BUDGET 2016 SONALEE GODBOLE

1 BUDGET 2016 SONALEE GODBOLE

Penalties 2

3 Section 270A Section 271 levying penalty for failure to furnish returns, comply with notices, concealment of income, etc. will be applicable upto A.Y. 2016-17. Section 270A is introduced w.e.f. A.Y. 2017-18 and replaces section 271(1)(c) and provides levy of penalty in case of under-reporting and misreporting of income. The penalty of under-reporting/misreporting should be initiated during the course of any proceedings.

4 Circumstances in which a person shall be considered to have under-reported his income: 1. Assessed Income > Income as per return processed under section 143(1)(a). 2. Where no return of income has been furnished - Assessed Income > maximum amount not chargeable to tax 3. Reassessed Income > income assessed or reassessed before such re-assessment 4. Deemed Total Income assessed/reassessed as per section 115JB/115JC > Income as per section 143(1)(a)

5 5. Where no return of income has been filed - Deemed Total Income assessed as per section 115JB/115JC > the maximum amount not chargeable to tax; 6. Deemed Total Income reassessed as per section 115JB/115JC > Deemed Total Income assessed/reassessed before such reassessment; 7. The income assessed/reassessed has the effect of reducing the loss or converting such loss into income;

6 The amount of under-reported income is to be calculated in different scenarios as under: Situation Amount of under reported income (I) Where income is assessed for the first time (1) Return has been filed Assessed income - income determined u/s. 143(1)(a). (2) Return has not been filed: a) In case of a company, firm or local authority. Income Assessed b) In case of other assessees Assessed income - maximum amount not chargeable to tax

7 Situation (II) Where income has been reassessed (III)Where under reported income arises due to determination of income as per section 115JB/115JC (IV)Where assessment/reassessment has the effect of reducing the loss or converting the loss into income Amount of under reported income Income re-assessed- income which was assessed/re-assessed as per immediately preceding order. (A - B) + (C - D) Similar to provisions of explanation 4 to section 271(1) Income or loss assessed / reassessed Loss claimed Calculation of under-reported income in a case where the source of any receipt, deposit or investment is linked to earlier year - Provisions similar to existing Explanation 2 to section 271.

8 Under-reported income under this section shall not include specific amount under the following circumstances: i. Income in respect of which the assessee offers an explanation and the income-tax authority is satisfied that the explanation is bona fide and all the material facts have been disclosed; ii. iii. under-reported income is determined on the basis of an estimate, if the accounts are correct and complete but the method employed is such that the income cannot properly be deduced therefrom; under-reported income is determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of income and disclosed all facts material to the addition made.

9 iv. iv. Transfer pricing adjustment is made by the Transfer Pricing Officer where the assessee has maintained information and documents as prescribed under section 92D, declared the international transaction and disclosed all the material facts relating to the transaction; where the undisclosed income is on account of a search operation and penalty is leviable under section 271AAB.

10 The cases of misreporting of income have been specified as under: i. misrepresentation or suppression of facts; ii. iii. iv. non-recording of investments in books of account; claiming of expenditure not substantiated by evidence; recording of false entry in books of account; v. failure to record any receipt in books of account having a bearing on total income; vi. failure to report any international transaction or deemed international transaction or specified domestic transactions.

11 Tax payable on under reported income in case of company, firm or local authority, tax is computed on under-reported income assuming under reported income is the total income. Other cases : thirty per cent of the under-reported income. No penalty to be levied on addition or disallowance of any amount if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other Assessment Year.

12 penalty will be levied at fifty per cent of the tax payable on underreported income. However in a case where under reporting of income results from misreporting of income by the assessee, penalty will be levied at the rate of two hundred per cent of the tax payable on such misreported income.

13 Section 270AA-Immunity from Penalty and Prosecution Provisions providing for immunity from imposition of penalty under section 270A and prosecution under section 276C or under section 276CC, if the following conditions are fulfilled: i. the tax and interest payable as per the order of assessment issued under section 143(3) or reassessment issued under section 147, has been paid within the period specified in the notice of demand; and ii. no appeal against the order referred to in clause (a) has been filed. iii. penalty levied is not for misreported income. The assessee can make an application, in the prescribed form to the Assessing Officer within 1 month from the end of the month in which assessment order under section 143(3) of the Act or reassessment order under section 147 of the Act is received;

14 The Assessing Officer shall pass the order, within one month from the end of the month in which the assessee makes the application, accepting or rejecting the application for immunity after giving an opportunity of being heard to the assessee; Where the application for immunity is accepted and an order is passed under the section, no appeal or revision would lie against the assessment or reassessment order. The order passed under the section would be final; Hence, it cannot be re-opened or revised or reviewed. Where the application is rejected, appeal can be filed against the assessment/reassessment order within the prescribed time.

15 Section 271AA Failure to keep and maintain information and documents etc. in respect of certain transactions sub-section (2) added If an entity of an international group fails to furnish the information and the documents as required under Rule 10D - penalty of Rs.5,00,000/- after giving opportunity of being heard. Penalty is discretionary. No penalty to be levied if the failure is on account of a reasonable cause (Section 273B)

16 Section 271GB Penalty for failure to furnish report or for inaccurate reportunder section 286 A. For non-furnishing of report prescribed under section 286(2) by an entity:- a) if default is not more than a month, penalty is Rs.5,000/- per day; b) if default is beyond one month, penalty is Rs.15,000/- per day for the period exceeding one month; B. For non-furnishing of information and documents called for by the prescribed Authority within the prescribed time penalty of Rs.5,000/- per day.

17 C. any default as prescribed in (A) and (B) above that continues even after service of order levying penalty, then the penalty leviable is Rs.50,000/- per day, for continuing default beyond the date of service of order; Penalty of Rs.5,00,000/- shall be levied if the entity has provided inaccurate information in the CbC report. No penalty to be levied if the failure is on account of a reasonable cause (Section 273B). No provision for preferring appeal against the penalty order.

18 Section 272A The existing provisions of section 271(1)(b) for levy of penalty for failure to comply with notices issued under sections 142(1) or 143(2), or failure to comply with directions issued under section 142(2A) are now shifted to section 272A Penalty of Rs.10,000/- for each failure.

19 Section 273A Principal Commissioner or Commissioner has the power to reduce or waive penalty imposed under section 270A based on application filed by Assessee. Principal Commissioner / Commissioner of Income Tax to pass order accepting / rejecting application within 12 months from the end of the month in which the application is received.

20 CHAPTER VI-A DEDUCTIONS

21 Section 80CCD Exemption in respect of amount standing to the credit of pension account of an individual received by nominee on death of the individual Section 80CCD is amended to provide that any amount received by the nominee, on the death of the assessee, shall not be income of nominee if such amount is received on account of closure of the pension account or upon opting out of the pension scheme.

22 Section 80EE Deduction in respect of interest on loan taken for residential House property As per the provisions of section 80EE existing till A.Y. 2015-16, deduction of housing loan interest paid upto Rs.1 lakh can be claimed by a first time home buyer. Section 80EE has been substituted to provide deduction in respect of interest on housing loan paid by first time home buyer on the following lines:

23 Particulars Existing Requirements New Requirements Loan sanctioned - 1 st April, 2016 and 31 st Maximum Interest deductible Rs.1,00,000/- Rs.50,000/- March, 2017 by a Financial Institution. Threshold limit for cost of residential house property Purpose of loan Rs.40,00,000/- For acquiring residential house Maximum amount of loan Rs.25,00,000/- Rs.35,00,000/- Rs.50,00,000/- For acquiring residential house The assessee should not own any other residential property as on date of sanction of loan.

24 Section 80GG Deduction in respect of Rent paid Deduction under section 80GG is available to an assessee in respect of rent paid by him, if the assessee does not own a house or does not receive the House Rent Allowance (HRA) from his/her employer. The monetary ceiling of deduction has been increased from Rs.2,000/- per month to Rs.5,000/- per month.

25 Section 80IAC Deduction in respect of profits earned by eligible Start-Up Companies / LLP Eligible start-up has been defined as: a) a company / LLP engaged in a business which involves innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property; b) the company / LLP is incorporated between 1st April, 2016 and 31 st March, 2019; c) the total turnover of its business does not exceed Rs.25 Crores in any financial year between 1st April, 2016 to 31st March, 2021; and

26 d) it holds certificate of eligible business from Inter-Ministerial Board of Certification. e) It is not formed by splitting up or the reconstruction of a business already in existence. f) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose in India (transfer of upto 20% of the total value of plant & machinery permitted.) g) Other conditions provided in section 80IA(5), 80IA(7) to 80IA(11) shall apply. Deduction = 100% of profits derived from business for any three consecutive assessment years out of five years beginning from the year in which the eligible-start-up is incorporated. Return of Income be filed before due date of filing of return.

27 Section 80IBA Deduction in respect of profits from housing projects A new Section has been inserted to provide 100% deduction in respect of profit arising from the business of developing and building housing projects, subject to the following conditions: i. The housing project is approved by the competent authority after 1st June, 2016 but before 31st March, 2019. ii. The project is to be completed within 3 years from the date of approval.

28 iii. iv. In case the project is located in the 4 metropolitan cities of India or within the 25 kilometers from the municipal limit of such cities, the project is on land measuring not less than 1000 sq. meters and the area of residential units does not exceed 30 sq. meters. In case project is situated in any other part of India, the project is on land measuring not less than 2000 sq. meters and area of residential units does not exceed 60 sq. meters. v. Where residential unit is allotted to an individual, no other unit in such project is allotted to him or any member of his family.

29 vi. The built up area of shops and other commercial establishments in the project does not exceed 3% of the aggregate built up area. vii. Assessee maintains separate books of accounts in respect of the housing project. If the project is not completed within permissible time period amount of deduction allowed is subject to tax in the year in which stipulated period of completion expires.

30 Section 80JJAA Deduction in respect of employment of new workmen Section 80JJA which provides deduction in respect of wages to new workmen has been substituted as under: Sr No Particulars Existing Requirements New Requirements 1. Permissible deduction: Employee should be: New workmen in excess of 50 workmen employed during the Financial Year 30% of the additional employee cost incurred for three years Any new employee

31 Sr. No. Particulars Existing Requirements New Requirements Employer should be: Salary Limit assessee engaged in manufacture of goods No Limit An assessee to whom section 44AB applies Salary of the employee should be Rs. 25,000/- Other condition No such condition No deduction is available if, entire contribution under Employees Pension Scheme is paid by the Government or the employee does not participate in recognised P.F. Emoluments should be paid by A/c payee cheque/draft or credit to bank account.

32 Sr No Particulars Existing Requirements New Requirements 2 Number of days of employment 3 Increase in number of employees 300 days 240 days 10% increase in number of workmen as compared to the workmen employed on the last day of the preceding year. No requirement The business should not be formed by splitting up or reconstruction of an existing business. The business is not acquired by way of transfer from any other person or as a result of any business reorganization. The assessee furnishes the report of an accountant along with the return. such

33 Section 80IA/80IB/80IC Nature of expenditure Present deduction Deduction from A.Y. 2018-19 Deduction in respect of profits derived from : a. development, operation and maintenance of an infrastructure facility (80-IA) b. development of special economic zone (80-IAB) c. production of mineral oil and natural gas [80-IB(9)] 100% of the profits Nil if the activity commences after A.Y. 2018-19

34 INCOME FROM BUSINESS & PROFESSION

35 Section 28 Non Compete fees received by a person carrying on profession is taxable under the head Profits and gains of business or profession

36 Section 32(1)(iia) Additional Depreciation Additional depreciation of 20% on cost of new Plant & machinery now available to an assessee engaged in the business of transmission or distribution of power.

37 Investment Allowance - Section 32AC Clarification provided Deduction available where new plant & machinery was acquired in earlier year but installed at any time before 31st March, 2017, irrespective of the year of acquisition. The deduction will be available in the year of installation. The amendment will have retrospective effect from April 1, 2016.

38 Phasing out incentives in the form of weighted deduction and profit linked incentives The available deductions are phased out as under: Section Nature of expenditure Proposed phase-out plan 35(1)(ii) Amount paid to research association having the object of undertaking scientific research or to a university, college, or other institution to be used for scientific research From A.Y.s 2018-19 to 2020-21, weighted deduction of 150% allowed. Applicable for both old and new assets.

39 Section Nature of expenditure Proposed phase-out plan 35(1)(iia) 35(1)(iii) Amount paid to a company to be used for scientific research Amount paid to research association which has as its object the undertaking of research in social science or statistical research or to a university, college or other institution to be used for research in social science or statistical research 35(2AA) Amount paid to a National Laboratory, university, Indian Institute of Technology or a specified person With effect from A.Y. 2018-19, deduction of only 100%. With effect from A.Y. 2018-19, deduction of only 100%. From A.Y.s 2018-19 to 2020-21, weighted deduction of 150% allowed.

40 Section Nature of expenditure Proposed phase-out plan to be used in scientific research programme approved by the prescribed authority 35(2AB) Expenditure incurred by a company engaged in the business of bio-technology, manufacture or production of any article or thing for in-house scientific research 35AC 35AD Expenditure incurred on eligible social development projects or schemes Capital expenditure incurred for the purpose of specified business With effect from A.Y. 2021-22, deduction of only 100% From A.Y.s 2018-19 to 2020-21,weighted deduction of 150% allowed. With effect from A.Y. 2021-22, deduction of only 100%. With effect from AY. 2018-19, deduction will be Nil With effect from AY. 2018-19, deduction of only 100%

41 Section Nature of expenditure Proposed phase-out plan 35CCC Expenditure incurred on notified agricultural extension project With effect from A.Y. 2018-19, deduction of only 100%. 35CCD Expenditure incurred on notified skill development programme by a company 100% of expenditure incurred from A.Y. 2021-22

42 Section 35ABA Deduction for Expenditure Incurred for Obtaining Right to Use Spectrum for Telecommunication Services Deduction for the capital expenditure incurred for acquiring any right to use spectrum for telecommunication services. Deduction = Actual fees paid / No. of years for which license to use is granted. Deduction is allowed from the year in which spectrum fee is actually paid. If the spectrum fee is actually paid before the commencement of the business to operate telecommunication services, the deduction will be granted from the year in which business commences. The provisions relating to transfer of license, amalgamation and demerger as contained in subsections (2) to (8) of Section 35ABB are applicable.

43 Section 35AD Deduction in Respect of Expenditure Incurred on Specified Businesses Deduction will be available for capital expenditure incurred for the business of developing, or maintaining and operating, or developing, maintaining and operating a new infrastructure facility, which commences its operation on or after 1st April, 2017, where such business is: i. 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;

44 ii. the entity referred to above 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 Infrastructure facility is defined in the same manner as in Section 80IA(4). This amendment is effective from A.Y. 2018-19.

45 Section 36(1) (viiia) Non-Banking Finance Companies (NBFCs) will be allowed a deduction of provision made for bad and doubtful debts. Maximum deduction = 5% of the total income computed before making any deduction under this section and other sections of Chapter VI-A.

46 Section 40(a)(ib) Deduction for the payment to Non-resident will not be allowed if the equalization levy is not deposited with the Government before the due date of filing of the Return of Income. If such levy is deposited after the due date for filing Return of Income, the deduction for the payment to Non-resident will be allowed in the year of deposit of the levy with the Government.

47 Section 43B Deduction for any amount payable to Indian Railways for use of railway assets now covered by section 43B.

INCOME FROM SALARY 48

49 Section 17(2)(vii) Increase in exemption limit of Employer s Contribution to Superannuation Fund Section 17(2)(vii) has been amended to increase the exemption limit of employer s contribution to an approved superannuation fund from Rs.1,00,000/- to Rs.1,50,000/- per annum.

50 Rule 8 of Part A of Schedule IV to the Income Tax Act Rule 8 of Part A of Schedule IV is amended to provide that balance standing to the credit of the employee in a Recognised Provident Fund transferred to his account in the National Pension Scheme is exempt from tax.

51 INCOME FROM HOUSE PROPERTY

52 Section 24(b) Increase in time period for acquisition or construction of Self Occupied House Property for claiming interest Section 24(b) has been amended to provide that the deduction of interest paid on capital borrowed for acquisition or construction of self-occupied house property shall be available if the acquisition or construction is completed within 5 years from the end of the financial year in which capital was borrowed.

53 Section 25A, 25AA and 25B Sections 25A, 25AA and 25B have been merged under a single new section 25A which provides that the amount of rent received in arrears or the amount of unrealized rent realised subsequently is chargeable to tax in the year in which such rent is received or realised, irrespective of whether the assessee is the owner of the property or not in that financial year. 30% standard deduction will be available.

54 TAX DEDUCTION / COLLECTION AT SOURCE

55 Revision in TDS Threshold Limits The below amendments are applicable from June 1, 2016. Section 192A TDS on Payment of Accumulated Provident Fund Balance due to an employee Existing Threshold Limit (Rs.) Proposed Threshold Limit (Rs.) 30,000/- 50,000/- 194BB TDS on Winnings from Horse Race 5,000/- 10,000/- 194C - TDS on Payments to Contractors Annual Limit of 75,000/- Annual Limit of 1,00,000/- 194D TDS on Insurance Commission 20,000/- 15,000/- 194G TDS on Commission of sale of lottery tickets 1,000/- 15,000/- 194H - TDS on Commission or Brokerage 5,000/- 15,000/- 194LA TDS on payment of Compensation of acquisition of certain immovable property 2,00,000/- 2,50,000/-

56 Revision in TDS Rate Limits The rate of tax deducted at source has been changed as follows: Section ggg Existing TDS Rate (%) Proposed TDS Rate (%) 194D TDS on Insurance Commission 10 5 194DA TDS in respect of Life Insurance Policy (not exempt u/s.10(10d)) 194EE TDS on withdrawal from NSS Deposit A/c. 194G TDS on Commission of sale of lottery tickets 2 1 20 10 10 5 194H - TDS on Commission or Brokerage 10 5 The above amendments are applicable from June 1, 2016.

57 Section 197A Furnishing of Form Nos.15G / 15H A self-declaration in prescribed Form Nos. 15G/15H for lower deduction can be furnished in respect of rental income as well. This amendment will take effect from June 1, 2016.

58 Section 206AA Requirement to furnish PAN Section 206AA provides for higher TDS at the rate of 20% in case the recipient does not have a PAN in India. Section 206AA is amended to provide that the provisions of this section shall not apply to non-residents, subject to the fulfilment such conditions as may be prescribed. The said amendment is applicable from June 1, 2016. Notification No. 53/2016 dated June 24, 2016

59 Section 206C Tax Collection at Source Section 206C has been amended to provide that tax needs to be collected at source in the following transactions: Nature of Transaction Monetary Limit (Rs.) Rate (%) Sale of Motor Vehicle > 10 lakhs 1 Sale in cash of any goods (other than bullion and jewellery)* Payment in cash for any services (other than payments on which tax is deducted at source under Chapter XVII-B) > 2 lakhs 1 > 2 lakhs 1 * TCS in relation to cash sale of any goods (other than bullion and jewellery) or services shall not apply to certain class of buyers who fulfil such conditions as may be prescribed.

60 Section 206(contd) FAQ Circular No. 22/2016 Further clarification for cases where sale consideration is received partly in cash and partly in cheque Circular No. 23/2016

THANK YOU 61