BOMBAY CHARTERED ACCOUNTANTS SOCIETY

Transcription

1 BOMBAY CHARTERED ACCOUNTANTS SOCIETY FINANCE ACT, 2016 Presentation by: Yogesh Thar July 1, 2016

2 INDEX The Direct Tax Dispute Resolution Scheme, 2016 Equalisation Levy Residence & Chapter XII-BC Transfer Pricing Return of income, Advance Tax, Assessment and Intimation u/s 143(1) Provisions dealing with special rate of tax like 115BA, 115BBDA etc. 2

3 THE DIRECT TAX DISPUTE RESOLUTION SCHEME, 2016

4 INTRODUCTION Introduced vide Chapter X of Finance Act, 2016 To reduce huge backlog of pending cases ; To enable collection of tax dues expeditiously ; Revised avatar of Kar Vivad Samadhan Scheme,

5 DECLARATION BY THE ASSESSEE Scheme applicable to tax arrear and specified tax Declaration to be made before an officer ( designated authority ) not below the rank Commissioner of Income-tax and; notified by the Principal Chief Commissioner To be made between June 1, 2016 to December 31, 2016 To be filed in Form 1 annexed to The Direct Tax Dispute Resolution Scheme Rules, 2016 ( the Rules ) 5

6 TAX ARREAR Definition Amount of tax, interest or penalty determined under the Act or the Wealth-tax Act; In respect of which appeal is pending before First Appellate Authority as on February 29, 2016 Appeal may relate to Assessment Order or; Penalty Order 6

7 TAX ARREAR - PROCEDURE Declaration to be made in Form-1 disclosing Quantum Appeal Tax and interest payable as per assessment order Disputed tax and interest Tax and interest outstanding Minimum Penalty leviable Penalty Appeal Tax and interest determined on total income Tax and interest outstanding Minimum penalty leviable Penalty levied as per penalty order Amount of penalty paid 7

8 TAX ARREAR - PROCEDURE On Declaration being made : Appeal before first appellate is deemed to be withdrawn; Designated authority to issue certificate determining the sum payable within 60 days of receipt of declaration; Make payment and intimate the designated authority within 30 days of receipt of certificate; Final order passed by the designated authority; Order passed is conclusive No matter covered shall be reopened 8

9 TAX ARREAR - IMMUNITY Immunity from institution of proceedings - in respect of offence under Income-tax Act or Wealth-tax Act Immunity in respect of interest and penalty Quantum Appeal Disputed tax upto 10 lakhs Pay Tax and interest Immunity 100% Penalty Disputed tax exceeding 10 lakhs Pay Tax, interest and 25% of minimum penalty leviable Immunity Balance penalty levied Penalty Appeal Pay Tax+Int+25% of minimum penalty leviable Immunity Balance penalty levied 9

10 S. No Particulars ROI Additions (Penalty) Additions (No Penalty) 1 Assessed Total Income Tax Interest Outstanding Tax & Int. ( ) = 14 4 Minimum Penalty leviable Penalty levied Amount paid out of (5) Nil 7 Amount payable under scheme 8 If not opted for scheme 8 Total ( Nil)

11 SPECIFIED TAX Definition :- tax determined in consequence of or is validated by an amendment made with retrospective effect in the Income-tax Act or Wealth-tax Act for a period prior to the date of enactment of such amendment and a dispute in respect of which is pending as on February 29, 2016 Before filing declaration Declarant must withdraw Any appeal filed against specified tax before CIT(A), ITAT, High Court or Supreme Court Any proceeding for arbitration, conciliation or mediation initiated by the declarant 11

12 SPECIFIED TAX - PROCEDURE Declaration to be made in Form 1 disclosing: Tax and interest payable as per assessment order; Demand outstanding; Details of pending appeal/ writ filed or proceeding for arbitration/ conciliation/ mediation Following to furnish along with declaration : Proof of withdrawal of appeal/ writ or proceeding for arbitration/ conciliation/ mediation Undertaking waiving his right to seek any remedy or any claim in relation to specified tax (Form 2 annexed to the Rules) 12

13 SPECIFIED TAX - PROCEDURE On Declaration being made: Designated authority to issue certificate determining the sum payable within 60 days receipt of declaration; Make payment and intimate the designated authority within 30 days of receipt of certificate; Final order passed by the designated authority; Order passed is conclusive No matter covered shall be reopened; No Appellate Authority, Conciliator or Mediator shall proceed on issue relating to specified tax 13

14 SPECIFIED TAX - IMMUNITY Immunity from institution of proceedings - in respect of Income-tax Act or Wealth-tax Act offence under Immunity in respect of interest and penalty Waiver of interest in respect of specified tax Waiver of 100% penalty in respect of specified tax Thus, only tax arrears are to be paid 14

15 REFUND OF AMOUNT PAID Amount paid under the Scheme not refundable Declaration presumed never to be made if the declarant Furnishes false material in the declaration Violates conditions mentioned in the scheme Acts in a manner not in accordance with the undertaking given Thus, if declaration treated as invalid, whether the payment made can be retained by the Government 15

16 BENEFITS OF SCHEME NOT AVAILABLE Cases wherein prosecution has been initiated before ; Search or survey cases where the declaration is in respect of tax arrears ; Cases relating to undisclosed foreign income and assets ; Cases based on information received under Double Taxation Avoidance Agreement u/s 90 or 90A of the Act, where the declaration is in respect of tax arrears. ; Person notified under Special Courts Act, 1992 ; Cases covered under Narcotic Drugs and Psychotropic Substances Act, Indian Penal Code, Prevention of Corruption Act or Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974; 16

17 Main Difference between KVSS and DTDRS KVSS Wider Coverage any tax which remains unpaid as on the date of making declaration Amount payable 35 per cent of disputed income in respect of Companies and firms 30 per cent of disputed income in respect of a person other than a Company or firm Where the tax arrears includes only interest and penalty, 50 per cent of the tax arrears DTDRS Only with respect to tax, interest and penalty in respect of appeal pending before CIT(A) Amount payable Where disputed tax is upto Rs. 10 lakhs: Whole of Tax and interest upto the date of assessment. No penalty is payable. Where disputed tax exceeds Rs. 10 lakhs : Whole of Tax and interest upto the date of assessment. Penalty is payable at the rate of 25 per cent of the Minimum Penalty. Where the tax arrears includes only penalty, 25 per cent of the minimum penalty. 17

18 TAX ARREAR - IMMUNITY Immunity in respect of interest and penalty Quantum Appeal Penalty Appeal Disputed tax upto 10 lakhs Pay Tax and interest Immunity 100% Penalty Disputed tax exceeding 10 lakhs Pay Tax, interest and 25% of minimum penalty leviable Immunity Balance penalty leviable Pay 25% of minimum penalty leviable Immunity Balance penalty levied 18

19 Some Issues Groundwise settlement - not possible. Either entire disputed tax or nil DRP Cases appeal to ITAT not eligible except Specified Tax Whether Department appeals also not to be proceeded with? Tax Arrears cases Not relevant Specified Tax cases Departmental Appeals not withdrawn. KVSS 218 Taxman 40 (All) Department appeal also cannot be proceeded with Declaration to be filed before due date mere posting it not sufficient KVSS 128 Taxman 7 (All) MAT related appeal Whether tax paid will be eligible for MAT credit? KVSS 24 SOT 164 (Mum) - Yes 19

20 EQUALISATION LEVY ( EL )

21 INTRODUCTION Digital economy is growing faster than global economy ; Currently, digital domain doesn t seem to occur in any physical location but instead takes place in the nebulous world of cyberspace ; The digital business fundamentally challenges physical presence based permanent establishment ( PE ) rules ; Action Plan-1 Base Erosion and Profit Shifting ( BEPS ) has provided various recommendations to tackle such challenges which includes concept of virtual PE ; To address such challenges, Chapter VIII Equalisation Levy has been inserted in Finance Act, 2016 ; This Chapter does not form part of the Income-tax Act, 1961 ( the Act ) 21

22 CHARGE OF EQUALISATION LEVY F Co. 6% on Consideration paid/payable ABC Co. Pay the tax deducted Provision of Specified Service Outside India India Central Govt. F Co. A Non-Resident Person in India No PE in India ABC Co. person resident in India and carrying on business or profession; or a non-resident having a permanent establishment ( PE ) in India *To deduct 6% on consideration paid to Non- Resident 22

23 RELEVANT DEFINITIONS "equalisation levy" means the tax leviable on consideration received or receivable for any specified service under the provisions of this Chapter; "specified service" means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government in this behalf; "online" means a facility or service or right or benefit or access that is obtained through the internet or any other form of digital or telecommunication network; 23

24 CHARGE OF EQUALISATION LEVY (contd ) EL shall not be charged, where specified service is not connected with the PE of the non-resident in India; aggregate consideration for the specified service in the previous year does not exceed Rs. 1 lac; or payment for specified service is not for the purpose of carrying out business or profession 24

25 PROCEDURAL PROVISIONS: Due Date payment of tax deducted to Central Government 7 th immediately following calendar month ; of the Furnishing electronic statement in Form No. 1 in respect of all specified services chargeable to EL during any financial year Due Date 30 th June of immediately following financial year ; On failure to furnish statement, Assessing Officer ( AO ) may issue notice to furnish statement within 30 days of service of notice ; Due Date for belated or revised statement before expiry of 2 years from end of financial year in which specified service is provided Eg. For specified service provided in FY ending March 31, 2017, then belated/revised statement to be furnished before March 31,

26 ISSUE OF INTIMATION Statement furnished by Assessee shall be processed in manner provided u/s 168(1); In case of any deviation, intimation shall not be sent after expiry of 1 year from end of FY in which statement is furnished Eg. Suppose statement is furnished in FY ending March 31, 2018, then intimation shall be sent after March 31, 2019 Intimation u/s 168(1) shall be deemed to be a notice of demand; AO can rectify the intimation for rectification of mistake apparent from record ; Time limit for rectification of mistake 1 year from end of FY in which intimation sought to be amended was issued 26

27 INTEREST & PENALTY Section Particulars Provision 170 Interest on delayed payment of EL 1% simple interest for every month or part thereof by which payment of tax to Government is delayed 171 Penalty for failure to deduct or pay EL 172 Penalty for failure to furnish statement Non-deduction of whole or part of EL amount equal to EL the assessee failed to pay Tax deducted but not paid before due date Rs. 1,000/- for every day during which default continues Penalty shall not exceed the amount of EL the assessee failed to pay Penalty levied is in addition to payment of actual EL and interest for delay Rs. 100/- for every day during which failure continues No Penalty shall be levied if reasonable cause proved for the failure to the satisfaction of the Assessing Officer 27

28 APPEALS Particulars Commissioner of Income-tax (Appeals) Appellate Tribunal When can appeal be filed Assessee aggrieved by penalty order Assessee aggrieved by order of CIT(A) Time Limit 30 days from date of receipt of order of AO 60 days from date of receipt of order of CIT(A) Form Form 3 (electronically) Form 4 Filing Fees Rs. 1,000/- Rs. 1,000/- Applicable sections of the Act 249 to to

29 CORRESPONDING AMENDMENTS IN THE ACT To avoid double taxation, exemption has been provided u/s 10(50) of the Act, for any income arising from providing specified services chargeable to EL; Whether exemption would be available even though service recipient has not paid to the Government the EL so deducted Non- allowability of deduction under section 40(a)(ib), on failure to deduct and pay EL 29

30 ISSUES Constitutional Validity- whether considered as a part of Income Tax; The levy is not under the Income-tax Act. Whether covered by bilateral treaties? Non-resident service provider whether can claim credit of tax in home jurisdiction; Double taxation of same income; Non-resident service provider may not be willing to bear the taxes, leading to the tax being borne by the Indian entity, thus resulting in increase in the overall cost; The current appellate procedures covers disputes relating to penalty; No dispute resolution provisions for challenging the levy itself 30

31 ISSUES (Contd.) No provisions of refund or adjustment of EL wrongly deducted; What will happen in the event of cancellation of contract in relation to which EL has already been paid; EL amounts to Double Taxation Payments made for online advertisement to non-residents is subject to service tax under the reverse charge mechanism; Therefore, levy of EL lead to double taxation on same payment to non-residents If the non-resident construed to have a POEM in India- thereby regarded as a resident of India for tax purposes- whether EL leviable; 31

32 CHAPTER XII - BC SECTION 115JH SPECIAL PROVISIONS RELATING TO FOREIGN COMPANY SAID TO BE RESIDENT IN INDIA

33 BACKGROUND Due to POEM, many companies incorporated outside India which were earlier not assessed to tax in India, may come within the purview of the Act ; There are issues relating to applicability of current provisions of Act to such companies Advance tax TDS Computation of Income, etc. To provide clarity in respect of implementation of POEM and also to address concerns of stakeholders, a new Chapter XII-BC, comprising of section 115JH has been inserted w.e.f AY

34 APPLICABILITY Section 115JH applies if the following conditions are fulfilled: There is a foreign company; The foreign company is said to be a resident in India in any previous year; The foreign company has not been resident in India in any of the previous years preceding the said previous year Central Government shall notify provisions relating to: Computation of Income; Treatment of unabsorbed depreciation; Set-off or carry forward and set-off losses; Collection and recovery; Special provisions relating to avoidance of tax; Every notification issued shall be laid before each House of Parliament 34

35 YEAR TO WHICH SECTION 115JH APPLIES Foreign Company ( F- Co ) suo moto considers itself to be a resident the notified scheme shall apply in the first year F- Co does not regard itself as resident in India but it is so held in the assessment proceedings Notified scheme shall be applicable for all previous years ending before the date on which assessment proceeding is completed Illustration Foreign company never held as resident in India. Due to POEM, foreign company becomes a resident in India in AY Section 115JH applies for AY Suppose, F- Co claims that it is not resident in India in AY , the AO holds in December 2019 that the company is a resident in India Section 115JH applies from AY to AY

36 RESIDENTIAL STATUS OF A COMPANY SECTION 6(3) Till FY 15-16, a company was regarded as resident in India, if it was an Indian Company or if its control and management was wholly situated in India Test of Control and management wholly in India is replaced by the test of Place of Effective Management in India ( POEM ), w.e.f from April 1, 2016 onwards Two tests laid down: Indian Company always a resident POEM in India will be regarded as a resident in that year Intention is to ensure that by merely holding board meetings outside India, a company should not be regarded as a non-resident although, in substance, its effective management is in India 36

37 RESIDENTIAL STATUS OF A COMPANY (contd ) The expression place of effective management (POEM) has been defined to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made Key changes: Existing provisions: Control & Management = Head and brain = Board of Directors meeting. Wholly in India. Even if one Board Meeting held outside India, C&M outside India. Hence Non-Resident. Amended Provisions: On a functional analysis, if the key management and commercial decisions of the company are taken in substance from India 37

38 DRAFT GUIDELINES FOR DETERMINING POEM* Active business o/s India Passive business o/s India If passive income is not more than 50% of its total income and.- Less than 50% of the following : i. Total Assets in India & ii. Total no of employees situated/resident in India & iii. Total Payroll expenses of employees in India Stage 2 Purchase and Sale with AE Royalty, Dividend, Capital Gains, Interest or Rental Income Majority meetings of BOD o/s India No POEM Stage 3 BOD not exercising power & person exercising power resident in India Yes * CBDT has issued draft guidelines for determining POEM dated 23 December 2015, vide no. F, No. 142/11/2015-TPL 38

39 KEY POINTS FOR DETERMINING POEM Determined based on facts and circumstances of a each case separately; Concept of substance over form prevails; Entity to have only 1 place of effective management, at any point of time; POEM to be determined year on year basis; Primary test is whether the company is active business outside India. 39

40 Guiding principles for determining POEM (para 8.2) Para Factor relevant for determining POEM 8.2.a Location where the board regularly meets/takes decisions 8.2.b Board delegates some/all authority to committeesplace where committee is based and where key strategies are formulated 8.2.c/ d Location of HO Conditions BOD Retains authority to govern company Makes key management & commercial decisions Delegation may be de facto or de jure Centralized business- HO is place held out as Co s headquarters Factors not relevant Mere formal holding of BOD at a place & key decisions taken elsewhere Delegation of authority to make decisions to senior management and /or any other person NIL Day to day routine operations undertaken by junior and middle management Decentralized business- HO is location of senior managers 40

41 Guiding principles for determining POEM (para 8.2) Para Factor relevant for determining POEM Conditions Factors not relevant 8.2.e Use of modern technology for taking decisions 8.2.f If no clear indication from any of factors stated above Place where BOD or person taking decision usually reside Place where substantial activity carried out OR Place where accounting records kept Physical presence of person taking the decision Physical location of Board meeting; senior management meeting not relevant 41

42 Guiding principles for determining POEM (para 9) Factors not considered relevant for determining POEM FC is completely owned by an Indian Company One/some of the directors of the FC reside in India Local Management is situated in India in respect of activities carried out by FC in India Existence of support functions in India that are preparatory and auxiliary in character 42

43 FACTORS LIKELY TO TRIGGER POEM IN INDIA Global Management Headquaters located in India Key Managerial & Commercial decisions taken by senior management in India Global roles played by senior management e.g.group CFOs/CEOs/Business Heads sitting in India and taking/approving decisions of foreign affiliates KMP Factors not likely to trigger POEM Factors likely to trigger POEM Recommendatory advice Non-binding services Shareholders activity Stewardship activity Routine decision Key management and commercial decision Decisive Role 43

44 TRANSFER PRICING Insertion of section 286- Country by Country Report and Master File

45 BACKGROUND Requirement To enhance transparency for tax administration, taking into consideration compliance cost for business MNE s to provide all relevant Governments with needed information on Global allocation of income ; Economic activity ; Taxes paid among countries such reporting according to a common template 45

46 OUTLINE OF SECTION 286 Specific regime introduced whereby a resident entity forming part of an international group, where the parent entity is not resident in India as also a resident parent entity of an international group shall keep, and maintain and furnish to the prescribed Income Tax authority such information and document in respect of the international group and in respect of international transactions as may be prescribed; The prescribed information and document to be furnished to the prescribed authority referred to in section 286 in the prescribed manner on or before the date to be prescribed Entity forming part of international group, is required to report if the parent entity is resident of a country wherein no agreement for exchange of report exists or such country is not exchanging information inspite of existing agreement and the same is intimated to the entity by prescribed authority 46

47 OUTLINE OF SECTION 286 (contd ) If report is filed by alternate entity in its residence state, then the entities of such group are not obligated to furnish report in India- if such report is obtained under agreement of exchange of such reports by Indian Tax authorities ; In case of more than one group entities in India, one entity is to be nominated to furnish report on behalf of the group Steep penal consequences are provided for furnishing of inaccurate particulars of information in report, non furnishing of report by an entity which is obligated to furnish, non-submission of information before prescribed authority; 47

48 PRE-CONDITIONS FOR APPLICABILITY Applicable to a constituent entity defined u/s 286(1) constituent entity is resident in India constituent entity is a constituent of international group International group- is such that it has a parent entity Parent entity is not resident in India 48

49 THREE-TIRED STANDARDIZED APPROACH TO TP DOCUMENTATION To be provided by MNE s to all relevant tax administrations with high level information regarding their: - global business operations ; Master File transfer pricing policies Referring specifically to material transactions of local taxpayer: - Local File Identification of material related party transactions ( RPT ); Detailed transfer pricing documentation ; 49

50 THREE-TIRED STANDARDIZED APPROACH TO TP DOCUMENTATION (contd ) Country - by- Country Report To be filed in the ultimate tax jurisdiction of the ultimate parent but share with countries by automatic exchange of information (Tax Information Exchange Agreements { TIEA } or DTAA): - Revenue/profits ; No of employees ; Capital ; Retained Earnings ; Tangible assets ; Business activity of each entity 50

51 RETURN OF INCOME, ADVANCE TAX, ASSESSMENT AND INTIMATION u/s 143(1)

52 RETURN OF INCOME ( ROI ) ROI which is otherwise valid will not be treated as defective merely because Self assessment tax is not paid [S. 139(9), Expl. Clause (aa) omitted]; ROI filed sub-section (4A) to (4F) deemed to be filed u/s 139(1) ; Belated ROI can be revised ; Time limit to file Belated return and revised returns reduced by one year End of the relevant AY; Individual, HUF, AOP, BOI, AJP to file ROI if income without considering LTCG exempt u/s 10(38) exceeds minimum slab not chargeable to tax 52

53 INTIMATION Section 143(1) Additional adjustments for processing return to issue intimation: Disallowance of set-off of loss if ROI for year in which loss occurred was not filed within time limit; Disallowance of expense mentioned in Tax Audit Report but not considered while computing total income in ROI; Disallowance of claim u/s 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID, 80-IE if ROI not filed within time limit; Addition of income as appearing in Form 26AS, 16 or 16A but not considered while computing total income in ROI; o Form 26AS Tax credit available (year wise); o Form 16 Certificate for tax deducted at source on Salary; o Form 16A Certificate for tax deducted at source (other than Salary) 53

54 INTIMATION Section 143(1) Procedure Intimation to the assessee, Assessee to reply < 30 days. Issue 143(1) thereafter. Time Limit of issue of intimation one year from the end of the financial year in which ROI is filed; Prior to amendment, processing return u/s 143(1) not necessary where a scrutiny notice u/s 143(2) is issued. Now, 143(1) must be done before completing 143(3). Thus, time limit for processing ROI increased in cases where scrutiny notice u/s 143(3). But processing of ROI has become mandatory. 54

55 INCOME DEEMED TO ESCAPE ASSESSMENT Section 147 Explanation 2 to section 147 provides for cases which shall be deemed to have escaped assessment; One more case inserted in Explanation 2 w.e.f. 1 June, 2016; based on information/documents called for u/s 133C(2) by an IT authority, the AO notices and that income of the assessee exceeds the maximum amount not chargeable to tax Assessee now cannot challenge on the ground that AO has simply relied on information made available to him by another IT authority and has not done any investigation himself 55

56 TIME LIMIT TO PASS ASSESSMENT ORDER (S. 153) Type of Order Assessment Order u/s 143(3) or 144 Assessment Order or Re- Assessment Order u/s 147 Fresh Assessment Order to give effect to order of ITAT u/s 254 cancelling the original Assessment Order Fresh Assessment Order to give effect to revisional order of CIT u/s 263 or 264 cancelling the original Assessment Order Pre-Amendment 24 months from end of relevant AY 12 months from end of FY in which notice u/s 148 was served 12 months from end of FY in which order of ITAT is received byao 12 months from end of FY in which CIT passes his order Time limit allowed to AO* Post-Amendment 21 months from end of relevant AY 9 months from end of FY in which notice u/s 148 was served 9 months from end of FY in which order of ITAT is received by AO 9 months from end of FY in which CIT passes his order * Time limit in all cases shall be extended by 12 months where reference to TPO is made u/s 92CA 56

57 TIME LIMIT TO PASS ASSESSMENT ORDER (S. 153) Type of Order Assessment Order to give effect to order u/s 250, 254, 260, 262, 263, 264 otherwise than by way of setting aside or cancelling original assessment Assessment Order to give effect to order u/s 250, 254, 260, 262, 263, 264 or order of any court in a proceeding otherwise than by way of appeal Assessment on partner as a result of assessment on firm u/s 147 Time limit allowed to AO Pre-Amendment No time limit No time limit No time limit Post-Amendment 3 months from end of month in which order is received or, as the case may be, passed by designated CIT (extendable by further 6 months) 12 months from end of month in which order is received or, as the case may be, passed by designated CIT 12 months from end of month in which Assmt. Order for firm is passed 57

58 TIME LIMIT TO PASS ORDER (S. 153B) Type of Assessment/Order Assessment of person u/s 153A Assessment of the other person u/s 153C r.w.s. 153A Pre-Amendment 24 months from end of FY in which search was concluded or requisition was made 24 months from end of FY in which search was concluded or requisition was made OR 12 months from the end of FY in which AO having jurisdiction over other person receives books of accs., documents, assets whichever is later Time limit allowed to AO Post-Amendment 21 months from end of the FY in which last of the authorisations for search or requisition was executed 21 months from end of FY in which last of the authorisations fro search or requisition was executed OR 9 months from end of FY in which AO having jurisdiction over other person receives books of accs., documents, assets whichever is later 58

59 ADVANCE TAX Alignment of due dates for advance tax payment between corporate and noncorporate assesses Due Dates Cumulative % of Advance Tax to be paid * Companies Pre-Amendment Other than companies Post-Amendment All assessees 15 th June 15% - 15% 15 th September 45% 30% 45% 15 th December 75% 60% 75% 15 th March 100% 100% 100% *Eligible assessees, in respect of eligible business u/s 44AD, have the option to pay the whole of advance tax by 15 th March 59

60 SECTION 115BA CONCESSIONAL RATE FOR START-UPS

61 RATE OF TAX Concessional rate of 25% - at the option of the assessee; The tax rate shall be increased by surcharge and cess. Opening lines of section 115BA reads as Notwithstanding anything contained in this Act but subject to the provisions of section 111A and section Capital gains shall be taxed in accordance with section 111A and section 112 All other income shall be chargeable to 25% 61

62 CONDITIONS TO BE FULFILLED: All of the following conditions have to be fulfilled for availing concessional tax rate u/s 115BA; The assessee should be a domestic company; It should be set-up and registered on or after March 1, 2016; It should not be engaged in any business other than the business of:- manufacturing or production of any article or thing; or research in relation to such article or thing manufactured or produced by it; or distribution of such article or thing manufactured or produced by it Total income has to be computed in a manner provided therein (dealt with in next slide) 62

63 COMPUTATION OF INCOME Deduction not allowed Sr. No. Sections Particulars 1 10AA Special provisions in respect of newly established Units in SEZ 2 32(1)(iia) Additional depreciation 3 32AC Investment in new plant or machinery 4 32AD Investment in new plant or machinery in notified backward areas in certain States 5 33AB Tea development account, coffee development account and rubber development account 6 33ABA Site Restoration Fund 63

64 COMPUTATION OF INCOME (contd ) Deduction not allowed (contd ) Sr. No. Sections Particulars 7 35(1)(ii)/ (iia)/(iii) 35(2AA) 35(2AB) Expenditure on scientific research 8 35AC Expenditure on eligible projects or schemes 9 35AD Deduction in respect of expenditure on specified business 10 35CCC Expenditure on agricultural extension project 11 35CCD Expenditure on skill development project 12 Chapter VI-A C. Deductions in respect of certain incomes except the provisions of section 80JJAA 64

65 COMPUTATION OF INCOME (contd ) No set-off of loss carried forward from any earlier assessment year if such loss is attributable to any of the deductions not allowed under section 115BA; Such loss shall be deemed to have been already given full effect to and no further deduction for such loss shall be allowed for any subsequent year Depreciation u/s 32 shall be determined in the manner prescribed; Such manner has not been prescribed yet 65

66 EXERCISING OF OPTION Manner shall be prescribed for exercising the option; Option has to be exercised before the due date specified u/s 139 for furnishing the first return of income required to be furnished; Once option is exercised, it cannot be subsequently withdrawn for the same or any other previous year 66

67 ISSUES Section 115BA, unlike section 80-IA/80-IB etc. of the Act does not provide that the new company should not be formed by way of splitting up or reconstruction of an existing business; a new company formed by way of demerger or any other mode of restructuring would also be eligible for the concessional rate Whether provisions of section 115JB Minimum Alternate Tax ( MAT) will apply Section 115JA and section 115BA, both begin with a non-obstante clause No sun- set clause 67

68 SECTION 115BBDA TAX ON DIVIDENDS RECEIVED FROM DOMESTIC COMPANIES

69 APPLICABILITY Applies to resident: Individual; Hindu Undivided Family; Firm Thus, not applicable to Non-resident persons; Companies; Association of Person, Body on Individuals; Local Authority, Artificial Juridical Person Dividend is declared, distributed or paid by a domestic company or companies; Aggregate income by way of dividend exceeds Rs. 10 lakh. 69

70 TAXABILITY Income by way of dividend in aggregate exceeding Rs. 10 lakhs will be 10% Tax shall be payable only on the amount of dividend exceeding Rs 10 lakhs. Corresponding amendment in section 10(34) Denial of exemption on such excess dividend if tax is payable u/s 115BBDA; Tax has to be paid on gross dividend No deduction shall be allowed of any expenditure, allowance or set-off of losses in computing dividend income; Whether such deductions can be allowed against dividend income while computing total income Provisions apply only to shares Does not apply to dividend from mutual funds, etc. But it applies to all dividends, preference and equity 70

71 APPLICABILITY TO TRUST As a general rule, status of a trust is determined based on the status of the beneficiaries; Trust in which all beneficiaries are individuals has been assessed as an individual; CWT vs. Trustees of H.E.Z. Nizam s Family Trust (108 ITR 555)(SC); LR Patel Family trust vs. ITO (262 ITR 520)(Bom); CIT vs. S.A.E. Head Office Trust (271 ITR 159)(Del.) In such event, section 115BBDA may apply to a trust; In case of specific or determinate trust since the tax liability arises in the like manner and same extent as the beneficiary, the limit of Rs 10 lakhs would have to be applied separately in respect of each beneficiary 71

72 ISSUES Multiple taxation:- Company pays 34.61% on its profits; On distribution, Company pays 20.92%; On receipt of dividend, assessee is required to pay 10%; No disallowance u/s 14A; provision for dividend stripping u/s 94(7) not applicable Since, no exemption u/s 10(34) where dividend is taxable u/s 115BBDA; Taxability of interim dividend declared prior to 1 April, 2016; In case clubbing provisions apply - How to calculate the limit of Rs. 10 lakh 72

73 SECTION 115BBF CONCESSIOAL RATE FOR TAX ON INCOME FROM PATENT

74 APPLICABILITY Eligible Assessee Income Person resident in India and who is a patentee Royalty in respect of patent developed and registered in India Rate of tax 10% Deductions Exercise of option no deduction in respect of any expenditure or allowance shall be allowed In the manner prescribed, on or before due-date specified u/s 139(1) for furnishing return of income Opting out of the option No choice of opting out of the option If attempt made to opt out, then, assessee would not be eligible to opt for concessional rate for 5 assessment years subsequent to assessment year in which option opted out 74

75 RELEVANT DEFINITIONS Patent Invention Inventive Step Developed "patent" means a patent for any invention granted under this Act; "invention" means a new product or process involving an inventive step and capable of industrial application; "inventive step" means a feature of an invention that involves technical advance as compared to the existing knowledge or having economic significance or both and that makes the invention not obvious to a person skilled in the art; "developed" means at least seventy-five per cent of the expenditure incurred in India by the eligible assessee for any invention in respect of which patent is granted under the Patents Act, 1970 (39 of 1970) (herein referred to as the Patents Act); 75

76 RELEVANT DEFINITIONS (CONTD ) Patentee true and first inventor "patentee" means the person, being the true and first inventor of the invention, whose name is entered on the patent register as the patentee, in accordance with the Patents Act, and includes every such person, being the true and first inventor of the invention, where more than one person is registered as patentee under that Act in respect of that patent; "true and first inventor" does not include either the first importer of an invention into India, or a person to whom an invention is first communicated from outside India. 76

77 RELEVANT DEFINITIONS Royalty "royalty", in respect of a patent, means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains" or consideration for sale of product manufactured with the use of patented process or the patented article for commercial use) for the (i) transfer of all or any rights (including the granting of a licence) in respect of a patent; or (ii) imparting of any information concerning the working of, or the use of, a patent; or (iii) use of any patent; or (iv) rendering of any services in connection with the activities referred to in sub-clauses (i) to (iii); 77

78 ISSUES Corresponding amendment in section 115JB income and expenditure in respect of patent royalty to be excluded while computing book profits; For the patent to be considered as developed in India, 75% of expenditure should be incurred in India No prohibition on set-off of losses; 78

79 Thank You!