DIRECT TAX Every bit and piece of my work is dedicated to every sleepless night my mother has spent for me

Transcription

1 Part A DIRECT TAX Every bit and piece of my work is dedicated to every sleepless night my mother has spent for me

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3 INDEX of Income Tax Amendments by FA, 2016 Chapter 1: Basic Concepts Particulars Rates of Tax [Assessment year ] SURCHARGE in case of Individual / HUF / AOP / BOI / Artificial juridical person Tax Rate for Company for Assessment Year Section 115BBE: Set-off of losses not permissible against unexplained income Increase in rebate under section 87A Summary of Surcharge Applicability Clarifications regaridng attaining prescribed age of 60/80 Chapter 2: Residential Status Certain concerns in Implementation of concept of POEM Deferral of applicability of POEM based residence test by one year Rule 126: Computation of period of stay in india in certain cases Chapter 3: Income Exempt from Tax Exemption under section 10(34) not to apply to dividend chargeable to tax in accordance with section 115BBDA Section 10(38): Exemption of long-term capital gains arising from transaction undertaken in foreign currency on a recognised stock exchange located in an International Financial Services Centre even when STT is not paid in respect of such transaction Section 10(12A): Payment from NPS Trust to an employee on closure of his account or on his opting out of the pension scheme exempt to the extent of 40% of such payment Investment in Stock certificate as defined in the Sovereign Gold Bonds Scheme, 2015 notified as eligible form of investment by a charitable trust Chapter 4: Income from House property Extension of period for completion of construction from 3 years to 5 years, for claiming higher deduction of upto ` 2 lakh in respect of interest on capital borrowed for construction of self-occupied house property New Section 25A: Special provision for arrears of rent and unrealized rent received subsequently Chapter 5: Profits and gains from business and Profession Section 28(va): Non-compete fee received/receivable for not carrying on a Page

4 profession chargeable under the head Profits and gains of business or profession Section 32AC: Deduction under section 32AC to be available in the year of installation in respect of actual cost of new plant and machinery acquired in the P.Y and P.Y , if the actual cost of such new plant and machinery acquired in the relevant previous year exceeds ` 25 crores, even if the new plant and machinery has not been installed in the relevant previous year but has been installed on or before Section 32(1)(iia): Assessees engaged in the business of transmission of power eligible for additional depreciation Phasing out of incentives under the Income-tax Act, 1961 New section 35ABA: Tax treatment for spectrum fee Section 36(1)(viia): NBFCs eligible for claim of deduction for provision for bad and doubtful debts Section 43B: Sum payable to Indian Railways for use of railway assets allowable as deduction in the year in which the liability to pay such sum is incurred, only if payment is made on or before the due date of filing of return Increase in threshold limit of gross receipts/turnover u/s 44AD of a business to be eligible for opting the presumptive taxation scheme Section 44ADA: Presumptive Taxation Scheme for assessees engaged in eligible profession Chapter 6: Capital Gains Section 2(14): Definition of Capital Assests (Amended by FA, 2016) Third Proviso to Section 48: Second Proviso To Section 48 Not Apply (Amended By Finance Act, 2016) Fourth Proviso to Section 48 (Added By FA, 2016): Exemption of Foreign Exchange Fluctuation Gains form Capital Gains Tax upon transfer of Rupee Denominated Bonds Section 55: Cost of Acquisition & Cost of Improvement (Amended By Finance Act, 2016) Section 111A: Tax on short-term Capital Gains in certain cases Section 10(38): Exemption in respect of Long-Term Capital Gains in case of Specified Securities Section 2(42A): Period of holding of unlisted shares to qualify as a long term capital asset to be reduced from more than 36 months to more than 24 months Section 47(xiiib): Conversion of company into Limited Liability Partnership (LLP) Section 49(5): Cost of acquisition of asset, whose fair market value has been taken into account for the Income Declaration Scheme, 2016 Section 50C: Special Provision for full value of consideration in certain cases New Section 54EE: Exemption of long-term capital gains on investment in notified units of specified fund Scope of exemption under section 54GB expanded to cover LTCG on sale of

5 residential property invested in shares of eligible start-up company: Chapter 7: Other Sources Section 56(2)(vii): Shares received by an individual or HUF as a consequence of demerger or amalgamation of a company or a business reorganisation of a cooperative bank not to be subject to tax by virtue of section 56(2)(vii) Section 10(34): Dividend Exempt from Tax NEW SECTION 115BBDA: Tax on certain dividends received from domestic companies Chapter 8: Deduction under chapter VIA Section 80GG: Increase in the limit of deduction under section 80GG Sec 80EE: Additional Deduction for Interest on Loan borrowed for acquisition of self-occupied house property by an individual Chapter 9: Tax deduction at source Surcharge and EC & SHEC on Rates of TDS prescribed Section 197A: Enabling provision for filing of self-declaration in Form 15G/15H by recipient of rental income, for non-deduction of tax at source under section 194-I Chapter XVII-B: Increase in Threshold limits and reduction of rates for deduction of Tax at Source In Respect Of Certain Payments Reduction in rate of tax to be deducted at source in respect of certain payments Time limit for furnishing Quarterly Returns of TDS/TCS Rule 30(2A): Increase in time limit for payment of TDS under section 194-IA to Government Account Chapter 10: Transfer Pricing Section 92D: Maintenance and Keeping of information and document by persons entering into an international transaction or specified domestic transaction Chapter 11: Other Amendments Set off, carry forward of losses o Section 80: Filing of return of loss on or before the due date under section 139(1) mandatory for carry forward of loss from specified business under section 73A Advance Tax (Installment & Interest etc.) Return of Income o Section 139(4C): Return of income of mutual funds, securitization trusts, venture capital companies/funds to be filed mandatorily Alternate Minimum Tax o Section 115JC: Assessees claiming investment linked tax deduction under section 35AD covered within ambit of AMT Minimum Alternate Tax Various Threshold /Limits under the Income Tax Act (Amended by Finance Act, 2016)

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7 Basic Concepts 1 CA Vivek Gaba Chapter 1 Basic Concepts of Income Tax RATES OF TAX [ASSESSMENT YEAR ] Section 2 of the Finance Act, 2016 read with Part I of the First Schedule to the Finance Act, 2016, seeks to specify the rates at which income-tax is to be levied on income chargeable to tax for the assessment year Part II: lays down the rate at which tax is to be deducted at source during the financial year from income subject to such deduction under the act. Part III lays down the rates for charging income-tax in certain cases, rates for deducting income-tax from income chargeable under the head "salaries" and the rates for computing advance tax for the financial year i.e., Assessment Year Part III of the First Schedule to the Finance Act, 2016 will become Part I of the First Schedule to the Finance Act, 2017 and so on. Part II of First Schedule to the Finance Act, 2016 specifies rates at which income-tax is to be deducted at source under sections 193, 194, 194A, 194B, 194BB, 194D, 194LBA and 195 during the financial year These rates of tax deduction at source are the same as were applicable for the F.Y However, the rate of tax deduction at source has been decreased from 10% to 5% in respect of income by way of insurance commission payable to a resident non-corporate assessee. Further, the scope of Part II of the First Schedule has been expanded to include the rates in force for the purpose of tax deduction at source under section 194LBB from income distributed to a non-resident unit holder of an investment fund and under section 194LBC from income distributed to a non-resident investor of a securitization trust. Surcharge would be levied on income-tax deducted at source in case of non-corporate non-residents and foreign companies. If the recipient is a non-resident individual or HUF or AOP or BOI, whether incorporated or not, or artificial juridical person, would be levied on such income-tax if the income or aggregate of income paid or likely to be paid and subject to deduction exceeds ` 1 crore. If the recipient is co-operative society or a firm, being a non-resident, would be levied on such income- tax if the income or aggregate of income paid or likely to be paid and subject to deduction exceeds ` 1 crore. If the recipient is a foreign company, (i) 2% would be levied on such income-tax, where the income or aggregate of such incomes paid or likely to be paid and subject to deduction exceeds ` 1 crore but does

8 Basic Concepts 2 CA Vivek Gaba not exceed ` 10 crore; and (ii) 5% would be levied on such income-tax, where the income or aggregate of such incomes paid or likely to be paid and subject to deduction exceeds 10 crore. Surcharge would not be levied on deductions in all other cases. Also, education cess and secondary and higher education cess would not be added to tax deducted or collected at source in the case of a domestic company or a resident non-corporate assessee. However, education and secondary and higher education on income-tax plus surcharge, wherever applicable, would be added to tax deducted at source in cases of non-corporate non-residents and foreign companies. A. For RESIDENT INDIVIDUALS of the age of 80 YEARS OR MORE at any time during the previous year (NO CHANGE by Finance Act, 2016) Where total income does not exceed `5,00,000 where total income exceeds ` 5,00,000 but does not exceed ` 10,00,000 Where total income exceeds ` 10,00,000 Nil 20% of the amount by which total income exceeds ` 5,00,000; ` 1,00,000 plus 30% of the amount by which total income exceeds ` 10,00,000. B. For senior citizens (being RESIDENT INDIVIDUALS of the age of 60 years or more at any time during the previous year but less than 80 years) (NO CHANGE by Finance Act, 2016) Where total income does not exceed `3,00,000 Where total income exceeds ` 3,00,000 but does not exceed ` 5,00,000 Where total income exceeds ` 5,00,000 but does not exceed ` 10,00,000 Where total income exceeds ` 10,00,000 Nil 10% of the amount by which the total income exceeds ` 3,00,000 ` 20,000 plus 20% of the amount by which total income exceeds ` 5,00,000; ` 1,20,000 plus 30% of the amount by which total income exceeds ` 10,00,000. C. INDIVIDUAL (other than mentioned above i.e. Resident Individual with age of LESS THAN 60 YEARS and ALL NON RESIDENT) / Hindu Undivided Family (HUF) / Association of Persons (AOP) / Body of Individuals (BOI) / Artificial Juridical Person. (NO CHANGE by Finance Act, 2016) Where total income does not exceed Nil `2,50,000 Where total income exceeds ` 2,50,000 but 10% of the amount by which the total income

9 Basic Concepts 3 CA Vivek Gaba does not exceed ` 5,00,000 exceeds ` 2,50,000 Where total income exceeds ` 5,00,000 but ` 25,000 plus 20% of the amount by which does not exceed ` 10,00,000 total income exceeds ` 5,00,000; Where total income exceeds ` 10,00,000 ` 1,25,000 plus 30% of the amount by which total income exceeds ` 10,00,000. SURCHARGE IN CASE OF INDIVIDUAL / HUF / AOP / BOI / ARTIFICIAL JURIDICAL PERSON (AMENDMENT BY FINANCE ACT, 2016) Where the total income exceeds ` 1 crore, surcharge is payable at the rate of 15% of income-tax computed in accordance with the provisions of para (i)(a)/(b)/(c) above or section 111A or section 112. Marginal relief is available in case of such persons having total income exceeding ` 1 crore i.e., the additional amount of income-tax payable (together with surcharge) on the excess of income over ` 1 crore should not be more than the amount of income exceeding ` 1 crore. Illustration 1 of Amendment by FA, 2016: If VG has total income of ` 103,00,000, his tax liability shall be computed as follows: Step 1: Tax on 103,00,000 29,15,000 (as per slab) Add: 15% 4,37,250 Tax before education cess 33,52,250 Step 2: Tax on 100,00,000 28,25,000 (as per slab) Step 3: Increment in tax (33,52,250-28,25,000) 5,27,250 Increment in income (103,00, ,00,000) 3,00,000 Marginal relief 2,27,250 Tax after marginal relief (33,52,250-2,27,250) 31,25,000 Add: Education cess and 3% 93,750 Final / Total Tax Liability 32,18,750 Note: Suppose in above example income would have been 108,00,000, then assessee would not be allowed any marginal relief since increase in tax is less than increase in income. The objective behind giving marginal relief is that increase in tax due to surcharge should not be more than increase in income. TAX RATE FOR COMPANY FOR ASSESSMENT YEAR ARE AS FOLLOWS: (AMENDMENT BY FINANCE ACT, 2016) (A) In the case of a DOMESTIC COMPANY (i) Where the total turnover or gross receipt in the previous year

10 Basic Concepts 4 CA Vivek Gaba does not exceed ` 5 crore. 29% of the total income (B) (ii) In case of other domestic company In the case of a company other than a domestic company i.e. FOREIGN COMPANY 30% of the total income 40% of the total income However, specified royalties and fees for rendering technical services (FTS) received from Government or an Indian concern in pursuance of an approved agreement made by the company with the Government or Indian concern between and (in case of royalties) and between and (in case of FTS) would be Illustration 2 of Amendment by FA, 2016 Compute the tax liability of Astha Ltd., a domestic assuming that the total income is `1,02,00,000 and the total income does not include any income in nature of capital gains. (Assume Turnover is more than 5 crores in P.Y ) Solution Step 1: Tax on 30% 30,60,000 Add: 7% 2,14,200 Tax before education cess 32,74,200 Step 2: Tax on 30% 30,00,000 Step 3: Increment in tax (32,74,200-30,00,000) 2,74,200 Increment in income (102,00, ,00,000) 2,00,000 Marginal relief 74,200 Tax after marginal relief (32,74,200-74,200) 32,00,000 Add: Education cess and 3% 96,000 Tax Liability 32,96,000 Illustration 3 of Amendment by FA, 2016 Compute the tax liability of Astha Ltd., a domestic assuming that the total income is `1,02,00,000 and the total income does not include any income in nature of capital gains. (Assume Turnover is 5 crores or less in P.Y ) Solution Step 1: Tax on 29% 29,58,000 Add: 7% 2,07,060 Tax before education cess 31,65,060 Step 2: Tax on 29% 29,00,000 Step 3: Increment in tax (32,74,200-30,00,000) 2,65,060 Increment in income (102,00, ,00,000) 2,00,000 Marginal relief 65,060 Tax after marginal relief (32,74,200-74,200) 31,00,000

11 Basic Concepts 5 CA Vivek Gaba Add: Education cess and 3% 93,000 Tax Liability 31,93,000 There is NO CHANGE IN PROVISIONS OF SURCHARGE, education cess and secondary and higher education cess IN ANY OTHER CASES. (firm, LLP, Companies etc) ALSO, THERE IS NO CHANGE IN RATE OF INCOME TAX IN RESPECT OF OTHER ASSESSEE. [SECTION 115BBE]: SET-OFF OF LOSSES NOT PERMISSIBLE AGAINST UNEXPLAINED INCOME, INVESTMENTS, MONEY ETC. CHARGEABLE UNDER SECTIONS 68/69/69A/69B/69C/69D Effective from: A.Y ) Under section 115BBE, unexplained cash credits under section 68, unexplained investments under section 69, unexplained money under section 69A, undisclosed investments under section 69B, unexplained expenditure under section 69C and amount borrowed or repaid on hundi under section 69D are taxable at the rate of 30%. 2) Further, no deduction in respect of any expenditure or allowance in relation to income referred to in the said sections shall be allowable under any provision of the Income-tax Act, However, there is no specific provision prohibiting set-off of losses against income referred in section 115BBE. This issue was, therefore, the subject matter of litigation, and many Courts have taken a view that losses shall not be allowed to be set-off against income referred to in section 115BBE. 3) In order to avoid further litigation and clarify the real intent of law, section 115BBE(2) has been amended to expressly provide that no set off of any loss shall be allowable against income brought to tax under sections 68 or section 69 or section 69A or section 69B or section 69C or section 69D. INCREASE IN REBATE UNDER SECTION 87A (AMENDMENT BY FINANCE ACT 2016) EFFECTIVE FROM: A.Y (i) As per section 87A, rebate equivalent to 100% of income-tax or ` 2,000, whichever is less, is allowed from the amount of income-tax payable by an individual resident in India whose total income does not exceed ` 5 lakh. (ii) To provide further relief to resident individuals in the lower income slab, section 87A has been amended to increase the maximum amount of rebate available from 2,000 to

12 Basic Concepts 6 CA Vivek Gaba 5,000 from A.Y Illustration 4 of Amendment by FA, 2016: Taxable income is ` 5,00,000. Tax liability for different tax payers will be as follows Resident individual Non-resident Firm/ Particulars Above 80 years years Less than 60 individual or any HUF domestic company Income tax on 5,00,000 Nil 20,000 25,000 25,000 1,50,000 Less: Rebate u/s 87A (resident individual tax or 2,000, lower) Nil 5,000 5,000 N.A. N.A. Income tax Nil 15,000 20,000 25,000 1,50,000 Add: Surcharge (income less than 1 cr) Nil Nil Nil Nil Nil Income tax and Surcharge Nil 15,000 20,000 25,000 1,50,000 Add: Education 2 % Nil ,000 Add: 1% Nil ,500 Tax liability Nil 15,450 20,600 25,750 1,54,500 Individual / HUF / AOP / BOI SUMMARY OF SURCHARGE APPLICABILITY (AMENDED BY FINANCE ACT, 2016) If total income is up to 1 crore If total income is in the range of more than 1 crore to 10 crore * If total income is more than 10 crore* Nil 12% 15% 12% 15% Firm Nil 12% 12% Co-operative society Nil 12% 12% Local authority Nil 12% 12% Domestic Company Nil 7% 12% Foreign company Nil 2% 5% * Marginal relief is available Marginal Relief will be given to an assessee when increase in tax liability due to surcharge is more than increase in income beyond which surcharge is applicable. INCOME-TAX ACT, 1961 has prescribed following SPECIFIC RATES: (No Change by Finance Act, 2016) a) SECTION 112: Long term capital gains shall be 20%. In case of non-corporate non-residents and foreign companies, long-term capital gains arising from transfer of unlisted securities would be subject to without giving effect to indexation provision and currency fluctuation. (Discussion in detail in the Chapter of Capital Gains).

13 Basic Concepts 7 CA Vivek Gaba b) SECTION 111A: Short term capital gains on transfer of equity share in a company or a unit of an equity oriented fund on which STT has been 15%. c) SECTION 115BB: winnings from any lottery, crossword puzzle, race including horse race, card game etc. shall be 30%. d) SECTION 68 TO 69C: Unexplained Investment, undisclosed income, Unexplained income, Unexplained expenditure etc. 30% Education cess and Secondary and Higher education cess on income-tax: Education 2% of Income tax (inclusive of surcharge) and 1% of income tax (inclusive of surcharge) shall be leviable. CLARIFICATIONS REGARIDNG ATTAINING PRESCRIBED AGE OF 60/80 YEARS ON 31 ST MARCH ITSELF, IN CASE OF SENIOR / VERY SENIOR CITIZEN WHOSE DATE OF BIRTH FALLS ON 1 ST APRIL, FOR PURPOSE OF INCOME TAX ACT, 1961 Circular No. 28/2016, Dated Higher tax exemption limits have been prescribed under the past finance act for resident senior citizen taxpayers who have attained the age of 60 years. Even in such cases, the exemption limit still higher for very senior citizens who have attained the age of 80 years. A doubt has been raised the attainment of the aforesaid qualifying ages for availing higher exemption in cases of the persons whose date of birth falls on 1 st April of calendar year. In other words, the broader question under consideration is whether a person born on 1 st April of a particular year can be said to have completed a particular age on 31 st march, on the preceding day of his/her birthday or on 1 st April itself that year. 2. The matter has been examined. Although specific provision does not exist in this regard under the income tax act, 1961, the Hon ble Supreme court an occasion to consider a similar issue in the case of Prabhu Dayal Sesma vs. State of Rajasthan & another 1986, 1948 wherein it has dealt with on general rules to be followed for calculating the age of the person. In this judgment, Apex Court observed that while counting the age of the person, whole of the day should be reckoned and it start from 12 o clock in the midnight and he attains the specified age on the preceding, the anniversary of his birthday. 3. In view of the aforesaid judgment, the CBDT, hereby clarifies that a person born on 1 st April would be considered to have attained a particular age on 31 st March, the day preceding the anniversary of his birthday. In particular, the question of attainment of age of eligibility for being considered a senior / very senior citizen would be decided on the basis of above criteria.

14 Basic Concepts 8 CA Vivek Gaba Therefore, if a person is born on 1 st April, 1957/1937 the he shall get slab of 3,00,000 / 5,00,000 in the previous year

15 Residential Status 9 CA Vivek Gaba Chapter 2 Residential Status CERTAIN CONCERNS IN IMPLEMENTATION OF CONCEPT OF POEM FOR DETERMINING RESIDENTIAL STATUS OF FOREIGN COMPANIES To address the concerns regarding the applicability of provisions of the Income-tax Act, 1961 to a company which is incorporated outside India and has not earlier been assessed to tax in India, the applicability of POEM has been deferred by one year i.e., from A.Y to A.Y Particularly, the issues concerning the applicability of specific provisions of the Income-tax Act, 1961 on advance tax payment, TDS provisions, computation of total income, set off of losses and manner of application of transfer pricing regime have to be addressed, since they are in the nature of compliance requirements which would not have been undertaken by the company at the relevant point of time on account of absence of any such requirement under tax laws of country of incorporation of such company. Likewise, issues relating to depreciation computation also arise when in earlier years it has not been subject to computation under the Income-tax Act, It is also possible that a company may be claiming to be a foreign company not resident in India. However, in the course of assessment, it may be held to be resident based on POEM being in fact in India. This assessment would be well after closure of the previous year and it may not be possible for company to undertake many of procedural requirements. DEFERRAL OF APPLICABILITY OF POEM BASED RESIDENCE TEST BY ONE YEAR AND PUTTING IN PLACE REQUISITE TRANSITION MECHANISM Therefore, so as to ensure clarity in respect of implementation of POEM based rule of residence and to address concerns of the stakeholders, the Finance Act, 2016 has provided the following:- The applicability of POEM based residence test has been deferred by one year and the determination of residence based on POEM shall be applicable from A.Y Illustration 5 of Amendment by FA, 2016: ABC Inc., a Swedish company headquartered at Stockholm, not having a permanent establishment in India, has set up a liaison office in Mumbai in April, 2016 in compliance with RBI guidelines to look after its day to day business operations in India, spread awareness about the company s products and explore further opportunities. The liaison office

16 Residential Status 10 CA Vivek Gaba takes decisions relating to day to day routine operations and performs support functions that are preparatory and auxiliary in nature. The significant management and commercial decisions are, however, in substance made by the Board of Directors at Sweden. Determine the residential status of ABC Inc. for A.Y Answer Section 6(3) has been substituted by the Finance Act, 2016 with effect from A.Y to provide that a company would be resident in India in any previous year, if- (i) it is an Indian company; or (ii) its place of effective management, in that year, is in India. In this case, ABC Inc. is a foreign company. Therefore, it would be resident in India for P.Y only if its place of effective management, in that year, is in India. Explanation to section 6(3) defines place of effective management 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. In the case of ABC Inc., its place of effective management for P.Y is not in India, since the significant management and commercial decisions are, in substance, made by the Board of Directors outside India in Sweden. ABC Inc. has only a liaison office in India through which it looks after its routine day to day business operations in India. The place where decisions relating to day to day routine operations are taken and support functions that are preparatory or auxiliary in nature are performed are not relevant in determining the place of effective management. Hence, ABC Inc., being a foreign company is a non-resident for A.Y , since its place of effective management is outside India in the P.Y Rule 126: COMPUTATION OF PERIOD OF STAY IN INDIA IN CERTAIN CASES 1) For the purposes of section 6, in case of an individual, being a citizen of India and a member of the crew of a ship, the period or periods of stay in India shall, in respect of an eligible voyage, not include the period computed in accordance with sub-rule (2). 2) The period referred to in sub-rule (1) shall be the period beginning on the date entered into the Continuous Discharge Certificate in respect of joining the ship by the said individual for the eligible voyage and ending on the date entered into the Continuous Discharge Certificate in respect of signing off by that individual from the ship in respect of such voyage. Illustration 6 of Amendment by FA, 2016: Mr. Anand is an Indian citizen and a member of the crew of a Singapore bound Indian ship engaged in carriage of passengers in international traffic departing from Chennai port on 6th June, From the following details for the P.Y , determine the residential status of Mr.

17 Residential Status 11 CA Vivek Gaba Anand for A.Y , assuming that his stay in India in the last 4 previous years (preceding P.Y ) is 400 days and last seven previous years (preceding P.Y ) is 750 days Particulars Date Date entered into the Continuous Discharge Certificate in respect of 6 th June, 2016 joining the ship by Mr. Anand Date entered into the Continuous Discharge Certificate in respect of 9 th December, 2016 signing off the ship by Mr. Anand Answer: In this case, the voyage is undertaken by an Indian ship engaged in the carriage of passengers in international traffic, originating from a port in India (i.e., the Chennai port) and having its destination at a port outside India (i.e., the Singapore port). Hence, the voyage is an eligible voyage for the purposes of section 6(1). Therefore, the period beginning from 6th June, 2016 and ending on 9th December, 2016, being the dates entered into the Continuous Discharge Certificate in respect of joining the ship and signing off from the ship by Mr. Anand, an Indian citizen who is a member of the crew of the ship, has to be excluded for computing the period of his stay in India. Accordingly, 187 days [ ] have to be excluded from the period of his stay in India. Consequently, Mr. Anand s period of stay in India during the P.Y would be 178 days [i.e., 365 days 187 days]. Since his period of stay in India during the P.Y is less than 182 days, he is a non-resident for A.Y Note- Since the residential status of Mr. Anand is non-resident for A.Y consequent to his number of days of stay in P.Y being less than 182 days, his period of stay in the earlier previous years become irrelevant.

18 Income exempt 12 CA Vivek Gaba Chapter 3 Income Exempt from Tax EXEMPTION UNDER SECTION 10(34) NOT TO APPLY TO DIVIDEND CHARGEABLE TO TAX IN ACCORDANCE WITH SECTION 115BBDA Effective from: A.Y ) Section 10(34) exempts dividend received by a shareholder of a domestic company, since the same is subject to dividend distribution tax (DDT) under section 115-O. 2) Under section 115-O, dividends distributed by a domestic company are subject to 15% at the time of distribution in the hands of company declaring dividend. This may result in vertical inequity amongst the tax payers since dividend distributed to those shareholders (who receive high dividend) are subject to tax only at the rate of 15% whereas had such income been taxable in their hands directly, the same would have been subject to tax at the rate of 30%. 3) To remove this vertical inequity, section 115BBDA has been inserted to provide that any income by way of aggregate dividend in excess of ` 10 lakh shall be chargeable to tax in the case of an individual, Hindu undivided family (HUF) or a firm who is resident in India, at the rate of 10%. 4) Further, the taxation of dividend income in excess ` 10 lakh shall be on gross basis i.e., no deduction in respect of any expenditure or allowance or set-off of loss shall be allowed to the assessee in computing the income by way of dividends. 5) Accordingly, a proviso has been inserted in section 10(34) to provide that the exemption available thereunder in respect of dividend received by a shareholder from a domestic company would not apply to income by way of dividend chargeable to tax under section 115BBDA. Illustration 7 of Amendment by FA, 2016: A Ltd., a domestic company, declared dividend of ` 170 lakh for the year F.Y and distributed the same on Mr. X, holding 10% shares in A Ltd., receives dividend of ` 17 lakh in July, Mr. Y, holding 5% shares in A Ltd., receives dividend of ` 8.50 lakh. Discuss the tax implications in the hands of Mr. X and Mr. Y, assuming that Mr. X and Mr. Y have not received dividend from any other domestic company during the year. Solution: (i) Dividend of ` 170 lakh declared and distributed in the P.Y is subject to dividend distribution tax in the hands of A Ltd., a domestic company. (ii) In the hands of Mr. X, dividend received upto ` 10 lakh would be exempt under section 10(34). ` 17 lakh, being dividend received in excess of ` 10 lakh, would be

19 Income exempt 13 CA Vivek Gaba 10% as per section 115BBDA. Such dividend would not be exempt under section 10(34). Therefore, tax payable by Mr. X on dividend of ` 7 lakh under section 115BBDA would be ` 72,100 [i.e., 10% of ` 7 lakh + 3%]. (iii) In the hands of Mr. Y, entire dividend of ` 8.50 lakh received would be exempt under section 10(34), since only dividend received in excess of ` 10 lakh would be taxable under section 115BBDA. [SECTION 10(38)]: EXEMPTION OF LONG-TERM CAPITAL GAINS ARISING FROM TRANSACTION UNDERTAKEN IN FOREIGN CURRENCY ON A RECOGNISED STOCK EXCHANGE LOCATED IN AN INTERNATIONAL FINANCIAL SERVICES CENTRE EVEN WHEN STT IS NOT PAID IN RESPECT OF SUCH TRANSACTION Related amendment in section: 111A Effective from: A.Y (1) Section 10(38) exempts income by way of long term capital gains arising from transfer of listed equity shares or listed units of an equity oriented fund or units of a business trust, where securities transaction tax is paid. Section 111A provides that short term capital gains arising from transfer of listed equity shares or listed units of an equity oriented fund or business trust is taxable at a concessional rate of 15% provided securities transaction tax is paid. (2) To encourage the development of International Financial Services Centres into a world class financial services hub, section 113A of the Finance (No.2) Act, 2004 has been substituted to provide that the provisions of Chapter VII levying securities transaction tax on taxable securities transactions shall not apply to taxable securities transactions entered into by any person on a recognized stock exchange located in International Financial Services Centre where the consideration for such transaction is paid or payable in foreign currency, thereby exempting such transaction from securities transaction tax. (3) Accordingly, second proviso has been inserted in section 10(38) to provide for exemption of long-term capital gains arising from transaction undertaken in foreign currency on a recognised stock exchange located in any International Financial Services Centre even when STT is not paid in respect of such transaction. Further, second proviso has been inserted in section 111A to provide that short term capital gains arising from transaction undertaken in foreign currency on a recognised stock exchange located in an International Financial Services Centre would be taxable at a concessional rate of 15% even when securities transaction tax is not paid in respect of such transaction.

20 Income exempt 14 CA Vivek Gaba [SECTION 10(12A)]: PAYMENT FROM NPS TRUST TO AN EMPLOYEE ON CLOSURE OF HIS ACCOUNT OR ON HIS OPTING OUT OF THE PENSION SCHEME EXEMPT TO THE EXTENT OF 40% OF SUCH PAYMENT Effective from: A.Y ) Currently, under the Income-tax Act, 1961, the tax treatment for the National Pension System (NPS) referred to in section 80CCD is Exempt, Exempt and Tax (EET). This implies that The monthly/periodic contributions during the pension accumulation phase are allowed as deduction from income for tax purposes; the returns generated on these contributions during the accumulation phase are also exempt from tax; However, the terminal benefits on exit or superannuation, in the form of lump sum withdrawals, are taxable in the hands of the individual subscriber or his nominee in the year of receipt of such amounts. 2) As per section 80CCD, any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme is chargeable to tax. 3) New clause (12A) has been inserted in section 10 to provide that any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme referred to in section 80CCD, to the extent it does not exceed 40% of the total amount payable to him at the time of closure or his opting out of the scheme, shall be exempt from tax. 4) However, the whole amount received by the nominee, on death of the assessee shall be exempt from tax. INVESTMENT IN STOCK CERTIFICATE AS DEFINED IN THE SOVEREIGN GOLD BONDS SCHEME, 2015 NOTIFIED AS ELIGIBLE FORM OF INVESTMENT BY A CHARITABLE TRUST [Notification No. 21/2016, dated ] Section 11(2)(b) provides that where 85% of the income is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the money so accumulated or set apart is invested or deposited in the forms or modes as specified in section 11(5). Rule 17C provides various forms or modes of investment or deposits by a charitable or religious trust or institution. CBDT has, vide this notification, amended Rule 17C to insert

21 Income exempt 15 CA Vivek Gaba clause (ix) to include Investment in Stock Certificate [as defined in clause (c) of paragraph 2 of the Sovereign Gold Bonds Scheme, 2015, published in the Official Gazette vide notification number G.S.R. 827(E), dated ] as an eligible form/mode of investment

22 House property 16 CA Vivek Gaba Chapter 4 Income from House property EXTENSION OF PERIOD FOR COMPLETION OF CONSTRUCTION FROM 3 YEARS TO 5 YEARS, FOR CLAIMING HIGHER DEDUCTION OF UPTO ` 2 LAKH IN RESPECT OF INTEREST ON CAPITAL BORROWED FOR CONSTRUCTION OF SELF-OCCUPIED HOUSE PROPERTY Effective from: A.Y (i) Section 24(b) provides that interest payable on capital borrowed for acquisition or construction of a house property shall be deducted while computing income from house property. (ii) In case of self-occupied house property, the annual value is nil as per section 23(2). (iii) However, a deduction of an amount of upto ` 2 lakh is allowed under section 24 in respect of interest on capital borrowed on or after 1 st April, 1999 for acquisition or construction of a house property for the purpose of self-occupation, where such acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed. (iv) Since housing projects are taking a longer time for completion, a higher deduction of upto ` 2 lakh on account of interest paid on capital borrowed for acquisition or construction of a self-occupied house property shall be available if the acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed. 3 years (upto A.Y ) 5 years (from A.Y ) Illustration 8 of Amendment by FA, 2016: VG has one house property at Indira Nagar in Bangalore. He stays with her family in the house. The rent of similar property in neighborhood is ` 25,000 p.m. The municipal valuation is ` 23,000 p.m. Municipal taxes paid are ` 8,000. Loan of ` 20,00,000 was taken on from SBI Housing Finance Ltd. The construction was completed on The accumulated interest up to

23 House property 17 CA Vivek Gaba is ` 1,50,000. During the previous year , VG paid `1,88,000 which includes ` 1,44,000 as interest. Compute Swarna s income from house property for A.Y All conditions for higher deduction of interest in case of self-occupied property are satisfied. Solution: Computation of income from house property of VG for A.Y Particulars Amount Annual Value of one house used for self-occupation u/s 23(2) Nil Less Deduction under section 24 Interest on borrowed capital 1,74,000 Interest on loan was taken for construction of house on or after and completed within 3 years: interest paid or payable subject to maximum of `2,00,000 (including apportioned pre-construction interest): allowed as deduction. In this case the total interest is ` 1,44,000 + ` 30,000 (Being 1/5th of `1,50,000) = ` 1,74,000. Loss from house property -1,74,000 Illustration 9 of Amendment by FA, 2016: An individual owned a house property which was self occupied. He obtained loan for the construction of same house on of ` 16,00,000 at the interest rate of 10%. The construction got completed on No installment of loan has been paid yet. Determine Income under head House Property for the assessment year ? Solution: Computation of Income under head House Property for the assessment year Annual value of the house Nil Less: Deduction under section 24 Standard 30% Nil Interest on borrowed capital For previous year ,00,000 *10% 1,60,000 For preconstruction period (1 st April st March 2013) 16,00,000 *10% * 2 = 3,20,000 64,000 Deduction Limited to 2,00,000 2,00,000 Loss under head House Property 2,00,000 [NEW SECTION 25A]: SPECIAL PROVISION FOR ARREARS OF RENT AND UNREALIZED RENT RECEIVED SUBSEQUENTLY Effective from: A.Y (i) At present, section 25AA contains the special provisions on taxation of unrealised rent allowed as deduction when realised subsequently and section 25B contains the tax treatment of arrears of rent received. (ii) These two provisions are now merged in new section 25A, in order to ensure uniformity in tax treatment of arrears of rent and unrealised rent. Thus, new section 25A substitutes

24 House property 18 CA Vivek Gaba erstwhile sections 25A, 25AA and 25B. (iii) As per new section 25A(1), the amount of rent received in arrears from a tenant or the amount of unrealised rent realised subsequently from a tenant by an assessee shall be deemed to be income from house property in the financial year in which such rent is received or realised, and shall be included in the total income of the assessee under the head Income from house property, whether the assessee is the owner of the property or not in that financial year. SUMMARY New section 25A(2) provides a deduction of 30% of arrears of rent or unrealised rent realised subsequently by the assessee. New Section 25A Arrears of Rent / Unrealised Rent (i) Taxable in the year of receipt/realization (ii) 30% of rent received/realized (iii) Taxable even if assessee is not the owner of the property in the financial year of receipt/realisation. Illustration 10 of Amendment by FA, 2016: Mr. Anand sold his residential house property in March, In June, 2016, he recovered rent of ` 10,000 from Mr. Gaurav, to whom he had let out his house for two years from April 2010 to March He could not realise two months rent of ` 20,000 from him and to that extent his actual rent was reduced while computing income from house property for A.Y Further, he had let out his property from April, 2012 to February, 2016 to Mr. Satish. In April, 2014, he had increased the rent from ` 12,000 to ` 15,000 per month and the same was a subject matter of dispute. In September, 2016, the matter was finally settled and Mr. Anand received ` 69,000 as arrears of rent for the period April 2014 to February, Would the recovery of unrealised rent and arrears of rent be taxable in the hands of Mr. Anand, and if so in which year? Solution: Since the unrealised rent was recovered in the P.Y , the same would be taxable in the A.Y under section 25A, irrespective of the fact that Mr. Anand was not the owner of the house in that year. Further, the arrears of rent was also received in the P.Y , and hence the same would be taxable in the A.Y under section 25A, even though Mr. Anand was not the owner of the house in that year. A deduction of 30% of unrealised rent recovered and arrears of rent would be allowed while computing income from house property of Mr. Anand for A.Y

25 House property 19 CA Vivek Gaba Computation of income from house property of Mr. Anand for A.Y Particulars ` (i) Unrealised rent recovered 10,000 (ii) Arrears of rent received 69,000 79,000 Less: Deduction@30% 23,700 Income from house property 55,300

26 PGBP 20 CA Vivek Gaba Chapter 5 Profits and gains from business and Profession SECTION 28(VA): NON-COMPETE FEE RECEIVED/RECEIVABLE FOR NOT CARRYING ON A PROFESSION CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION Related amendment in section: 55 Section 28(va) brings to tax any sum received or receivable, in cash or in kind, under an agreement for not carrying out any activity in relation to any business; or not sharing any know-how, patent, copyright, trade mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services as business income. (i) Proviso to section 28(va) clarifies that receipts for transfer of right to manufacture, produce or process any article or thing or right to carry on any business, which are chargeable to tax under the head "Capital gains", would not be taxable as profits and gains of business or profession. (ii) However, so far, non-compete fee received/receivable for not carrying on a profession was not covered under these provisions. (iii) Section 28(va) has been amended to bring the non-compete fee received/receivable (which are recurring in nature) in relation to not carrying out any profession, within the scope of profits and gains of business or profession. (iv) Further, the proviso to section 28(va) has been amended to clarify that receipts for transfer of right to carry on any profession, which are chargeable to tax under the head "Capital gains", would not be taxable as profits and gains of business or profession. (v) Any receipt arising out of transfer of any business or commercial rights is taxable under the head "Capital gains". The amount of capital gains chargeable to tax is computed according to section 48. For this purpose, 'cost of acquisition' and 'cost of improvement' are defined under section 55. Section 55 has also been amended to provide that, for the purposes of sections 48 and 49, the cost of acquisition and cost of improvement in relation to a capital asset, being right to carry on any profession, shall also be taken as Nil. However, in the case of acquisition of such asset by the assessee by purchase from a previous owner, the amount of purchase price would be the cost of acquisition for the purpose of section 48 and 49.

27 PGBP 21 CA Vivek Gaba SECTION 32AC: DEDUCTION UNDER SECTION 32AC TO BE AVAILABLE IN THE YEAR OF INSTALLATION IN RESPECT OF ACTUAL COST OF NEW PLANT AND MACHINERY ACQUIRED IN THE P.Y AND P.Y , IF THE ACTUAL COST OF SUCH NEW PLANT AND MACHINERY ACQUIRED IN THE RELEVANT PREVIOUS YEAR EXCEEDS 25 CRORES, EVEN IF THE NEW PLANT AND MACHINERY HAS NOT BEEN INSTALLED IN THE RELEVANT PREVIOUS YEAR BUT HAS BEEN INSTALLED ON OR BEFORE Additional benefit [Amendment by Finance Act, 2014 & 2016] 1) Section 32AC(1A) provides for of actual cost of new plant and machinery acquired and installed in a previous year by a company engaged in manufacturing or production of any article or thing, if the actual cost exceeds ` 25 crore. However, for claim of deduction, the acquisition and installation had to be done in the same previous year. 2) This tax benefit is available in respect of new plant and machinery acquired and installed in the P.Y , P.Y and P.Y , provided the actual cost of plant and machinery acquired and installed in the relevant previous year exceeds` 25 crore. 3) The requirement of acquisition and installation in the year causes genuine hardship in cases in which assets having been acquired could not be installed in same previous year. 4) Therefore, section 32AC(1A) has been amended to provide that acquisition of the plant and machinery, the actual cost of which exceeds ` 25 crore, has to be made in the relevant previous year. However, installation may be made by in order to avail the benefit of deduction of 15%. 5) Where the installation of the new asset is in a year other than the year of acquisition, the deduction under this sub-section shall be allowed in the year in which the new asset is installed, provided the installation is on or before Illustration 11 of Amendment by FA, 2016: Company s Actual cost of New Plant & Previous Year of Acquisition Previous year of Installation Assessment year in which deduction u/s Deduction u/s 32AC Machinery 32AC can be claimed VG Ltd. 40 Crores P.Y P.Y A.Y Crores AK Ltd. 50 Crores P.Y P.Y A.Y Crores SG Ltd. 60 Crores P.Y P.Y

28 PGBP 22 CA Vivek Gaba Illustration 12 of Amendment by FA, 2016: Rama Ltd. commences the business of manufacturing of polythene bags in Mumbai on It purchased following assets: New plant and machinery on worth ` 150 crore Imported second hand plant and machinery of ` 10 crore on Office equipment of ` 5 crore during the month of July 2016 Computer in office of ` 7 crore on All the above mentioned assets were installed and put to use on Further new plant and machinery of ` 30 crore was purchased and put to use on Compute the eligible amount of deduction u/s 32AC Solution: Rama Ltd. Assessment Year Computation of deduction under section 32AC Eligible Investment New plant and machinery Imported second hand plant and machinery (only new plant and machinery eligible) Office equipment (specifically excluded u/s 32AC) Computer (specifically excluded u/s 32AC) Total eligible investment under section 32AC ` 150 crore Nil Nil Nil 150 crores Amount of deduction under section 32AC ` 22.5 crores WDV of block of Plant and Machinery 15% Opening WDV as on Nil Add: Assets purchased during the previous year ` 165 core WDV for Assessment Year Normal depreciation under section 15% on ` 165 crore Additional depreciation under section 20% on ` 150 crore WDV as on ` 165 core ` crore ` 30 crore ` crore Assessment Year Deduction under section 32AC Nil WDV of block of Plant and Machinery 15% Opening WDV as on ` crore Add: Assets purchased during the previous year ` core WDV for Assessment Year ` core

29 PGBP 23 CA Vivek Gaba Normal depreciation under section 15% on ` crore Additional depreciation under section 20% on ` 30 crore WDV as on ` crore ` 6 crore ` crore Illustration 13 of Amendment by FA, 2016: What will be your answer if the new unit was set up in notified backward district of Telangana/ Andhra Pradesh/ Bihar/ West Bengal? Solution: Assessment Year Deduction under section 32AC Deduction under section 15% of ` 150 crore crore crore WDV of block of Plant and Machinery 15% Opening WDV as on Nil Add: Assets purchased during the previous year ` 165 core WDV for Assessment Year Normal depreciation under section 15% on ` 165 crore Additional depreciation under section 35% on ` 150 crore WDV as on ` 165 core ` crore ` crore ` crore Assessment Year Deduction under section 32AC Deduction under section 15% of ` 30 crore Nil 4.50 crore WDV of block of Plant and Machinery 15% Opening WDV as on ` crore Add: Assets purchased during the previous year ` core WDV for Assessment Year Normal depreciation under section 15% on ` crore Additional depreciation under section 35% on ` 30 crore WDV as on ` core ` crore ` crore ` crore Illustration 14 of Amendment by FA, 2016: What would have been the scenario if in the illustration 12, asset put to use on and on instead of Answer Assessment Year Deduction under section 15% of ` 150 crore crore

30 PGBP 24 CA Vivek Gaba WDV of block of Plant and Machinery 15% Opening WDV as on Nil Add: Assets purchased during the previous year ` 165 core WDV for Assessment Year Normal depreciation under section 7.5% on ` 165 crore Additional depreciation under section 10% on ` 150 crore WDV as on ` 165 core ` crore ` crore ` crore Assessment Year Deduction under section 32AC Nil WDV of block of Plant and Machinery 15% Opening WDV as on ` crore Add: Assets purchased during the previous year ` core WDV for Assessment Year Normal depreciation under section 15% on ` crore Normal depreciation under section 7.5% on ` 30 crore Additional depreciation under section 10% on ` 150 crore (FA 2015) Additional depreciation under section 10% on ` 30 crore WDV as on ` core ` crore ` 2.25 crore ` 15 crore ` 3 crore ` crore Note: Additional depreciation of 3 crores shall be allowed in Assessment Year as per amendment by Finance Act Illustration 15 of Amendment by FA, 2016: What will be your answer if in the illustration 14, the new unit was set up in the notified backward district of Telangana/ Andhra Pradesh/ West Bengal? Assessment Year Deduction under section 32AC Deduction under section 15% of ` 150 crore crore crore WDV of block of Plant and Machinery 15% Opening WDV as on Nil Add: Assets purchased during the previous year ` 165 core WDV for Assessment Year Normal depreciation under section 7.5% on ` 165 crore Additional depreciation under section 17.5% on ` 150 crore WDV as on ` 165 core ` crore ` crore ` crore

31 PGBP 25 CA Vivek Gaba Assessment Year Deduction under section 32AC Deduction under section 15% of ` 30 crore Nil 4.50 crore WDV of block of Plant and Machinery 15% Opening WDV as on ` crore Add: Assets purchased during the previous year ` core WDV for Assessment Year Normal depreciation under section 15% on ` crore Normal depreciation under section 7.5% on ` 30 crore Additional depreciation under section 17.5% on ` 150 crore (FA 2015) Additional depreciation under section 17.5% on ` 30 crore WDV as on ` core ` crore ` 2.25 crore ` crore ` 5.25 crore ` crore Note: Additional depreciation of 5.25 crores shall be allowed in Assessment Year as per amendment by Finance Act Illustration 16 of Amendment by FA, 2016: XYZ Ltd. is engaged in the business of manufacturing carpets in New Delhi, purchased new plant and machinery of ` 200 crore on However, the same has been installed and put to use on It also purchased plant and machinery of ` 30 crore on and it will be installed and put to use on Compute the amount of deduction eligible under section 32AC. Solution: XYZ Ltd. Assessment Year Computation of deduction under section 32AC Eligible Investment Cost of new plant and machinery Deduction under section 15% Normal depreciation under section 50% Additional depreciation under section 50% ` 200 crore ` 30 crores ` 15 crore ` 20 crore Note: Additional depreciation of ` 20 crore shall be allowed in Assessment Year Assessment Year Deduction under section 32AC Nil Deduction under section 32AC not available since installation is after Normal depreciation under section 15% on ` 30 crore Nil ` 4. 5 crore

32 PGBP 26 CA Vivek Gaba Additional depreciation under section 20% on ` 30 crore ` 6 crore Note: Restriction of 50% is applicable in the year in which asset is acquired and hence not applicable in Assessment Year Illustration 17 of Amendment by FA, 2016: Suppose in above illustration, if plant and machinery, if plant and machinery of 230 crore purchased in previous year has been installed and put to use on Compute the amount of deduction eligible under section 32AC. Solution: XYZ Ltd. Assessment Year Computation of deduction under section 32AC Deduction under section 32AC is not available since the installation was not completed as on No depreciation and no additional depreciation since plant and machinery was not put to use in previous year Assessment Year Deduction under section 32AC is not available since the installation was not completed by Normal depreciation under section 15% Additional depreciation under section 20% ` crore ` 46 crore [SECTION 32(1)(iia)]: ASSESSEES ENGAGED IN THE BUSINESS OF TRANSMISSION OF POWER ELIGIBLE FOR ADDITIONAL DEPRECIATION Effective from: A.Y ) Section 32(1)(iia) allows additional 20% in respect of the cost of new plant or machinery acquired and installed by certain assessees engaged in, inter alia, the business of generation and distribution of power. 2) This additional depreciation available under section 32(1)(iia) is over and above the deduction allowed for normal depreciation under section 32(1)(ii) at the rates specified in new Appendix 1A read with Rule 5. 3) This incentive was so far not available in respect of new machinery or plant installed by an assessee engaged in the business of transmission of power. 4) The benefit of additional depreciation@20% of actual cost of new machinery or plant acquired and installed in a previous year under section 32(1)(iia) has now been extended to an assessee engaged in the business of transmission of power also.

33 PGBP 27 CA Vivek Gaba Upto A.Y From A.Y Manufacture or production of an article or thing Generation or generation and distribution of power Manufacture or production of an article or thing Generation, transmission or distribution of power PHASING OUT OF INCENTIVES UNDER THE INCOME-TAX ACT, 1961 (NOT FOR EXAMS SINCE ALL PHASING OUT APPLICABLE FROM A.Y ) 1. The Finance Minister in his Budget Speech, 2015 has indicated that the rate of corporate tax will be reduced from 30% to 25% over the next four years along with corresponding phasing out of exemptions and deductions. The Government proposed to implement this decision in a phased manner. 2. Accordingly, the following incentives under the Act are to be phased out in the manner given hereunder: Section Incentive under the Income-tax Act, 1961 Amendment by the Finance Act, 2016 restricting/phasing out the incentive 35 Expenditure on/contribution for scientific research 35(1)(ii) 175% of sum paid to: Weighted deduction to be restricted to (v) an approved scientific research association which has the object (i) 150% From P.Y to P.Y of undertaking scientific research. (i.e., from A.Y an approved university, college to A.Y ) or other institution, if such sum (ii) 100% From P.Y onwards is used for scientific research. (i.e., from A.Y onwards) 35(1)(iia) 125% of any sum paid as Deduction to be restricted to 100% from contribution to an Indian company P.Y (i.e., A.Y ) for approved scientific research 35(1)(iii) 125% of any sum paid as Deduction to be restricted to 100% from contribution to an approved P.Y (i.e., A.Y ) research association or university or college or other institution to be used for research in social science

34 PGBP 28 CA Vivek Gaba or statistical research 35(2AA) 200% of any sum paid to Weighted deduction to be restricted to a National Laboratory or a (i) 150% From P.Y to University or an IIT or a specified P.Y person for the purpose of approved (i.e., from A.Y scientific research programme. to A.Y ) (ii) 100% from P.Y onwards (i.e., from A.Y onwards) 35(2AB) 200% of the expenditure (not being Weighted deduction to be restricted to expenditure in the nature of cost of (i) 150% From P.Y to any land or building) on scientific P.Y (i.e., from research on approved in-house A.Y to A.Y research and development 21) facility incurred by a company, (ii) 100% From P.Y engaged in the business of biotechnology onwards (i.e., from or in the business of A.Y onwards) manufacture or production of any article or thing with the exceptions of items specified in the Eleventh Schedule. 35AC Expenditure on eligible projects or schemes Deduction for expenditure incurred No deduction under this section shall be by way of payment of any sum to available from P.Y (i.e., from a public sector company or a local A.Y ) authority or to an approved association or institution, etc. on certain eligible social development project or a scheme. 35AD Deduction in respect of specified business In case of specified business of The deduction shall be restricted to 100% setting up and operating a cold of capital expenditure from P.Y chain facility or warehousing facility onwards (i.e., from A.Y onwards). for storage of agricultural produce This is effected by omission of sub-section or building and operating a hospital (1A) providing for such weighted deduction. with atleast 100 beds for patients or developing and building an affordable housing project or production of fertiliser in India, weighted 150% of capital expenditure (other than

35 PGBP 29 CA Vivek Gaba 35CCC 35CCD expenditure on land, goodwill and financial assets) is allowed, if the operations are commenced on or after Expenditure on notified agricultural extension project Weighted deduction of 150% of Deduction to be restricted to 100% from expenditure incurred on notified P.Y onwards (i.e., from A.Y agricultural extension project is 22 onwards). allowed. Expenditure on skill development project Weighted deduction of 150% of any Deduction shall be restricted to 100% from expenditure incurred (not being P.Y onwards (i.e., from A.Y expenditure in the nature of cost of 22 onwards). any land or building) by a company on any notified skill development project is allowed. [NEW SECTION 35ABA]: TAX TREATMENT FOR SPECTRUM FEE Effective from: A.Y (Inserted by Finance Act, 2016) (1) Section 32 allows depreciation in respect of assets including certain intangible assets. Section 35ABB provides for amortisation of licence fee in case of telecommunication service. (2) The Government has newly introduced spectrum fee for auction of airwaves. (3) In order to resolve the uncertainty in tax treatment of payments in respect of spectrum i.e., whether spectrum is an intangible asset and the spectrum fees paid is eligible for depreciation under section 32 or whether it is in the nature of a 'license to operate telecommunication business' and eligible for deduction under section 35ABB, new section 35ABA has been inserted to provide for tax treatment of spectrum fee. Tax treatment of spectrum fee Transaction Manner of deduction (1) Acquisition of right to use spectrum Any capital expenditure incurred for acquisition of any right to use spectrum for Appropriate fraction of the amount of such expenditure [1/total number of relevant previous years]

36 PGBP 30 CA Vivek Gaba telecommunication services either before the commencement of the business or thereafter at any time during any previous year and for which payment has actually been made (actual payment of expenditure or payable in the prescribed manner) to obtain a right to use spectrum. (2) Transfer of the spectrum Case 1: Where the proceeds of the transfer are less than the expenditure incurred remaining unallowed Case 2: Where the proceeds of the transfer exceed the amount of expenditure remaining unallowed Case 3: Where the proceeds of the transfer are not less than the amount of expenditure incurred remaining Case 4: Where unallowed. a part of the spectrum is transferred (and the case is not covered under Case 2 above) Meaning of relevant previous years: Case Meaning Where the spectrum fee is actually paid before the commencement of business to operate telecommunication services In any other case The previous years beginning with the P.Y. in which such business commenced and the subsequent P.Y. or P.Y.s during which the spectrum, for which the fee is paid, shall be in force. The previous years beginning with the P.Y. in which the spectrum fee is actually paid and the subsequent P.Y. or years during which the spectrum, for which the fee is paid, shall be in force. The expenditure remaining unallowed as reduced by the proceeds of transfer shall be allowed in the previous year in which the spectrum has been transferred. The excess amount shall be chargeable to tax as profits and gains of business in the previous year in which the spectrum has been transferred. However, the excess should not exceed the difference between the expenditure incurred to obtain the spectrum and the amount of expenditure remaining unallowed. No deduction for such expenditure shall be allowed in the previous year in which spectrum is transferred or in respect of any subsequent previous year or years. Unallowed expenses would be amortised in the following manner a) subtracting the proceeds of transfer from the expenditure remaining unallowed; and b) dividing the remainder by the number of relevant previous years which have not expired at the beginning of the previous year during which the licence is transferred. (3) Transfer of spectrum in a scheme of amalgamation

37 PGBP 31 CA Vivek Gaba If the amalgamating company sells or transfers the spectrum to the amalgamated company, being an Indian company under the scheme of amalgamation The provisions of section 35ABA will apply to amalgamated company as they would have applied to amalgamating company as if the latter has not transferred the spectrum. The tax treatment in cases 1, 2 & 3 given in (2) above will not apply to the amalgamating company. (4) Transfer of spectrum in a scheme of demerger If the demerged company The provisions of section 35ABA will apply to sells or transfers the resulting company as they would have applied to spectrum to the resulting demerged company as if the latter has not company, being an Indian company under the scheme of demerger transferred the spectrum. The tax treatment in cases 1,2 & 3 given in (2) above will not apply to the demerged company. (4) Consequences of failure to comply with the conditions after grant of deduction: Where, in a previous year, any deduction has been claimed and granted to an assessee and subsequently, there is failure to comply with any of the provisions of this section, then a) the deduction shall be deemed to have been wrongly allowed b) The Assessing Officer may recompute the total income of the assessee for the said previous year and make the necessary rectification. This is notwithstanding anything contained in the Income-tax Act, 1961 c) The provisions under section 154 for rectification of mistake apparent from the record would apply. The period of four years would be reckoned from the end of the previous year in which the failure to comply with the provisions of section 154 takes place SCOPE OF SECTION 35AD EXPANDED TO INCLUDE THE BUSINESS OF DEVELOPING, MAINTAINING AND OPERATING A NEW INFRASTRUCTURE FACILITY (NOT FOR EXAMS ALL PHASING OUT APPLICABLE FROM A.Y ) 1) The Finance Minister in his Budget Speech, 2015 has indicated that the rate of corporate tax will be reduced from 30% to 25% over the next four years along with corresponding phasing out of exemptions and deductions. The Government proposed to implement this decision in a phased manner. 2) The profit-linked deduction under section 80-IA(4)(i) available to any enterprise which develops or operates and maintains a new infrastructure facility is also beingphased out. Accordingly, this deduction would not be available in respect of any enterprise which

38 PGBP 32 CA Vivek Gaba starts the development or operation and maintenance of the infrastructure facility on or after 1 st April, ) However, such enterprise would be eligible for investment-linked tax deduction under section 35AD: Section Particulars Provision (i) 35AD(8)(c) Definition of The business of developing or maintaining and Specified business operating or developing, maintaining and operating a new infrastructure facility has been included in the definition of specified business. (ii) 35AD(8)(ba) Definition of (i) A road including toll road, a bridge infrastructure or a rail system. facility (ii) A highway project including housing or other activities being an integral part of the highway project. (iii) A water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system. (iv) A port, airport, inland waterway, inland port or navigational channel in the sea. (iii) 35AD(5) Date of commencement of On or after , where the specified business is in the nature of developing or such specified operating and maintaining or developing, business operating and maintaining, any infrastructure facility. (iv) 35AD(2) Conditions to be satisfied by such specified business (i) The business should be owned by a company registered in India or by a consortium of such companies or by an authority or a board or corporation or any other body established or constituted under any Central or State Act. (ii) The entity should have entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing or operating and maintaining or developing, operating and maintaining, a new infrastructure facility.

39 PGBP 33 CA Vivek Gaba [SECTION 36(1)(viia)]: NBFCS ELIGIBLE FOR CLAIM OF DEDUCTION FOR PROVISION FOR BAD AND DOUBTFUL DEBTS 1) Under sub-clause (c) of section 36(1)(viia), in computing the profits of public financial institutions, State financial corporations and State industrial investment corporations, deduction of an amount not exceeding 5% of total income, computed before making any deduction under section 36(1)(viia) and Chapter VI-A, is allowed in respect of any provision for bad and doubtful debt. 2) Since Non-Banking Financial Companies (NBFCs) are also engaged in financial lending to different sectors of society, sub-clause (d) has been inserted in section 36(1)(viia) to provide deduction on account of provision for bad and doubtful debts of an amount not exceeding 5% of total income (before making any deduction under section 36(1)(viia) and Chapter VI-A) in the case of NBFCs also. 3) Meaning of Non-Banking Financial Company [Section 45-I (f) of the Reserve Bank of India Act, 1934]: (i) (ii) (iii) a financial institution which is a company a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner such other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify. SECTION 43B: SUM PAYABLE TO INDIAN RAILWAYS FOR USE OF RAILWAY ASSETS ALLOWABLE AS DEDUCTION IN THE YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM IS INCURRED, ONLY IF PAYMENT IS MADE ON OR BEFORE THE DUE DATE OF FILING OF RETURN Effective from: A.Y ) Under section 43B, any sum payable by the assessee by way of tax, cess, duty or fee, employer contribution to Provident Fund, etc., is allowable as deduction of the previous year in which the liability to pay such sum was incurred (relevant previous year) if the same is actually paid on or before the due date of furnishing of the return of income irrespective of method of accounting followed by a person. 2) In effect, section 43B requires actual payment of tax, cess, duty or fee on or before the

40 PGBP 34 CA Vivek Gaba due date of filing return of income for claim of deduction in the previous year in which the liability to pay such sum was incurred. 3) In order to encourage timely payment of dues to Railways for use of the Railway assets, clause (g) has been inserted in section 43B to expand its scope to include any sum payable by the assessee to the Indian Railways for use of Railway assets, within its ambit. INCREASE IN THRESHOLD LIMIT OF GROSS RECEIPTS/TURNOVER U/S 44AD OF A BUSINESS TO BE ELIGIBLE FOR OPTING THE PRESUMPTIVE TAXATION SCHEME Related amendments in sections: 44AA, 44AB and 211 Effective from: A.Y ) Section 44AD contains the presumptive taxation scheme for an eligible business. 2) As per this scheme, where in the case of an eligible assessee engaged in eligible business having total turnover or gross receipts not exceeding rupees one crore, a sum equal to 8% of the total turnover or gross receipts, or as the case may be, a sum higher than the aforesaid sum shall be deemed to be profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession" [Section 44AD(1)] 3) Accordingly, the assessee will be deemed to have been allowed the deductions under sections 30 to 38. 4) Further, if an eligible assessee claims that the income earned by him is less than the deemed income of 8% of the total turnover or gross receipts, he has to maintain books of accounts as per section 44AA and get the same audited as per 44AB. 5) Also, an eligible assessee, as far as eligible business is concerned, is not required to pay advance tax. It would be sufficient compliance if they pay their tax while filing their return of income before the due date. 6) For the purpose of reducing the compliance burden of the small tax payers and facilitating the ease of doing business, the threshold limit specified in the definition of "eligible business" has been increased from ` 1 crore to ` 2 crore. 7) Further, expenditure in the nature of salary, remuneration, interest etc. paid to the partner as per section 40(b) shall not be deductible while computing the income under section 44AD since section 40 does not mandate for allowance of any expenditure; it merely places a restriction on deduction of amounts, otherwise allowable under section 30 to 38. Therefore, the proviso to section 44AD(2) has been omitted. 8) Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five consecutive

41 PGBP 35 CA Vivek Gaba assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1). This is provided in new sub-section (4) of section 44AD. 9) An eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the basic exemption limit has to maintain books of account under section 44AA and get them audited and furnish a report of such audit under section 44AB. This is provided in new sub-section (5) of section 44AD. 10) Consequential amendments have been made in sections 44AA and 44AB to require maintenance of books of account and audit of the same in the case of an eligible assessee, where the provisions of section 44AD(4) are applicable and his income exceeds the basic exemption limit. 11) Further, since the threshold limit of presumptive taxation scheme has been enhanced to ` 2 crore, the eligible assessee is now required to pay advance tax by 15th March of the financial year. Summary of amendments in section 44AD Increase in threshold limit of eligible business from ` 1 crore to ` 2 crore Salary, interest, remuneration paid to partner as per section 40(b) not deductible Advance tax to be paid on or before 15th March of the financial year In case of non-offering of income as per section 44AD for five continuous years, eligible assessee cannot opt for section 44AD for the next five AYs after the assessment year of first non-option

42 PGBP 36 CA Vivek Gaba Illustration 18 of Amendment by FA, 2016: Let us consider the following particulars relating to a resident individual, Mr. A, being an eligible assessee whose gross receipts do not exceed ` 2 crore in any of the assessment years between A.Y to A.Y Particulars A.Y A.Y A.Y Gross receipts (` ) 1,80,00,000 1,90,00,000 2,00,00,000 Income offered for taxation (` ) 14,40,000 15,20,000 12,00,000 % of gross receipts 8% 8% 6% Offered income as per presumptive taxation scheme u/s 44AD Yes Yes No In the above case, Mr. A, an eligible assessee, opts for presumptive taxation under section 44AD for A.Y and A.Y and offers income of ` lakh and ` lakh on gross receipts of ` 1.80 crore and ` 1.90 crore, respectively. However, for A.Y , he offers income of only ` 12 lakh on turnover of ` 2 crore, which amounts to 6% of his gross receipts. He maintains books of account under section 44AA and gets the same audited under section 44AB. Since he has not offered income in accordance with the provisions of section 44AD(1) for five consecutive assessment years, after A.Y , he will not be eligible to claim the benefit of section 44AD for next five assessment years succeeding A.Y i.e., from A.Y to Note: Section 44AB makes it obligatory for every person carrying on business to get his accounts of any previous year audited if his total sales, turnover or gross receipts exceed ` 1 crore. However, if an eligible person opts for presumptive taxation scheme as per section 44AD(1), he shall not be required to get his accounts audited if the total turnover or gross receipts of the relevant previous year does not exceed ` 2 crore. The CBDT, has vide its Press Release dated 20th June, 2016, clarified that the higher threshold for non-audit of accounts has been given only to assessees opting for presumptive taxation scheme under section 44AD.

43 PGBP 37 CA Vivek Gaba SECTION 44AB: AUDIT OF ACCOUNTS 1. Business 2. Profession 3. Under Section 44AD/AE, When total sales/ gross When gross receipts are when assessee claims that receipts are more than more than `25,00,000 his income is lower than `1,00,00,000 50,00,000 estimated. SECTION 44ADA: PRESUMPTIVE TAXATION SCHEME FOR ASSESSEES ENGAGED IN ELIGIBLE PROFESSION Related amendment in section: 44AB Effective from: A.Y ) Section 44AD provides for a presumptive taxation scheme for eligible persons engaged in eligible business in order to reduce compliance burden of small tax payers. 2) For reducing the compliance burden of small tax payers having income from profession, the Finance Act, 2016 has introduced a presumptive taxation regime for professionals. 3) In this regard, new section 44ADA has been inserted in the Income-tax Act, 1961 providing a presumptive taxation scheme for estimating the income of an assessee: a) who is engaged in any profession referred to in section 44AA(1) such as legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette; and b) whose total gross receipts does not exceed fifty lakh rupees in a previous year, c) at a sum equal to 50% of the total gross receipts, or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee. 4) Meaning of Eligible Assessee: Eligible Assessees Resident assessee engaged in notified profession u/s 44AA(1) Total gross receipts ` 50 lakhs

44 PGBP 38 CA Vivek Gaba 5) Under the scheme, the assessee will be deemed to have been allowed the deductions under section 30 to 38. Accordingly, no further deduction under those sections shall be allowed. 6) Further, the written down value of any asset used for the purpose of the profession of the assessee will be deemed to have been calculated as if the assessee had claimed and had actually been allowed the deduction in respect of depreciation for the relevant assessment years. 7) The eligible assessee opting for presumptive taxation scheme will not be required to keep and maintain books of account under section 44AA(1) and get the accounts audited and furnish a report of such audit as required under section 44AB in respect of such income unless the assessee claims that: a) the profits and gains from the aforesaid profession are lower than the profits and gains deemed to be his income under section 44ADA(1); and b) his income exceeds the maximum amount which is not chargeable to income- tax. 8) Consequential amendment has been made in section 44AB requiring every person carrying on profession to have his accounts audited by an accountant before the specified date and furnish audit report by that date if such person has claimed lower profits and gains than the deemed profits under section 44ADA and his income exceeds the basic exemption limit.

45 Capital Gains 39 CA Vivek Gaba Chapter 6 Capital Gains SECTION 2(14): DEFINITION OF CAPITAL ASSESTS (AMENDED BY FA, 2016) Capital asset means (a) (b) property of any kind held by an assessee, whether or not connected with his business or profession any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (Amended by Finance Act 2014) BUT DOES NOT INCLUDE (i) (ii) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession; personal effects, that is to say, movable property (including wearing apparel and furniture/held for personal use by the assessee or any member of his family dependent on him), but excludes: (a) (b) (c) (d) (e) (f) jewellery; archaeological collections; drawings; paintings; sculptures; or any work of art. Focus Area:- 1. Gold utensils are not personal effect and are capital assets. 2. Silver utensils constitute personal affects and no capital gains will arise on the sale of silver utensils. 3. Sale of gold bars, sovereigns, etc. used for puja attracts capital gains, since these are not personal effects. (iii) Agricultural land in India, not being land situate (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or cantonment board and which has a population of not less than ten thousand; or

46 Capital Gains 40 CA Vivek Gaba (b) in any area within the distance, measured aerially, (I) not being more than 2 km, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than 6 km, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than 8 km, from the local limits of any municipality or cantonment board referred to in item (a) and which has population of more than ten lakh. Note: Distance is to be measured straight line aerially as bird flies and not by road method which was used by courts in various decisions. Explanation: For the purposes of this sub-clause, "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year (Amended by Finance Act 2013) (iv) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government or Deposit Certificate issued under the Gold Monetisation Scheme, 2015 notified by the Central Government. (Amendment by FA, 2016) THIRD PROVISO TO SECTION 48: SECOND PROVISO TO SECTION 48 NOT APPLY (AMENDED BY FINANCE ACT, 2016) Benefit of indexation is not available: For bonds/debentures of any company. For bonds issued by Government. However, indexation is allowed for: capital indexed bonds and Sovereign Gold Bonds issued by RBI. (Amendment by Finance Act, 2016) NEW FOURTH PROVISO TO SECTION 48 (ADDED BY FA, 2016) EXEMPTION OF FOREIGN EXCHANGE FLUCTUATION GAINS FORM CAPITAL GAINS TAX UPON TRANSFER OF RUPEE DENOMINATED BONDS Exemption is available if: Assessee is a non-resident Gains arises on account of appreciation of rupee against foreign currency

47 Capital Gains 41 CA Vivek Gaba Gains arises on redemption of Rupee Denominated Bonds (RDBs) Assessee should be original subscriber of RDB Exemption is not available if RDB is transferred before maturity Indian companies issue Rupee Denominated Bonds to prevent themselves against the risk of exchange fluctuations, If RDB of face value of 1,00,000 is issued with coupon rate of 5.75% then the nonresident need to bring foreign currency equivalent to 1,00,000. When these bonds are redeemed, then Indian Company will pay 1,00,000 to non-resident who can then convert 1,00,000 into foreign currency and take to this country. Illustration 19 of Amendment by FA, 2016: Suppose, Indian company issues bonds i.e., RDB of 1,00,000 each. Mr. VG Non-resident applies for bond of 70,00,000 on and on , the exchange rate is $ 1 = 70. Mr. VG therefore, remitted $ 1,00,000 to India to subscribe to these bonds. The bonds are redeemed at par on when $ 1 = 63. Now, Mr. VG receives 70,00,000 from the company and remit $ 1,11,111 to foreign country. As per amendment made by FA, 2016 the gain $ 11,111 arising on account of appreciation in rupee is not taxable. Illustration 20 of Amendment by FA, 2016: Suppose in illustration 11, the bonds are redeemed at a premium of 5,000 i.e., 1,05,000. Now, Mr. VG get 73,50,000 and if $ 1 = 63 then he remits 1,16,667 to his country. 3,50,000 is taxable as shortterm capital gains in India ( i.e., $5,555). However, $ shall not taxable as per amendment by FA, 2016 since it represents gain on account of appreciation of Rupee. Illustration 21 of Amendment by FA, 2016: Suppose in the above two illustrations, the rupee depreciated and on the date of redemption $ 1 = 75. In that case the capital gains shall be computed by applying the first proviso to section 48. Illustration 22 of Amendment by FA, 2016: Suppose, average of TTBR and TTSR on date of purchase = 70 = $ 1 Average of TTBR and TTSR on date of redemption = 75 = $ 1 In first case sale price 70,00,000/75 = $ 93,333 Cost of acquisition = 70,00,000/70 = $ 1,00,000 Short-term capital loss = (6,667)

48 Capital Gains 42 CA Vivek Gaba In second case, sale price 73,50,000 / 75 = $ 98,000 Cost of acquisition = 70,00,000 / 70 = $ 1,00,000 Short-term capital loss = (2,000) SECTION 55: COST OF ACQUISITION & COST OF IMPROVEMENT (AMENDED BY FINANCE ACT, 2016) COST OF ACQUISITION Cost of Acquisition Capital Asset Acquired Selfgenerated Goodwill of a business Purchase price NIL Trade mark or brand name associated with a business Purchase price NIL Tenancy rights Purchase price NIL Stage carriage permits (Route Permits) Purchase price NIL Loom hours Purchase price NIL Right to manufacture, produce or process any article or thing Purchase price NIL Right to carry on any business or profession Purchase price NIL COST OF IMPROVEMENT (a) (b) The cost of improvement of below mentioned shall be taken to be NIL: (i) Goodwill of Business (ii) Right to manufacture, produce or process any article or thing. (iii) Right to carrying on any business or PROFESSION. In relation to other capital assets Where the capital assets is acquired by the assessee or previous owner: Cost of improvement means all capital expenditure incurred on improvement by the assessee and the previous owner. Note: Cost of improvement incurred before is to be ignored in all cases. SECTION 111A: TAX ON SHORT-TERM CAPITAL GAINS IN CERTAIN CASES Section 111A shall be applicable to all assesses including non-residents if all the below mentioned conditions are fulfilled: the gains arise from transfer of a short term capital asset; being an equity share in a company or a unit of an Equity Oriented Fund or a unit of business trust; and the transaction of sale is chargeable to securities transaction Tax (STT)

49 Capital Gains 43 CA Vivek Gaba However, as per Finance Act, 2016, the benefit of Section 111A is available if such sale transaction takes place on a recognized stock exchange located in IFSC provided the consideration is paid or payable in foreign currency. Such transaction is not chargeable to Securities Transaction Tax (Added by FA, 2016) Tax payable on such STCG shall 15%. Benefit of slab rate is available on such short term capital gains in case of resident Individual or HUF, i.e., not available to non-resident. (See Note 1 below) Note 1: IN CASE OF AN INDIVIDUAL OR HUF RESIDENT OF INDIA WHERE (Total Income ( ) STCG referred in section 111A) < `2,50,000, then tax under section 15% shall be on the following amount: STCG referred in sec 111A (-) [`2,50,000 ( ) (Total income ( ) STCG referred in sec 111A)] Focus Area: a) Chapter VI-A deduction shall not be allowed on STCG referred to in section 111A. STCG other than referred in Section 111A shall be taxable at the normal rates applicable to the assessee. SECTION 10(38): EXEMPTION IN RESPECT OF LONG-TERM CAPITAL GAINS IN CASE OF SPECIFIED SECURITIES Exemption in respect of long term capital gains in case of specified securities Any income arising from the transfer of a long-term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of business trust where transaction of sale is chargeable to STT is exempt from tax However, as per Finance Act, 2016, the benefit of Section 111A is available if such sale transaction takes place on a recognized stock exchange located in IFSC provided the consideration is paid or payable in foreign currency. Such transaction is not chargeable to Securities Transaction Tax (Added by FA, 2016) Focus Area: a) Exemption is available for all assesses whether resident/ non-resident, Flls etc. b) Exemption is available if shares/units held as capital assets and not as SIT. c) The acquisition of shares/units need not be through stock exchange. d) Loss referred to in section 10(38) is capital loss i.e. it cannot be set-off or carried forward.

50 Capital Gains 44 CA Vivek Gaba

51 Capital Gains 45 CA Vivek Gaba SECTION 2(42A): PERIOD OF HOLDING OF UNLISTED SHARES TO QUALIFY AS A LONG TERM CAPITAL ASSET TO BE REDUCED FROM MORE THAN 36 MONTHS TO MORE THAN 24 MONTHS 1) Section 2(42A) defines a short-term capital asset to mean a capital asset held by an assessee for not more than 36 months immediately preceding the date of its transfer. 2) Section 2(29A) defines a long-term capital asset to mean a capital asset which is not a shortterm capital asset. Therefore, a capital asset held by an assessee for more than 36 months immediately preceding the date of its transfer would be a long-term capital asset. 3) Third proviso has been inserted in section 2(42A) with effect from A.Y to provide that a share of a company (not being a share listed in a recognized stock exchange in India) would be treated as a short-term capital asset if it was held by an assessee for not more than 24 months immediately preceding the date of its transfer. 4) Thus, the period of holding of unlisted shares for being treated as a long-term capital asset has been reduced from more than 36 months to more than 24 months from A.Y The Finance Act, 2016 provides that in case of shares of a company which are not Listed on a recognized stock exchange in India, the period of holding should be holding be 24 Months or less to qualify a short-term capital asset. S.No. Capital Assets Holding period to qualify as short term capital asset 1. Shares/Debentures of a company listed on a 12 Months or Less recognized stock exchange in India 2. Unlisted shares of companies 24 Months or less 3. Units of Equity oriented mutual funds 12 Months or less 4. Units of debt oriented mutual funds 36 Months or less 5. Units of business trust 36 Months or less SECTION 47(XIIIB): CONVERSION OF COMPANY INTO LIMITED LIABILITY PARTNERSHIP (LLP) 1) Under section 47(xiiib), any transfer of a capital asset or intangible asset on conversion of a private company or unlisted public company to a Limited Liability Partnership (LLP) shall not be regarded as transfer for levy of capital gains tax, on fulfilment of certain conditions. 2) The proviso to section 47(xiiib) stipulates the various conditions to be fulfilled for the transaction to not constitute a transfer for the purpose of capital gains. One of the conditions

52 Capital Gains 46 CA Vivek Gaba is that the company's gross receipts, turnover or total sales in any of the preceding three previous years should not exceed ` 60 lakh 3) Clause (ea) has been inserted in the said proviso to stipulate an additional condition for claim of exemption under section 47(xiiib). Accordingly, the total value of assets as appearing in the books of account of the company in any of the three previous years preceding the previous year in which the conversion takes place, should not exceed ` 5 crore. Important Note: [Others Amendment in Section 47] Any transfer sovereign issued by Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015, by way of redemption, by an assessee being an Individual. SECTION 49(5): COST OF ACQUISITION OF ASSET, WHOSE FAIR MARKET VALUE HAS BEEN TAKEN INTO ACCOUNT FOR THE INCOME DECLARATION SCHEME, 2016 Relevant from: A.Y Income Declaration Scheme, 2016: Significant Features (1) The Income Declaration Scheme, 2016 is contained in the Finance Act, 2016, which received the assent of the President on 14th May The Scheme provides an opportunity to persons who have paid not full taxes in the past to come forward and declare the undisclosed income and pay tax, surcharge and penalty totalling in all to forty-five per cent of such undisclosed income declared. (2) A declaration under the aforesaid Scheme may be made in respect of any income or income in the form of investment in any asset located in India and acquired from income chargeable to tax under the Income-tax Act, 1961 for any assessment year prior to the assessment year for which the declarant had failed to furnish a return under section 139; or failed to disclose such income in a return furnished before the date of commencement of the Scheme or such income had escaped assessment by reason of the omission or failure on the part of such person to make a return under the Income-tax Act or to disclose fully and truly all material facts necessary for the assessment or otherwise. Where the income chargeable to tax is declared in the form of investment in any asset, the fair market value of such asset as on 1st June, 2016 computed in accordance with Rule 3 of the Income Declaration Scheme Rules, 2016 shall be deemed to be the undisclosed income. (3) The person making a declaration under the Scheme would be liable to pay tax at the rate of 30% of the value of such undisclosed income as increased by surcharge at the rate of 25% of such tax. In addition, he would also be liable to pay penalty at the rate of 25% of such tax. Therefore, the declarant would be liable to pay a total of 45% of the value of the undisclosed income declared by him. This special rate of tax, surcharge and penalty specified in the Scheme will override any rate or rates specified under the provisions of the Income-tax Act or the annual Finance Acts.

53 Capital Gains 47 CA Vivek Gaba (4) A declaration under the Scheme can be made anytime on or after 1st June, 2016 but before a date to be notified by the Central Government. The Central Government has notified 30th September, 2016 as the last date for making a declaration under the Scheme and 30th November, 2016 as the last date by which the tax, surcharge and penalty mentioned above shall be paid. Cost of acquisition of an asset declared under Income Declaration Scheme, ) Section 49 of the Income-tax Act, 1961 provides for determination of cost with reference to certain modes of acquisition. 2) Sub-section (5) has been inserted with effect from A.Y to provide that where capital gain arises from the transfer of asset declared under the Income Declaration Scheme, 2016 and the tax, surcharge and penalty have been paid in accordance with the provisions of the Scheme on the fair market value of the asset as on the date of commencement of the Scheme, the cost of acquisition of the asset shall be deemed to be the fair market value of the asset which has been taken into account for the purposes of the said scheme. Illustration 23 of Amendment by FA, 2016: Assessee acquired a house in Mumbai on out of Black money for 5 Crores. The FMV of house as on is: Case I: 4 Crores Case II: 7 Crores Now, if assessee discloses this house Income Declaration Scheme, 2016, then he shall pay 45% of 4 Crores in case I and 45% of 7 Crores in case II. Now, if he sells this house property on then for computing capital gains: Case I: Cost of acquisition is 4 Crores. Period of holding is from Case II: Cost of acquisition is 7 Crores. Period of holding is from SECTION 50C: SPECIAL PROVISION FOR FULL VALUE OF CONSIDERATION IN CERTAIN CASES Where the sales consideration received or accruing on transfer of a capital asset, being land or building or both is less than the value assessed or assessable by the stamp valuation authority for the purpose of payment of stamp duty,

54 Capital Gains 48 CA Vivek Gaba the value so assessed or assessable shall deemed to be the sale consideration Section 50C(2) Where assessee claims that the value so assessed or assessable exceeds the FMV of the property; and the value so assessed or assessable has not been disputed in any appeal or revision before any authority/court, the AO may refer the valuation of the capital asset to a Valuation Officer Amendment in section 50C to ensure parity in tax treatment vis-a-vis section 43CA Accordingly, in order to ensure parity in tax treatment, provisos have been inserted in section 50C(1) so as to provide that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration. Condition for adoption of stamp duty value on the date of agreement However, the stamp duty value on the date of agreement can be adopted only in a case where the amount of consideration, or a part thereof, has been paid by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, on or before the date of the agreement for the transfer of such immovable property. Illustration 24 of Amendment by FA, 2016: Mr. Vivek entered into an agreement to sell his house property on with Mr. Ashish for 200 lakhs and SDV as on that date is also 200 lakh. Mr. Vivek acquired the property on for 70 lakhs. Mr. Ashish paid 5 lakhs by cheque on and the cheque cleared on The possession is given to Mr. Ashish on when Mr. Rahim pays the balance 195 lakh and registration of property in the name of Mr. Rahim also taken place on However, the SDV as on has been increased by State Government to 230 lakhs. Solution: Prior to FA, 2016 the sale price in the hands of Mr. Vivek was taken as 230 lakhs being the value assessed the stamp valuation authority. However, as per amendment by FA, 2016 the SDv on the date of agreement to sell shall have taken place since part consideration has been paid by cheque on or before the date of agreement to sell. Assessment year In the hands of Mr. Vivek

55 Capital Gains 49 CA Vivek Gaba Period of holding to Long-term Sale price 200 Lakhs (-) COA [70 Lakhs x 1125/632] Lakhs Long-term gains Lakhs In the hands of Mr. Ashish Section 56(2)(vii) will not be attracted. NEW SECTION 54EE: EXEMPTION OF LONG-TERM CAPITAL GAINS ON INVESTMENT IN NOTIFIED UNITS OF SPECIFIED FUND (Inserted by Finance Act, 2016) Effective from: A.Y ) Objective: For incentivising the start-up ecosystem in India, the 'start-up India Action Plan' envisages establishment of a Fund of Funds which intends to raise 2,500 crores annually for four years to finance the start-ups. 2) Exemption of LTCG invested in units of specified fund : In order to achieve this objective, new section 54EE has been inserted to provide exemption from capital gains tax if the long term capital gains proceeds are invested by an assessee in units issued before 1 April, 2019 of such fund, as may be notified by the Central Government in this behalf. The lower of the capital gains or the amount so invested would be exempt under section 54EE. 3) Quantum of Exemption: If amount invested in notified units of specified fund not less than Capital gains Entire capital gains is exempt If amount invested in notified units of specified fund less than Capital gains Capital gains to the extent of cost of amount invested in notified units is exempt 4) Time limit for investment: The investment has to be made within 6 months after the date of transfer. 5) Ceiling limit for investment in units of the specified fund: The maximum investment in units of the specified fund in any financial year is ` 50 lakh. Further, the investment made by an assessee in the units of specified fund out of capital gains arising from the transfer of one or more capital assets, cannot exceed ` 50 lakh, whether the investment is made in the same financial year or subsequent financial year or partly in the same financial year and partly in the subsequent financial year. 6) Conditions for availing exemption: a. Investment of LTCG in units of specified funds. b. Investment within 6 months from the date of transfer. c. Maximum investment is Rs. 50 lakhs.

56 Capital Gains 50 CA Vivek Gaba d. Units should not be transferred for a period of 3 years. 7) Consequence of transfer of units before 3 years: Where the units are transferred at any time within a period of three years from its acquisition, the capital gains, to the extent exempt earlier, would be chargeable as capital gains in the year of transfer. 8) Deemed transfer of notified units: Further, if the assessee takes any loan or advance on the security of such units, he shall be deemed to have transferred such units on the date on which such loan or advance is taken. Scope of exemption under section 54GB expanded to cover LTCG on sale of residential property invested in shares of eligible start-up company: In order to encourage individuals/huf to setup a start-up company by selling a residential property and investing in the shares of such company, section 54GB has been amended to provide that long term capital gains arising on account of transfer of a residential property shall not be charged to tax, if: 1) the net consideration is invested in subscription of equity shares of a company which qualifies to be an eligible start-up on or before the due date of filing return of income under section 139(1); 2) the individual or HUF holds more than 50% shares of the company or 50% voting rights after the subscription in shares by such individual or HUF; and 3) such company utilises the amount invested in shares to purchase new plant and machinery within one year from the date of subscription in equity shares. Meaning of Eligible Start-ups: a. Company engaged in eligible business and incorporated during the period 1/4/2016 to 31/3/2019. b. Total turnover not more than 25 crores in any P.Y to c. Holds a certificate of eligible business from the notified IMBC. Purchase of computers or computer software out of amount invested in shares of an technology driven start-up permitted : In case of an eligible start-up, being a technology driven start-up so certified by the notified Inter- Ministerial Board of Certification (IMBC), the company can also utilise the amount invested in shares to purchase computers or computer software. This is because computers or computer software form the core asset base of such technology driven start-ups. (Other provisions and conditions are same as given in Detail Book of Income Tax)

57 Capital Gains 51 CA Vivek Gaba Other Amendments in Capital Gains by Finance Act, 2016 (Section 55): 1. The Cost of Acquisition & Cost of Improvement of Right to carry on any Business or Profession shall be taken to be NIL. 2. Cost Inflation Index for Finacial Year is 1125

58 Other Sources 52 CA Vivek Gaba Chapter 7 Other Sources SECTION 56(2)(VII): SHARES RECEIVED BY AN INDIVIDUAL OR HUF AS A CONSEQUENCE OF DEMERGER OR AMALGAMATION OF A COMPANY OR A BUSINESS REORGANISATION OF A CO-OPERATIVE BANK NOT TO BE SUBJECT TO TAX BY VIRTUE OF SECTION 56(2)(vii) Effective from: A.Y ) Under section 56(2)(vii), any money, immovable property or other property received without consideration is chargeable to tax, if aggregate sum received by an assessee, being an individual or an Hindu undivided family (HUF), is in excess of ` 50,000. Likewise, if immovable or other property is received by an individual or HUF for inadequate consideration, and the difference between the stamp duty value (in case of immovable property) or the fair market value (in case of other property) exceeds ` 50,000, such difference is chargeable to tax under section 56(2)(vii). 2) Since the definition of property for the purpose of section 56(2)(vii) includes capital asset being shares and securities, the taxability provisions thereunder are attracted in a case where shares of a company are received as a consequence of demerger or amalgamation of a company. 3) Such a transaction is not regarded as transfer where the recipient is a firm or a company, not being a company in which public are substantially interested, on account of a specific exemption provided in the proviso to section 56(2)(viia), where shares are received as a consequence of demerger or amalgamation of a company. 4) In order to ensure uniformity in tax treatment, it is proposed to amend the second proviso of section 56(2)(vii) which provides for cases where the taxability provisions under the section would not be attracted. 5) Accordingly, clause (h) has been inserted in the second proviso to section 56(2)(viii) to provide that any shares received by an individual or HUF as a consequence of demerger or amalgamation of a company or business reorganisation of a cooperative bank shall not be subject to tax by virtue of the provisions contained in section 56(2)(vii) SECTION 10(34): DIVIDEND EXEMPT FROM TAX 1. Any income by way of dividend (on which CDT has been paid) from Indian company is exempt in the hands of shareholder. 2. Income from units of mutual fund is also exempt. (Sec 10(35))

59 Other Sources 53 CA Vivek Gaba 3. But dividend under section 2(22)(e) is taxable in the hands of shareholder. If a private company gives loan to specified shareholder, then it is treated as income in the hands of shareholder. Provided that nothing contained in this clause shall apply to any Income by way of dividend chargeable to tax in accordance with the provisions of section 115BBDA. (Proviso Added by Finance Act, 2016) NEW SECTION 115BBDA TAX ON CERTAIN DIVIDENDS RECEIVED FROM DOMESTIC COMPANIES 1) This Section shall apply to a resident being: Individual Hindu Undivided family Firm Therefore, if a Company, AOP or BOI receives the dividend, then it shall not be taxable in their hands. 2) This section shall apply where the total dividends received by the specified assessee from all companies taken together, exceeds Rs. 10 lakhs during the previous year. 3) The Amount in Excess of 10 Lakhs shall be taxed at the rate of 10% (plus surcharge and cess) 4) No deduction in respect of any expenditure or allowance or set off of losses shall be allowed to assessee under any provision of the Act in computing the Income by way of dividends. 5) Dividends shall include deemed dividends except under section 2(22)(e). 6) It may be noted that company shall also pay CDT under section 115-O on the dividends which is getting taxed under section 115BBDA in the hands of shareholders. Illustration 25 of Amendment by FA, 2016: Mr. Vivek invested in shares and received dividend during the year at various dates as under: Date of receipt Scrip Nature of dividend Amount of Dividend GAIL Final 1,75, TCS Final 82, ONGC Final 2,34, BHEL Final 98, CIPLA Interim 2,73, NTPC Interim 1,69,000 To earn the dividend income Mr. Vivek Spend 67,000 during the year. Mr. X also earned the following incomes: Rent received from House located in South Delhi 6,00,000 Income from business (computed) 3,60,000

60 Other Sources 54 CA Vivek Gaba Compute total tax payable by him for the assessment year Solution: Computation of Income and Tax Liability of Mr. Vivek Assessment Year Particulars Amount Amount Income under the head House Property Rent Received Less: 30% under section 24(a) 6,00,000 1,80,000 4,20,000 Profit and gains of business or profession 3,60,000 Income from other sources Income from dividends Total Income 31,000 8,11,000 Tax on (10,31,000 10,00,000) Tax on other income 3,100 81,000 Total Tax 84,100 Add: EC & 3% 2,523 Tax Payable 86,623 i.e. 86,620 Illustration 26 of Amendment by FA, 2016: Arya Global Shares and Securities Pvt. Ltd., a resident, earned a dividend of 34,56,000 during the year ended from various securities in which the company was trending. Discuss the tax implication on dividend income. Answer: Since the dividend is received by the company, therefore, section 115BBDA is not applicable. Total dividend earned by company shall be exempt from tax under section 10(34).

61 Deduction 55 CA Vivek Gaba Chapter 8 Deduction under chapter VIA SECTION 80GG: INCREASE IN THE LIMIT OF DEDUCTION UNDER SECTION 80GG Eligible Assessee: Individual ( Resident or Non-resident) 1. He should not be getting any house rent allowance and also not provided with Rent Free Accommodation by his employer. 2. He should not have any house in his name or in name of spouse or in name of minor child or in name of Hindu Undivided Family of which he is a member, 3. Also he should not have house at any other place which he has declared to be selfoccupied and has paid rent for the accommodation taken by him for his residence. 4. Deduction shall be allowed to such individual in case of payment of rent and deduction shall be least of below mentioned: a. Rent paid over 10% of the adjusted gross total income b. ` 2,000 5,000 p.m. c. 25% of the adjusted gross total income Illustration 27 of Amendment by FA, 2016: Mr. VG who is self-employed has Gross Total Income of 4,00,000. He Lives in a rented accommodation with his family in Delhi and pays monthly rent of 10,000 Since neither he nor his family own any house. In this case, Mr. VG can claim deduction under section 80GG. Least of the following will be eligible for deduction under section 80GG: - 60,000 per year - 25% of Total Income i.e. 1,00,000 - Rent Paid 10% of Total Income i.e. = 1,20,000 40,000 = 80,000 Least of the above is 60,000. Mr. VG can claim deduction under section 80GG of 60,000 for the relevant Assessment year.

62 Deduction 56 CA Vivek Gaba SEC 80EE: ADDITIONAL DEDUCTION FOR INTEREST ON LOAN BORROWED FOR ACQUISITION OF SELF-OCCUPIED HOUSE PROPERTY BY AN INDIVIDUAL (Inserted by Finance Act, 2016) Eligible Assessee: Individual (Resident or Non Resident, Both) 1. Under section 80EE, a deduction of upto 1 lakh in respect of interest paid on loan by individual for acquisition of a residential house property was allowed for A.Y and A.Y As a step towards achieving the Government s aim providing housing for all first home buyers availing home loans are encouraged, by providing additional deduction under section 80EE from A.Y in respect of interest on loan taken by an individual for acquisition for residential house property from any financial institution. The maximum deduction allowable is 50,000 (i.e. Interest payable or 50,000, whichever is Less) 3. The conditions to be satisfied for availing this deduction are as follows i. Value of House should be not more than 50 lakhs ii. Loan sanctioned is not more than 35 lakhs iii. The assessee should not own any residential house on the date of sanction of loan iv. Loan should be sanctioned during the P.Y The benefit of deduction under this section would be available till the repayment of loan continues. Illustration 28 of Amendment by FA, 2016: Mr. Vivek has purchased his first house on Cost of the House was 35 lakh. He has borrowed the loan of 23 lakh on from the State Bank of India for this purpose. During the previous year , he paid the interets of 2,50,000. He used the house as his own residence. Now for Assessment year , deduction under section 24 shall be 2,00,000 and decution under section 80EE shall be 50,000 Further duirng the Finacial year , Mr. Vivek paid the interets on housing loan of 2,40,000 Now, for the Assessment year , decution under section 24 shall be 2,00,000 and decution under section 80EE shall be 40,000.

63 TDS 57 CA Vivek Gaba Chapter 9 Tax deduction at source SURCHARGE AND EC & SHEC ON RATES OF TDS PRESCRIBED In case of Resident assessee: Payee (to whom payment is made) Companies Any other assessee Applicability of surcharge and education cess No surcharge or education cess shall be added No surcharge or education cess shall be added. However, education cess and SHEC shall be added on TDS on salary. (Surcharge where taxable salary exceeds Rs. 1 cores) In case of Non-Resident assessee: Payee (to whom payment is made) Foreign Companies Any other assessee Applicability of surcharge and education cess The rate of TDS shall be increased by: a) rate of 2% or 5% (where payment made or to be made to payee and which is subject to tax deduction during the financial year is between ` 1 crore to ` 10 crore or ` 10 crore, as the case may be) b) Education 2 % and 1% The rate of TDS shall be increased by a) 12% / 15% where total income of payee is more than ` 1 crore. b) education cess of 3% and 1%. [SECTION 197A]: ENABLING PROVISION FOR FILING OF SELF-DECLARATION IN FORM 15G/15H BY RECIPIENT OF RENTAL INCOME, FOR NON-DEDUCTION OF TAX AT SOURCE UNDER SECTION 194-I Effective from: 1 June, ) Tax deductible under section 194-I on rental payments exceeding ` 1,80,000: Under 194-I, tax is deductible at source for payments in the nature of rent exceeding the specified threshold of ` 1,80,000 in a financial year. In spite of the threshold for deduction tax under this section, there still may be cases where the tax payable on recipient's total income, including rental payments, will be nil.

64 TDS 58 CA Vivek Gaba 2) Enabling provisions contained in the Act for furnishing self-declaration by recipients of income referred to in section 192A/193/194/194A/194DA : Section 197A provides for furnishing of self-declaration in writing in duplicate in the prescribed form, declaring that the tax on his estimated total income of the relevant previous year would be nil. The prescribed form is Form No.15G in case of a person, other than a company or firm, and Form No. 15H, in case of a resident individual of the age of 60 years or more at any time during the previous year. If declaration is so furnished to the person responsible for paying tax, no deduction of tax shall be made by such person. However, there was no such enabling provision for furnishing self-declaration by the recipient of rent, which is subject to tax deduction under section 194-I. 3) Enabling provision introduced for furnishing self-declaration by recipient of rent for nondeduction of tax at source under section 194-I: In order to reduce compliance burden in such cases, section 197A has been amended for enabling persons, other than companies and firms, in receipt of rent, on which tax is deductible under section 194-I, to file self-declaration in Form No. 15G for non-deduction of tax at source to the person responsible for paying rent. Likewise, resident senior citizens in receipt of rent can file declaration in Form No 15H for non-deduction of tax at source to the person responsible for paying rent. INCREASE IN THRESHOLD LIMITS AND REDUCTION OF RATES FOR DEDUCTION OF TAX AT SOURCE IN RESPECT OF CERTAIN PAYMENTS [CHAPTER XVII-B] Effective from: 1 June, 2016 (i) Requirement of deduction of tax at source under Chapter XVII-B if payments exceed the specified threshold: Every person responsible for payment of any specified sum on which tax is deductible at source under Chapter XVII-B to any person is required to deduct tax at source at the prescribed rate and remit the same to the Central Government within specified time. However, no deduction is required to be made if the payments do not exceed prescribed threshold limit specified under the relevant section. (ii) In order to rationalise the rates and base for TDS provisions, the existing threshold limits for deduction of tax at source and the rates of deduction of tax at source have been revised with effect from 1 June, Revision in threshold limits for deduction of tax at source from certain payments: S.No Section Nature of Payment Upto w.e.f A Payment of accumulated balance due to an employee participating in recognized provident fund 30,000 50,000

65 TDS 59 CA Vivek Gaba 2 194BB Winnings from Horse races 5,000 10, C Payment to contractors (revision of threshold of aggregate payment in a year) 75,000 1,00, D Insurance Commission 20,000 15, G Commission on sale of lottery tickets 1,000 15, H Commission or brokerage 5,000 15, LA Payment of compensation or enhanced compensation on compulsory acquisition of immovable property 2,00,000 2,50,000 Reduction in rate of tax to be deducted at source in respect of certain payments: S.No Section Nature of Payment Upto w.e.f DA Payment in respect of life insurance policy 2 194EE Payment in respect of deposits under national saving scheme 2% 1% 20% 10% 3 194G Commission on sale of lottery tickets 10% 5% 4 194H Commission or brokerage 10% 5% 5 194D Insurance Commission 10% 5% Time limit for furnishing Quarterly Returns of TDS/TCS The Quarterly returns of TDS and TCS have to be filed by following due dates: Date of ending of the quarter of financial year Due date for Government & Other than Government Due date for other than Government Deductor 30 th June 31 st July of financial year 15 th July of financial year 30 th September 31 st October of financial year 15 th October of financial year 31 st December 31 st January of financial year 15 th January of financial year 31 st March 31 st May of the financial year immediately following the financial year in which deduction is made 15 th May of the financial year immediately following the financial year in which deduction is made

66 TDS 60 CA Vivek Gaba RULE 30(2A): INCREASE IN TIME LIMIT FOR PAYMENT OF TDS UNDER SECTION 194-IA TO GOVERNMENT ACCOUNT Rule 30(2A) has been amended to increase the time limit for payment of tax deduction under section 194-IA to Government account from 7 days to 30 days from the end of the month in which deduction is made.

67 Transfer Pricing 61 CA Vivek Gaba Chapter 10 Transfer Pricing Section 92D: MAINTENANCE AND KEEPING OF INFORMATION AND DOCUMENT BY PERSONS ENTERING INTO AN INTERNATIONAL TRANSACTION OR SPECIFIED DOMESTIC TRANSACTION (1) Every person who has entered into an international transaction (more than 1 Crore) or specified domestic transaction (More than 20 Crore) shall keep and maintain such information and document in respect thereof, as may be prescribed. (2) Without prejudice to provisions contained in sub-section (1), the Board may prescribe period (8 Years) for which the information and document shall be kept and maintained under that sub-section. (3) The Assessing Officer or the Commissioner (Appeals) may, in the course of any proceeding under this Act, require any person who has entered into an international transaction or specified domestic transaction to furnish any information or document in respect thereof, as may be prescribed under sub-section (1), within a period of thirty days from the date of receipt of a notice issued in this regard Provided that the Assessing Officer or the Commissioner (Appeals) may, on an application made by such person, extend the period of 30 days by a further period not exceeding 30 days. (4) As per FA, 2016 a person being a constituent entity of an international group shall also keep and maintain the prescribed information and documents un respect of the international group. The prescribed information and documents are to be submitted to prescribed income tax authority within the prescribed time period. The FA, 2016 also provides a penalty of Rs. 5,00,000 if the prescribed documents and information are not furnished to the prescribed income tax authority.

68 Other Amendments 62 CA Vivek Gaba Chapter 11 Other Amendments Set off, carry forward of losses SECTION 80: FILING OF RETURN OF LOSS ON OR BEFORE THE DUE DATE UNDER SECTION 139(1) MANDATORY FOR CARRY FORWARD OF LOSS FROM SPECIFIED BUSINESS UNDER SECTION 73A (i) Under section 73A, any loss, computed in respect of any specified business referred to in section 35AD shall not be set off except against profits and gains, if any, of any other specified business. Such loss can, however, be carried forward indefinitely for set-off against profits of the same or any another specified business. (ii) Section 80 requires mandatory filing of return of loss under section 139(3) on or before the due date specified under section 139(1) for carry forward of the following losses (1) Business loss under section 72(1) (2) Speculation business loss under section 73(2) (3) Loss under the head Capital Gains under section 74(1) (4) Loss from the activity of owning and maintaining race horses under section 74A(3) (iii) However, there was no such stipulation for carry forward of loss from specified business under section 73A. (iv) Accordingly, section 80 has been amended so as to provide that the loss determined as per section 73A shall not be allowed to be carried forward and set off if such loss has not been determined in pursuance of a return filed in accordance with the provisions of section 139(3). (v) Correspondingly, section 139(3) requiring filing of return of loss mandatorily within the time allowed under section 139(1) for claiming carry forward of losses under sections 72(1), 73(2), 74(1) and 74A(3) has been amended to include reference to section 73A(2). (vi) As per CBDT Circular loss can be carried forward even if ROI is filed after the due date and the delay in filing of loss return in case of genuine hardships can be condone by:- CIT, if the returned loss is upto ` 10,000 10,00,000 Chief CIT, if the returned loss is exceeds ` 10,000 10,00,000 but is upto ` 1,00,000 50,00,000 CBDT if the returned loss is exceeds ` 1,00,000 50,00,000.

69 Other Amendments 63 CA Vivek Gaba ADVANCE TAX (1) Advance tax shall be payable by companies and other assessee as per the following schedule of installments {w.e.f 1 st June, 2016} : A. For Company ALL ASSESSEES A assessee has to pay advance tax in the manner given below: Up to 15 th June of Financial Year not less than 15% of tax payable Up to 15 th September of Financial Year not less than 45% of tax payable Up to 15 th December of Financial Year not less than 75% of tax payable Up to 15 th March of Financial Year 100% of tax payable Illustration 22 of Amendment by FA, 2016: For previous year , PQR Ltd. has estimated its tax payable to be `2,00,000, in this case advance tax shall be paid by the company as given below: Up to `30,000 Up to `90,000 Up to `1,50,000 Up to ` 2,00,000 B. Other assesse Any other assessee has to pay advance tax in the manner given below: Up to 15 th September of Financial Year not less than 30% of tax payable Up to 15 th December of Financial Year not less than 60% of tax payable Up to 15 th March of Financial Year 100% of tax payable Important Point 1: The last date for payment of the whole amount of advance tax is 15 th March of the relevant financial year. However, any amount paid by way of advance tax on or before 31 st March is also considered as advance tax paid for the financial year. Interest liability for late payment will arise in such a case. Important Note 2: An assessee, who has opted for the scheme of computiong business u/s 44AD on presumptive basis at the rate 8% of turnover, shall be exempted from payment of advance tax related to such business. An eligible assessee, opting for computation of profits or gains of business on presumptive basis in respect of eligible business referred to in section 44AD, shall be required to pay advance tax of the whole amount in one instalment on or before the 15 th March of the financial year. However, any amount paid by way of advance tax on or before 31 st March shall also be treated as advance tax paid during each financial year on or before 15 th March.

70 Other Amendments 64 CA Vivek Gaba Important Note 3: Now, Section 234C Interest is applicable for All ASSESSEE whether corporate or noncorporate assessee. However, if the advance tax paid by the assessee on the current income, on or before 15 th June or 15 th September, is not less than 12% or, as the case may be, 36% of the tax due on the returned income, then, the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates. In case an eligible assessee in respect of the eligible business referred to in section 44AD, who is liable to pay advance tax under section 208 has failed to pay such tax or the advance tax paid by the assessee on its current income on or before 15th March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of 1% on the amount of the shortfall from the tax due on the returned income. RETURN OF INCOME & ASSESSMENT PROCEDURE Section Provision Amendment by the Finance Act, 2016 (i) 139(1) [Sixth proviso] Mandatory filing of return if total income before giving effect to deductions under Chapter VIA exceed basic exemption limit. Every person, being an individual or HUF or an AOP or a BOI, whether incorporated or not or any artificial juridical person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year, without giving effect to provisions of Chapter VI-A, exceeds the basic exemption limit shall be liable to furnish return on or before the due date. (ii) 139(4) Time limit for filing belated return: A person who has not furnished a return within the time allowed Mandatory filing of return if total income before giving effect to exemption u/s 10(38) in respect of long-term capital gains exceed basic exemption limit. If such a person earns income by way of long-term capital gains in the previous year, which is exempt under section 10(38), and income of such person without giving effect to section 10(38) exceeds the basic exemption limit, then also such person shall be liable to mandatorily file return of income for the previous year on or before the due date. Reduction of time limit for filing belated return: Any person who has not furnished a return within the time allowed to him under section

71 Other Amendments 65 CA Vivek Gaba to him under section 139(1), or within the time allowed under a notice issued under section 142(1), may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. (iii) 139(5) Belated return cannot be revised: If any person, having furnished the return under section 139(1), or in pursuance of a notice issued under section 142(1), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before one year from the end of the relevant assessment year or completion of assessment, whichever is earlier. (iv) Clause Return deemed to be defective (aa) if self-assessment tax is not Expln paid before furnishing the return To A return of income shall be 139(9) regarded as defective unless the self-assessment tax together with interest, if any, payable in accordance with the provisions of section 140A, has been paid on or before the date of furnishing of return. 139(1), may furnish the return for any previous year at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. Thus, belated return can be filed only in case a person has not furnished his return within the time allowed under section 139(1). Also, the belated return cannot be furnished after the end of the relevant assessment year. Belated return can be revised: If any person, having furnished a return under section 139(1) or belated return under section 139(4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. An enabling provision for revision of belated return has been introduced. However, a return furnished in pursuance of a notice issued under section 142(1) cannot be revised. Return not deemed to be defective if selfassessment tax is not paid before furnishing the return A return which is otherwise valid would not be treated defective merely because selfassessment tax and interest payable in accordance with the provisions of section 140A has not been paid on or before the date of furnishing of the return.

72 Other Amendments 66 CA Vivek Gaba ILLUSTRATIONS OF AMEDNMENT BY FINANCE ACT, 2016 Illustration 29: For Assessment year , the due date of filing of ROI was and ROI is filed on declaring an income of 4,00,000. Revised return is filed on declaring loss of 7,30,000. Can the loss be carried forward? Solution: As per the judgement of Dharampur Sugar Mills Ltd., revised return under section 139(5) substitutes the original return from the date original return was filed. Hence, revised return filed on substitutes the original return filed on and is deemed to be filed on Thereby, as per the provisions of section 80 read with section 139(3), the loss of `7,30,000 shall be carried forward. Illustration 30: If in the above question, the original return was filed on instead of , whether the loss can be carried forward? Solution: As per Finance Act, 2016 the return filed under section 139(4) can be revised under section 139(5). Therefore, revised return filed on is valid. As per Dhampur Suger Mills Ltd., the revised return substitute the original return from and is deemed to be filed on As per the provision of section 80 read with section 139(3) the loss cannot be carried forward. Illustration 31: For the assessment year , the due date of filing of ROI was and ROI is filed on declaring a loss of `2,50,000. Revised return is furnished on declaring a loss of `7,00,000. Comment Solution: The return filed on is a return filed u/s 139(4) and as per the provisions of section 80 read with section 139(3), the loss of `2,50,000 cannot be carried forward. Further the return filed on is a valid return, as per SC in Kumar Jagdish Chandra Sinha amendment made by Finance Act, As per Dhampur Suger Mills Ltd., the revised return is deemed to be filed on As per the provision of section 80 read with section 139(3) the loss of `7,00,000 cannot be carried forward Illustration 32: For the assessment year , the due date of filing of ROI was and the return is not filed upto The Assessing officer issues notice under section 142(1) Case 1: On and ask the assessee to file the return on Assessee files the return on / Case 2: On and ask the assessee to file the return by Assessee files the return on Can the above returns be revised under section 139(5)?

73 Other Amendments 67 CA Vivek Gaba Solution: Case 1: The late return has been filed within the period given under section 139(4) and therefore, the same can be revised under section 139(5) upto Case 2: The late return has been filed after the period given under section 139(4) and therefore, cannot be revised. This is because the law provides that a return filed under section 139(1) or 139(4) can be revised. Illustration 33: For the assessment year , the due date of filing of ROI was and the return is not filed upto The Assessing officer issues notice under section 142(1) and the assessee is asked to file the ROI by The asessee files ROI on declaring a business loss of 3,00,000. The assessee files a revised return on declaring a business loss of 6,00,000. Comment. Solution: Loss declared in the return in pursuance of notice issued under section 142(1) cannot be carried forward as per the provision of section 80 read with section 139(3). Further, return filed on is a valid return under section 139(5) but loss of 6,00,000 can also not be carried forward as the original return was not furnished under section 139(1) on or before the due date. SECTION 139(4C): RETURN OF INCOME OF MUTUAL FUNDS, SECURITIZATION TRUSTS, VENTURE CAPITAL COMPANIES/FUNDS TO BE FILED MANDATORILY Section 139(4C) has now been amended to require 1. a Mutual Fund referred to in section 10(23D), 2. a securitization trust referred to in section 10(23DA); and 3. a VCC/VCF referred to in section 10(23FB) to furnish a return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, if the total income in respect of which such mutual fund or securitisation trust or VCC/VCF is assessable, without giving effect to the provisions of section 10, exceeds the basic exemption limit. In such a case, all the provisions of the Income-tax Act, 1961, so far as may be, apply as if it were a return required to be furnished under section 139(1).

74 Other Amendments 68 CA Vivek Gaba ALTERNATE MINIMUM TAX SECTION 115JC: ASSESSEES CLAIMING INVESTMENT LINKED TAX DEDUCTION UNDER SECTION 35AD COVERED WITHIN AMBIT OF AMT The profit linked deductions under sections 80-IA, 80-IAB, 80-IB etc. are already being subject to AMT. However, so far, investment-linked deduction under section 35AD was not subject to AMT. However, with the amendment the inconsistency has been removed. As per the amendment, total income shall be increased by deduction claimed, if any, under section 35AD as reduced by amount of depreciation allowable in accordance with provisions of section 32 as if no deduction under section 35AD was allowed in respect of the assets on which the deduction under that section is claimed Adjusted total income shall be computed as follows. PARTICULARS AMOUNT Total Income as per normal provisions of IT Act xx Add: Deduction U/C VIA (heading C except deduction of sec 80P) Xx Add: Deduction u/s 10AA Xx Add: Investment allowance claimed under section 35AD xx Less: Depreciation allowed under section 32 xx Xx Adjusted Total income Xx Illustration 34 of Amendment by FA, 2016: Mr. X, carrying on the business of operating a warehousing facility for storage of sugar, has a total income of ` 80 lakh. In computing the total income, he had claimed deduction u/s 35AD to the tune of ` 70 lakh on investment in building (on ) for operating the warehousing facility for storage of sugar. Compute his tax liability for A.Y Solution: Particulars ` in lakh Tax liability under the normal provisions of the Income-tax Act, 1961 Add: Education cess and 3% Total tax liability Adjusted Total Income Total Income Add: Deduction under section 35AD Less: Depreciation under section 32 [10% of ` 70 lakh] Adjusted Total Income % Add: (since adjusted total income > ` 100 lakh)

75 Other Amendments 69 CA Vivek Gaba Add: Education cess and 0.87 Tax liability under section 115JC Since the regular income-tax payable is less than the AMT payable, the adjusted total income of ` 143 lakhs shall be deemed to be the total income of Mr. X and tax is 18.5% thereof plus 10% and 3%. Therefore, the tax liability is ` lakhs. AMT Credit to be carried forward under section 115JEE Tax liability under section 115JC Less: Tax liability under the regular provisions of the Income-tax Act, MINIMUM ALTERNATE TAX For a COMPANY, when tax under Income tax Act as per normal provisions is less than 18.5% of its book profit, tax is payable on such book 18.5%. Important Note 1: (Inserted by FA, 2016) Section 115JB(7): Where the assessee is a unit located in an international Financial Service Center and derives its income solely in convertible foreign exchange, the rate of MAT shall be 9% instead of 18.5%. Important Note 2: (Inserted by FA, 2016) Provision of section 115JB shall not be applicable to a foreign company, if (i) The assessee is a resident of a country or a specified territory with which India has a DTAA or TIEA and the assessee does not have a permanent establishment in India; or (ii) The assessee is a resident of a country with which India does not have DTAA or TIEA and the assesse is not required to seek registration under any law for the time being in force relating to companies..

76 Other Amendments 70 CA Vivek Gaba VARIOUS THRESHOLD / LIMITS UNDER THE INCOME TAX ACT, 1961 (Amended by Finance Act, 2016) [AY ] S.N. Particulars Threshold Limits A. Basic Concept of Income Tax A. Maximum amount of income which is not chargeable to Income-tax in case of Individual, HUF/ AOP/ BOI/ Artificial Juridical Person Maximum amount of income which is not chargeable to Income-tax in the hands of a resident senior citizen (who is at least 60 Years of age at any time during the previous year but less than 80 Years of age on the last day of the previous year) Maximum amount of income which is not chargeable to Income-tax in the hands of a resident super senior citizen (who is at least 80 Years of age at any time during the previous year) Surcharge shall be charged at the rate of 15% of income-tax if net income exceeds ` 1 Crore in case of Individual, HUF, AOP, BOI, Artificial judicial person (Subject to Marginal relief) Surcharge shall be charged at the rate of 12% of income-tax if net income exceeds ` 1 Crore in case of Firms, Co-operative Societies, Local Authorities (Subject to Marginal Relief) ` 2,50,000 ` 3,00,000 ` 5,00,000 ` 1 Crore ` 1 Crore Surcharge shall be charged at the rate of 7% of income-tax if net income exceeds ` 1 Crore and at the rate of 12% if net income exceeds ` 10 Crores in case of domestic company (Subject to Marginal relief) Surcharge shall be charged at the rate of 2% of income-tax if net income exceeds ` 1 Crore and at the rate of 5% if net income exceeds ` 10 Crores in case of foreign company (Subject to Marginal relief) ` 1 Crore / ` 10 Crore ` 1 Crore / ` 10 Crore 7. Tax rate of 29% in case of a domestic company where its total turnover or the gross receipt in the previous year does not exceed ` 5 ` 5 Crore crore (Subject to Marginal Relief)

77 Other Amendments 71 CA Vivek Gaba S.N. Particulars Section Threshold Limits (for exemptions and others) B. Under the head Salaries 1. Entertainment Allowance (Exempt in case of Government employee only) 2. Encashment of unutilized earned leave at the time of retirement by an employee / Leave Encashment (other than Government employee)(subject to certain conditions) 3. Retrenchment Compensation received by a workman under the Industrial Dispute Act, 1947 (Subject to certain conditions). 16(ii) 10(10AA) 10(10B) Least of the following is exempt from tax: a) Rs 5,000 b) 1/5th of salary (excluding any allowance, benefit or perquisite) c) Actual entertainment allowance received Least of the following shall be exempt from tax: a) Amount actually received b) ` 3,00,000 c) 10 months **salary on the basis of Last 10 Month immediately preceding the retirement Average Salary d) *Earned Leave Salary on the basis of Last 10 Month immediately preceding the retirement Average Salary *While computing unutilized earned leave, earned leave entitlements cannot exceed 30 days for each year of service rendered to the current employer **Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits)+ turnover based commission Least of the following shall be exempt from tax: a) Amount actually received. b) ` 5,00,000; or c) c) an amount calculated as per 10(10B)of the Industrial Disputes Act, 1947; 4. Death -cum-retirement Gratuity 10(10) Least of following amount is exempt from tax:

78 Other Amendments 72 CA Vivek Gaba received by other employees who are covered under Gratuity Act, 1972 (other than Government employee) (Subject to certain conditions). 5. Death-cum-Retirement Gratuity received by other employees who are not covered under Gratuity Act, 1972 (other than Government employee)(subject to certain conditions). a) (*15/26) X Last drawn salary** X completed year of service or part thereof in excess of 6 months. b) ` 10,00,000 c) Gratuity actually received. *7 days in case of employee of seasonal establishment. ** Salary = Last drawn salary including DA (Total) but excluding any bonus, commission, HRA, overtime and any other allowance, benefits or perquisite 10(10) Least of following amount is exempt from tax: a) 1/2 X Average Salary* X Completed years of service b) ` 10,00,000 c) Gratuity actually received. *Average salary = Average Salary of last 10 months immediately preceding the month of retirement **Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits)+ turnover based commission 6. Amount received on Voluntary Retirement or Voluntary Separation (Subject to certain conditions 10(10C) Least of the following is exempt from tax: a) Actual amount received b) Completed Year of Service x 3 month x last drawn salary* c) Remaining period of Service x last drawn salary d) 2) ` 5,00,000 * Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits) + turnover based commission

79 Other Amendments 73 CA Vivek Gaba SN Particulars Section Threshold Limits (for exemptions and others) 7. Children Education Allowance 10(14) Up to ` 100 per month per child up to a maximum of 2 children. 8. Hostel Expenditure Allowance 10(14) Up to ` 300 per month per child up to a maximum of 2 children. 9. Transport Allowance granted to an employee to meet expenditure on commuting between place of residence and place of duty 10(14) Up to ` 1600 per month (` 3,200 per month for blind and handicapped employees) 10. Medical Reimbursement / Medical Facility 11. Transport Allowance to an employee working in any transport business to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place provided employee is not in receipt of daily allowance. 13. Special compensatory Allowance (Hilly Areas) (Subject to certain conditions and locations) 14. Border area, Remote Locality or Disturbed Area or Difficult Area Allowance (Subject to certain conditions and locations) 15. Tribal area allowance in (a) Madhya Pradesh (b) Tamil Nadu (c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West Bengal (h) Bihar (i) Orissa 16. Compensatory Field Area Allowance. If this exemption is taken, employee cannot claim any exemption in respect 17(2) proviso Sec. 10(14) read with Rule 2BB Sec. 10(14) read with Rule 2BB Sec. 10(14) read with Rule 2BB Sec. 10(14) read with Rule 2BB Sec. 10(14) read with Up to ` 15,000 in aggregate in a year Amount of exemption shall be lower of following: a) 70% of such allowance; or b) ` 10,000 per month. Amount exempt from tax varies from ` 300 to ` 7,000 per month. Amount exempt from tax varies from ` 200 to ` 1,300 per month. Up to ` 200 per month Up to ` 2,600 per month

80 Other Amendments 74 CA Vivek Gaba of border area allowance (Subject to certain conditions and locations) 19. Underground Allowance to employees working in uncongenial, unnatural climate in underground mines (Subject to certain conditions) 20. High Altitude Allowance granted to armed forces operating in high altitude areas (Subject to certain conditions and locations) 22. Island Duty Allowance granted to members of armed forces in Andaman and Nicobar and Lakshadweep group of Island (Subject to certain conditions and locations) 23. Tax on contribution to an approved superannuation fund by the employer in respect of the employee 24. Expense incurred by employer on providing educational facility to the children of the employee shall be exempt in the hands of an employee 25. Interest on loan received from employer at concessional rate of interest couldn t be taxed as perquisite in the hands of the employee 26. Free meal provided to employees during office hours by the employer couldn t be taxed as perquisite in the hands of the employees 27. Value of any gift received by the employee or by member of his household from employer is exempt in the hands of the employee Rule 2BB Sec. 10(14) read with Rule 2BB Sec. 10(14) read with Rule 2BB Sec. 10(14) read with Rule 2BB 17(2)(vii) Rule 3 Rule 3 Rule 3 Rule 3 Up to ` 800 per month a) Up to ` 1,060 per month (for altitude of 9,000 to 15,000 feet) b) Up to ` 1,600 per month (for altitude above 15,000 feet) Up to ` 3,250 per month To the extent it exceeds `1,50,000 per year Up to `1,000 per month per child If aggregate amount of such loan during the relevant previous year does not exceed `20,000 If cost of such meal does not exceed `50 per meal Up to the extent of `5,000 if received in kind

81 Other Amendments 75 CA Vivek Gaba SN Particulars Section Threshold Limits (for exemptions and others) C. Under the head Income from House Property 1. Standard deductions 24(a) 30% of net annual value 2. Interest incurred on borrowed capital for construction/ acquisition of selfoccupied house property (Subject to certain conditions) 3. Interest incurred on borrowed capital for re-construction, repair or renewal of self-occupied house property (Subject to certain conditions) 24(b) Up to ` 2,00,000 24(b) Up to ` 30,000 SN Particulars Section Threshold Limits (for exemptions and others) D. Under the head Profits and Gains of Business or Profession 1. Deduction under section 32AC is available if actual cost of new plant and machinery acquired and installed by a manufacturing company after but before exceeds ` 25/100 Crores, as the case may be (Subject to certain conditions). 32AC 15% of actual cost of new asset acquired and installed (if it exceeds ` 25 Crores/100 Crores, as the case may be)

82 Other Amendments 76 CA Vivek Gaba 3. Compulsory maintenance of prescribed books of account - Specified Profession (Subject to certain conditions and circumstances) 4. Compulsory maintenance of books of account - Other business or profession (Subject to certain conditions and circumstances) 5. Compulsory Audit of books of accounts (Subject to certain conditions and circumstances) 6. Limit on payments in cash for expenses/ liability (Subject to certain conditions and exceptions) 7. Computation of income from eligible business on presumptive basis under Section 44AD (Subject to certain conditions). 7A. Computation of income from eligible profession on presumptive basis under section 44ADA (Subject to conditions) 44AA 44AA 44AB 40A(3) 44AD 44ADA Persons carrying on specified profession and their gross receipts exceed ` 1,50,000 in all the three years immediately preceding the previous year 1) If total sales, turnover or gross receipts exceeds ` 10,00,000 in any one of the three years immediately preceding the previous year; or 2) If income from business or profession exceeds ` 1,20,000 in any one of the three years immediately preceding the previous year 1) If total sales, turnover or gross receipts exceeds ` 1 Crore in any previous year, in case of business; or 2) If gross receipts exceeds ` 50 Lakhs in any previous year, in case of profession. 1) ` 20,000 (total payment to a person in a day) 2) ` 35,000 (total payment to a person in a day) for payments made for plying, hiring or leasing of goods carriage. Presumptive income of eligible business shall be 8 % of gross receipt or total turnover (if turnover of eligible business does not exceed ` 2 crore). Presumptive income shall be 50% of total gross receipt if the total gross receipts from such profession do not exceed ` 50 lakh in a previous year.

83 Other Amendments 77 CA Vivek Gaba 8. Presumptive income of business of plying, hiring or leasing of goods carriage if taxpayer does not own more than 10 goods carriage (Subject to certain conditions) 9. Alternate Minimum Tax (in case of Individual, HUF, AOP or BOI) (Subject to certain conditions) 10. Applicability of Domestic Transfer Pricing, if aggregate value of transactions with associated enterprises during the previous year exceeds the threshold limit 11. Every person who has entered into an international transaction or a specified domestic transaction shall keep and maintain the specified information and documents 44AE 115JC 92BA Rule 10D read with section 92D ` 7,500 for every month during which the goods carriage is owned by the taxpayer 18.5% of adjusted total income (plus surcharge and education cess) provided adjusted total income exceeds ` 20,00,000. ` 20 Crores If aggregate value, as recorded in the books of account, of international transactions entered into by him exceeds `1,00,00,000

84 Other Amendments 78 CA Vivek Gaba SN Particulars Section Threshold Limits (for exemptions and others) E. Under the head Income from Capital Gains 1. Limit on investment made by an assessee in bonds of NHAI or REC etc., from long term capital gains arising from transfer of one or more original assets during the financial year, for claiming exemption (Subject to certain conditions) 54EC ` 50,00,000 during the financial year in which original asset is transferred and in subsequent financial year 2. Exemption from long-term capital gain if such gain is invested by an assessee in units of fund as may be notified by Central Government to finance start-ups. 54EE Investment in new assets or capital gains, whichever is lower, however, subject to ` 50 lakhs. SN Particulars Section Threshold Limits (for exemptions and others) F. Under the head Income from Other Sources 1. Gifts without consideration/ inadequate consideration from non-relatives (Subject to certain conditions) 56 Gift up to ` 50,000 is not chargeable to tax 2. Standard Deduction for family pension 57(iia) 33.33% of Family Pension subject to maximum of ` 15, Dividend received from domestic company by resident individual/huf/firm shall be chargeable to tax at the rate of 10% 115BBDA If aggregate amount of dividend received during the year exceeds ` 10,00,000.

85 Other Amendments 79 CA Vivek Gaba SN Particulars Section Threshold Limits (for exemptions and others) G. Trust 1. Activity for advancement of any other object of general public utility shall be considered as charitable activity 2(15) If activity is undertaken in course of carrying out of object of general public utility and aggregate receipts from such activity do not exceed 25% of total receipts of financial year. 2. Anonymous donation to be taxed at the rate of 30% 3. Annual receipts should not exceed the threshold limit for the purposes of claiming exemption under section 10(23C)(iiiad)/(iiiae) 115BBC Rule 2BC To the extent it exceeds 5% of total donations received by assessee or `1,00,000, whichever is higher `1 Crore

86 Other Amendments 80 CA Vivek Gaba SN Particulars Section Threshold Limits (for exemptions and others) I. Deductions under Chapter VI-A 1. Deduction to an INDIVIDUAL AND HUF for amount invested in following ways: 1) Life insurance premium for policy: a) Individual: life of assessee, assessee s spouse and any child of assessee b) HUF: on life of any member of the HUF 2. Sum paid under a contract for a deferred annuity: a) Individual: life of individual, individual s spouse & any child of the individual (however, contract should not contain an option to receive cash payment in lieu of annuity) b) HUF: on life of any member of the HUF 3. Sum deducted from salary payable to Government servant for securing deferred annuity or making provision for his wife/children [qualifying amount limited to 20% of salary] 4. Contributions by an individual made under Employees Provident Fund Scheme 5. Contribution to Public Provident Fund Account in the name of: a) Individual: such individual or his spouse or any child of such individual b) HUF: any member thereof 6. Contribution by an employee to a recognized provident fund 7. Contribution by an employee to an approved superannuation fund 8. Subscription to any notified security or notified deposit scheme of the Central Government For this purpose, Sukanya Samriddhi Account Scheme has been notified vide Notification No. 9/2015, dated 21/1/2015. Any sum deposited during the year in Sukanya Samriddhi Account by 80C Up to 1,50,000 (Subject to overall limit of ` 1,50,000 under Section 80C, 80CCC and 80CCD)

87 Other Amendments 81 CA Vivek Gaba an individual would be eligible for deduction. Amount can be deposited by an individual in the name of her girl child or any girl child for whom such an individual is the legal guardian. 9. Subscription to notified savings certificates[national Savings Certificates(VIII Issue)] 10. Contribution for participation in unit-linked Insurance Plan of UTI: a) Individual: in the name of the individual, his spouse or any child of such individual b) HUF: in the name of any member thereof 11. Contribution to notified unit-linked insurance plan of LIC Mutual Fund: a) Individual: in the name of the individual, his spouse or any child of such individual b) HUF: in the name of any member thereof 12. Subscription to notified deposit scheme or notified pension fund setup by National Housing Bank [Home Loan Account Scheme/National Housing Banks (Tax Saving) Term Deposit Scheme, 2008] 13. Tuition fees (excluding development fees, donations, etc.) paid by an individual to any university, college, school or other educational institution situated in India, for full time education of any 2 of his/her children 14. Certain payments for purchase/construction of residential house property 15. Subscription to notified schemes of a) public sector companies engaged in providing long-term finance for purchase/ construction of houses in India for residential purposes b) authority constituted under any law for satisfying need for housing accommodation or for planning, development or improvement of cities, towns and villages, or for both 16. Sum paid towards notified annuity plan of LIC or other insurer 17. Subscription to any units of any notified [u/s 10(23D)] Mutual Fund or the UTI (Equity Linked Saving Scheme, 2005)

88 Other Amendments 82 CA Vivek Gaba 18. Contribution by an individual to any pension fund set up by any mutual fund which is referred to in section 10(23D) or by the UTI (UTI Retirement Benefit Pension Fund) 19. Subscription to equity shares or debentures forming part of any approved eligible issue of capital made by a public company or public financial institutions 20. Subscription to any units of any approved mutual fund referred to in section 10(23D), provided amount of subscription to such units is subscribed only in eligible issue of capital referred to above. 21. Term deposits for a fixed period of not less than 5 years with a scheduled bank, and which is in accordance with a scheme framed and notified. 22. Subscription to notified bonds issued by the NABARD. 23. Deposit in an account under the Senior Citizen Savings Scheme Rules, 2004 (subject to certain conditions) year term deposit in an account under the Post Office Time Deposit Rules, 1981 (subject to certain conditions) 2. Contribution to certain specified Pension Funds of LIC/other insurer by an Individual (Subject to certain conditions). 80CCC Up to 1,00,000 (Subject to overall limit of ` 1,50,000 under Section 80C, 80CCC and 80CCD)

89 Other Amendments 83 CA Vivek Gaba SN Particulars Section Threshold Limits (for exemptions and others) 3. Contribution to notified Pension Scheme (NPS) by an Individual (Subject to certain conditions). Note:- 1. Deduction under section 80CCD(2) on account of contribution made by the employer to a pension scheme is not subjected to ceiling limit of ` 1,50,000 as provided under Section 80CCE. 2. Addition deduction of ` 50,000 shall not be allowed in respect of contribution which is considered for deduction under Section 80CCD(1), i.e., limit of 10% of salary/gross total income 4. Amount invested by specified resident individuals, whose gross total income does not exceed ` 12 lakhs, in listed shares or listed units in accordance with notified scheme for a lock-in period of 3 years (Subject to certain conditions) 80CCD 80CCG Amount contributed to pension scheme or 10% of salary/gross total income*, whichever is less (subject to ceiling limit of ` 1,50,000 as provided under Section 80CCE) shall be allowed as deduction under Section 80CCD(1) Additional deduction: ` 50,000 (also available under section 80CCD(1B). The additional deduction is not subjected to ceiling limit of ` 1,50,000 as provided u/s 80CCE. Contribution made by employer shall also be allowed as deduction under section 80CCD(2) while computing total income of the employee. However, amount of deduction could not exceed 10% of salary of the employee. *10% of salary in case of employees otherwise 10% of gross total income. Deduction of 50% of total investment subject to maximum of ` 25,000 in 3 consecutive assessment years, beginning with the assessment year relevant to previous year in which listed shares or list units of equity oriented funds are first acquired

90 Other Amendments 84 CA Vivek Gaba SN Particulars Section Threshold Limits (for exemptions and others) 5. Amount paid (any mode other than cash) by an individual or HUF to LIC or other insurer to effect or keep in force an insurance on the health of specified person*. An individual can also made payment to the Central Government health scheme and/or on account of preventive health checkup. *specified person means - Individual: Self, Spouse, dependent children, parents - HUF: Any member thereof Note: 1. Deduction for preventive health check-up shall not exceed in aggregate ` 5, Payment on account of preventive health check-up may be made in cash. 3. Within overall limit, deduction shall also be allowed upto ` 30,000 towards medical expenditure incurred on the health of specified person provided such person is a very senior citizen and no amount has been paid to effect or to keep in force an insurance on the health of such person. 4. "Senior citizen": individual resident in India, age of 60 or more at any time during previous year. 5. "Very senior citizen": individual resident in India, age of 80 years or more at any time during previous year. 80D In case of Individual, amount paid: a) For self, spouse and dependent children: ` 25,000 (` 30,000 if specified person is a senior citizen or very senior citizen) b) For parents: additional deduction of ` 25,000 shall be allowed (` 30,000 if parent is a senior citizen or very super senior citizen) c) In case of HUF, premium up to ` 25,000 (` 30,000 if person insured is a senior citizen or very senior citizen) paid to insure any member of the family.

91 Other Amendments 85 CA Vivek Gaba SN Particulars Section Threshold Limits (for exemptions and others) 6. Deduction allowed to resident Individual and HUF for: a) Any expenditure incurred for the medical treatment (including nursing), training and rehabilitation of a dependent, being a person with disability b) Any amount paid or deposited under an approved scheme framed in this behalf by the LIC or any other insurer or the Administrator or the specified company for the maintenance of a dependent, being a person with disability (Subject to certain conditions). 7. Expenses actually paid by resident individual and HUF for medical treatment of specified diseases and ailments of: a) Individual: Assessee himself or wholly dependent spouse, children, parents, brothers and sisters b) HUF: Any member of the family who is wholly dependent upon the family (Subject to certain conditions). 8. Interest payable on loan taken up to ` 35 lakhs by an individual taxpayer from any financial institution, sanctioned during the FY , for the purpose of acquisition of a residential house property whose value does not exceed ` 50 lakhs (Subject to certain conditions). [This deduction is available from Assessment Year onwards.] 80DD ` 75,000 (` 1,25,000 in case of severe disability) 80DDB Up to ` 40,000 (` 60,000 in case of senior citizen and ` 80,000 in case of very senior citizen) 80EE Deduction of up to `50,000 towards interest on loan.

92 Other Amendments 86 CA Vivek Gaba S N Particulars Section Threshold Limits (for exemptions and others) 9. Rent paid by an individual for furnished/ unfurnished residential accommodation if he is not receiving any HRA (Subject to certain conditions) 10. Deduction in respect of certain donations for scientific, social or statistical research or rural development programme or for carrying out an eligible project or National Urban Poverty Eradication Fund shall be allowed (Subject to certain conditions) 80GG 80GGA Least of the following shall be exempt from tax: a) Rent paid in excess of 10% of total income*; b) 25% of the Total Income; or c) ` 5,000 per month. Total Income = Gross total income minus capital gains, short term capital gains under section 111A, deductions under section 80C to 80U (other than 80GG) and income under section 115A 100% of donations or contributions made. No deduction shall be allowed if contribution is paid in cash in excess of `10, Deduction from profit and gains derived by an eligible start-up from a business involving innovation, development, deployment or commercialization of new products, process or services driven by technology or intellectual property rights. Deduction in respect of eligible start-up (subject to certain conditions) Eligible start-up means: company or limited liability partnership, incorporated on or after 1/4/2016 but before 1/4/2019 and holds from Inter-Ministerial Board of Certification. 80- IAC 100% deduction is available for any 3 consecutive assessment years out of 5 years beginning from the year in which the eligible start-up is incorporated. However, total turnover of eligible start-up should not exceed ` 25 Crore in any of the previous years beginning on or after the 1st day of April, 2016 and ending on the 31st day of March, 2021.

93 Other Amendments 87 CA Vivek Gaba 12. Royalty income of resident individual - authors of certain specified category of books other than text books 80QQB Least of the following shall be exempt from tax: a) Lump sum payment: Amount of royalty income subject to maximum of ` 3,00,000 b) Other cases: amount of such income subject to maximum of 15% of value of books sold during the previous year. SN Particulars Section Threshold Limits (for exemptions and others) 13. Royalty in respect of patents registered on or after earned by resident individual (subject to certain conditions) 80RRB 100% of royalty subject to maximum of ` 3,00, Interest on deposits in saving account of an Individual or HUF with a banking company, a post office, co-operative society engaged in banking business, etc. (Subject to certain conditions) 15. Resident individual who, at any time during the previous year, is certified by the medical authority to be a person with disability [as defined under Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995] 16. Maximum amount of deduction available to specified co-operative societies if it is engaged in activities in addition to the prescribed activities (Subject to certain conditions) 17. Deduction available to a co-operative society, (not being a housing society or an urban consumers' society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power,) in respect of income by way of interest on securities or any income from house property. 80TTA 80U 80P 80P 100% of amount of such income subject to maximum of ` 10,000 ` 75,000 (` 1,25,000 in case of severe disability) `1,00,000 in case of consumer cooperative society or `50,000 in any other case If its gross total income does not exceed `20,000

94 Other Amendments 88 CA Vivek Gaba SN Particulars Section Threshold Limits J. Deduction of tax at source and Advance tax (for exemptions and others) 1. No deduction of tax at source from salaries 192 If net taxable income is less than maximum amount which is not chargeable to tax (` 2,50,000 for an individual, ` 3,00,000 for Senior Citizens and ` 5,00,000 for Super Senior Citizens) 2. No TDS from payment of provident fund account of an employee 3. No TDS from interest paid on debentures issued by a company in which public are substantially interested. Provided interest is paid by account payee cheque to resident individual or HUF 4. No TDS from interest on 8% Saving (Taxable) Bonds 2003 paid to a resident persons 5. No TDS from interest on 6.5% Gold bonds, 1977 or 7% Gold bonds, 1980 paid to resident individual 192A If amount paid is less than ` 30,000. (` 50,000 w.e.f ) 193 If amount paid or payable during the financial year does not exceed ` 5, If amount paid or payable during the financial year does not exceed ` 10, If a declaration is made that the nominal value of such bonds did not exceed ` 10,000 at any time during the previous year 6. No TDS from dividend paid by account payee cheque to resident persons 194 If amount paid or payable during the financial year does not exceed ` 2,500

95 Other Amendments 89 CA Vivek Gaba SN Particulars Sectio n Threshold Limits (for exemptions and others) 7. No TDS from interest (other than on interest on securities) paid by a banking company, co-operative bank or specified public company on time deposits Note: w.e.f , tax shall be deducted from interest credited or paid by a cooperative bank to its member 8. No TDS from payment of interest on deposit with a post office under Senior Citizens Saving Scheme Rules, No TDS from interest other than on securities (in any other case) 10. No TDS from interest on compensation awarded by payment of Motor Accident Claims Tribunal 11. No TDS from Lottery / Cross Word Puzzles 194A If amount paid or payable during the financial year does not exceed ` 10,000 Note: a) w.e.f , time deposit shall also include recurring deposit. Therefore, tax shall be deduction from payment of interest on recurring deposit if it exceeds the threshold limit of ` 10,000. b) The threshold limit of ` 10,000 shall be computed with reference to the income credited or paid by a banking company or co-operative bank (and not by individual branch thereof) which has adopted core banking solutions ('CBS'). 194A If amount paid or payable during the financial year does not exceed ` 10, A If amount paid or payable during the financial year does not exceed ` 5, A If amount paid during the financial year does not exceed ` 50,000 Note: w.e.f , no tax shall be deducted at the time of credit of interest on compensation awarded by the Motor Accidents Claims Tribunal. 194B If amount paid or payable during the financial year does not exceed ` 10, No TDS from winnings from horse races 194BB If amount paid or payable during the financial year does not exceed ` 5,000 (` 10,000 w.e.f ) 13. No TDS from sum paid or payable to 194C a) If sum paid or payable to a contractor in a single payment does not exceed `

96 Other Amendments 90 CA Vivek Gaba contractor 30,000 b) If sum paid or payable to contractor in aggregate does not exceed ` 75,000 during the financial year (` 1,00,000 w.e.f ) 14. No TDS from insurance commission paid or payable during the financial year 194D If amount paid or payable during the financial year does not exceed ` 20,000 (` 15,000 w.e.f ) 15. No TDS from sum payable under a life insurance a police (including bonus) to a resident (w.e.f ) person 194DA If amount paid or payable during the financial year does not exceed ` 1 lakh 16. No TDS from payments made out of deposits under NSS 17. No TDS from commission paid on lottery tickets 18. No TDS from payment of commission or brokerage 19. No TDS from payment of rent in respect of land & building, furniture or fittings or plant and machinery 194EE If amount paid or payable during the financial year does not exceed ` 2, G If amount paid or payable during the financial year does not exceed ` 1,000 (` 15,000 w.e.f ) 194H If amount paid or payable during the financial year does not exceed ` 5,000 (` 15,000 w.e.f ). Further no tax to be deducted from commission payable by BSNL/ MTNL to their PCO Franchisees. 194-I If amount paid or payable during the financial year does not exceed ` 1,80, No TDS from payment of consideration for purchase of an immovable property (other than agriculture land) 194-IA If amount paid or payable during the financial year does not exceed ` 50 Lakhs 21. No TDS from payment of professional 194J If amount paid or payable during the financial year does not exceed ` 30,000

97 Other Amendments 91 CA Vivek Gaba fees, technical fees, royalty and directors remuneration 22. No TDS from payment of compensation on compulsory acquisition of immovable property (other than Agricultural Land) 23. Furnishing of quarterly return in respect of payment of interest (other than interest on securities) to residents without deduction of tax 24. Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery) or providing any service, shall, at the time of receipt of such amount in cash, collect from the buyer income-tax. 194LA 206A 206C If amount paid or payable during the financial year does not exceed ` 2 Lakhs (` 2.5 Lakhs w.e.f ) If amount paid or payable during the financial year does not exceed: a) `10,000 where payer is banking company or co-operative society; b) `5,000 in other case 1% of sale consideration shall be collected as income-tax if such consideration: a) for bullion (excluding any coin or article weighing 10 grams or less), exceeds ` 2,00,000 b) for jewellery, exceeds `5,00,000 c) for any other goods, exceeds ` 2,00,000 d) d) for any service, exceeds ` 2,00, Every person being a seller who receives any amount as consideration for sale of motor vehicle shall collect tax at source at the rate of 1% of sale consideration. 206C If sale value of motor vehicle exceeds ` 10,00, Liability for payment of advance tax 208 Taxpayer is liable to pay advance-tax if his advance tax liability exceeds ` 10,000

98 Other Amendments 92 CA Vivek Gaba SN Particulars Section Threshold Limits K. Filing of Return and Assessment (for exemptions and others) 1. A person [other than a company and a person required to furnish return in form ITR 7] whose total income exceeds a threshold limit during the previous shall file its return of income electronically 139 read with Rule 12 If total income exceeds ` 5 lakh rupees during the previous year 2. Issue of notice under section 148 to re-open assessment made under section 143(3) or 147 within 4 years from the end of relevant assessment year 3. Issue of notice under section 148 to re-open assessment made under section 143(3) or 147 within 6 years from the end of relevant assessment year 4 The president or any other members of ITAT may dispose of any case which has been allotted to the Bench of which he is a member and which pertains to an assessee whose total income as computed by the AO does not exceed the prescribed sum. 149 If income escaping assessment is below ` 1,00, If income escaping assessment is above ` 1,00, ` 50,00,000 SN Particulars Section Threshold Limits L. Penalties (for exemptions and others) 1. Penalty for failure to file statement within time prescribed in section 200(3) or in proviso to section 206C(3) 234E ` 200 for every day during which failure continues but not exceeding tax deductible/collectible 2. Penalty for failure to comply with a notice under section 143(2) or 271(1)(b) ` 10,000 for each failure

99 Other Amendments 93 CA Vivek Gaba failure to comply with a direction under section 142(2A) 3. Penalty for failure to keep, maintain, or retain books of account, documents, etc., as required under section 44AA 4. Reporting entity of international group (as referred to in Section 286) 271A ` 25, AA(2) ` 5,00,000/- fails to furnish information and documents in accordance with provisions of Section 92D. 5. Penalty for failure to get accounts audited or furnishing a report of audit as required under section 44AB 271B One-half per cent of total sales, turnover or gross receipts, etc., or ` 1,50,000, whichever is less 6. Penalty for failure to furnish a report from an accountant as required by section 92E 7. Penalty for failure to furnish return as required by section 139(1) or by its proviso before the end of the relevant assessment year 271BA ` 1,00, F ` 5, Penalty for failure to furnish statement of financial transactions or reportable account as required under section 285BA(1) 9. Penalty for failure to deliver/cause to be delivered a statement within the time prescribed in section 200(3) or the proviso to section 206C(3), or furnishes incorrect information in the statement 271FA 271H ` 100 per day of default ` 10,000 but may extend to `1,00, Penalty shall be levied if a person fails to furnish or furnishes inaccurate information in Form 15CA & 15CB as required under Section 195(6). 271-I ` 1,00, Penalty for failure to comply with section 133B 272AA(1) Not exceeding ` 1,000

100 Other Amendments 94 CA Vivek Gaba 12. Penalty for failure to comply with provisions of section 139A/139A(5)(c)/(5A)/(5C) 272B ` 10, Penalty for failure to comply with section 203A 272BB(1) ` 10,000 for each failure/default 14. Penalty for quoting false tax deduction account number/tax collection account number/tax deduction and collection account number in challans/certificates/statements/documents referred to in section 203A(2) 272BB(1A ) ` 10,000 SN Particulars Section Threshold Limits M. Prosecution (for exemptions and others) 1. Prosecution of 6 months to 7 years with fine for willful attempt to evade tax, penalty or interest or under reporting of income 2. Prosecution of 6 months to 7 years with fine for willful failure to furnish return of income under section 139(1) or in response to notice under section 142(1)(i) or section 148 or section 153A 276C(1) 276CC If tax sought to be evaded exceeds ` 25 Lakhs If tax sought to be evaded exceeds ` 25 Lakhs

101 Other Amendment 95 CA Vivek Gaba S Particulars Secti Threshold Limits N on (for exemptions and others) N Fees 1. Fees for filing of appeal before CIT(A) 2. Fees for filing of appeal before CIT(A) 3. Fees for filing of application before CIT for revision of order under section a) `250 if total income as computed by AO is up to ` 1 lakh b) ` 500 if total income as computed by AO is more than ` 1 lakh but up to ` 2 lakhs c) `1,000 if total income as computed by AO is more than ` 2 lakhs d) ` 250 in any other case 253 a) `500 if total income as computed by AO is up to ` 1 lakh b) `1,500 if total income as computed by AO is more than ` 1 lakh but up to ` 2 lakhs c) 1% of assessed income subject to maximum of ` 10,000 if total income as computed by AO is more than ` 2 lakhs d) ` 500 in any other case 264 ` Fees for filing application for advance ruling 5. Fees for filing application before settlement commission 245Q Rule 44C `10,000 on such fees as may be prescribed, whichever is higher ` 500 SN Particulars Sectio n Threshold Limits (for exemptions and others) O. PAN 1. Every person carrying on any business or profession to apply for PAN if total sales, turnover or gross receipts in any previous 139A ` 5,00,000

102 Other Amendment 96 CA Vivek Gaba exceeds the threshold limit 2. Certain transaction in which quoting of PAN is mandatory. Section 139A read with Rule 114B a) Sale or purchase of any immovable property valued at ` 10 lakhs or more b) A time deposit with a bank/nidhi company/nbfc exceeding ` 50,000 or aggregating to more than ` 5,00,000 during a financial year c) A time deposit with Post Office exceeding ` 50,000 or aggregating to more than ` 5,00,000 during a financial year d) A contract of a value exceeding ` 1 lakh for sale or purchase of securities e) Sale or purchase, by any person, of shares of a company not listed in a recognised stock exchange of an amount exceeding ` 1,00,000 per transaction. f) Payment to hotels and restaurants against their bills for an amount exceeding ` 50,000 at any one time g) Payment in cash for purchase of bank draft or pay orders or banker s cheque for an amount ` 50,000 or more during any one day h) Deposit in cash aggregating ` 50,000 or more during one day with a bank i) Payment in cash in connection with travel to any foreign country of an amount exceeding ` 50,000 at any one time j) Payment in cash for purchase of any foreign currency of an amount exceeding ` 50,000 at any one time. k) Payment of an amount of ` 50,000 or more to a Mutual Fund for purchase of units or to a company for acquiring shares or debentures or bonds issued by it l) Payment of an amount of ` 50,000 or more to RBI for acquiring bonds issued by it m) Payment in cash or by way of a bank draft or pay order or banker's cheque of an amount aggregating to more than ` 50,000 in a financial year for one or more pre-paid payment instruments issued by RBI to a banking company or a co-operative bank or to any other company or institution. n) Payment of an amount of ` 50,000 or more in a year

103 Other Amendment 97 CA Vivek Gaba as life insurance premium to an insurer o) Payment for sale or purchase of goods or services of any nature (other than those specified above in Point No. (a) to (n)) of an amount exceeding ` 2,00,000 per transaction. 3. Rebate to resident individual whose total income does not exceed ` 5,00, Income of minor child clubbed under Section 64(1A) with parent s income. 87A Tax payable subject to maximum of ` 5,000 10(32) ` 1,500 per child or Income of Minor, whichever is lower [As amended by Finance Act, 2016]

104 Part B INDIRECT TAX Failure is not an option for me. Success is all I envision