INDEX TOPIC PAGE NO. 1.Income Tax amendments 2 2.Practice Workbook (Income Tax) 28 3.Service Tax Amendments 37 4.Practice Workbook (Indirect Tax) 47 5. Appendix 1 49 6. Appendix 2 63 Note: 1.For May 2017 exam, amendments made by the finance act, 2016 and notification & circulars issued till 31.10.2016 is relevant. In this note we have covered amendments made by the finance Act, 2016 and relevant notification/circulars issued between 1.5.2016 to 31.10.2016. For notifications/circulars issued prior to 1.5.2016 students shall refer last term study mat along with last term amendments notes or current term study mat 2.Further, if required any last moment update or revisionary test paper may be uploaded in our website www.vseipl.com before exam. Accordingly, students are requested to keep watch on it and we also try to inform you through bulk sms regarding any such update. 3.In addition to this, students must refer ICAI practice manual and revisionary test papers relevant for May 2017. 4.Reasonable efforts have been made in this book to avoid errors and omissions. Inspite of this errors/omissions may creep in. 5.Also there may be misprints in the book considering that it has been prepared in very short time. It is, therefore, notified that the author/ publisher does not take any responsibility for any damage or Loss of action to any one, of any kind, in any manner. It is advised that the readers should cross check the facts, Laws and contents of the publication with the original Govt. publications and notifications. 6.Tax Laws are a subject matter of opinion and interpretations. Same provisions and case Laws may be interpreted in different ways. It is advised that the readers/students should form their own opinion based on class discussions, discussions contained in this book and original Govt. publications and notifications. 7.This material has been designed for academic purposes and not for professional practice purpose.!! Wishing all of you a very good luck and good result!! 1
RELEVANT AMENDMENTS FOR IPCC MAY 2017 TAXATION EXAM RELEVANT AMENDMENTS MADE BY THE FINANCE ACT, 2016 & NOTIFICATIONS AND CIRCULARS ISSUED BETWEEN 1.5.2016 TO 31.10.2016 INCOME TAX SALARIES (1) Exemption limit of Employers contribution to approved superannuation fund increased from 1,00,000 to 1,50,000. Accordingly the revised table shall be as under: NATURE Approved superannuation Fund Unapproved superannuation Fund OWN CONTRIBUTION Not an income [But deduction U/s 80C] Not an income No deduction U/s 80C EMPLOYER S CONTRIBUTION Exempted upto 1,50,000 p.a INTEREST AMOUNT RECEIVED ON TERMINATION Exempted Exempted Exempted Exempted Taxable as under: Same as that of Unrecognized Provident Fund HOUSE PROPERTY (2) ARREARS OF RENT & UNREALIZED RENT RECEIVED SUBSEQUENTLY (SEC 25A) (1) The amount of arrears of rent received from a tenant or the unrealized rent realized subsequently from a tenant, as the case may be, by an assessee shall be deemed to be the income from house property in respect of the financial year in which such rent is received or realized, 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. (2) A sum equal to 30% of the arrears of rent or the unrealized rent referred to in sub-section (1) shall be allowed as deduction. (3) In case of self-occupied property maximum limit of interest allowable is 2,00,000 subject to the condition that construction must be completed within 5 years from the end of the year in which loan is taken. (construction period increased from 3 years to 5 years) 2
(4) Additional depreciation: BUSINESS / PROFESSION Now allowed even if assessee is engaged in only generation or distribution or transmission of power. Relevant extract - Where assessee is engaged in the business of manufacture or production of article or thing or in business of generation, transmission or distribution of power, then he shall be allowed 20% additional depreciation on the actual cost of new plant and machinery, which has been acquired and installed during the year. (5) Phase out plan for incentive/ weighted deduction: Sec. 35AC: not allowed from 1.4.2017 Sec. 35(1)(ii) & 35(2AA) & 35(2AB): 150% from 1.4.2017 to 31.3.2020 and 100% from 1.4.2020 Sec. 35(1)(iia) & 35(1)(iii) & 35CCC & 35CCD: 100% from 1.4.2017 Sec. 35AD: weighted benefit to some business reduced from 150% to 100% from 1.4.2017 Sec. 32AC: No deduction for asset installed on or after 1.4.2017 (6) Non-compete fees for not to carry on profession also taxable.(sec. 28) (7) New Section 35ABA inserted: 35ABA Right to use spectrum for telecommunication services Apportion over the period for which the right to use spectrum remain in force from the year of payment. Concept Capsule 1: M/s Poor Network Limited have acquired telecom licence/spectrum for 90 crores in 2016-17 for 10 years. Compute deduction U/s 35ABB/35ABA in each of the following cases: 1. Entire amount is paid in 2016-17 2. Entire amount is paid in 2017-18 3. 45 crores is paid in 2016-17 and 45 crores in 2017-18 Answer: Deduction allowed (1) From P.Y 2016-17 to 2025-26 = 90 cr/10 years = 9cr each year (2) For P.Y 2016-17 =No Deduction From P.Y 2017-18 to 2025-26 = 90 cr/9 years = 10 cr each year (3) For 2016-17 = 45 cr/10 = 4.5 cr From 2017-18 to 2025-26 = 4.5 cr + (45cr/9 years = 5 cr) = 9.5 cr each year (8) Section 35AD: Specified Business The following business has been added: Developing or maintaining and operating or developing, maintaining and operating a new infrastructure facility on or after 1.4.2017: (a) infrastructure facility means 3
(i) a road including toll road, a bridge or a rail system; (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; (b) business must 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; and has 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. (9) Deduction allowed to NBFC on provisions for bad debt subject to maximum of 5% of Gross total income. Sec. 36(1)(viia) Provision for Bad Debt for Banking Business (Maximum Allowable) Scheduled and non-scheduled banks Co-operative banks Foreign banks/ NBFC Maximum 5% of GTI 7.5% of Gross Total Income + 10 % of Aggregate 7.5% of Gross Total Income + 10 % of Average Rural Advances Aggregate Average Rural Advances (10) SECTION 40(a)(ib): 100 % DISALLOWANCES ON NON DEDUCTION OF EQUALISATION LEVY Any consideration paid or payable to a non-resident for a specified service on which equalisation levy is deductible under the provisions of Chapter VIII of the Finance Act, 2016, and such levy has not been deducted or after deduction, has not been paid on or before the due date specified u/s. 139(1). Provided that where in respect of any such consideration, the equalisation levy has been deducted in any subsequent year or has been deducted during the previous year but paid after the due date specified in section 139(1), such sum shall be allowed as a deduction in computing the income of the previous year in which such levy has been paid. Particulars Section 40(a)(i) payment to Nonresident Nature of payment covered Any payment on which provisions of TDS attracted. Section 40(a)(ia) Payment to resident Any payment on which provisions of TDS attracted. 4 Section 40(a)(iab): Payment to Non-resident Any payment for services on which equalisation levy is deductible. Due date of deposit Within the return Within the return filing Within the return filing date filing date u/s 139(1) date u/s. 139(1) u/s. 139(1) Quantum of 100% 30% 100% disallowances If TDS deposited in subsequent year Deduction shall be allowed in the year of payment. Deduction shall be allowed in the year of payment. Deduction (30%) shall be allowed in the year of payment.
What is equalization levy? (1) Equalisation Levy @ 6 % on the amount of consideration for specified services, received or receivable by a non-resident not having permanent establishment ('PE') in India, from a resident in India who carries out business or profession, or from a non-resident having permanent establishment in India. NO such levy if the total consideration does not exceed 1 lakh in any previous year. (2) Section 10(50) provides that income arising from transaction on which equalisation levy is chargeable shall be exempted. (This is to avoid double taxation). (3) Further, the payer must deduct and deposit the equalisation levy to the credit of Central government on or before the due date of return 139(1). In case of failure 100% disallowances shall be made in the hands of payer. (11) Grant received from govt. as corpus of trust established by Central Govt./State Govt. - Not taxable Nature of Govt. Grants/subsidy/donations Towards fixed assets LPG subsidy (domestic use) Towards corpus received by a trust/institution established by the Govt. All other subsidy/govt. Grants Treatment Shall be reduced from the cost of the fixed Asset Exempted Exempted Taxable (12) Section 43B: Deduction on payment basis: Following item added: Sum payable to Indian railways for use of railway asset allowed on payment basis Sec. 43B. Payment must be made on or before the return filing date. Otherwise, deduction allowed in the year of payment. 5
(13) PRESUMPTIVE TAXATION SCHEME SECTION 44AD SECTION 44AE SECTION 44ADA i) Applicable to all businesses i) Applicable to business of i) Applicable to assessee other than the following: plying, hiring or leasing goods engaged specified profession (a) plying, hiring or leasing carriage [ownership] u/s. 44AA(1) goods carriage. (b) a person engaged in specified profession as referred to section 44AA; or (c) a person earning income in the nature of commission or brokerage; or (d) a person carrying on any agency business."; ii) If Gross Receipt does not exceed 2 crores then the assessee can opt for normal provisions or PTS. If Gross receipts exceeds 2 crores, then must opt normal provisions. ii) If assessee does not own more than 10 truck then either opt for normal provision or opt for PTS. If owns more than 10 trucks, then must opt for normal provisions. ii) can opt only if gross receipt does not exceeds 50 lakh iii) Under PTS, Business income = 8% of Gross receipts iv) Applicable only to HUF, Individual, Firms (excluding LLP firms). This means that LLP firm and company will always opt for normal provisions v) Deduction under chapter VIA available (except income based deductions). Exemption U/s 10AA not available. vi) Required to pay advance tax (the entire tax must be paid on or before 15 th March of the P.Y) (vii) No deduction allowed u/s. 30 to 38. iii) Under PTS Business income = 7500 p.m. or part of the month for each goods carriage for the period owned. iv) Applicable to all assessees. v) Deduction under chapter VIA available. vi) Required to pay advance tax as per normal procedures. (vii) No deduction allowed u/s. 30 to 38 except in the case of a firm, deduction in respect of salary and interest to partners under section 40(b) shall be given. iii) Business income = 50% of gross receipts iv) Applicable to all assessees. v) Deduction under chp-via available. vi) required to pay advance tax as per normal procedures. vii) No deduction allowed u/s. 30 to 38 6
(viii) Required to maintain books of accounts and get accounts audited only if provisions of section 44AD(4) are applicable in his case and his income exceeds the basic exemption limit. (viii) Only if the assessee claims that his income under normal provisions is lower than presumptive income u/s. 44AE then he must maintain books of accounts and get accounts audited. (viii) Only if the assessee claims that his income under normal provisions is lower than presumptive income u/s. 44ADA and total income exceeds the basic exemption limit then he must maintain books of accounts and get accounts audited. Notes: 1. Under PTS the assessee need not maintain any books of account or get accounts audited. Exception point(viii) above. 2.Under Presumptive Taxation Scheme, assessee can voluntarily disclose higher income. 3. In computing Presumptive income: (a) No allowance/disallowance is allowed for any expenditure (b) Brought Forward Business losses can be set off (c) Unabsorbed depreciation cannot be set off (d) deduction under CHP. VIA allowable. 4. Section 44AD(4): Once opt for PTS scheme u/s. 44AD the assessee must continue to opt this scheme for next 5 years. Otherwise, the assessee should be out of this scheme for 5 years subsequent to the year in which income is not declared as per PTS. Provisions of the Act: 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 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). 14) Rate of depreciation 15% for oil wells 7
CAPITAL GAINS (15) CII for the F.Y 2016-17 = 1125; Period of holding for long term capital gain in case of unlisted shares reduced to 24 months from 36 months. [No changes w.r.t period of holding of other assets] (16) Conversion of Debentures into shares/debentures are exempted transfer. Capital Gains taxable when shares/debentures are actually sold and the period of holding of shares/new debentures sold should be taken from the date of purchase of bonds/debenture from A.Y 2017-18. (17) Section 50C : Value of Stamp department authority on the date of agreement to be taken in computing capital gains if certain conditions satisfied Where the date of agreement and date of registration is not same, then the value of Stamp Valuation Authority on the date of agreement shall be considered, provided some payment must be received by way of an account payee Cheque/DD/ECS on or before the date of the agreement for transfer. [Section 50C] Example: A building was sold for 5 crores on 1.1.2017. The value of Stamp Department on 1.1.2017 (date of registration) 6 crores. The agreement was entered on 1.12.2016, on which date advance of 10 lakhs was received by cheque. Stamp department value on the date of agreement 5.8 crores. Determine the Full Value of Consideration: (1) If the assesse is real-estate dealer. (2) If the building is held as investment by the assesse. Answer: (1) Full value of consideration u/s. 43CA for the purpose of computing business income 5.8.cr (2) Full value of consideration u/s. 50C for the purpose of computing capital gains 5.8. cr (18) Gold Monetisation Scheme, 2015 (i) Deposit Certificate issued under this scheme are excluded from the definition of capital assets. Hence, not liable for capital gains tax. (ii) Interest on Deposit Certificates issued under this scheme are exempted u/s. 10(15). (w.r.e.f A.Y 2016-17) (19) Sovereign Gold Bond Scheme, 2015 (i) Transfer of Sovereign Gold Bond: Taxable for all assessee. (ii) Redemption of Sovereign Gold Bond: For Individual: Sec. 47(viic) any transfer of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015, by way of redemption, by an assessee being an individual) For other Assessee: Taxable. (iii) If Long term indexation benefit is also allowed. (iv) Interest is taxable. (w.e.f A.Y 2017-18) 8
(20) Rupee Denominated Bond (i) These bonds are issued by Indian corporates in outside India. (ii) Interest income from such bonds are taxable in the hands of non-resident at a special tax rate of 5%. (iii) Further, the Capital gains, arising in case of appreciation of rupee between the date of Issue and the date of redemption against the foreign currency in which the investment is made; would be exempted from capital gains tax. (amendment in sec. 48) (21) Treatment of Merger of units of one plan of mutual fund with another scheme of mutual fund Section 47(xix) provides that, any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating plan of a mutual fund scheme (old scheme), made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated plan (new scheme) of that scheme of the mutual fund, shall be exempted. (22) What should be the cost of Acquisition of asset shown under Income Declaration Scheme, 2016? Section 49(5) provides that, for the purpose of computing capital gains on transfer of asset declared under the Income Declaration Scheme, 2016, the cost of acquisition 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. (23) SECTION 54EE (newly inserted from A.Y 2017-18)- new exemption to generate funds for start-ups Applicable to All Assessee (1) This section is intended to raise funds to finance the 'start-ups. (2) Section 54EE provides exemption to capital gains arising on transfer of any Long-term capital asset, if the assessee invest the proceeds within 6 months form the date of transfer of original asset in the Longterm specified asset (i.e, units of notified fund issued by the Central Government before 1.4.2019). (3) Amount of Exemption = Amount invested out of proceeds of LTCG, subject to maximum of 50 lakh. (4) The assessee must hold the units of notified fund for 3 years from the date of its purchase. If the units are transferred within a period of 3 years, then the amount exempted earlier shall be taxable as Long term capital gains in the year of sale. (5) If the assessee takes any loan or advance on the security of such specified asset, he shall be deemed to have transferred such specified asset on the date on which such loan or advance is taken. 9
(24) Section 54GB: date extended to 31.3.2019 for start-ups (1) Section 54GB provides exemption to Individual and HUF till 31.03.2017 (for eligible startup 31.3.2019), in respect of Long term capital gains arising on transfer of residential property (house or plot of land), if the assessee purchase more than 50% of equity shares of newly manufacturing SME company within the return filing date and the company must utilize this amount to purchase new factory plant & machinery within 1 year from the date of subscription of equity shares or the company deposit the amount in CGDS before return filing date. (2) Exemption = Amount invested in new factory plant & machinery or Amount deposited in CGDS within return filing date Net consideration LTCG Net consideration = Full value of consideration transfer expense. Meaning of plant and Machinery = similar to as that of additional deprecation. However, new asset also includes compute or computer software for eligible start-up, being a technology driven start-up so certified by the Inter-Ministerial Board of Certification notified by the Central Government in the Official Gazette. (25) Capital Gains on self generated Assets Transfer of right to carry on profession also taxable under capital gains. Cost of Acquisition shall be Nil unless otherwise purchased. Please note that Goodwill of profession is not taxable. (26) Provisions of sec. 10(38) and 111A shall be applicable if shares are sold in recognized stock exchange located in an International Financial Services Centre, even if STT is not paid on such transaction. INCOME FROM OTHER SOURCES (27) Sec. 56(2)(vii) does not get attracted if share received by way of amalgamation or demerger. SET OFF & CARRY FORWARD OF LOSSES (28) Losses under business of 35AD shall not be carry forward if return is not filed within the due date of 139(1). 10
RESIDENTIAL STATUS & INCOME DEEMED TO BE ACCRUE IN INDIA (29) Section 6(3): residential status of company is to be determined as per Place of Effective Management. (POEM): A company is said to be a 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. Explanation. For the purposes of this clause place of effective management means a place where key management and commercial decisions that are necessary for the conduct of business of an entity as a whole are, in substance made [ Applicable from A.Y 2017-18] (30) Business connection does not include display of uncut diamond by foreign company in special notified zone: In the case of a foreign company engaged in the business of mining of diamonds, no income shall be deemed to accrue or arise in India to it through or from the activities which are confined to the display of uncut and unassorted diamond in any special zone notified by the Central Government in the Official Gazette in this behalf. (w.r.e.f A.Y 2016-17) (31) Income earned by Storage and sale of crude oils in India by a foreign company shall be exempted. [Sec. 10(48A)]: Any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India shall be exempted u/s. 10(48A). The Central Government must entered into an agreement having regard to national interest with such foreign co. (w.r.e.f A.Y 2016-17) CHARITABLE TRUST (33) Section 115TD: If a charitable trust covered u/s. 12A is converted/merged into a non-charitable institution, then such trust shall be liable to pay additional tax @ 30%(+SC+EC) i.e, 35.535% on the accreted income (total asset total liability of trust so transferred to non-charitable institution). 11
(34) For Individual, HUF and Firm: TAXATION OF DIVIDEND Dividend [other than dividend U/s 2(22)(e)] from Indian Company is exempt u/s 10(34) upto 10 lakhs. Dividend in excess of 10 lakhs is taxable @ 10% in the hands of resident Individual/HUF/Firm. Further, no deduction is allowed for expenses/ losses. For others: Dividend is fully exempt u/s. 10(34). N.B: Dividend and interest from Approved Mutual Fund/UTI is fully exempt U/s 10(35). Summary: Particulars Taxable or not Rate of Tax Dividend from foreign company / cooperative Always taxable. Normal tax rate society Dividend collection charges will be deductible Dividend from mutual fund/uti Always exempted u/s. 10(35) Nil Dividend (including Deemed dividend u/s 2(22)(a),(b),(c),(d)] from Indian Company:- (i) Received by Resident Individual, (i) Exempted upto 10 lacs HUF & Firm (ii) Expenses not deductible (iii) No Deduction under Chapter VIA (iv) Set off losses not allowed (ii) All other assessee (company etc.) Fully exempted u/s. 10(34) Nil For dividend in excess of 10 lacs. Rate of tax will be 10% without basic exemption limit. (Sec. 115BBDA) Deemed dividend u/s. 2(22)(e) Taxable to the extent of accumulated profit of the company. Normal tax rate 12
FILING OF RETURN (35) Relevant extract: Section 139(1) provides that following persons shall voluntarily file their return of income for any previous year on or before the due date in the prescribed form and manner (a) a company or a firm shall compulsorily file its return of income (b) (i) individual; (ii) HUF; (iii) Association of Persons (iv) Body of Individuals and (v) artificial juridical person shall file their return of income if their Gross Total Income (before giving exemption u/s.10aa and 10(38) exceeded the maximum exemption limit for such previous year. (c ) any other person if their total income exceeded the maximum exemption limit for such previous year. (d) A business trust must also compulsorily file its return. [NO CHANGE W.R.T DUE DATE OF FILING OF RETURN U/S. 139(1)] Concept Capsule: Mr. X has only income from LTCG from sale of listed shares exempted u/s. 10(38) 5,00,000. His taxable Income is Nil. Is he required to file return? (36) Belated Return[Section 139(4)] Any person who has not furnished a return within the time allowed to him u/s. 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 Concept Capsule 2: For the previous year 2016-17 Mr. X did not file his return within due date. The Assessing Officer estimates his income on 01-1-2018. X proposes to file a belated return on 05-2-2018. Is it possible? Answer: Section 139(4) has been amended by Finance Act, 2016 to provide that Any person who has not furnished a return within the time allowed to him u/s. 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. For previous year 31-03-2017, the last date of belated return is 31-03-2018. But once assessment has been completed then belated return cannot be filed. In this case assessment was completed on 1-1-2018, therefore assessee cannot file belated return on 05-2-2018. 13
(37) Revised Return [Sec. 139(5)] (1) If any person, having furnished a return u/s. 139(1) or u/s. 139(4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of 1 year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. (2) Revised return can be filed U/s 139(5) only if the assessee discovers any omission or wrong statement in return originally filed. While "omission" denotes an unintentional Act or neglect to perform what the law requires, wrong statement" should include within its scope, statement which is not false to the knowledge of the person making it. Concept Capsule 3: State whether the following return can be revised. 1.Belated Return Yes 2.Revised return 3. Original Return filed within due date for P.Y 2016-17. Assessing Officer determines total income on 1-12-2018. Assessee wishes to file revised return on 15-12-18. 14 Yes (Return can be raised again and again subject to prescribed time limit) (38) Transaction for which PAN is required new transaction notified u/s 139A(5) The Board has prescribed the following transactions in which quoting of PAN will be compulsory: Sl.No. Nature of transaction Value of transaction (in ) 1. Sale or purchase of a motor vehicle other than two wheeled vehicles. Any amount 2 Opening an account [other than a time-deposit and a Basic Savings Bank Deposit Account] Any amount 3 Making an application for issue of a credit or debit card. Any amount 4 Opening of a demat account Any amount 5 Cash payment to a hotel or restaurant against a bill or bills at any one time. > 50,000 6 Cash payment in connection with travel to any foreign country or payment for purchase of > 50,000 any foreign currency at any one time. 7 Payment to a Mutual Fund for purchase of its units. > 50,000 8 Payment to a company or an institution for acquiring debentures or bonds issued by it. > 50,000 9 Payment to the Reserve Bank of India, for acquiring bonds issued by it. > 50,000 10 Cash deposit with a bank/ co-operative bank > 50,000 during any one day. 11 Purchase of bank drafts or pay orders or banker s cheques in cash > 50,000 during any one day. 12 A time deposit with, - (i) a banks/ co-operative bank; (ii) a Post Office; (iii) a Nidhi company; or (iv) registered NBFC. > 50,000 or aggregating more than 5,00,000 during a financial year. 13 Payment in Cash/DD/pay order/banker s cheque for one or more pre-paid payment > 50,000 in a financial year. instruments, prescribed by RBI to a banks/ co-operative banks. 14 Payment as life insurance premium to an insurer > 50,000 in a financial year. 15 A contract for sale or purchase of securities (other than shares). > 1,00,000 per transaction. 16 Sale or purchase, by any person, of shares of a company not listed in a recognised stock > 1,00,000 per transaction. exchange. 17 Sale or purchase of any immovable property. Actual consideration or value of SVA u/s. 50C > 10 lakh. 18 Sale or purchase, by any person, of goods or services of any nature other than those covered above (Sl. No. 1 to 17) > 2,00,000 per transaction. (39) Non-payment of tax is no longer a ground for defective return. Section 139(9): a return cannot be defective merely because self-assessment tax and interest thereon has not been paid. (A.Y 2017-18). No
ADVANCE TAX & INTEREST (40) Payment of advance tax of non-corporate assessee is align with corporate assessee. Installments of advance tax and due dates [Section 211 as substituted w.e.f 1.6.2016] A. FOR ALL ASSESSEES (OTHER THAN ASSESSEE COVERED U/S. 44AD) Due date of installment On or before the 15 th June of p.y On or before the 15 th September of p.y On or before the 15 th December of p.y On or before the 15 th March of p.y Amount Payable Not less than 15% of advance tax liability. Not less than 45% of advance tax liability, as reduced by the amount, if any, paid in the earlier installment. Not less than 75% of advance tax liability, as reduced by the amount, if any, paid in the earlier installment or installment. The whole amount of advance tax liability as reduced by the amount or amounts, if any, paid in the earlier installment or installments. B. Assessee Covered u/s. 44AD (Presumptive taxation Scheme): Pay entire tax on or before 15 th march of P.Y. Note: Any amount paid by way of advance tax on or before the 31st day of March shall also be treated as advance tax paid during the financial year ending on that day for all the purposes of this Act. (41) No Interest u/s. 234C for assessee having income from business/profession for the first time, subject to condition (proviso to Sec. 234C) Interest payable for deferment of advance tax (Section 234C) 1.Interest under section 234C is attracted for deferment of advance tax beyond the due dates. 2.The interest liability would be 1% per month, for a period of 3 months, for every deferment, on the shortfall amount from the tax due on the returned income. 3.However, for last installment of 15 th March, the interest liability under this section would be 1% on the shortfall amount from the tax due on the returned income. 4. For assessee covered u/s. 44AD, interest @ 1% on shortfall amount from the tax due on the returned income shall be levied. 5. No interest shall be charged U/s 234C for the first 2 instalments if the assessee pays advance tax @ 12% and @ 36% of the Advance tax payable for the year. Concept Capsule 4: Mr. X has a tax liability of 1,00,000. He is covered U/s 44AD. He paid his taxes as under: 15/3/2017 : 40,000 Balance on 10/7/2017 at the time of filing of return. 15
Advance tax in case of capital gains/casual income/ first time business income (proviso to sec 234C): 1. Advance tax is payable by an assessee on his/its total income, which includes capital gains, casual income like income from lotteries, crossword puzzles etc. and Profits and gains of business or profession in cases where the income accrues or arises under the said head for the first time. 2. Since it is not possible for the assessee to estimate his capital gains, income from lotteries, etc.it has been provided that if any such income arises after the due date for any installment, then, the entire amount of tax payable (after considering tax deducted at source) on such capital gains or casual income should be paid in the remaining installments of advance tax which are due. 3. Where no such installment is due, the entire tax should be paid by 31 st March of the relevant financial year. 4.No interest liability would arise if the entire tax is so paid. Concept Capsule 5: Mr. X furnishes the following information for computation of Advance Tax liability: Tax on business income = 10,00,000 (subsequent year of business) Tax on capital gain = 2,00,000(10-12-2016) Answer: 16
TAX DEDUCTED AT SOURCE (42) Changes in the limit and Rates of TDS under the following sections are as under w.e.f 1.6.2016. NO other changes Section Nature of Payment Limit Rate of TDS Remarks 192A Payment of No TDS if the 10%. If PAN is accumulated payment is less than not furnished balance due to 30,000 50,000 then maximum employee (on marginal rate. account of Premature withdrawal from RPF, if not exempted) 194BB 194D 194G 194H Winnings from Horse Race (including Jackpot) Insurance Commission Commission on Sale of lottery tickets Commission or Brokerage (1) tax is deductible at the time of payment. 5000 10,000 30% Align with 194B (wining from lotteries etc.) 20,000 15,000 p.a. 10% 5% 1000 15,000 10% 5% 5,000 15000 p.a. 10% 5% No TDS on Brokerage on shares and securities. 194DA Payment to a resident in respect of Life Insurance Policy (including Bonus) No deduction:- (i) if aggregate payment is less than 1,00,000 during the financial year. 2% 1% (at the time of payment) 194C Payment to Contractor and Sub Contractor (ii) if payment covered u/s. 10(10D). Either 30,000 in a single contract or 75,000 p.a. 1,00,000 p.a where payment for a contract( including subcontract) are to Annual Limit u/s. 194C is increased from 75,000 to 1,00,000. NO other changes. (i)individuals/ HUF @1% (ii) In case of any other entity @ 2% 194EE Payment in respect of deposits under National Saving Scheme. 2500 p.a 20% 10% TDS on payment basis. No TDS if amount payable to heirs of the assessee. 17
194LA Payment of Compensation or acquisition of certain immovable property (including enhanced compensation) 2,00,000 2,50,000 10% No tax shall be deducted on agricultural Land (43) Benefit of section 197A expanded to include Rent also. NO other changes. w.e.f 1.6.2016 (44) Due date of return same for government and non-government deductor. The Deductor must file quarterly return with Govt.:- Quarter ending For Govt./Non-Govt. deductor paying tax through challan. For Govt. offices paying tax without challan June 30 31 st July of the financial year 15 th July September 30 31 st October of the financial year 15 th October December 31 31 st January of the financial year 15 th January March 31 31 st May of the financial year immediately following the financial year in which the deduction is made 30 th April Revised Return: The Deductor may also deliver to the prescribed authority a correction statement for rectification of any mistake or to add, delete or update the information furnished in the statement delivered in such form and verified in such manner as may be specified by the authority. [Proviso to section 200(3)] (45) Furnishing of PAN by deductee: The deductee, shall mandatorily furnish his PAN to the deductor. On failure to furnish or on furnish of invalid PAN, the deductor shall deduct tax at source at actual rate or 20% whichever is higher. However, this provision is not applicable in case of any payment made to non-resident subject to other condition as my be prescribed. [Section 206AA] w.e.f 1.6.2016 LIMITED LIABILITY PARTNERSHIP (46) Additional condition inserted for exemption of capital gains value of total asset in any of the 3 preceding years should not exceed 5 cr. (1) Section 47(xiiib): Exempted Transfer Any transfer of a capital asset by a private limited company or unlisted public company to a limited liability partnership or any transfer of shares held in the company by a shareholder as a result of conversion of company into a LLP shall be exempted provided the following conditions are satisfied: (i) all the assets and liabilities of the company relating to the business immediately before the succession shall become the assets and liabilities of the LLP (ii) all the shareholders of the company immediately before the conversion succession become the partners of the LLP and their capital contribution and Profit sharing ratio in the LLP are in the same proportion as their shareholding in the company on the date of conversion ; (iii) the shareholders of the company do not receive any consideration or benefit directly or indirectly, in any form or manner other than by way of share in profit and capital contribution in LLP ; 18
(iv)the aggregate of the Profit sharing ratio of the shareholders of the company in LLP is not less than 50 per cent at any time for a period of five years from the date of the conversion ; (v) the total sales, turnover or gross receipts in business of the company in any of the three previous years preceding the previous year in which conversion takes place does not exceed 60 lakhs (vi) the total value of the 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 does not exceed 5 crore; and (vii) no amount is paid directly or indirectly to any partner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of 3 years from the date of conversion. No other changes in this chapter. 19
DEDUCTION UNDER CHAPTER VIA (47) Section 80CCD: On closure of A/c- 40% of total mount received by an employee from NPS is exempted u/s. 10(12A). Amount received by nominee on account of the death of assessee not taxable. (w.e.f A.Y 2017-18). Regular Pension is taxable. (48) Section 80EE: Maximum 50,000 deduction for interest on housing loan for self-occupied property. Section Particulars Amount of Conditions deduction 80EE [Individual] Interest payable on loan taken from any Financial Institution (Banking Company or Housing Finance Company) for acquiring a residential house property Maximum 50,000 from A.Y 2017-18 20 (i) The amount of Loan should not exceeds 35 lakhs and it must be sanctioned between 1.4.2016 and 31.3.2017. (ii) the value of the residential house property does not exceed 50 lakh; (iii) the assessee does not own any residential house property on the date of sanction of loan. (iv) Where a deduction under this section is allowed, no deduction shall be allowed for the same amount under any other provision of this Act for the same or any other assessment year. Concept Capsule 7: Mr. X has acquired a property for his residential use and for which he takes a loan from SBI on 1.4.2016. Other information are as under- (i) on 1.4.2016 he does not own any other residential property (ii) the amount of loan Rs 20 lakhs @ 12% interest p.a (iii) The value of property Rs 25 lakhs. (iv) The loan is unpaid. Compute Total Income if he is getting salary of 5,00,000 for the A.Y 2017-18. Solution: Computation of Total Income of Mr. X for the A.Y 2017-18 Rs Rs (A) Income under the head salary 5,00,000 (B) Income from House property Net Annual Value NIL Less: Interest on loan U/s. 24(b) (i) Actual interest 2,40,000 (ii) Maximum limit 2,00,000 2,00,000 (2,00,000) Gross Total Income 3,00,000 Less: Deduction u/s. 80EE (i) Total Interest ( ) interest allowed u/s. 24(b) 40,000 (ii) Maximum limit 50,000 40,000 Total Income 2,60,000
(49) Maximum limit u/s. 80GG increased from 2000p.m to 5000p.m SECTION PARTICULARS DEDUCTIBLE AMOUNT 80GG Rent paid by self employed or salaried person Individual/ HUF not getting HRA or RFA. The assessee i.e. self/spouse/ minor child does not own accommodation at the place of work. Least of the following - (i) Rent less 10% of adjusted GTI (ii) 25% of adjusted GTI (iii) 5000 P.M. [Adjusted GTI: GTI LTCG- STCG shares (STT) other deduction under Chp. VIA] (50) Section 80JJAA: 30% deduction for salary paid to new employee (allowed to all assessee engaged in business and liable for tax audit). 80JJAA w.e.f A.Y 2017-18 ALL ASSESSEE TO WHOM SEC. 44AB APPLIES DEDUCTION IN RESPECT OF EMPLOYMENT OF NEW EMPLOYEES FOR ASSESSEE TO WHOM AUDIT U/S. 44AB APLIES. additional employee means an employee who has been employed during the previous year and whose employment has the effect of increasing the total number of employees employed on the last day of the preceding year, but does not include an employee, (a) whose total emoluments are more than 25,000 per month; or (b) for whom the entire contribution is paid by the Government under the Employees Pension Scheme; or (c) employed for less than 240 days during the previous year; or (d) who does not participate in the recognised provident fund; emoluments means any sum paid or payable to an employee in lieu of his employment by whatever name called, but does not include:- (i) Employer contribution to Pension fund, provident fund or other fund; (ii) retirement benefits such as gratuity, VRS, leave encashment, commuted pension etc. (1) Deduction Allowed: 30% of additional employee cost incurred in the course of business. (2) Tenure of deduction: 3 years including the year employment. (3) NO deduction if the business is acquired by way of transfer from any other person or as a result of any business reorganization. (4) Additional employee cost: means total emoluments paid or payable to additional employees employed during the previous year: Provided that, in the case of an existing business, the additional employee cost shall be nil, if (a) there is no increase in the number of employees from the total number of employees employed as on the last day of the preceding year; (b) emoluments are paid otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account: However, In the first year of a new business, emoluments paid or payable to employees employed during that previous year shall be deemed to be the additional employee cost. 21
TAX HOLIDAY (51) Sunset clause: No deduction for activities commences on or after 1.4.2017 under the following sections (i) SEC. 80IA- Infrastructure facility (ii) SEC. 80IAB Development of SEZ (iii) SEC. 80IB(9) production of mineral oils and natural gas (52) Section 80IAC : Deduction for 3 years on profit of eligible start-up (new) 80IAC An Eligible Start up engaged in the business of innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property. (Newly inserted from A.Y 2017-18) 100% of the profit for 3 consecutive years out of first 5 years. eligible start-up means:- (a) a company or a LLP incorporated between 1.4.2016 to 31.03.2019, whose total turnover from business does not exceed 25 cr in any year between P.Y 2016-17 to 2020-21. (b) it holds a certificate from the Inter-Ministerial Board of Certification as notified by the Central Government. (53) Section 80IBA: Deduction on profit from affordable housing projects. (new) 80IBA Assessee engaged in the business of developing and building residential housing projects approved by competent authority between 1.6.2016 to 31.3.2019. 100% of the profit of such project. (newly inserted from A.Y 2017-18) Other conditions: (a) Location of Project Minimum size of plot of land of the project. If the project is within metro cities or 25 km from the municipal limit of metro cities Maximum size of residential unit Minimum utilization of land for project 1000 sq.mt 30 sq.mt 90% of permissible limit. Any other cities 2000 sq.mt 60 sq.mt 80% of permissible limit. (b) the project must be completed within 3 years from the date of approval. Otherwise, earlier deduction is taxable under PGBP after the expiry of 3 years. (c) the size of the shops and other commercial establishments included in the housing project does not exceed 3% of the aggregate built-up area; (d) maximum one residential unit can be allotted to an individual/ spouse or minor children of such individual; (e) No deduction shall be allowed to any assessee who executes the housing project as a works-contract awarded by any person (including the Central Government or the State Government). (f) If deduction claimed under this section, no deduction shall be allowed for such amount under any other provisions of the Act. Filing of Return within due date: For all of the above case filing of return within the due date of 139(1) is mandatory to claim the benefit of exemption. 22
(54) Rate of Tax applicable for the A.Y 2017-18 Non-corporate: No change in the tax rate except the following (i) Rebate u/s. 87A increased from 2000 to 5000 (ii) Surcharge for Individual, HUF, AOP, BOI, and artificial juridical person increased from 12% to 15%. (iii) No change in rate of tax of company: except (a) 29% in case if the total turnover or gross receipt of the domestic company in the P.Y 2014-15does not exceeds 5 crores. (b) 25% u/s. 115BA for domestic company (engaged in the business of manufacture of production of any article) production set up and registered on or after 1.3.2016, subject to satisfaction of certain conditions. (iv) New special tax regime for e-commerce transaction of specified services equalization levy of 6% on the gross amount. NO tax under any other provisions. (Page 85) (v) Section 112: 10% without indexation and without basic exemption for LTCG on unlisted securities or shares of closely held company. (for non-resident assesse) (vi) Special tax rate of 10% u/s 115BBF for royalty on patents invented first time and registered in India. (for resident only). 23
RATES OF TAX FOR A.Y. 2017-18 -------------------------------------------------------------------------------------------------- Rates of Tax for Individuals (Men/women) TOTAL INCOME TAX Upto 2,50,000 Nil Next 2,50,000 i.e. 2,50,001 to 5,00,000 @ 10% Next 5,00,000 i.e. 5,00,001 to 10,00,000 @ 20% Above 10,00,000 @ 30% Senior Citizen: However for resident individual who is at any time during the Previous Year isi) 60 years or more but less than 80 years of age- Income shall be exempted upto 3,00,000. Thereafter the aforesaid slab is to applied. ii) 80 years of age Income shall be exempted upto 5,00,000. Thereafter the aforesaid slab is to applied. Surcharge = 15%, If the total income exceeds 1crores. Education Cess: 2% on Total Tax Secondary Higher Education Cess: 1% on Total Tax. ---- REBATE [ SECTION 87A] Section 87A: Rebate of income-tax in case of certain individuals.: An assessee, being an individual resident in India, whose total income does not exceed five hundred thousand rupees, shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred per cent of such income tax or an amount of 5000, whichever is less.. Summary: (1) Allowed to resident Individual only (2) Whose total income does not exceed 5,00,000. (3) Amount of Rebate: (i) 100% of income tax payable or 5,000 ; lower ---- TAX RATES PARTICULARLY SPECIFIED ON CERTAIN INCOMES Section Income Income Tax Rate A.Y. 2017-18 111A Short Term Capital gains on sale of Equity shares and units of Equity oriented Fund on which STT has been paid 112 Long Term Capital Gains General Rate: 20% subject to basic exemption limit for resident assessee. For Non-resident assessee without basic exemption limit. 15% subject to basic exemption limit for resident assessee. However, the benefit of 10% tax without indexation or 20% tax with indexation is available on (1) Listed Shares (2) Zero Coupon bonds 10% (without Indexation & basic exemption): LTCG on transfer of unlisted securities or shares of closely held company by nonresident. In case of mutual fund the assessee shall have to pay 20% tax with indexation benefit. 24
115BB Winnings from lotteries, crossword puzzles, or races including horse races or card games and other games of any sort or from gambling or betting of any from or nature whatsoever 115BBDA Aggregate dividend in excess of 10 lakhs received by Individual, HUF & Firm. 115BBF Royalty received from patents by a resident of India (first inventor) from a patent developed and registered in India. 30% without basic exemption limit 10% of amount exceeding Rs10 lakhs. Without basic exemption limit & chapter VIA. 10% of the gross amount of royalty. Without basic exemption limit & Chapter VIA. OTHER THAN INDIVIDUALS ASSESSEE RATE OF TAX SURCHARGE EDUCATION CESS PARTNERSHIP 30% ON WHOLE OF TOTAL 12%, if total income > 3% FIRM INCOME 1crores. LOCAL 30% ON WHOLE OF TOTAL 12%, if total income > 3% AUTHORITY CO- OPERATIVE SOCIETY DOMESTIC COMPANY INCOME Upto 10,000 @ 10% 10,001 to 20,000 @20% If exceeds 20,000 @ 30% 30% ON WHOLE OF TOTAL INCOME 29% in case if the total turnover or gross receipt of the domestic company in the P.Y 2014-15does not exceeds 5 crores. 1crores. 12%, if total income > 1crores. 7%, if Total Income > 1 crore but 10 crores. 12%, if Total Income > 10 crores. 3% 3% FOREIGN COMPANY 25% u/s. 115BA for domestic company (engaged in the business of manufacture of production of any article) production set up and registered on or after 1.3.2016, subject to satisfaction of certain conditions. 50% ON SPECIFIED ROYALTIES AND TECHNICAL SERVICES AND 40% ON THE BALANCE 2%, if Total Income > 1 crores but 10 crores. 5%, if Total Income > 10 crores. 3% HUF, AOP, BOI, ARTIFICIAL JURIDICAL PERSON Upto 250000: NIL 250001 to 500000 @ 10% 500001 to 1000000 @ 20% Above 1000000 @ 30% 15%, if total income > 1crores. 3% 25
INCOME COMPUTATION AND DISCLOSURE STANDARDS Applicable from A.Y 2017-18 These ICDS s are applicable all assessees (other than an individual or a Hindu undivided family who is not required to get his accounts audited u/s. 44AB in the previous year) following the mercantile system of accounting, for the purposes of computation of income chargeable to income-tax under the head Profits and gains of business or profession or Income from other sources and not for the purpose of maintenance of books of accounts. In case of conflict, the provisions of the Income tax Act, 1961 shall prevail over ICDS to that extent. Words and expressions used and not defined under ICDS but defined in the Act shall have the meanings assigned to them in that Act. ------------------------------------------------------------------------------------------------------------------------- ICDS I (ACCOUNTING POLICIES) Similar to AS 1 ICDS II (VALUATION OF INVENTORIES) Similar to AS 2 ICDS - III (CONSTRUCTION CONTRACTS) Similar to AS 7 ICDS - IV (REVENUE RECOGNITION) Similar to AS 9 ICDS V TREATMENT OF TANGIBLE FIXED ASSETS ICDS VI: EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES The accounting policies refer to the specific accounting principles and the methods of applying those principles adopted by a person. Fundamental accounting assumption: (i) Going concern, (ii) consistency and (iii) accrual. But It does not recognise (i) prudence and (ii) Materiality. Expected loss or marked to market loss shall not be recognised unless specifically provided in other ICDSs. Substance of the transaction is relevant over form. Accounting policies shall not be changed without reasonable cause. (i) Inventories are valued at cost or NRV, whichever is lower. (ii) However, in case of dissolution of firm/aop/boi, inventory shall be valued at NRV on the date of dissolution, whether or not the business is discontinued. (iii) Producers inventories of livestock, agriculture and forest products, mineral oils, ores and gases to the extent that they are measured at net realizable value (i) Contract revenue and contract costs should be recognised as revenue and expenses respectively as per the percentage of completion method. (ii) Contract revenue includes initial amount agreed in the contract and retention. (iii) any incidental income (other than interest, dividends or capital gains), that is not included in contract revenue shall be reduced from Contract Cost. (i) Sale of goods is recognised when the sale is completed subject to the condition that there is reasonable certainty of its ultimate collection. (ii) Revenue from service transactions shall be recognised by the percentage completion method. However, when service is provided by an indeterminate number of acts over a specific period of time, revenue may be recognized on straight line basis over the specific period. Further, revenue from service contracts with duration of not more than 90 days may be recognised when the rendering of services under that contract is completed or substantially completed. (iii) Interest and royalty is recognized on accrual basis. However, Interest on refund of any tax, duty or cess shall be taxable on receipt basis. (iv) Dividend is recognised as per section 8 of the Income Tax Act. Similar to AS 10. As per revised ICDS requirement of maintaining details of jointly owned asset shall not be required. (A) Foreign Currency Transactions [Export, Import, Loan, etc]:initially recognized at actual/ average rate at the date of transaction. Suppose, exports worth $ 1,00,000 is made on 1.3.2017 and 1 US$ = 65, then it should be recognised at 65,00,000. Where exchange rate fluctuates significantly, the actual rate at the date of transaction shall be used. 26