CA - IPCC COURSE MATERIAL

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1 CA - IPCC COURSE MATERIAL Quality Education beyond your imagination... TAXATION AMENDMENTS MATERIAL FOR NOV 2015 IPCC EXAMS Cell: / 26 Visit Mail: mastermindsinfo@ymail.com Facebook Page: Masterminds For CA Youtube Channel: Masterminds For CA Page 1

2 INDEX S. No. Chapter Name Page No. 1. Income Tax Indirect Taxes

3 CA - IPCC COURSE MATERIAL Quality Education beyond your imagination... INCOME TAX Cell: / 26 Visit Mail: mastermindsinfo@ymail.com Facebook Page: Masterminds For CA Youtube Channel: Masterminds For CA Page 3

4 Ph: AMENDMENTS BY FINANCE (NO. 2) ACT 2014 S.No Chapter Additions Deletions Modifications Notification/ Circulars 1 Introduction To Income Tax Nil 2 Residential Status Nil Nil Nil Nil 3 Exempted Incomes Nil Nil 4 Salaries Nil Nil Nil 5 Income From House Property 6 PGBP-I & II 32AC(1A) Nil 7 Capital Gains Nil 51 8 Income From Other Sources Tax rates (Slab rates) 10(23C), 10(23FC), 10(23FD), 10AA Nil Nil SEC.24(b) 56(2)(IX) Nil Nil 9 Clubbing Provisions Nil Nil Nil Set off & carry forward of losses Chapter VI A Deductions Advance Tax & Interest Nil Nil 73 Nil Nil Nil Nil Nil 13 TDS & TCS Nil Nil 43(5), 35AD, 37,40(a)(ia), 44AE 2(14),2(42A),47,,10(38),54F,54E C,112 80C, 80CCD, 80CCE 194DA,194LC,2 00,200A,201(3), 206AA Prescribed authority Notification No.75/2014 & 76/2014, dated Dep. on windmills Notification No.43/2014, dated , Other some chargeable Circular No.3/2015, dated CII No. Notification No.31/2014, dated , Fixed Maturity plan Circular No.6/2015, dated PPF Notification No.G.S.R. 588(E), dated , Sukanya Samriddi Account Notification No.9/2015, dated , Bank Term Deposit Notification No.63/2014, dated Interest u/s 234A, Circular No.2/2015, dated Non applicability of TDS Circular No.7/2015, dated IPCC _ Taxation Amendments Material (For Nov-2015) d

5 No.1 for CA/CWA & MEC/CEC AMENDMENTS AT GLANCE FINANCE (NO. 2) ACT MASTER MINDS S.NO. PARTICULARS SECTION I. Income-tax II. III. IV. A. Basic Concepts B. Income from house property Increase in deduction for interest on loan borrowed for acquisition or construction of self-occupied house property C. Profits and gains of business or profession Manufacturing companies investing more than Rs.25 crore in new plant and machinery in any previous year during the period from to entitled to investment allowance@15% Expansion of scope of specified business eligible for investment linked deduction assesses claiming investment linked deduction under section 35ad not eligible to claim exemption under section 10AA Disallowance of CSR expenditure 37 Remittance of TDS on payments to non-residents permitted to be made on or before the due date of filling of return of income for avoiding disallowance of related expenditure under section 40(a)(i) during the previous year Expansion of scope of section 40(a)(ia) to cover all expenditure/payments of which tax is deductible under chapter XVII-B and restriction of quantum of disallowance thereunder to 30% of sum paid Speculative transaction to exclude eligible transaction in respect of trading in commodity derivatives carried out in a recognized association, which is chargeable to commodities transaction tax (CTT) Uniform amount of presumptive income from each goods carriage, whether heavy goods vehicle or other than heavy goods vehicle D. CAPITAL Gains Income arising from transfer of security by a foreign portfolio investor (FPI)characterized as capital gains Period of holding of units of debt oriented mutual fund and unlisted securities, to qualify as a long-term capital asset, increased from more than 12 months to more than 36 months Benefit of concessional rate of tax@10% on long-term capital gains (without indexation) not to be available in respect of units of debt-oriented fund and unlisted securities Compensation received in pursuance of an interim order deemed as income chargeable to tax in the year of final order Transfer of Government security outside India by a non-resident to another non-resident not a transfer for charge of capital gains tax Exemption under section 54 and 54F to be available for investment in one residential house situated in India Maximum investment in bonds of NHAI and RECL, out of capital gains arising from transfer of one or more capital assets during a financial year, restricted to Rs.50 Lakhs, irrespective of whether the investment is made in the same financial year or in the subsequent financial year or both V. E. Income from other sources 24(b) 32AC(1A) 35AD 35AD 40(a)(i) 40(a)(ia) 43(5) 44AE 2(14) 2(42A) IPCC _ Taxation Amendments Material (For Nov-2015) d (5) & 54 F 54EC

6 Ph: VI. VII. VIII. Advance forfeited due to failure of negotiations for transfer of a capital asset to be taxable as Income from other sources F. Set-off and Carry Forward of Losses Transaction in respect of trading in shares on a recognized stock exchange by a company, the principal business of which is the business of trading in shares, not a speculative transaction G. Deductions from Gross Total Income Increase in the limit of deduction under section 80C benefit under section 80CCD extended to private sector employees without condition regarding date of joining being on or after 1 st January, 2004 H. Provisions concerning advance tax and tax deducted at Source Tax to be deducted on non-exempt payments made under life insurance policy Enabling provision for deductor to file correctin statement and for processing of correction statement so filed 56(2), 2(24) & C & 80CCE 80CCD 194DA 200 & 200A Non-applicability of higher rate of TDS under section 206AA in respect of tax 206AA(7) deductible under section 194LC on payment of interest on long-term bonds to non-corporate non-residents and foreing companies IX. I. Provisions for filing return of income Return of income of mutual funds, securitization trusts, venture capital 139(4C) companies/funds to be filed mandatorily Verification of return of income 140 S.NO. PARTICULARS NOTIFICATIONS 1. Notification of Cost Inflation Index for F.Y Notification No.31/2014, dated Increase in ceiling limit for investment in PPF Notification No.G.S.R.588(E), dated Rate of depreciation in respect of windmills Notification No.43/2014, dated Increase in limit for investment in bank term deposit Notification No.63/2014, dated Commissioner of Income-tax Notification No.75/2014 & 76/2014, dated Percentage of Government grant for determining whether a university or other educational institution Notification No.79/2014, dated Deposit in Sukanya Samriddhi Account Notification No.9/2015, dated Weighted Deduction of 150% for Expenditure incurred on Agricultural Extension Project 9. Weighted Deduction of 150% for Expenditure incurred by a Company on Skill Development 10. Contributory Health Service Scheme of the Department of Space notified under section 80D Notification No. 18/2014 dated Notification No. 54/2013, dated Notification No.6/2014 dated IPCC _ Taxation Amendments Material (For Nov-2015) e

7 No.1 for CA/CWA & MEC/CEC MASTER MINDS ASSESSEE INCOME RATES OF TAX Up to 2,50,000 Nil 2,50,001-5,00,000 10% 5,00,001-10,00,000 20% Above % Individuals(both male & female,& whose age is below 60 years), HUF,AOP/ BOI, Other artificial persons. All non-resident individuals Individuals(both male & female,& whose age is 60 years or more but below 80 years) (senior citizens) Individuals(both male & female,& whose age is 80 years or more) (super senior citizens) Up to 3,00,000 3,00,001-5,00,000 5,00,001-10,00,000 Above Nil 10% 20% 30% Up to 5,00,000 Nil 5,00,001-10,00,000 20% Above % Partnership firms (Incl. LLP) Flat rate 30% Companies: Indian Foreign 1. TAX RATES APPLICABLE FOR A.Y Flat rate 30% Flat rate 40% Local authorities Flat rate 30% Co-operative societies Upto 10,000 10% 10,001-20,000 20% Above 20,000 30% w.e.f. AY , Rebate u/s 87A is applicable for a resident individual whose total income does not exceed Rs.5 Lakhs. Rebate = Rs.2,000 or 100% of tax payable, whichever is lower. Note: There are no changes in rates of tax structure in case of persons namely partnership firm, company, and co-operative society. No changes in surcharge, E CESS, SHE CESS & REBATE. 2. INCOME FROM HOUSE PROPERTY The Finance (No.2) Act, 2014 has amended the second proviso to section 24(b), so as to increase the limit of deduction on account of interest in respect of one self-occupied property from Rs.1,50,000 to 2,00,000. Note: For Interested on Borrowed Capital Assessee is also entitled to claim deduction u/s 80EE up to Rs.1,00,000 if certain conditions are satisfied. Deduction u/s 80EE is available only up to A.Y Illustration: Mr. Rajesh purchased a residential house property for self-occupation at a cost of Rs. 30 lakh on , in respect of which he took a housing loan of Rs. 24 lakh from Punjab National Bank@11% p.a. on the same date. Compute the eligible deduction in respect of interest on housing loan for A.Y and A.Y under the provisions of the Income-tax Act, 1961, assuming that the entire loan was outstanding as on and he does not own any other house property. Answer: Particulars Rs. For A.Y (i) Deduction under section 24(b) Rs. 2,20,000 1,50,000 [Rs. 24,00,000 11% 10/12] Restricted to (ii) Deduction under section 80EE (Rs. 2,20,000 Rs.1,50,000) 70,000 For A.Y IPCC _ Taxation Amendments Material (For Nov-2015) e

8 Ph: (i) Deduction under section 24(b) Rs. 2,64,000 [Rs. 24,00,000 11%] Restricted to (ii) Deduction under section 80EE (Rs. 1,00,000 Rs. 70,000, allowed as deduction in P.Y ) 2,00,000 30, PROFITS & GAINS OF BUSINESS OR PROFESSION SEC.32AC: investment allowance: a) Eligibility: Company engaged in the business of manufacture or production of any article or thing, acquired and installs new asset. b) Period: Acquisition and installation of New asset between to (32AC(1) Summary: Section Investment In Investment Period Amount of Investment 32AC(1) New Plant and Machinery 32AC(1A) New Plant and Machinery Acquired and installed between to (13-14) (14-15) Acquired and installed between to (14-15) (15-16) (16-17) Aggregate investment exceeds 100 Crores Investment exceeds 25 crores in such previous year Deduction 15% of Investment 15% of Investment Illustration: Compute the admissible deduction under section 32AC for A.Y & A.Y in each of the following cases Answer: Manufacturing company A Ltd. B Ltd. C Ltd. D Ltd. E Ltd. F Ltd. G Ltd to (32AC(1A)) c) Amount of Investment: i) 32AC (1) Aggregate (OF P.Y 13-14&14-15) amount of actual cost of such new assets exceeds Rs.100 crores. & 32AC(1A) investment in new assets, actual cost of which exceeds Rs.25crores during such previous year (w.e.f. A.Y ) Investment in new plant and machinery (Rs. in crores) P.Y P.Y Manufacturing Company A Ltd. B Ltd. C Ltd. D Ltd. Investment in new plant and machinery Deduction under section 32AC (Rs. in crores) P.Y P.Y A.Y A.Y section NIL AC(1) NIL NIL NIL AC(1A) NIL NIL - IPCC _ Taxation Amendments Material (For Nov-2015) e

9 No.1 for CA/CWA & MEC/CEC MASTER MINDS E Ltd AC(1) F Ltd NIL AC(1A) G Ltd NIL AC1) Sec.35AD specified business: Amendment No.1: The finance Act, 2014 has included following two new businesses (in addition to 11 existing businesses) as specified businesses for the purposes of the investment-linked deduction under section 35AD. a) The business is in the nature of laying and operating slurry pipeline for the transportation of iron ore; b) The business is in the nature of setting up and operating a semi-conductor wafer fabrication manufacturing unit notified by the board. Amendment No.2: One more condition added in addition to existing conditions for claiming deduction under section 35AD Condition (section 35AD(7A)): Any asset in respect of which a deduction is allowed shall be used only for the specified business, for a period of 8 years beginning with the previous year in which such asset is acquired or constructed. Consequence for violation of condition (section 35AD (7B): In case the asset is used for a purpose other than the specified business within the period of 8 years, the following amount shall be deemed as income under the head profits and gains from business or profession of the previous year in which the asset is so used. However, the assessee shall be entitled to reduce the amount of eligible depreciation u/s.32, while computing such deemed income. Illustration : Particulars Deduction allowed under section 35AD Less: Deperciation allowable u/s 32 Deemed income under section 35AD (7B) Rs. xxx (-) xxx xxx Exception to sec.35ad(7a) [section 35AD (7C)]: The restriction of the holding period of 8 years does not apply: a) Where the assets are destroyed, discarded or transferred: or b) The company is declared a sick company. Amendment No.3: Where an assessee avails deduction u/s. 35AD, then no deduction shall be allowed under the provisions of sec.10aa and chapter VI-A (part-c) for such business income. Deduction claimed under section 35 AD on a capital asset: Depreciation eligible on such asset under section 32: Profit chargeable to tax in accordance with the proposed section 35AD(7B): Rs.100 Rs.15 Rs.85 The provisions contained in section 35AD(7B) would, however, not apply to a company which has become a sick industrial company under section 17(1) of the sick industrial companies (special provisions) Act, 1985 within the time period of 8 years specified in in section 35AD(7A). (Section 35AD(7C) IPCC _ Taxation Amendments Material (For Nov-2015) e

10 Ph: SEC.35CCC: Weighted Deduction of 150% for Expenditure incurred on Agricultural Extension Project [Notification No. 18/2014 dated ] 1. Applicable to All assesse 2. Nature of expenditure 3. Deduction 4. No double deduction Where an assessee incurs any expenditure on agricultural extension project (notified by the board in this behalf) in accordance with the guidelines as any be prescribed Such expenditure shall be allowed as deduction to the extent 150% of such expenditure Where a deduction under this section is claimed and allowed for any assesement year in respect of any expenditure, deduction shall not be allowed in respect of such expenditure under any other provisions of this act for the same or any other assessment year. SEC.35CCD: Weighted Deduction of 150% for Expenditure incurred by a Company on Skill Development - [Notification No. 54/2013, dated ] 1. Applicable to Company 2. Nature of expenditure 3. Expenditure not covered Where a company incurs any expenditure on any skill development project notified by the board in this behalf in accordance with the guidelines as may be prescribed Any expenditure in the nature of cost of any land or building shall not be allowed as deduction 4. Deduction Such expenditure shall be allowed as deduction to the extent 150% of such expenditure 5. No double deduction Sec.37:Residuary Section Where a deduction under this section is claimed and allowed for any assesement year in respect of any expenditure, deduction shall not be allowed in respect of such expenditure under any other provisions of this act for the same or any other assessment year. In finance Act, 2014 explanation 2 has been inserted in Section 37 to clarify that for the purposes of section 37(1) any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction under section 37(1). The rationale behind the disallowance is that CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business. Exception: However, the Explanatory Memorandum to the finance (No.2) Bill, 2014 clarifies that CSR expenditure, which is of the nature described in sections 30 to 36, Shall be allowed as deduction under those sections subject to fulfillment of conditions, If any Specified therein. Note: Mandatory CSR obligations under section 135: Every company, listed or unlisted, private or public, having a - Net worth of Rs.500 crores or more [Net worth criterion]; or - Turnover of Rs.1,000 crores or more [Turnover criterion]: or - A net profit of Rs.5 crores or more [Net Profit criterion] During any financial year to constitute a CSR Committee of the Board; CSR committee has to formulate CSR policy and the same has to be approved by the Board Such company to undertake CSR activities as per the CSR Policy; Such company to spend in every financial year, at least 2% of its average net profits made in the immediately three preceding financial years, on the CSR activities specified in Schedule VII to the Companies Act, IPCC _ Taxation Amendments Material (For Nov-2015) dd

11 No.1 for CA/CWA & MEC/CEC MASTER MINDS Sec.40(a) Disallowances: Payment made to non-resident sec.40(a)(i): The existing provisions of section 40(a)(i), provides that Interest, royalty, fee for technical services or other sum chargeable under the Act which is payable to a non-resident is not allowable as deduction while computing business income if tax on such payments has not been deducted during the previous year, or after deduction was not paid within the time prescribed under section 200(1). Section 40(a)(i) has been amended to provide that the deductor shall be allowed to claim deduction for payments made to non-residents in the previous year of payment, if tax is deducted during the previous year and the same is paid on or before the due date specified for filing of return under section 139(1). Circular on 40(a)(i) Clarification regarding disallowance of other sum chargeabe under section 40(a) (i) [Circular No.3/2015, dated ] The interpretation of the term other sum chargeable; in section 195 has been clarified in this circular. In its Instruction No.2/2014, dated , the CBDT has clarified that the Assessing Officer shall determine the appropriate portion of the sum chargeable to tax as mentioned in section 195(1), to ascertain the tax liability on which the deductor shall be deemed to be an assesse in default under section 201, in cases where no application is filed by the deductor for determining the sum so chargeable under section 195(2). In this circular, the CBDT clarified that the appropriate portion shall be the same as determined by the Assessing Officer having jurisdiction for the purpose of section 195(1). Also, where the determination of other sum chargeable has been made under sub-section (2), sub-section (3) or sub-section (7) of section 195, such a determination will form the basis for disallowance, if any, under section 40(a)(i). Payment made to resident sec.40(a)(ia) Amendment 1: In finance Act, 2014 Disallowance under section 40(a)(ia) has been extended to all expenditure on which tax is deductible under chapter XVII-B (in addition to interest, commission, brokerage, rent, royalty, fee for technical services and contract payments made to a resident) if tax on such payments was not deducted, or after deduction, was not paid within the due date of filling return specified under section 139(1). Therefore certain other payments such as salary, directors fee not specifically covered under section 40(a) (ia) or also now covered in sec. 40(a)(ia). Amendment 2: An amendment has been made to sec 40(a)(ia) to restrict the disallowance for non-deduction of tax or non-remittance of TDS on payments made to resident on or before the specified due date to 30% (earlier 100%) of the sum payable to resident Summary of the above two provisions: Particulars 40(a)(i) 40(a)(ia) 1. The amount paid or payable is 2. The sum is paid or payable to Interest, Royalty, fee for technical service or any other sum chargeable under IT Act. Non-resident/foreign company Any payments covered in TDS chapter Resident IPCC _ Taxation Amendments Material (For Nov-2015) dd

12 Ph: TDS obligation i. TDS has been deducted ii. the TDS amount paid during the pre-year or in the subsequent year before the expiry of the time prescribed u/s 139(1) 4. Assesse made any default in TDS obligation then amount of disallowance is i. TDS has been deducted the TDS amount paid during the pre-year or in the subsequent year before the expiry of the time prescribed u/s 139(1) 100% of such amount 30% of such amount Note: In case where the tax is deducted in the subsequent year or where the tax deducted during the previous year is paid after the due date for filing the return of income, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Illustration: M/S. Matrix pvt. Ltd., furnishes the details of the following expenditure incurred during the year : Nature of payment Rs. Details of tax deductions a. Contract payment 2,40,000 Tax not deducted at source b. Salary to a resident 5,00,000 Tax not deducted at source c. Rent 10,00,000 Tax deducted at source on actual remittance made on d. Interest 2,00,000 Tax deducted only on and remitted on e. Professional charges 5,00,000 Liability towards this expense was accounted in the books on and TDS was remitted on f. Non-compete fee 10,00,000 Tax not deducted at source Advise the company on the allowability of the above expenses for the AY Answer: According to sec.40(a)(ia), where tax has not been deducted or the amount of tax deducted has not been remitted to the credit of central government as per the provisions of tax deduction at source, then,30% of such expenditure shall be disallowed while computing income under the head profits and gains from business or profession. Accordingly, in respect of various situations given in question, the following shall be the consequences u/s.40(a)(ia): S.No. Nature of payment Compliance/violation Tax consequence a) Contract payment Tax not deducted at source Rs. 72,000 shall be disallowed (Rs.2,40,000*30%) b) Salary to a resident Tax not deducted at source Rs.1,50,000 shall be disallowed(rs.5,00,000*30%) c) Rent TDS remitted within stipulated time limit. d) Interest Tax not deducted at source during the financial year. The assesse has remitted the amount of TDS on which is within the time limit for filing return of income. i.e accordingly,no disallowance of expenditure u/s.40(a)(ia) is warranted. Rs.60,000 shall be disallowed inay However, the same shall be allowed as a deduction in AY (Rs.2,00,000*30%) IPCC _ Taxation Amendments Material (For Nov-2015) dd

13 No.1 for CA/CWA & MEC/CEC MASTER MINDS e) Professional charges Delay in remittance of TDS. Rs.1,50,000 shall be disallowed in AY since the same is not remitted within time limit stipulated u/s 139 (1). However the same shall be allowed as a deduction in AY (Rs.5,00,000*30%) f) Non-compete fee Tax not deducted at source Rs.3,00,000 shall be disallowed (Rs.10,00,000*30%) Sec.43(5) Speculative Transaction a) Commodity derivative transactions are excluded from the definition of speculative transactions w.e.f. AY Clarification: In order to get such benefit of exclusion, such transactions should be chargeable to commodities transaction tax. b) A speculative transaction is defined u/s. 43(5) to mean a transaction in which a contract for purchase or sale of any commodity including stocks and shares is periodically or ultimately settled otherwise then by actual delivery. Explanation to sec.73: A company, whose principal business is that of trading in shares, has been excluded from this speculation transaction and any income or loss arising there from shall be treated as non-speculative business income. Sec.44AE Assesse Engaged in Goods Transport Business The amount of presumptive income (per month or part of a month during which the goods carriage was owned by the tax payer) was as follows: Heavy goods vehicle (HGV) Rs.7500/-(earlier Rs.5000/-) Other than HGV Rs.7500/- (earlier Rs.4500/-) NOTIFICATIONS Rate of depreciation in respect of windmills installed on or after is 80% [Notification No.43/2014, dated ] The CBDT has, vide this notification, amended the rate of depreciation on certain renewable energy devices, Accordingly, the following renewable energy devices would be eligible for from A.Y , if they are installed on or after 1 st April a) wind mills and any specially designed devices which run on wind mills. b) any special devices including electric generators and pumps running on wind energy. This implies that if the aforesaid renewable energy devices were installed on or before 31 st March 2014, they would be eligible for 15% from A.Y The applicable rate of depreciation for A.Y and A.Y Date of installation On or before Between to On or after Rate of depreciation A.Y A.Y % 15% 15% 15% N.A 80% IPCC _ Taxation Amendments Material (For Nov-2015) dd

14 Ph: INCOME UNDER THE HEAD CAPITAL GAINS Notification of Cost Inflation Index for F.Y is 1024 [Notification No.31/2014, dated ] Sec.2(14): Capital Asset The definition d dd a) property of any kind held by an assesseee, whether or not connected with his business or profession; b) Any securities held by foreign institutional investor which has invested in such securities in accordance with the regulations made under the SEBI Act, The exclusion of stock-in-trade from the definition of capital asset is only in respect of subclause (a) Above and not sub-clause (b). Hence, securities held by the FII will now be treated as capital asset only and the transfer of such securities would always result into capital gain. Such transfer of securities held by FII cannot be treated as business income even though securities held as stock-in-trade. Explanation: For the purpose this clause - a) The expression FII shall have the meaning assigned to it in clause(a) of the explanation to section 115AD; b) The expression securities shall have the meaning assigned to it in clause(h) of section of the securities contracts (regulation) Act, Section 2(42A): Meaning of short term capital asset a) For all capital assets other than financial assets: Capital Assets held by an assessee for not more than 36 months immediately preceding the date of transfer, are treated as short-term capital asset (STCA). b) For Financial Assets: a) Securities (other than unit) listed in a recognized stock exchange b) Units of UTI c) Units of Equity oriented fund d) Zero coupon bonds Treated as STCA, if they are held for not more than 12 months In other words, a) Unlisted securities (including shares), b) Units of a mutual fund (other than an equity oriented mutual fund) and c) Units of newly proposed business trusts a) Unlisted share b) A unit of a debt oriented mutual fund unit (Transfer Of Such Capital Asset between to ) a) Unlisted share b) A unit of a debt oriented mutual fund unit (Transfer Of Such Capital Asset after ) Treated as STCA, if they are held for not more than 36 months instead of 12 months. Treated as LTCA, if they are held for more than 12 months Treated as LTCA, if they are held for more than 36 months IPCC _ Taxation Amendments Material (For Nov-2015) dd

15 No.1 for CA/CWA & MEC/CEC MASTER MINDS Sec. 112: Tax rates for LTCG Existing Provision Capital gains on transfer of listed securities, Government securities, units of mutual fund, bonds or zero coupon bonds shall be chargeable to computed without the benefit of indexation availing the benefit of indexation, whichever is more beneficial to the assesse. Amendment in Finance Act, 2014 Capital gains on transfer of listed securities (other than units) or zero coupon bonds shall be chargeable to computed without the benefit of indexation availing the benefit of indexation, whichever is more beneficial to the assesse. Therefore Benefit of concessional rate of on long-term capital gains (without indexation) not to be available in respect of units of debt-orientated fund and unlisted securities (section112) Note: However, the concessional rate of 10% (without indexation benefit) would be available in respect of long-term capital gains arising on units of debt equity oriented fund transferred during the period from 1st April, 2014 to 10th July, 2014 Sec.45(5): Compensation received in pursuance of an interim order Compensation received in pursuance of an interim order shall be deemed to be income chargeable under the head Capital gains in the previous year in which the final order of such court, Tribunal or other authority is made. Sec.47: Exceptions to transfer a) Any transfer of a capital asset, being a Government Security carrying a periodic payment of interest, made outside India through an intermediary dealing in settlement or securities, by a non-resident to another non-resident shall not be regarded as a transfer. Any transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust to the transferor shall not be treated as a transfer. Note: Special purpose Vehicle: SPV means an Indian company in which the business trust holds controlling interest and any specified percentage of shareholding or interest as may be required by the regulations under which such trust is granted registration (not less than 50% as per the current REIT regulations). Business Trust: Section 2(13A) defines a business trust to mean a trust Registered as an Infrastructure Investment Trust (Invit) or a Real Estate Investment Trust (REIT); The units of which are required to be listed on a recognized stock exchange. - In accordance with the regulations made under the SEBI Act, 1992; and - Notified by the Central Government in this behalf. Cost of Acquisition Sec.49(2AC): The cost of acquisition of units so received on exchange shall be cost of the share of the special purpose vehicle which wants exchange for such unit. Period of holding: A Unit of a business trust allotted persuant to transfer of share or shares of special purpose vehicle shall be included the period for which the share or shares were held by the assessee. IPCC _ Taxation Amendments Material (For Nov-2015) dd

16 Ph: Sec.51: Forfeiture of advance W.e.f Any advance amount received and retained by the assessee shall be chargeable under the head income from other sources u/s.56. Any such advance amount received and retained by the assessee shall not be reduced from the cost of acquisition or the FMV or the WDV as the case may be for the purpose of computation of capital gains when such asset is transferred. Note: for such advance amount received and retained by the assessee before existing treatment. i.e. shall be reduced from cost of acquisition in computation of Capital Gains. Exemption U/S.10(38): Exemption of LTCG on transfer of securities subject to STT As per amendment, long term capital gains from transfer of listed securities, unit of an equity oriented fund or unit of business trust which has suffered securities transaction tax is exempt Sec.10(38). Whereas, short term capital gains on transfer of listed equity share are subject to - Sec.111A, subject to satisfaction of certain conditions. Sec.54 & 54F: Exemptions BEFORE AMENDMENT 1. As per section 54(1), capital gains, to the extent invested in a residential house 2. Section 54F, capital gains, in proportion to the net consideration invested in a new residential house AFTER AMENDMENT Sections 54 and 54F have been amended to provide for exemption thereunder in respect of investment made in one residential house situated in India. Reason for amendment: 1. There have been controversial judicial views interpreting a residential house to mean more than one residential house on the reasoning that singular includes plural under the General Clauses Act. 2. Further, another issue which emerged before the Courts was whether investment in a residential house situated outside India would qualify for exemption under these sections. Since the real intent of law was to allow capital gains exemption for investment in one residential house situated in India. Sec.54EC Investment in Notified Bonds: BEFORE AMENDMENT Section 54EC(1) restricts the investment which can be made in the long-term specified asset (bonds of NHAI/RECL) during any financial year to Rs.50 lakh. AFTER AMENDMENT Investment made by an assessee in bonds of NHAI/RECL, out of capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees. Reason for amendment: The period available for investing in NHAI/RECL bonds is six months from the date of transfer and the restriction of Rs.50 lakh is in relation to a financial year, it was possible for assessees transferring an asset or assets on or after 1 st October in a financial year, to invest Rs. 50 lakh in the same financial year and Rs.50 lakh in the next financial year (within six months from the date of transfer) and claim an exemption of upto Rs. 1 crore under section 54EC. This was, however, not in accordance with the real intent of law to restrict the maximum exemption to Rs.50 lakh. IPCC _ Taxation Amendments Material (For Nov-2015) de

17 No.1 for CA/CWA & MEC/CEC MASTER MINDS Illustration: Mr. Ram, working as a CEO with ABC Ltd., furnishes the following particulars of assets transferred by him during the P.Y Particulars Date of transfer Rs. A residential house in Bangalore which he had purchased in 13/1/2015 1,45,00,000 February, 2000 at a cost of Rs. 15,56,000. Listed shares of Indian companies purchased in May 2012 at a 14/2/2015 2,00,000 cost of Rs. 1 lakh. Unlisted shares purchased in May 2012 at a cost of Rs. 50, /2/ ,000 Units of equity oriented fund purchased in May 2012 at a cost of 14/2/ ,000 Rs. 30,000 Units of debt oriented fund purchased in January 2010 at a cost of Rs. 31,600 14/2/ ,000 Mr. Ram made the following investments, out of the capital gains arising on sale of residential house Particulars Rs. Purchased a residential flat in Pune on 21/5/ ,00,000 Purchased a residential flat in Madurai on 14/7/ ,00,000 3 year bonds of NHAI on 20/3/ ,00,000 3 year bonds of RECL on 15/5/ ,00,000 Compute the total income and tax liability of Mr. Ram for A.Y , if his salary income (computed) is Rs. 24 lakh and interest on fixed deposits with banks is Rs. 1 lakh. Assume that he has contributed Rs. 1,50,000 to PPF and paid medical insurance premium of Rs. 12,000 to insure his health. Cost Inflation Index of F.Y : 389; F.Y : 632; F.Y : 852; F.Y : Answer: Computation of total income of Mr. Ram for A.Y Particulars Rs. Salaries 24,00,000 Capital gains [See Working Note below] 19,52,800 Interest on fixed deposits 1,00,000 Gross Total Income 44,52,800 Less: Deductions under Chapter VI-A Under section 80C PPF 1,50,000 Under section 80D Mediclaim premium 12,000 1,62,000 Total Income 42,90,800 Tax on total income: Rs. Tax on long-term capital gains [20% of Rs. 19,27,800] 3,85,560 Tax on other income of Rs. 23,63,000 [42,90,800-19,27,800] 5,33,900 9,19,460 Add: Education cess@2% and SHEC@1% 27,584 9,47,044 Working Note Computation of Capital Gains chargeable to tax for A.Y Particulars Rs. Residential house Gross Sale consideration 1,45,00,000 Less: Indexed cost of acquisition [15,56, /389] 40,96,000 1,04,04,000 Less: Exemption under section 54 35,00,000 IPCC _ Taxation Amendments Material (For Nov-2015) de

18 Ph: Investment in one residential house (it is more beneficial to claim exemption in respect of investment in residential flat at Pune) Investment in bonds of NHAI/RECL (aggregate investment to be restricted to Rs. 50 lakh) 50,00,000 Long-term capital gains u/s ,04,000 2 & 4 Listed equity shares and units of equity oriented fund Capital gains on sale of listed equity shares and units of equity oriented fund held for more than 12 months is a long-term capital gain exempt under section 10(38) Unlisted shares Sale consideration Nil 75,000 Less: Cost of acquisition 50,000 Short-term capital gains taxable at normal rates of tax 25,000 [Since held for less than 36 months] Units of debt-oriented fund 75,000 Sale consideration Less: Indexed cost of acquisition [31, /632] 51,200 Long-term capital gains taxable at 20% u/s ,800 [Since held for more than 36 months] Taxable Capital Gains: Long-term capital gains taxable@20% u/s 112 [(1) + (5)] 19,27,800 Short-term capital gains taxable at normal rates [3] 25, INCOME FROM OTHER SOURCES Rs. 19,52,800 Sec.56(2)(ix) INCOME CHARGEABLE ONLY UNDER THIS HEAD Any sum of money received as an advance or otherwise in the course of negotiations for transfer of capital asset. (i) If such sum is forfeited: and The negotiations do not result in transfer of such capital asset. Illustration: Mr. H has acquired a residential house property in Delhi on 1st April, 2001 for Rs. 22,00,000 and decided to sell the same on 3rd May, 2004 to Mrs.P and an advance of Rs. 70,000 was taken from her. The balance money was not paid by Mrs. P and hence, Mr. H has forfeited the entire advance sum. In April, 2014, he once again entered into negotiations for sale of the said property to Mr.Y, and received Rs. 2 lakh as advance, but the transfer did not materialize and hence, the advance was forfeited. On 3rd March, 2015, he finally sold this house to Mr. S for Rs. 95,00,000. In the meantime, on 4th February, 2015, he had purchased a residential house in Faridabad for Rs. 28,00,000 and made full payment for the same. However, Mr.H does not possess any legal title till 31st March, 2015, as such transfer was not registered with the registration authority. Mr.H had purchased another old house in Madurai on 14th October, 2014 from Mr. X, an Indian resident, by paying Rs. 25,00,000 and the purchase was registered with the appropriate authority. Determine the taxable capital gain arising from above transactions in the hands of Mr.H for Assessment Year Cost Inflation Index : 426; : 480; : 939; :1024. IPCC _ Taxation Amendments Material (For Nov-2015) de

19 No.1 for CA/CWA & MEC/CEC MASTER MINDS Answer Computation of taxable capital gain of Mr. H for the A.Y Particulars Rs. Sale proceeds 95,00,000 Less: Indexed cost of acquisition (See Notes 1 & 2) 51,20,000 Long Term Capital Gain 43,80,000 Less: Exemption under section 54 in respect of investment in house at 28,00,000 Faridabad (See Notes 3 & 4) Taxable long-term capital gain 15,80,000 Notes: 1. Computation of indexed cost of acquisition Particulars Rs. Cost of acquisition 22,00,000 Less: Advance taken in the previous year and forfeited 70,000 Cost for the purpose of Indexation 21,30,000 Indexed cost of acquisition (Rs. 21,30,000 x 1024/426) 51,20, Advance of Rs. 2 lakh taken by Mr. H in April, 2014, which was forfeited due to the transaction not materializing, is taxable under section 56(2)(ix). Hence, such amount would not be reduced to compute the indexed cost of acquisition while computing capital gains on sale of the property in March, In order to avail exemption of capital gains under section 54, one residential house should be purchased within 1 year before or 2 years after the date of transfer or constructed within a period of 3 years after the date of transfer. In this case, Mr.H has purchased the residential house in Faridabad within one year before the date of transfer and paid the full amount as per the purchase agreement, though he does not possess any legal title till since the transfer was not registered with the registration authority. However, for the purpose of claiming exemption under section 54, holding of legal title is not necessary. If the taxpayer pays the full consideration in terms of the purchase agreement within the stipulated period, the exemption under section 54 would be available. It was so held in Balraj v. CIT(2002) 254 ITR 22 (Del.) and CIT v. Shahzada Begum (1988) 173 ITR 397 (A.P.). 4. The Finance (No.2) Act, 2014 has clarified that exemption under section 54 can be availed only in respect of one residential house. It would be more beneficial for Mr. H to claim exemption in respect of the Faridabad house since the cost of the same is higher than the cost of the Madurai house. Sec.73 Speculation Business Loss: 6. SET OFF AND CARRY FORWARD OF LOSSES Transaction is in respect of trading in shares on a recognized stock exchange by a company, the principal business of which is the business of trading in shares, not a speculative transaction [Section 73] Explanation to section 73 provides that in case of a company deriving its income mainly under the head Profits and gains of business or profession: (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 or sale of shares, such business shall be deemed to be speculation business for the purpose of this section. Accordingly, the exclusion part under Explanation to section 73 [i.e., the bracketed part] has been expanded to provide that the business of purchase or sale of shares by a company whose principal business is the business of trading in shares, shall also not be a speculative business. IPCC _ Taxation Amendments Material (For Nov-2015) de

20 Ph: Notifications 7. CHAPTER VI A DEDUCTIONS Sec.80C Deduction in respect of certain payments In order to channelize household savings the limit of deductin allowed under section 80C has been raised from Rs.1,00,000 to Rs.1,50,000 Notification 1: The central government has increased annual ceiling limit for deposit in PPF A/c from Rs.1,00,000 to 1,50,000 by amending the Public Provident fund scheme, (Notification No. G.S.R.588 (E) dated ) Notification 2: the central government, in exercise of the powers conferred by section 80CC(2)(viii) of the Income-tax Act, 1961, has specified the Deposit in Sukanya Samriddi Acount scheme for the welfare of Girl child is eligible for deduction. Notification 3: The Central Government has increase the limit for investment in bank term deposit from Rs.1,00,000 to Rs.1,50,000 [Notification No.63/2014, dated ] Sec. 80CCD Contribution to Pension Scheme of Central Government : BEFORE AMENDMENT Condition relating to the date of joining the service being on or after is applicable to Government and private sector employees for the purposes of deduction under section 80CCD AFTER AMENDMENT Condition relating to the date of joining the service being on or after is not applicable to private sector employees for the purposes of deduction under this section Reason for amendment: Individuals employed by the Central Government before 1 st January, 2004, were entitled to pension as per the Pension Rules. Therefore, the new pension scheme is relevant only for employees joining Government service on or after 1 st January, However, this date of joining is not relevant for private sector employees joining new pension scheme. Limit on deduction under sections 80C, 80CCC and 80CCD (Section 80CCE): Section 80CCE has been amended to increase the aggregate amount of deductions under section 80C, 80CCC and 80CCD(1) from Rs.1,00,000 to Rs.1,50,000 The following table summarizes the ceiling limit under these sections W.E.F.A.Y Section Particulars Ceiling limit (Rs.) 80C 80CCC 80CCD(1) 80CCE Investment in specified instruments Contribution to certain pension funds Contribution to new pension scheme of Government Aggregate deduction under sections 80C, 80CCC & 80CCD (1) 1,50,000 1,00,000 1,00,000 1,50,000 Note: Employers contribution under section 80CCD(2) to Pension Scheme will not be covered u/s 80CCE. Employer s contribution to notified pension scheme has to be first included under the head Salaries while computing gross total income and thereafter, deduction under section 80CCD (2_) would be allowed, subject to a maximum of 10% of salary. Notification: Contributory Health Service Scheme of the Department of Space notified under section 80D [Notification No.6/2014 dated ] Section 80D(2)(a) provides for deduction in respect of medical insurance premium paid or for contribution made by an individual to the Central Government Health Scheme or such other scheme as may be notified by the Central Government. Accordingly, the Central Government has notified the Contributory Health Service Scheme of the Department of Space, contribution to which would be eligible for deduction under section 80D. IPCC _ Taxation Amendments Material (For Nov-2015) dd

21 No.1 for CA/CWA & MEC/CEC MASTER MINDS Illustration: Mr. A, employed with ABC Ltd., has deposited Rs. 1,20,000 in public provident fund. He has paid life insurance premium of Rs. 15,000 on the policy taken on to insure his life (Sum assured Rs. 1,20,000). He has deposited Rs. 30,000 in a five year term deposit with bank. He has also contributed Rs. 1,20,000, being 10% of his salary, to the notified pension scheme of the Central Government. A matching contribution was made by ABC Ltd. Compute the deduction available to him under Chapter VI-A for A.Y Answer: Deduction available to Mr. A under Chapter VI-A for A.Y Section Particulars Rs. Rs. Deposit in public provident fund 1,20,000 Life insurance premium paid Rs. 15,000 (deduction 12,000 80C restricted to Rs. 12,000, being 10% of Rs. 1,20,000, being sum assured, since the policy was taken after ) Five year term deposit with bank 30,000 1,62,000 Restricted to 1,50,000 80CCD(1) Contribution to notified pension scheme of the Central Government, Rs. 1,20,000, restricted to 1,00,000 2,50,000 80CCE Aggregate donations under section 80C and 80CCD(1), Rs. 2,50,000, but restricted to 1,50,000 80CCD(2) Employer contribution to notified pension scheme 1,20,000 Aggregate Deduction 2,70,000 Note: Employer s contribution to notified pension scheme has to be first included under the head Salaries while computing gross total income and thereafter, deduction under section 80CCD(2) would be allowed, subject to a maximum of 10% of salary. 8. RETURN OF INCOME Sec.139(4C) Returns by Certain Associations/Institutions: The following entities have been included for compulsorily filing the return of income if the total income, without giving effect to the provisions of section 10, exceeds the maximum amount which is not chargeable to income tax: a) Mutual fund referred to in sec.10(23d) b) Securitization trust referred to in sec.10(23da): and c) Venture capital company or venture capital fund referred to in sec.10 (23FB). Sec.139(4E) Returns by the Business Trust: Every business trust shall furnish return of its income in every previous year and all the provisions of this act shall apply as if such return is required to be furnished under sec. 139(1). Sec.140. verification of return of income BEFORE AMENDMENT: section 140 provides that the return under section 139 shall be signed and verified in the manner specified therein for different categories of persons. AFTER AMENDMENT: 1. Section 140 has been amended to provide that the return shall be verified by the persons specified therein. 2. Consequently, the words sign and verify, wherever they have been used in section 140, have been substituted by the word verify. 3. Further, the words sign or signing, wherever they have been used in section 140. Have been replaced by verify or verifying. IPCC _ Taxation Amendments Material (For Nov-2015) dd

22 Ph: TAX DEDUCTED AT SOURCE Sec.194DA TDS on any sum under life insurance policy including bonus: Nature of payment Any sum under a life insurance policy, including amount allocated by way of any bonus to such policy. Person responsible to deduct tax Insurance companies Category of payee Resident assessee. Rate of TDS 2% Time of deduction At the time of payment No TDS a. No TDS on any sum paid under a life insurance policy which is exempt u/s.10(10d) b. No TDS where the payment or aggregate of payments to the payee during the financial year does not exceed Rs.1lakh Illustration: Examine the applicability of the provisions for tax deduction at source under section 194DA in the above cases - a) Mr.X, a resident, is due to receive Rs lakhs on , towards maturity proceeds of LIC policy taken on , for which the sum assured is Rs. 4 lakhs and the annual premium is Rs. 1,25,000. b) Mr.Y, a resident, is due to receive Rs lakhs on on LIC policy taken on , for which the sum assured is Rs. 2 lakhs and the annual premium is Rs. 35,000. c) Mr.Z, a resident, is due to receive Rs. 95,000 on towards maturity proceeds of LIC policy taken on for which the sum assured is Rs. 90,000 and the annual premium was Rs. 19,000. Answer 1. Since the annual premium exceeds 10% of sum assured in respect of a policy taken on , the maturity proceeds of Rs lakhs are not exempt under section 10(10D) in the hands of Mr.X. Therefore, tax is required to be deducted@2% under section 194DA on the maturity proceeds of Rs lakhs payable to Mr.X. 2. Since the annual premium is less than 20% of sum assured in respect of a policy taken before , the sum of Rs lakhs due to Mr.Y would be exempt under section 10(10D) in his hands. Hence, no tax is required to be deducted at source under section 194DA on such sum payable to Mr.Y. 3. Even though the annual premium exceeds 20% of sum assured in respect of a policy taken before , and consequently, the maturity proceeds of Rs. 95,000 would not be exempt under section 10(10D) in the hands of Mr.Z, the tax deduction provisions under section 194DA are not attracted since the maturity proceeds are less than Rs. 1 lakh. Sec.194LC Nature of payment Interest payable under a loan agreement or by way of issue of long term infrastructure bonds, or issue of any long term bond approved by central government, to the extent such interest does not exceed the rate prescribed by the central government. Person responsible Indian company or a business trust which pays interest on monies to deduct tax borrowed from to in foreign currency, from a source outside india. Category of payee a) Non-resident (other than a company), or b) Foreign company Rate of TDS 5% Time of deduction At the time of credit or payment, whichever is earlier. IPCC _ Taxation Amendments Material (For Nov-2015) dd