIONAL TAX S. 94B inserted - interest expenses < Rs. 1 Cr. to its AE restricted to 30% of EBITDA or interest paid or payable to associated enterprise, whichever is less. Banks and Insurance business excluded. DTP S. 40A(2)(b) transactions excluded. Any 'term' in DTAA, meaning as per DTAA and where not defined in DTAA, but is defined in the Act, meaning as definition in the Act or any explanation issued by the CG.

39 TP / INTERNATIONAL TAX Where as a result of primary adjustment to TP, there is increase in TI or reduction in loss, the excess money available with its AE, if not repatriated to India within time prescribed, shall be deemed to be an advance to such AE & interest on advance, shall be computed as income of assessee. Secondary adjustment only if primary adjustment in any PY does not exceed Rs. 1 Crore & is made in on or before AY

40 TP / INTERNATIONAL TAX Secondary adjustment where the primary adjustment to TP has been made: suomoto by assessee in his ROI; or made by AO and accepted by assessee; or is determined by APA entered into by assessee; or is made as per the safe harbour rules framed; or is arising as a result of resolution of an assessment by way of the mutual agreement procedure under an agreement entered into.

41 TP / INTERNATIONAL TAX Indirect Transfer provisions not applicable to investment held by non-resident in a FII and registered as Category-I or Category II Foreign Portfolio Investor under SEBI (W.e.f AY ) 13) In PY in which offshore fund u/s 9A is being wound up, the condition that the monthly average of the corpus of the fund shall not be less than Rs. 100 Crores, shall not apply.

42 MISCELLANEOUS New section 115BBG - income from transfer of carbon credit, 10% (plus applicable surcharge and cess). Government has decided to merge the Authority for Advance Ruling (AAR) for income-tax, central excise, customs duty and service tax. Accordingly, necessary amendments, have been made to Chapter XIX-B to allow merger of these AARs

43 CA. Pramod Jain CA. Pramod Jain, Lunawat & Co

MAJOR Income Tax Proposals in UNION BUDGET 2017

MAJOR Income Tax Proposals in UNION BUDGET 2017 LUNAWAT & CO. Chartered Accountants 3 rd February 2017, Nehru Place CA. PRAMOD JAIN FCA, FCS, FCMA, LL.B, MIMA, DISA THE CRUX TIMELY FILING OF RETURNS No