Income Tax Act SECTION DIVISION ONE 1 Income-tax Act, 1961 Arrangement of Sections I-3 Text of the Income-tax Act, 1961 as amended by the Finance (No. 2) Act, 2014 1.1 Appendix : Text of remaining provisions of Allied Acts referred to in Income-tax Act 1.1109 Subject Index 1.1181 DIVISION TWO 2 Finance (No. 2) Act, 2014 Arrangement of Sections 2.3 Text of the Finance (No. 2) Act, 2014 2.7 v
Master Guide to Income Tax Act DIVISION ONE Commentary on Finance (No. 2) Act, 2014 u Amendments made by Finance (No. 2) Act, 2014 at a glance 1.3 1 TAXATION REGIME FOR REITs AND InVITs 1.1 Backdrop 1.58 1.2 Real Estate Investment Trusts (REITs) 1.58 1.2-1 Structure of the REIT 1.60 1.2-2 Registration of REIT 1.60 1.2-3 Offer of units to the public and mandatory listing of units 1.60 1.2-4 Investment conditions and dividend policy 1.60 1.2-5 Definitions of important terms as per draft regulations 1.61 1.3 Infrastructure Investment Trust (InVIT) 1.61 1.3-1 Definitions as per Draft Regulations 1.63 1.4 Income-investment model of REITs and InVITs 1.65 1.5 Taxation regime introduced by the Finance (No. 2) Act, 2014 for REITs and InVITs 1.65 1.6 Explanatory memorandum 1.66 1.6-1 Taxation of capital gains arising to unitholder (other than the Sponsor) 1.67 1.6-2 Capital gains arising to sponsor at the time of exchange of shares in SPVs for units of the business trusts-taxation deferred till sale of units 1.67 1.6-3 Pass through treatment for interest received by business trust from SPV 1.67 I-7
I-8 1.6-4 Witholding tax of 5% on interest paid by business trust on SPV 1.67 1.6-5 Dividend received by business trust 1.67 1.6-6 Capital gains on disposal of assets of business trust 1.68 1.6-7 Business Trust to file ITR 1.68 1.6A Definition of business trust 1.68 1.7 Taxation of business trusts 1.68 1.7-1 Tax exemption to business trust in respect of interest received or receivable from SPV 1.68 1.7-2 Special provisions relating to business trusts [Section 115UA] 1.68 1.7-3 Filing of return of income by business trusts 1.69 1.8 STT levy on transactions in units of a business trust 1.69 1.9 Taxation of income in the hands of unitholder 1.70 1.9-1 Tax exemption to distributed income received by a unitholder from the business trust 1.70 1.9-2 Taxation of capital gains arising from transfer of units of business trust 1.71 1.9-3 Tax and TDS of 5% on distributed interest income received by non-resident from business trust 1.72 1.10 Taxation of capital gains arising to sponsor on conversion of SPV shares into units of business trust 1.73 1.11 No TDS on interest income payable by SPV to business trust 1.73 1.12 Lower withholding tax rate of 5% on interest income in case of ECBs by business trust 1.73 2 TAXATION OF CHARITABLE TRUSTS/ INSTITUTIONS 2.1 Exemption to income of not for profit institutions wholly or substantially financed by the Govt. 1.77 2.1-1 Amendment clarifying the expression substantially financed 1.77 2.1-2 What the amendment clarifies and what it changes 1.80 2.1-3 What the amendment does not clarify 1.80 2.2 No exemption for trusts referred to in section 10(23C)(iv) to (via) under any other clause of section 10 except clause (1) 1.82
I-9 2.3 No depreciation on asset if purchase of asset claimed as application of income 1.84 2.3-1 Or otherwise - Other allowances like investment allowance, investment-linked incentive also barred in respect of asset claimed as application 1.84 2.3-2 Rationale for the amendment 1.85 2.4 Rationalisation of taxation regime for charitable trusts and institutions under sections 11 to 13 1.86 2.4-1 New sub-section (6) - No depreciation if purchase of asset claimed as application of income 1.86 2.4-2 New sub-section (7) - No exemption under any clause of sec. 10 except clauses (1) and (23C) if registration u/s 12A or 12AA in force 1.86 2.4-3 Registration granted to trusts or institutions shall apply for earlier years also 1.88 2.4-4 Amendment of provisions relating to cancellation of registration of trusts 1.90 2.5 Amendment to section 115BBC - Taxation of anonymous donations 1.92 3 TAX-FREE INCOMES 3.1 Educational institutions/hospitals [Section 10(23C)] 1.95 3.2 Tax-exemption to business trusts in respect of interest received from SPV - Section 10(23FC) 1.95 3.3 Tax exemption in respect of distributed income received by unitholder of business trust [Section 10(23FD)] 1.95 3.4 Tax exemption to long-term capital asset arising from transfer of units of a business trust [Section 10(38)] 1.95 3.5 Special provisions in respect of newly established units in SEZs - No double deduction u/s 10AA and u/s 35AD 1.95 3.6 Amendment of UTI (Transfer of Undertaking and Repeal) Act, 2002 to extend tax exemption till 31-3-2019 1.97 4 INCOME FROM HOUSE PROPERTY 4.1 Increase in limit for deduction in respect of interest for selfoccupied house property 1.98 4.1-1 Rationale for the increase in limit 1.99
I-10 5 BUSINESS INCOME 5.1 Investment allowance - Section 32AC 1.100 5.1-1 The Rs. 100 crore scheme [Sub-section (1) of section 32AC] 1.102 5.1-2 The Rs. 25 crore scheme introduced by Finance (No. 2) Act, 2014 [Sub-section (1A) of section 32AC] 1.105 5.1-3 New asset 1.107 5.1-4 Acquires and installs new asset 1.108 5.1-5 Five year lock-in-period in respect of new assets [Section 32AC(2)] 1.110 5.1-6 Comparison between depreciation and investment allowance 1.110 5.1-7 Comparison between additional depreciation under section 32(1)(iia) and investment allowance 1.111 5.1-8 Investment allowance not to be deducted from book profit for computing MAT u/s 115JB 1.112 5.2 Investment-linked tax incentives - Section 35AD 1.112 5.2-1 Extension of incentives under section 35AD to new sectors 1.112 5.2-2 Asset on which 100% deduction allowed u/s 35AD to be used for specified business for at least 8 years 1.114 5.2-3 No double benefit under section 35AD and under section 10AA 1.116 5.2-4 Alternate Minimum Tax made applicable to noncorporate assessees availing section 35AD relief 1.116 5.3 Corporate Social Responsibility - Section 37(1) 1.117 5.3-1 Qualifying CSR activities/expenditure 1.118 5.3-2 Activities specified in Schedule VII to the 2013 Act 1.119 5.3-3 MCA s clarification on scope of Schedule VII 1.120 5.3-4 Scope of CSR expenditure 1.124 5.3-5 Expenditure which will not be considered as CSR spends 1.124 5.3-6 CSR expenditure will not be added back to book profit for computation of MAT u/s 115JB 1.127
I-11 5.4 Disallowance of payments outside India and payments to nonresidents for non-deduction of tax at source or non-deposit of TDS deducted - Section 40(a)(i) 1.128 5.5 Disallowance for non-deduction of TDS on payments to residents to be limited to 30% of payments - Section 40(a)(ia) 1.129 5.6 Speculative transaction in respect of commodity derivatives - Section 43(5) 1.131 5.7 Presumptive taxation of business of plying, hiring or leasing goods carriages - Section 44AE 1.132 5.8 Income computation and disclosure standards - Section 145 1.133 6 CAPITAL GAINS 6.1 Definition of capital asset in section 2(14) - Securities held by FIIs are capital assets 1.135 6.2 Units of debt-oriented mutual funds, GETFs/REITs/InVITs to be held for more than 36 months to qualify as long-term capital assets - Section 2(42A) 1.136 6.3 Concessional tax rate of 10% not applicable to long-term capital gains from units of GETFs/REITs/InVITs/Debt-oriented mutual funds - Section 112(1) 1.139 6.4 Tax on short term capital gain in case of units of business trusts [Section 111A] 1.140 6.5 Transfer of capital asset being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust to transferor [Section 47(xvii)] 1.141 6.6 Computation of cost of acquisition where capital asset, being a unit of a business trust became the property of assessee in consideration of a transfer referred to in section 47(xvii) [Section 49] 1.141 6.7 Capital gains arising from transfer of asset by way of compulsory acquisition - Section 45(5) 1.141 6.8 Exemption from tax to transfer of Govt. security by one nonresident to another - Section 47 1.142 6.9 Change in cost inflation index for computing long-term capital gains - Section 48 1.143
I-12 6.10 Taxability of advance for transfer of a capital asset where advance is forfeited (Sections 51 and 56) 1.144 6.11 Exemption for reinvestment limited to reinvestment in one house in india - Section 54 1.145 6.12 Capital gains exemption in case of investment in specified bonds - Section 54EC 1.146 6.13 Capital gains exemption in case of reinvestment of long-term capital gains from assets other than residential house in a residential house property - Section 54F 1.148 7 INCOME FROM OTHER SOURCES 7.1 Taxability of advance for transfer of a capital asset where advance is forfeited 1.150 7.2 Income computation and Disclosure Standards - Section 145 1.150 8 LOSS FROM SPECULATION BUSINESS 8.1 Losses in speculation business - Section 73 1.151 8.1-1 Amendment - Section 73 not applicable to company whose principal business is trading in shares 1.151 9 CHAPTER VI-A DEDUCTIONS 9.1 Raising the limit of deduction under section 80C from ` 1,00,000 to ` 1,50,000 1.153 9.2 Extension of tax benefits of section 80CCD to private sector employees 1.156 9.3 Limits of deduction under sections 80C, 80CCD and 80CCE 1.157 9.4 Extension of sunset date under section 80-IA for the power sector 1.158 10 TRANSFER PRICING PROVISIONS 10.1 Definition of international transaction - Section 92B 1.159
I-13 10.2 Transfer pricing reforms to avoid litigation 1.160 10.2-1 Roll Back provision in case of APA Scheme 1.160 10.2-2 Range concept for determination of Arm s Length Price 1.161 10.3 Levy of penalty under section 271G 1.162 11 TAX ON DIVIDENDS, ROYALTIES & FTS IN CASE OF FOREIGN COMPANIES 11.1 Tax on distributed interest income received by non-resident from business trust 1.164 12 TAX ON CERTAIN DIVIDENDS RECEIVED FROM FOREIGN COMPANIES 12.1 Removal of sunset date - Section 115BBD 1.165 13 ALTERNATE MINIMUM TAX 13.1 Alternate minimum tax regime extended to non-corporate assessees availing investment-linked incentives 1.167 13.2 AMT credit to be allowed even in a year where total income does not exceed ` 20 lakhs or there is no claim of profit-linked/ investment-linked incentives 1.168 14 DIVIDEND DISTRIBUTION TAX/TAX ON DISTRIBUTION OF INCOME TO UNIT HOLDERS 14.1 Distribution tax [Secs. 115-O and 115R] 1.170 14.2 Effective rate after grossing up 1.171 14.3 Status of dividend in the hands of recipient for the purpose of section 14A 1.172 14.4 Omission of sub-section (3A) of section 115R 1.172
I-14 15 TAX ON INCOME DISTRIBUTED BY SECURITISATION TRUSTS 15.1 Omission of sub-section (3) of section 115TA 1.173 16 INCOME-TAX AUTHORITIES AND THEIR POWERS 16.1 Income-tax authorities - Section 116 1.174 16.2 Instruction to subordinate authorities [Sec. 119(2)] 1.174 16.3 Power of survey - Section 133A 1.175 16.4 Power to call for information by prescribed income-tax authority [Section 133C] 1.176 17 RETURNS AND ASSESSMENT 17.1 Mutual funds, securitisation trusts, venture capital companies or venture capital funds and business trust to file return of income 1.177 17.2 Signing and verification of the return of income - Section 140 1.177 17.3 Estimate of value of assets by valuation officer - Section 142A 1.178 17.4 Time limit for completion of assessments where reference made to valuation officer under section 142A - Section 153 and section 153B 1.179 17.5 Assessment of income of a person other than the person who has been searched - Section 153C 1.179 18 TAX DEDUCTED AT SOURCE 18.1 Exemption from TDS in respect of interest income payable by SPV to business trust - Section 194A 1.181 18.2 Introduction of 2% TDS on payment of non-tax-free proceeds of life insurance policy 1.181 18.2-1 Scope and application of section 194DA 1.181 18.2-2 What payment is covered by section 194DA 1.181
I-15 18.2-3 Who is the payer 1.182 18.2-4 Who is the payee 1.183 18.2-5 Conditions to be satisfied for applicability of section 194-IA 1.183 18.2-6 Time of deduction of tax 1.183 18.2-7 Rate of TDS 1.183 18.2-8 Who is to deduct tax at source 1.183 18.2-9 When no tax need to be deducted or tax may be deducted at lower rate 1.183 18.3 TDS on distributed income of business trust - New section 194LBA 1.183 18.3-1 Scope of section 194LBA 1.183 18.3-2 What payment is covered by section 194-IA 1.184 18.3-3 Who is the payer 1.184 18.3-4 Who is the payee 1.184 18.3-5 Conditions to be satisfied for applicability of section 194-IA 1.184 18.3-6 Time of deduction of tax 1.184 18.3-7 Rate of TDS 1.184 18.3-8 Who is to deduct tax at source 1.184 18.3-9 When no tax need to be deducted or tax may be deducted at lower rate 1.185 18.4 TDS on ECB of business trust - Section 194LC 1.185 18.5 Clarity on filing correction statements in respect of TDS statement - Sections 200 and 200A 1.185 18.6 Consequences of failure to deduct or pay TDS 1.187 18.7 Requirement to furnish PAN - Section 206AA 1.188 19 INTEREST PAYABLE BY ASSESSEE UNDER SECTION 220 19.1 Interest payable by assessee in default - Section 220 1.189
I-16 20 MODE OF ACCEPTANCE/REPAYMENT OF DEPOSITS/LOANS 20.1 Mode of taking or accepting certain loans and deposits - Section 269SS 1.191 20.2 Mode of repayment of certain loans and deposits 1.191 21 SETTLEMENT COMMISSION 21.1 Application for settlement allowed where proceedings under section 147 are pending 1.193 22 ADVANCE RULINGS 22.1 Extension of facility to obtain advance ruling to residents also 1.195 22.2 Increase in number of benches of authority for advance rulings 1.196 23 PENALTIES 23.1 Penalty for failure to furnish AIR - Section 271FA 1.198 23.2 Penalty for furnishing inaccurate statement of financial transaction or reportable account - Section 271FAA 1.198 23.3 Amendment to section 271G 1.199 23.4 Amendment to section 271H 1.199 24 OFFENCES AND PROSECUTIONS 24.1 Failure to produce accounts and documents - Section 276D 1.200 25 MISCELLANEOUS 25.1 Provisional attachment to protect revenue in certain cases - Section 281B 1.201 25.2 Obligation to furnish annual information return - Section 285BA 1.201 25.3 Direct Taxes Code Bill 1.203
I-17 25.4 Role of IT department as a facilitator 1.204 25.5 Broadening of tax base 1.204 DIVISION TWO Practice Manual 1 CHARTS & TABLES UNDER INCOME-TAX ACT u List of tax-free incomes 2.3 u Deductions/Allowances 2.20 u Periods of limitation 2.45 u Penalties 2.73 u Offences and prosecutions 2.78 2 IMPORTANT PROCEDURES UNDER INCOME-TAX ACT u Deduction of tax at source 2.81 - Salary [Section 192] 2.81 - Interest on securities [Section 193] 2.86 - Dividends [Section 194] 2.91 - Interest other than interest on securities [Section 194A] 2.96 - Winnings from lottery or crossword puzzle [Section 194B] 2.101 - Winnings from horse races [Section 194BB] 2.104 - Payments to contractors [Section 194C] 2.107 - Insurance commission [Section 194D] 2.112 - Payment in respect of life insurance policy [Section 194DA] 2.115 - Payments to non-resident sportsmen/sports associations [Section 194E] 2.118 - Payments in respect of deposits under NSS, etc. [Section 194EE] 2.121 - Payments on account of repurchase of units by UTI/Mutual Fund [Section 194F] 2.125 - Commission on sale of lottery tickets [Section 194G] 2.128
I-18 - Commission or brokerage [Section 194H] 2.132 - Rent payments [Section 194-I] 2.136 - Payment on transfer of certain immovable property [Section 194-IA] 2.139 - Fees for professional or technical services, etc. [Section 194J] 2.141 - Payment of compensation on acquisition of certain immovable property [Section 194LA] 2.144 - Income by way of Interest from Infrastructure Debt Fund [Section 194LB] 2.147 - Income from units of a business trust [Section 194LBA] 2.151 - Interest from specified Indian Company/Business Trust [Section 194LC] 2.154 - Interest on bonds/government securities [Section 194LD] 2.157 - Payments to non-residents [Section 195] 2.161 - Income from units in case of offshore fund [Section 196B] 2.167 - Income from foreign currency bonds or global depository receipts of Indian companies [Section 196C] 2.170 - Income of foreign institutional investors from securities [Section 196D] 2.173 - Processing of TDS statements [Section 200A] 2.177 - Effect of non-furnishing of PAN [Section 206AA] 2.177 u Tax Deduction and Collection Account Number [Section 203A] 2.178 u Collection of tax at source [Section 206C] 2.178 u Advance tax [Section 211] 2.181 u e-payment of tax 2.184 u Self-assessment tax [Section 140A] 2.185 u Return of income [Section 139] 2.185 u Summary assessment [Section 143(1)] 2.187 u Scrutiny assessment [Section 143(2)/(3)] 2.188 u Refunds [Section 237] 2.189 u Interest chargeable [Sections 201(1A), 220(2), 234A to 234D & 244A] 2.191 u Permanent Account Number [Section 139A] 2.195 u Quoting of Permanent Account Number in documents pertaining to certain prescribed transactions [Section 139A] 2.202
I-19 u Rectification of mistakes [Section 154] 2.207 u Revision of orders by Principal Commissioner/Commissioner [Sections 263 & 264] 2.208 u Waiver of penalty by Principal Commissioner/Commissioner [Section 273A] 2.210 u Waiver of penalty under section 273AA 2.210 u Appeals to Commissioner (Appeals) [Sections 246A to 249] 2.211 u Appeals to Tribunal [Sections 252 to 255] 2.212 u Appeal to High Court [Section 260A] 2.214 u Advance rulings [Sections 245N to 245V] 2.215 u Survey [Section 133A] 2.216 u Search and seizure [Section 132] 2.218 u Annual information returns [Section 285BA] 2.220 u Obligation to furnish statement of financial transaction or reportable account [Section 285BA] 2.225 3 TAX RATES u Tax liability - How to find out 2.227 u Income-tax 2.228 u Compulsory deposit 2.235 u Wealth-tax 2.236 u Gift-tax 2.236 u Estate duty 2.236 u Rates for tax deduction at source 2.236 u Rates for tax collection at source 2.240 u Tax on distribution of dividend, distributed income for buy-back of shares and distribution by securitization trust under sections 115-O, 115QA and 115TA 2.240 u Tax on income distributed by UTI/Mutual Fund under section 115R 2.241 u Other taxes 2.242
I-20 4 TAX RATES FOR THE LAST TEN ASSESSMENT YEARS u Income-tax rates for individuals, HUFs, associations of persons and body of individuals 2.244 u Income-tax rates for firms 2.246 u Income-tax rates for companies 2.247 u Dividend tax rates under section 115-O 2.247 u Income-tax rates for co-operative societies 2.248 u Rates of wealth-tax 2.248 u Rates of gift-tax 2.248 5 GOLD AND SILVER RATES FOR LAST TEN ASSESSMENT YEARS u Gold and Silver rates for last ten assessment years 2.249 DIVISION THREE Circulars, Clarifications & Notifications [1961 - June 2014] u Section key to Circulars, Clarifications & Notifications issued by CBDT [1961 - June 2014] 3.i u Alphabetical key to Circulars, Clarifications & Notifications issued by CBDT [1961 - June 2014] 3.v u Circulars, Clarifications & Notifications [1961 - June 2014] 3.3 DIVISION FOUR Case Laws [1922 - June 2014] u Section key to Landmark Rulings of Supreme Court/High Courts [1922 - June 2014] 4.i u Alphabetical key to Landmark Rulings of Supreme Court/ High Courts [1922 - June 2014] 4.v u Case Laws [1922 - June 2014] 4.3