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Income Tax provisions in Union Budget 2013-14

FINANCE BILL, 2013 PROVISIONS RELATING TO DIRECT TAXES Introduction The provisions of the Finance Bill, 2013 relating to direct taxes seek

Cabinet likely to consider Direct Taxes Code Bill
आईटीआर फॉर्म में कई बदलाव – इस बार चार महीने पहले फार्म अधिसूचित – टैक्‍स सेविंग के विकल्‍प
Tax benefit available under National Pension System (NPS)

FINANCE BILL, 2013
PROVISIONS
RELATING TO DIRECT TAXES
Introduction
The provisions
of the Finance Bill, 2013 relating to direct taxes seek to amend the Income-tax
Act, Wealth-tax Act and Finance (No.2) Act, 2004, inter alia, in
order to provide for –
A.            Tax rates
B.            Additional
Resource Mobilisation
C.            Measures
to Promote Socio-economic Growth
D.            Relief
and Welfare Measures
E.            Widening
of Tax Base and Anti Tax Avoidance Measures
F.            Rationalisation  Measures
2.            The Finance Bill, 2013 seeks to
prescribe the rates of income-tax on income liable to tax for the  assessment year 2013-14; the rates at which
tax will be deductible at source during the financial year 2013-14 from
interest (including interest on securities), winnings from lotteries or
crossword puzzles, winnings from horse races, card games and other categories
of income liable to deduction or collection of tax at source under the
Income-tax Act; rates for computation of “advance tax”, deduction of income-tax
from, or payment of tax on ‘Salaries’ and charging of income-tax on current
incomes in certain cases for the financial year 2013-14.

3.            The substance of the main provisions
of the Bill relating to direct taxes is explained in the following paragraphs:-
DIRECT TAXES
A. RATES OF INCOME-TAX
I.             Rates of income-tax in respect of income liable to tax
for the assessment year 2013-14.
In respect of
income of all categories of assessees liable to tax for the assessment year
2013-14, the rates of income-tax have been specified in Part I of the First
Schedule to the Bill. These are the same as those laid down in Part III of the
First Schedule to the Finance Act, 2012, for the purposes of computation of
“advance tax”, deduction of tax at source from “Salaries” and charging of tax
payable in certain cases.
(1)          Surcharge
on income-tax—
Surcharge shall
be levied in respect of income liable to tax for the assessment year 2013-14,
in the following cases:—
(a)          in the case of a domestic company having total income
exceeding one crore rupees, the amount of income-tax computed shall be
increased by a surcharge for the purposes of the Union calculated at the rate
of five per cent. of such income tax.
(b)          in the case of a company, other than a domestic company,
having total income exceeding one crore rupees, the amount of income-tax
computed shall be increased by a surcharge for the purposes of the Union
calculated at the rate of two per cent. of such income tax.
However,
marginal relief shall be allowed in all these cases to ensure that the
additional amount of income-tax payable, including surcharge, on the excess of
income over one crore rupees is limited to the amount by which the income is
more than one crore rupees.
Also, in the
case of every company having total income chargeable to tax under section 115JB
of the Income-tax Act, 1961 (hereinafter referred to as ‘Income-tax Act’) and
where such income exceeds one crore rupees, surcharge at the rates mentioned
above shall be levied and marginal relief shall also be provided.
(2)          Education
Cess —
For assessment
year 2013-14, additional surcharge called the “Education Cess on income-tax”
and “Secondary and Higher Education Cess on income-tax” shall continue to be
levied at the rate of two per cent. and one per cent., respectively, on the
amount of tax computed, inclusive of surcharge, in all cases. No marginal
relief shall be available in respect of such Cess.
II.            Rates for deduction of income-tax at source during the
financial year 2013-14 from certain incomes other than “Salaries”.
The rates for
deduction of income-tax at source during the financial year 2013-14 from
certain incomes other than “Salaries” have been specified in Part II of the
First Schedule to the Bill. The rates for all the categories of persons will
remain the same as those specified in Part II of the First Schedule to the
Finance Act, 2012, for the purposes of deduction of income-tax at source during
the financial year 2012-13, except that in case of certain payments made to a
non-resident (other than a company ) or a foreign company, in the nature of
income by way of royalty or fees for technical services, the rate shall be
twenty-five percent of such income.
(1)          Surcharge—
The amount of
tax so deducted, in the case of a  
non-resident person (other than a company), shall be increased by a
surcharge at the rate of ten per cent. of such tax, where the income or the
aggregate of such incomes paid or likely to be paid and subject to the
deduction exceeds one crore rupees . The amount of tax so deducted, in the case
of a company other than a domestic company, shall be increased by a surcharge
at the rate of two per cent. of such tax, where the income or the aggregate of
such incomes paid or likely to be paid and subject to the deduction exceeds one
crore rupees but does not exceed ten crore rupees and it shall be increased by
a surcharge at the rate of five per cent. of such tax, where the income or the
aggregate of such incomes paid or likely to be paid and subject to the
deduction exceeds ten crore rupees.
No surcharge
will be levied on deductions in other cases.
(2)          Education Cess—
“Education Cess
on income-tax” and “Secondary and Higher Education Cess on income-tax” shall
continue to be levied at the rate of two per cent. and one per cent.
respectively, of income tax including surcharge wherever applicable, in the
cases of persons not resident in India including companies other than domestic
company.
III.           Rates
for deduction of income-tax at source from “Salaries”, computation of “advance
tax” and charging of income- tax in special cases during the financial year
2013-14.
The rates for
deduction of income-tax at source from “Salaries” during the financial year
2013-14 and also for computation of “advance tax” payable during the said year
in the case of all categories of assessees have been specified in Part III of
the First Schedule to the Bill. These rates are also applicable for charging
income-tax during the financial year 2013-14 on current incomes in cases where
accelerated assessments have to be made , for instance, provisional assessment
of shipping profits arising in India to non-residents, assessment of persons
leaving India for good during the financial year, assessment of persons who are
likely to transfer property to avoid tax, assessment of bodies formed for a
short duration, etc.
The salient
features of the rates specified in the said Part III are indicated in the
following paragraphs—
A.            Individual,
Hindu undivided family, association of persons, body of individuals, artificial
juridical person.
Paragraph A of
Part-III of First Schedule to the Bill provides following rates of income-tax:-
(i)            The
rates of income-tax in the case of every individual (other than those mentioned
in (ii) and (iii) below) or Hindu undivided family or every association of
persons or body of individuals , whether incorporated or not, or every
artificial juridical person referred to in sub-clause (vii) of clause (31) of
section 2 of the Income-tax Act (not being a case to which any other Paragraph
of Part III applies) are as under :—
Upto Rs. 2,00,000
Nil.
Rs. 2,00,001 to Rs. 5,00,000
10 per cent.
Rs. 5,00,001 to Rs. 10,00,000
20 per cent.
Above Rs. 10,00,000
30 per cent.
(ii)           In the case of every individual, being
a resident in India, who is of the age of sixty years or more but less than
eighty years at any time during the previous year,—
Upto Rs. 2,50,000
Nil.
Rs. 2,50,001 to Rs. 5,00,000
10 per cent.
Rs. 5,00,001 to Rs.10,00,000
20 per cent.
Above Rs. 10,00,000
30 per cent.
(iii)          in the case of every individual, being
a resident in India, who is of the age of eighty years or more at anytime
during the previous year,—
Upto Rs. 5,00,000
Nil.
Rs. 5,00,001 to Rs. 10,00,000
20 per cent.
Above Rs. 10,00,000
30 per cent.
The amount of
income-tax computed in accordance with the preceding provisions of this
Paragraph shall be increased by a surcharge at the rate of ten percent. of such
income-tax in case of a person having a total income exceeding one crore rupees
.
However, the
total amount payable as income-tax and surcharge on total income exceeding one
crore rupees shall not exceed the total amount payable as income-tax on a total
income of one crore rupees by more than the amount of income that exceeds one
crore rupees.
B. Co-operative Societies
In the case of
co-operative societies, the rates of income-tax have been specified in
Paragraph B of Part III of the First Schedule to the Bill. These rates will
continue to be the same as those specified for financial year 2012-13.
The amount of
income-tax shall be increased by a surcharge at the rate of ten percent. of
such income-tax in case of a co-operative society having a total income
exceeding one crore rupees .
However, the
total amount payable as income-tax and surcharge on total income exceeding one
crore rupees shall not exceed the total amount payable as income-tax on a total
income of one crore rupees by more than the amount of income that exceeds one
crore rupees.
C.    Firms
In the case of
firms, the rate of income-tax has been specified in Paragraph C of Part III of
the First Schedule to the Bill. This rate will continue to be the same as that
specified for financial year 2012-13.
The amount of
income-tax shall be increased by a surcharge at the rate of ten percent. of
such income-tax in case of a firm having a total income exceeding one crore
rupees .
However, the
total amount payable as income-tax and surcharge on total income exceeding one
crore rupees shall not exceed the total amount payable as income-tax on a total
income of one crore rupees by more than the amount of income that exceeds one
crore rupees.
D.   Local authorities
The rate of
income-tax in the case of every local authority is specified in Paragraph D of
Part III of the First Schedule to the Bill. This rate will continue to be the
same as that specified for the financial year 2012-13.
The amount of
income-tax shall be increased by a surcharge at the rate of ten percent. of
such income-tax in case of a local authority having a total income exceeding
one crore rupees .
However, the
total amount payable as income-tax and surcharge on total income exceeding one
crore rupees shall not exceed the total amount payable as income-tax on a total
income of one crore rupees by more than the amount of income that exceeds one
crore rupees.
E.            Companies
The rates of
income-tax in the case of companies are specified in Paragraph E of Part III of
the First Schedule to the Bill. These rates are the same as those specified for
the financial year 2012-13.
The existing
surcharge of five per cent in case of a domestic company shall continue to be
levied if the total income of the domestic company exceeds one crore rupees but
does not exceed ten crore rupees. The surcharge at the rate of ten percent
shall be levied if the total income of the domestic company exceeds ten crore
rupees. In case of companies other than domestic companies, the existing
surcharge of two per cent. shall continue to be levied if the total income
exceeds one crore rupees but does not exceed ten crore rupees. The surcharge at
the rate of five percent shall be levied if the total income of the company
other than domestic company exceeds ten crore rupees.
However, the
total amount payable as income-tax and surcharge on total income exceeding one
crore rupees but not exceeding ten crore rupees, shall not exceed the total
amount payable as income-tax on a total income of one crore rupees, by more
than the amount of income that exceeds one crore rupees. The total amount
payable as income-tax and surcharge on total income exceeding ten crore rupees,
shall not exceed the total amount payable as income-tax and surcharge on a
total income of ten crore rupees, by more than the amount of income that
exceeds ten crore rupees.
In other cases
(including sections 115-O, 115QA, 115R or 115TA ) the surcharge shall be levied
at the rate of ten percent.
For financial
year 2013-14, additional surcharge called the “Education Cess on income-tax”
and “Secondary and Higher Education Cess on income-tax” shall continue to be
levied at the rate of two per cent. and one per cent. respectively, on the
amount of tax computed, inclusive of surcharge (wherever applicable), in all
cases. No marginal relief shall be available in respect of such Cess.
[Clause 2 &
First Schedule]
B. ADDITIONAL RESOURCE MOBILISATION
Commodities Transaction Tax
A new tax called
Commodities Transaction Tax (CTT) is proposed to be levied on taxable
commodities transactions entered into in a recognised association.
It is proposed
to define ‘taxable commodities transaction’ to mean a transaction of sale of
commodity derivatives in respect of commodities, other than agricultural
commodities, traded in recognised associations.
The tax is
proposed to be levied at the rate, given in the Table below, on taxable
commodities transactions undertaken by the seller as indicated hereunder:-
TABLE
S.No.
Taxable  commodities transaction
Rate
Payable by
(1)
(2)
(3)
(4)
1.
Sale of commodity derivative
0.01 per cent
Seller
The provisions
with regard to collection and recovery of CTT, furnishing of returns,
assessment  procedure, power of assessing
officer, chargeability of interest, levy of penalty, institution of
prosecution,  filing  of appeal, power to the Central Government,
etc. have also been provided.
This tax is
proposed to be levied from the date on which Chapter VII of the Finance Bill,
2013 comes into force by way of notification in the Official Gazette by the
Central Government.
Further, it is
proposed to amend section 36 of the Income-tax Act to provide that an amount equal
to the commodities transaction tax paid by the assessee in respect of the
taxable commodities transactions entered into in the course of his business
during the previous year shall be allowable as deduction, if the income arising
from such taxable commodities transactions is included in the income computed
under the head “Profits and gains of business or profession”.
It is also
proposed to insert an Explanation to provide that for the purposes of this
clause, the expressions “commodities transaction tax” and “taxable commodities
transaction” shall have the meanings respectively assigned to them under
Chapter VII of the Finance Act, 2013.
This amendment
in section 36 of the Income-tax Act will take effect from 1st April, 2014 and
will, accordingly, apply in relation to the assessment year 2014-15 and
subsequent assessment years.
[Clauses 6, 105 to
124]
Taxation of Income by way of
Royalty or Fees for Technical Services
Section 115A of
the Income-tax Act provides for determination of tax in case of a non-resident
taxpayer where the total income includes any income by way of Royalty and Fees
for technical services (FTS) received under an 
agreement entered after 31.03.1976 and which are not effectively
connected with permanent establishment, if any, of the non-resident in India.
The tax is payable on the gross amount of income at the rate of
(i)            30%
if income by way of royalty or FTS is received in pursuance of an agreement
entered on or before 31.05.1997;
(ii)           20%
if income by way of royalty or FTS is received in pursuance of an agreement
entered after 31.05.1997 but before 01.06.2005; and
(iii)          10%
if income by way of royalty or FTS is received in pursuance of an agreement
entered on or after 01.06.2005.
India has tax
treaties with 84 countries, majority of tax treaties allow India to levy tax on
gross amount of royalty at rates ranging from 10% to 25%, whereas the tax rate
as per section 115A is 10%. In some cases, this has resulted in taxation at a
lower rate of 10% even if the treaty allows the income to be taxed at a higher
rate.
In order to correct this anomaly,
the tax rate in case of non-resident taxpayer, in respect of income by way of
royalty and fees for technical services as provided under section 115A, is
proposed to be increased from 10% to 25%. This rate of 25% shall be applicable
to any income by way of royalty and fees for technical services received by a
non-resident, under an agreement entered after 31.03.1976, which is taxable
under section 115A.
This  amendment will take effect from 1st   April, 
2014 and will, accordingly, apply in relation to the  assessment year 2014-15  and subsequent assessment years.
[Clause 25]
C. MEASURES TO PROMOTE
SOCIO-ECONOMIC GROWTH
Incentive for acquisition and
installation of new plant or machinery by manufacturing company
In order to
encourage substantial investment in plant or machinery, it is proposed to
insert a new section 32AC in the Income- tax Act to provide that where an
assessee, being a company,—
(a)          is
engaged in the business of manufacture of an article or thing; and
(b)          invests
a sum of more than Rs.100 crore in new assets (plant or machinery) during the
period  beginning from 1st  April, 2013 and ending on 31st  March, 2015,
then, the
assessee shall be allowed—
(i)   for assessment year 2014-15, a deduction of
15% of aggregate amount of actual cost of new assets acquired and installed
during the financial year 2013-14, if the cost of such assets exceeds Rs.100
crore;
(ii)  for assessment year 2015-16, a deduction of
15% of aggregate amount of actual cost of new assets, acquired and installed
during the period beginning on 1st 
April, 2013 and ending on 31st 
March, 2015, as reduced by the deduction allowed, if any, for assessment
year 2014-15.
The phrase “new
asset” has been defined as new plant or machinery but does not include—
(i)   any plant or machinery which before its
installation by the assessee was used either within or outside India by any
other person;
(ii)  any plant or machinery installed in any
office premises or any residential accommodation, including accommodation in
the nature of a guest house;
(iii)  any office appliances including computers or
computer software;
(iv)  any vehicle;
(v)   ship or aircraft; or
(vi)  any plant or machinery, the whole of the actual
cost of which is allowed as deduction (whether by way of depreciation or
otherwise) in computing the income chargeable under the head “Profits and gains
of business or profession” of any previous year.
It is further
proposed to provide suitable safeguards so as to restrict the transfer of the
plant or machinery for a period of 5 years. 
However, this restriction shall not apply in a case of amalgamation or
demerger but shall continue to apply to the amalgamated company or resulting
company, as the case may be.
This  amendment will take effect from 1st   April, 
2014 and will, accordingly, apply in relation to the  assessment year 2014-15  and subsequent assessment years.
[Clause    5]
Extension of the sunset date
under section 80IA for the power sector
Under the
existing provisions contained in the clause (iv) of subsection (4) of section
80IA, a deduction of profits and gains is allowed to an undertaking which, –
(a)          is
set up in any part of India for the generation or generation and distribution
of power if it begins to generate power at any time during the period beginning
on 1st  April, 1993 and ending on
31st  March, 2013;
(b)          starts
transmission or distribution by laying a network of new transmission or
distribution lines at any time during the period beginning on 1st  April, 1999 and ending on 31st  March, 2013;
(c)           undertakes
substantial renovation and modernisation of the existing network of
transmission or distribution lines at any time during the period beginning on
1st    April, 2004 and ending on
31st    March, 2013.
With a view to
provide further time to the undertakings to commence the eligible activity to
avail the tax incentive, it is proposed to amend the above provisions so as to
extend the terminal date by a further period of one year i.e. up to 31st  March, 2014.
These amendments
will take effect from 1st  April, 2014
and will, accordingly, apply in relation to the 
assessment year 2014-15  and
subsequent assessment years.
[Clause 17]
D. RELIEF AND WELFARE MEASURES
Rebate of Rs 2000 for
individuals having total income up to Rs 5 lakh
With a view to
provide tax relief to the individual tax payers who are in lower income
bracket, it is proposed to provide rebate from the tax payable by an assessee,
being an individual resident in India, whose total income does not exceed five
lakh rupees. The rebate shall be equal to the amount of income-tax payable on
the total income for any assessment year or an amount of two thousand rupees,
whichever is less. Consequently any individual having income up to Rs 2,20,000
will not be required to pay any tax and every individual having total income
above Rs. 2,20,000/- but not exceeding Rs. 5,00,000/- shall get a tax relief of
Rs. 2000/-.
Section 87 has also been
consequentially amended.
These amendments
will take effect from 1st  April, 2014
and will, accordingly, apply in relation to the 
assessment year 2014-15  and
subsequent assessment years.
[Clauses 19 &
20]
Deduction in respect of
interest on loan sanctioned during financial year 2013-14 for acquiring
residential house property
Under the
existing provisions of section 24 of the Income-tax Act, income chargeable
under the head ‘Income from House Property’ is computed after making the
deductions specified therein. The deductions specified under the aforesaid
section are as under:-
i.              A sum equal to thirty per cent of
the annual value;
ii.             Where the property has been
acquired, constructed, repaired, renewed or reconstructed with borrowed
capital, the amount of any interest payable on such capital.
It has also been
provided that where the property consists of a house or part of a house which
is in the occupation of the owner for the purposes of his own residence or
cannot actually be occupied by the owner by reason of the fact that owing to
his employment, business or profession carried on at any other place, he has to
reside at that other place in a building not belonging to him, then the amount
of deduction as mentioned above shall not exceed one lakh fifty thousand rupees
subject to the conditions provided in the said section.
Keeping in view
the need for affordable housing, an additional benefit for first-home buyers is
proposed to be provided by inserting a new section 80EE in the Income-tax Act
relating to deduction in respect of interest on loan taken for residential
house property.
The proposed new
section 80EE seeks to provide that in computing the total income of an
assessee, being an individual, there shall be deducted, in accordance with and
subject to the provisions of this section, interest payable on loan taken by
him from any financial institution for the purpose of acquisition of a
residential house property.
It is further
provided that the deduction under the proposed section shall not exceed one
lakh rupees and shall be allowed in computing the total income of the
individual for the assessment year beginning on 1st April, 2014 and in a case
where the interest payable for the previous year relevant to the said
assessment year is less than one lakh rupees, the balance amount shall be
allowed in the assessment year beginning on 1st 
April, 2015.
It is also
provided that the deduction shall be subject to the following conditions:-
(i)            the loan is sanctioned by the
financial institution during the period beginning on 1st April, 2013 and ending
on 31st  March, 2014;
(ii)           the amount of loan sanctioned for
acquisition of the residential house property does not exceed twenty-five lakh
rupees;
(iii)          the value of the residential house
property does not exceed forty lakh rupees; (iv) the assessee does not own any
residential house property on the date of sanction of the loan.
It is also
provided that where a deduction under this section is allowed for any
assessment year, in respect of interest referred to in sub-section (1),
deduction shall not be allowed in respect of such interest under any other
provisions of the Income-tax Act for the same or any other assessment year.
It is also
proposed to define the term “financial institution”.
This amendment
will take effect from 1st  April, 2014
and accordingly apply in relation to the assessment year 2014-15 and
subsequent  assessment  year.
[Clause 13]
Raising the limit of
percentage of eligible premium for life insurance policies of persons with
disability or disease
Under the
existing provisions contained in clause (10D) of section 10, any sum received
under a life insurance policy, including the sum allocated by way of bonus on
such policy, is exempt, subject to the condition that the premium paid for such
policy does not exceed ten per cent of the ‘actual capital sum assured’.
Similarly as per the existing provisions contained in sub- section (3A) of
section 80C, the deduction under the said section is available in respect of
any premium or other payment made on an insurance policy of up to ten per cent
of the ‘actual capital sum assured’.
The above limit
of ten per cent was introduced through the Finance Act, 2012 and applies to
policies issued on or after 1st April, 2012. 
Some insurance policies for persons with disability or suffering from
specified diseases provide for an annual premium of more than ten per cent of
the actual capital sum assured. Due to the limit of ten per cent, these
policies are ineligible for exemption under clause (10D) of section 10.
Moreover, the deduction under section 80C is eligible only to an extent of the
premium paid up to 10 % of the ‘actual capital sum assured’.
It is proposed
to provide that any sum including the sum allocated by way of bonus received
under an insurance policy issued on or after 01.04.2013 for the insurance on
the life of any person who is
(i)   a person with disability or a person with
severe disability as referred to in section 80U, or
(ii)  suffering from disease or ailment as
specified in the rules made under section 80DDB, shall be exempt under clause
(10D) of section 10 if the premium payable for any of the years during the term
of the policy does not exceed 15% of the actual capital sum assured.
It is also
proposed to amend sub-section (3A) of section 80C so as to provide that the
deduction under the said section on account of premium paid in respect of a
policy issued on or after 01.04.2013 for insurance on the life of a person
referred to above shall be allowed to the extent the premium paid does not
exceed 15% of the actual capital sum assured.
This amendment
will take effect from 1st   April,  2014 and will, accordingly, apply in relation
to the  assessment year 2014-15  and subsequent assessment years.
[Clauses 4 & 10]
Deduction for contribution to
Health Schemes similar to CGHS
The existing
provisions of section 80D, inter alia, provide that the whole of the amount
paid in the previous year out of the income chargeable to tax of the assessee,
being an individual, to effect or to keep in force an insurance on his health
or the health of the family or any contribution made towards the Central
Government Health Scheme (CGHS) or any payment made on account of preventive
health check-up of the assessee or his family, as does not exceed in the
aggregate fifteen thousand rupees, is allowed to be deducted in computing the
total income of the assessee.
It has been noticed that there
are other health schemes of the Central and State Governments, which are
similar to the CGHS but no deduction for such schemes is available to the
subscribers of such schemes. In order to bring such schemes at par with the
CGHS, it is proposed to amend section 80D, 
so as to allow the benefit of deduction under this section within the
said limit, in respect of any payment or contribution made by the assessee to
such other health scheme as may be notified by the Central Government.
This  amendment will take effect from 1st   April, 
2014 and will, accordingly, apply in relation to the  assessment year 2014-15  and subsequent assessment  years.
[Clause 12]
Expanding the scope of
deduction and its eligibility under section 80CCG
The existing
provisions of section 80CCG, inter-alia, provide that a resident individual who
has acquired listed equity shares in accordance with the scheme notified by the
Central Government, shall be allowed a deduction of fifty per cent of the
amount invested in such equity shares to the extent that the said deduction
does not exceed  twenty five thousand
rupees.  The deduction is a one-time
deduction and is available only in one assessment year in respect of the amount
so invested. The deduction is available to a new retail investor whose gross
total income does not exceed ten lakh rupees. Rajiv Gandhi Equity Savings
Scheme has been notified under section 80CCG.
With a view to
liberalize the incentive available for investment in capital markets by the new
retail investors, it is proposed to amend the provisions of section 80CCG so as
to provide that investment in listed units of an equity oriented fund shall also
be eligible for deduction in accordance with the provisions of section 80CCG.
It is proposed to provide that “equity oriented fund” shall have the meaning
assigned to it in clause (38) of section 10.
It is further
proposed to provide that the deduction under this section shall be allowed for
three consecutive assessment years, beginning with the assessment year relevant
to the previous year in which the listed equity shares or listed units were
first acquired by the new retail investor whose gross total income for the
relevant assessment year does not exceed twelve lakh rupees.
This  amendment will take effect from 1st   April, 
2014 and will, accordingly, apply in relation to the  assessment year 2014-15  and subsequent assessment years.
[Clause 11]
Exemption to income of
Investor Protection Fund of depositories
Under the
provisions of SEBI (Depositories and Participants) Regulations, 1996, as
amended in 2012, the depositories are mandatorily required to set up an
Investor Protection Fund.
Under the existing
provisions, section 10(23EA) provides that income by way of contributions from
a recognised stock exchange received by a Investor Protection Fund set up by
the recognised stock exchange shall be exempt from taxation .
On similar
lines, it is proposed that income, by way of contribution from a depository, of
the Investor Protection Fund set up by the depository in accordance with the
regulations prescribed by SEBI will not be included while computing the total
income subject to same conditions as are applicable in respect of exemption to
an Investor Protection Fund set up by recognised stock exchanges.
However, where
any amount standing to the credit of the fund and not charged to income-tax
during any previous year is shared wholly or partly with a depository, the
amount so shared shall be deemed to be the income of the previous year in which
such amount is shared.
This amendment
will take effect from 1st April, 2014 and will, accordingly, apply in relation
to assessment year 2014-15 and subsequent 
assessment  years.
[Clause 4]
One hundred per cent deduction
for donation to National Children’s Fund
Under the
existing provisions of section 80G an assessee is allowed a deduction from his
total income  in respect of donations
made by him to certain funds and institutions. 
The deduction is allowed at the rate of fifty per cent of the amount of
donations made except in the case of donations made to certain funds and
institutions specified in clause (i) of sub-section (1) of section 80G, where
deduction is allowed at the rate of one hundred per cent.  In the case of donations made to the National
Children’s Fund, deduction is allowed at the rate of fifty per cent of the
amount so donated.
Donations to
Funds which are of national importance have been generally provided a deduction
of one hundred per cent of the amount donated. Since the National Children’s
Fund is also a Fund of national importance, it is proposed to allow hundred per
cent deduction in respect of any sum paid to the Fund in computing the total
income of an assessee.
This amendment
will take effect from 1st April, 2014 and will, accordingly, apply in relation
to assessment year 2014-15 and subsequent 
assessment  years.
[Clause 14]
Exemption to National
Financial Holdings Company Limited
The Specified
Undertaking of Unit Trust of India (SUUTI) was created vide the Unit Trust of
India (Transfer of Undertaking and Repeal) Act, 2002 as the successor of Unit
Trust of India (UTI). Exemption from Income-tax was available to SUUTI in
respect of its income up to 31st March, 2014.
SUUTI has been
wound up and is succeeded by a new company wholly owned by the Central
Government. It has been incorporated on 7th    
June, 2012 as National Financial Holdings Company Limited (NFHCL).
In order to provide
the exemption on the lines of SUUTI to NFHCL, it is proposed to amend section
10 to grant exemption to National Financial Holdings Company Limited in respect
of its income accruing, arising or received on or before 31.03.2014.
This amendment
will take effect retrospectively from 1st April, 2013 and will, accordingly,
apply in relation to the assessment year 2013-14 and assessment year 2014-15.
[Clause 4]
Lower rate of tax on dividends
received from foreign companies
Section 115BBD
of Income-tax Act provides for taxation of gross dividends received by an
Indian company from a specified foreign company (in which it has shareholding
of 26% or more) at the rate of 15% if such dividend is included in the total
income for the Financial Year 2012-13 i.e. Assessment Year 2013-14.
The  above provision was introduced as an
incentive for attracting repatriation of income earned by  residents from investments made abroad
subject to certain conditions.
In order to
continue the tax incentive for one more year, it is proposed to amend section
115BBD to extend the applicability of this section in respect of income by way
of dividends received from a specified foreign company in Financial Year
2013-14 also, subject to the same conditions.
This  amendment will take effect from 1st   April, 
2014 and will, accordingly, apply in relation to the  assessment year 2014-15.
[Clause 26]
Removal of the cascading
effect of Dividend Distribution Tax (DDT)
Section 115-O of
the Income-tax Act provides for taxation of distributed profits of a domestic
company. It provides that any amount declared, distributed or paid by way of
dividends, whether out of current or accumulated profits, shall be liable to be
taxed at the rate of 15%. The tax is known as Dividend Distribution Tax (DDT).
Such distributed dividend is exempt in the hands of recipients.
Section 115BBD
of Income Tax Act provides for taxation of gross dividends received by an
Indian company from a specified foreign company (in which it has shareholding
of 26% or more) at the rate of 15%.
Section 115-O
provides that the tax base for DDT (i.e. the dividend payable in case of a
company) is to be reduced by an amount of dividend received from its subsidiary
if such subsidiary has paid the DDT which is payable on such dividend . This
ensured removal of cascading effect of DDT in a multi-tier structure where
dividend received by a domestic company from its subsidiary (which is also a
domestic company) is distributed to its shareholders.
It is proposed
to amend section 115-O in order to remove the cascading effect in respect of
dividends received by a domestic company from a similarly  placed foreign subsidiary ( ie the foreign
company in which domestic company holds more than fifty percent of equity share
capital).  It is proposed that where the
tax on dividends received from the foreign subsidiary is payable under section
115BBD by the holding  domestic company
then, any dividend distributed by the holding company in the same year, to the
extent of such dividends, shall not be subject to Dividend Distribution Tax
under section 115-O of the Income-tax Act.
This amendment
will take effect from 1st  June, 2013.
[Clause 27]
Concessional rate of
withholding tax on interest in case of certain rupee denominated long-term
infrastructure bonds
The existing
provisions of section 194LC provide that if an Indian company borrows money in
foreign currency from a source outside India either under a loan agreement or
by way of issue of long-term infrastructure bonds, as approved by the Central
Government, then the interest payment to a non-resident person would be subject
to a concessional rate of tax @ 5%.
In order to
facilitate subscription by a non-resident in the long term infrastructure bonds
issued by an Indian company in India (rupee denominated bond ), it is proposed
to amend section 194LC of the Income-tax Act so as to provide that where a
non-resident deposits foreign currency in a designated bank account and such
money as converted in rupees is utilised for subscription to a long-term
infrastructure bond issue of an Indian company, then, for the purpose of this
section, the borrowing by the company shall be deemed to be in foreign
currency. The benefit of reduced rate of tax would, therefore, be available to
such non-resident in respect of the interest income arising on such
subscription subject to other conditions provided in the section.
The designated
bank account should be solely for the purpose of deposit of money in foreign
currency and such money is to be used, after conversion, for subscription to a
rupee denominated long-term infrastructure bond issue of an Indian company.
This amendment
will take effect from 1st  June, 2013.
[Clause 43]
Taxation of Securitisation
Trusts
Section 161 of
the Income-tax Act provides that in case of a trust if its income consists of
or includes profits and gains of business then income of such trust shall be
taxed at the maximum marginal rate in the hands of trust.
The special
purpose entities set up in the form of trust to undertake securitisation
activities were facing problem due to lack of special dispensation in respect
of taxation under the Income-tax Act. The taxation at the level of trust due to
existing provisions was considered to be restrictive particularly where the
investors in the trust are persons which are exempt from taxation under the
provisions of the Income-tax Act like Mutual Funds.
In order to
facilitate the securitisation process, it is proposed to provide a special
taxation regime in respect of taxation of income of securitisation entities,
set up as a trust, from the activity of securitisation. It is proposed to amend
section 10 and also insert a new Chapter XII-EA for providing a special tax
regime.  The salient features of the
special regime are :-
(i)   In case of securitisation vehicles which are
set up as a trust and the activities of which are regulated by either SEBI or RBI,
the income from the activity of securitisation of such trusts will be exempt
from taxation.
(ii)  The securitisation trust will be liable to
pay additional income-tax on income distributed to its investors on the line of
distribution tax levied in the case of mutual funds. The additional income-tax
shall be levied @ 25% in case of distribution being made to investors who are
individual and HUF and @ 30% in other cases. No additional income- tax shall be
payable if the income distributed by the securitisation trust is received by a
person who is exempt from tax under the Act.
(iii)  Consequent to the levy of distribution tax,
the distributed income received by the investor will be exempt from tax.
(iv)  The securitisation trust will be liable to
pay interest at the rate of one percent. for every month or part of the month
on the amount of additional income-tax not paid within the specified time .
(v)   The person responsible for payment of income
or the securitisation trust will be deemed to be an assessee in default in
respect of amount of tax payable by him or it in case the additional income-tax
is not paid to the credit of Central Government.
This amendment
will take effect from 1st  June, 2013.
[Clauses 4 & 30]
Securities Transaction Tax
(STT)
Securities
Transaction Tax (STT) on transactions in specified securities was introduced
vide Finance (No.2) Act, 2004.
It is proposed
to amend section 98 of the Finance (No.2) Act, 2004 to reduce STT rates in the
taxable securities transactions as indicated hereunder:-
TABLE
Sl. No.
Nature of taxable securities
transaction
Payable by
Existing Rates
(in per cent)
Proposed Rates
(in per cent)
(1)
(2)
(3)
(4)
(5)
1.
Delivery based purchase of
units of an equity oriented fund entered into in a recognised stock  exchange
Purchaser
0.1
Nil
2.
Delivery based sale of units of
an equity oriented fund entered into in a recognised stock exchange
Seller
0.1
0.001
3.
Sale of a futures in securities
Seller
0.017
0.01
4.
Sale of a unit of an equity
oriented fund to the mutual fund
Seller
0.25
0.001
The proposed
amendments in the rates of securities transaction tax will be effective from
1st June, 2013 and will accordingly apply to any transaction made on or after
that date.
[Clause 125]
Pass through Status to certain
Alternative Investment Funds
Existing
provisions of section 10(23FB) of the Income-tax Act provide that any income of
a Venture Capital Company (VCC) or Venture Capital Fund (VCF) from investment
in a Venture Capital Undertaking (VCU) shall be exempt from taxation. Section 115U
of the Income-tax Act provides that income accruing or arising or received by a
person out of investment made in a VCC or VCF shall be taxable in the same
manner as if the person had made direct investment in the VCU.
These sections
provide a tax pass through status (i.e. income is taxable in the hands of
investors instead of VCF/VCC) only to the funds which satisfy the investment
and other conditions as are provided in SEBI (Venture Capital Fund)
Regulations, 1996. Further the pass through status is available only in respect
of income which arises to the fund from investment in VCU, being a company
which satisfies the conditions provided in SEBI (Venture Capital Fund)
Regulations, 1996.
The
SEBI(Alternative Investment Funds) Regulations, 2012 (AIF regulations) have
replaced the SEBI (Venture Capital Fund) Regulations, 1996 (VCF regulations)
from 21st  May, 2012.
In order to
provide benefit of pass through to similar venture capital funds as are
registered under new regulations and subject to same conditions of investment
restrictions in the context of investment in a venture capital undertaking, it
is proposed to amend section 10(23FB) to provide that–
(i)   The existing VCFs and VCCs (i.e. which have
been registered before 21/05/2012) and are regulated  by the VCF regulations, as they stood before
repeal by AIF regulations, would continue to avail pass through status as
currently available.
(ii)   In the context of AIF regulations, the
Venture Capital Company shall be defined as a company and  Venture capital fund shall be defined as a  fund set up as a trust, which  has been granted  a certificate of registration as  Venture Capital Fund being a sub-category
of  Category I Alternative Investment
Fund and satisfies the following conditions:-
(a)          That
at least two-thirds of its  investible
funds are invested in unlisted equity shares or equity linked instruments of
venture capital undertaking.
(b)          No investment has been made by such AIFs in a VCU which is an
associate company.
(c)           Units
of a trust set up as AIF or shares of a company set up as AIF, are not listed
on a recognised stock exchange.
(iii)  In the context of AIF regulations, the
Venture Capital Undertaking shall be defined as it is defined in the
Alternative Investment  Funds
Regulations.
This amendment
will take effect retrospectively from 1st April, 2013 and will accordingly apply
in relation to assessment year 2013-14 
and subsequent assessment years.
[Clause 4]
E. WIDENING OF TAX BASE AND
ANTI TAX AVOIDANCE MEASURES
Tax Deduction at Source (TDS)
on transfer of certain immovable properties (other than agricultural land)
There is a
statutory requirement under section 139A of the Income-tax Act read with rule
114B of the Income-tax Rules, 1962 to quote Permanent Account Number (PAN) in
documents pertaining to purchase or sale of immovable property for value of
Rs.5 lakh or more.  However, the
information furnished to the department in Annual Information Returns by the
Registrar or Sub- Registrar indicate that a majority of the purchasers or
sellers of immovable properties, valued at Rs.30 lakh or more, during the
financial year 2011-12 did not quote or quoted invalid PAN in the documents
relating to transfer of the property.
Under the
existing provisions of the Income-tax Act, tax is required to be deducted at
source on certain specified payments made to residents by way of salary,
interest, commission, brokerage, professional services, etc.  On transfer of immovable property by a
non-resident, tax is required to be deducted at source by the transferee.
However, there is no such requirement on transfer of immovable property by a
resident except in the case of compulsory acquisition of certain immovable
properties. In order to have a reporting mechanism of transactions in the real
estate sector and also to collect tax at the earliest point of time, it is
proposed to insert a new section 194-IA to provide that every transferee, at
the time of making payment or crediting of any sum as consideration for
transfer of immovable property (other than agricultural land) to a resident
transferor, shall deduct tax, at the rate of 1% of such sum.
In order to
reduce the compliance burden on the small taxpayers, it is further proposed
that no deduction of tax under this provision shall be made where the total
amount of consideration for the transfer of an immovable property is less than
fifty lakh rupees.
This amendment
will take effect from 1st  June, 2013.
[Clause 42]
Additional Income-tax on
distributed income by company for buy-back of unlisted shares
Existing
provisions of Section 2(22)(e) provide the definition of dividends for the
purposes of the Income-tax Act. Section 115- O provides for levy of Dividend
Distribution Tax(DDT) on the company at the time when company distributes ,
declares or pays any dividend to its shareholders. Consequent to the levy of
DDT the amount of dividend received by the shareholders is not included in the
total income of the shareholder.
The
consideration received by a shareholder on buy-back of shares by the company is
not treated as dividend but is taxable as capital gains under section 46A of
the Act.
A company,
having distributable reserves, has two options to distribute the same to its
shareholders either by declaration and payment of dividends to the
shareholders, or by way of purchase of its own shares (i.e. buy back of shares)
at a consideration fixed by it. In the first case, the payment by company is
subject to DDT and income in the hands of shareholders is exempt. In the second
case the income is taxed in the hands of shareholder as capital gains.
Unlisted
Companies, as part of tax avoidance scheme, are resorting to buy back of shares
instead of payment of dividends in order to avoid payment of tax by way of DDT
particularly where the capital gains arising to the shareholders are either not
chargeable to tax or are taxable at a lower rate.
In order to curb
such practice it is proposed to amend the Act, by insertion of new Chapter
XII-DA, to provide that the consideration paid by the company for purchase of
its own unlisted shares which is in excess of the sum received by the company
at the time of issue of such shares (distributed income) will be charged to tax
and the company would be liable to pay additional income-tax @ 20% of the
distributed income paid to the shareholder. The additional income-tax payable
by the company shall be the final tax on similar lines as dividend distribution
tax. The income arising to the shareholders in respect of such buy back by the
company would be exempt where the company is liable to pay the additional
income-tax on the buy-back of shares.
These amendments
will take effect from 1stJune, 2013.
[Clauses 4 & 28]
Computation of income under
the head “Profits and gains of business or profession” for transfer of
immovable property in certain cases
Currently, when
a capital asset, being immovable property, is transferred for a consideration
which is less than the value adopted, assessed or assessable by any authority
of a State Government for the purpose of payment of stamp duty in respect of
such transfer, then such value (stamp duty value) is taken as full value of
consideration under section 50C of the Income-tax Act.  These provisions do not apply to transfer of
immovable property, held by the transferor as stock-in-trade.
It is proposed
to provide by inserting a new section 43CA that where the consideration for the
transfer of an asset (other than capital asset), being land or building or
both, is less than the stamp duty value, the value so adopted or assessed or
assessable shall be deemed to be the full value of the consideration for the
purposes of computing income under the head “Profits and gains of business of
profession”.
It is also
proposed to provide that where the date of an agreement fixing the value of
consideration for the transfer of the asset and the date of registration of the
transfer of the asset are not same, the stamp duty value may be taken as on the
date of the agreement for transfer and not as on the date of registration for
such transfer.  However, this exception
shall apply only in those cases where amount of consideration or a part thereof
for the transfer has been received by any mode other than cash on or before the
date of the agreement.
These amendments
will take effect from 1st April, 2014 and will, accordingly, apply in relation
to the assessment year 2014-15  and
subsequent assessment years.
[Clause   8]
Taxability of immovable
property received for inadequate consideration
The existing
provisions of sub clause (b) of clause (vii) of sub-section (2) of section 56
of the Income-tax Act, inter alia, provide that where any immovable property is
received by an individual or HUF without consideration, the stamp duty value of
which exceeds fifty thousand rupees, the stamp duty value of such property
would be charged to tax in the hands of the individual or HUF as income from
other sources.
The existing
provision does not cover a situation where the immovable property has been
received by an individual or HUF for inadequate consideration. It is proposed
to amend the provisions of clause (vii) of sub-section (2) of section 56 so as
to provide that where any immovable property is received for a consideration
which is less than the stamp duty value of the property by an amount exceeding
fifty thousand rupees, the stamp duty value 
of such property as exceeds such consideration, shall be chargeable to
tax in the hands of the individual or HUF as income from other sources.
Considering the
fact that there may be a time gap between the date of agreement and the date of
registration, it is proposed to provide that where the date of the agreement fixing
the amount of consideration for the transfer of the immovable property and the
date of registration are not the same, the stamp duty value may be taken as on
the date of the agreement, instead of that on the date of registration. This
exception shall, however, apply only in a case where the amount of
consideration, or a part thereof, has been paid by any mode other than cash on
or before the date of the agreement fixing the amount of consideration for the
transfer of such immovable property.
This  amendment will take effect from 1st   April, 
2014 and will, accordingly, apply in relation to the  assessment year 2014-15  and subsequent assessment years.
[Clause 9]
F. RATIONALISATION MEASURES
GENERALANTI-AVOIDANCERULE(GAAR)
The General Anti
Avoidance Rule (GAAR) was introduced in the Income-tax Act by the Finance Act,
2012. The substantive provisions relating to GAAR are contained in Chapter X-A
(consisting of sections 95 to 102) of the Income-tax Act. The procedural
provisions relating to mechanism for invocation of GAAR and passing of the
assessment order in consequence thereof are contained in section 144BA. The
provisions of Chapter X-A as well as section 144BA would have come into force
with effect from 1st  April, 2014.
A number of
representations were received against the provisions relating to GAAR. An
Expert Committee was constituted by the Government with broad terms of
reference including consultation with stakeholders and finalising the GAAR
guidelines and  a  road 
map  for  implementation.  The Expert Committee’s recommendations included
suggestions for legislative amendments, formulation of rules and prescribing
guidelines for implementation of GAAR. 
The major recommendations of the Expert Committee have been accepted by
the Government, with some modifications. Some of the recommendations accepted
by the Government require amendment in the provisions of Chapter X-A and
section 144BA .
In order to give
effect to the recommendations the following amendments have been made in GAAR
provisions currently provided in the Act:-
(A)  The provisions of Chapter X-A and section
144BA will come into force with effect from April 1, 2016 as against the
current date of April 1, 2014. The provisions shall apply from the assessment
year  2016-17 instead of assessment year 2014-15.
(B)  An arrangement, the main purpose of which is
to obtain a tax benefit, would be considered as an  impermissible avoidance arrangement. The
current provision of section 96 providing that it should be “the main purpose
or one of the main purposes” has been proposed to be amended accordingly.
(C)  The factors like, period or time for which
the arrangement had existed; the fact of payment of taxes by the assessee; and
the fact that an exit route was provided by the arrangement, would be relevant
but not sufficient to determine whether the arrangement is an impermissible
avoidance arrangement. The current provisions of section 97 which provided that
these factors would not be relevant has been proposed to be amended accordingly.
(D)  An arrangement shall also be deemed to be
lacking commercial substance, if it does not have a significant effect upon the
business risks, or net cash flows of any party to the arrangement apart from
any effect attributable to the tax benefit that would be obtained but for the
application of Chapter X-A. The current provisions as contained in section 97
are proposed to be amended to provide that an arrangement shall also be deemed
to lack commercial substance if the condition provided above is satisfied.
(E)  The Approving Panel shall consist of a
Chairperson who is or has been a Judge of a High Court; one Member of the
Indian Revenue Service not below the rank of Chief Commissioner of Income-tax;
and one Member who shall be an academic or scholar having special knowledge of
matters such as direct taxes, business accounts and international trade
practices. The current provision  of
section 144BA ,that the Approving Panel shall consist of not less than three
members being income-tax authorities and an 
officer of the Indian Legal Service 
has been  proposed to be amended
accordingly.
(F)  The directions issued by the Approving Panel
shall be binding on the assessee as well as the income-tax authorities and no
appeal against such directions can be made under the provisions of the Act. The
current provisions of section 144BA providing that the direction of the
Approving Panel will be binding only on the Assessing Officer have been
proposed to be amended accordingly.
(G)  The Central Government may constitute one or
more Approving Panels as may be necessary and the term of the Approving Panel
shall be ordinarily for one year and may be extended from time to time up to a
period of three years. The provisions of section 144BA have been proposed to be
amended accordingly.
(H)  The two separate definitions in the current
provisions of section 102, namely, “associated person” and “connected person”
will be combined and there will be only one inclusive provision defining a
‘connected person’. The provisions of section 102 have been proposed to be
amended accordingly.
Consequential
amendments in other sections relating to procedural matters are also proposed.
These amendments
will take effect from 1st  April, 2016
and will, accordingly, apply in relation to the 
assessment year 2016-17  and
subsequent assessment  years.
[Clauses 21, 22,23,
24,34,35,36,37,38,39,44,45,46,47 & 49]
Rationalisation of tax on
distributed income by the Mutual Funds
Under the
existing provisions of section 115R any amount of income distributed by the
specified company or a Mutual Fund to its unit holders is chargeable to
additional income-tax. In case of any distribution made by a fund other than
equity oriented fund to a person who is not an individual and HUF, the rate of tax
is 30% whereas in case of distribution to an individual or an HUF it is 12.5%
or 25% depending on the nature of the fund.
In order to
provide uniform taxation for all types of funds, other than equity oriented
fund, it is proposed to increase the rate of tax on distributed income from
12.5% to 25% in all cases where distribution is made to an individual or a HUF.
Further in case
of an Infrastructure debt fund (IDF) set up as a Non-Banking Finance Company
(NBFC) the interest payment made by the fund to a non-resident investor is
taxable at a concessional rate of 5%. However in case of distribution of income
by an IDF set up as a Mutual Fund the distribution tax is levied at the rates
described above in the case of a Mutual Fund.
In order to
bring parity in taxation of income from investment made by a non-resident
Investor in an IDF whether set up as a IDF-NBFC or IDF-MF, it is proposed to
amend section 115R to provide that tax @ 5% on income distributed shall be
payable in respect of income distributed by a Mutual Fund under an IDF scheme
to a non-resident Investor.
This amendment
will take effect from 1st  June, 2013.
[Clause 29]
Enabling provisions for
facilitating electronic filing of annexure-less return of net wealth
Section 14 of
the Wealth-tax Act provides for furnishing of return of net wealth as on the
valuation date in the prescribed form and verified in the prescribed manner
setting forth particulars of the net wealth and such other particulars as may
be prescribed. Currently, certain documents, reports are required to be
furnished along with the return of net wealth under the provisions of
Wealth-tax Act read with the provisions of Wealth-tax Rules.
Sections 139C
and 139D of the Income-tax Act contain provisions for facilitating filing of
annexure-less return of income in electronic form by certain class of
income-tax assessees. In order to facilitate electronic filing of annexure-less
return of net wealth, it is proposed to insert new sections 14A and 14B in the
Wealth-tax Act on similar lines.
Consequently, it
is also proposed to amend provisions of section 46 of the Wealth-tax Act which
provides for rule making powers of the Board.
These amendments
will take effect from 1st  June, 2013.
[Clauses 52 &
53]
Disallowance of certain fee, charge,
etc. in the case of State Government Undertakings
The existing
provisions of section 40 specifies the amounts which shall not be deducted in
computing the income chargeable under the head “Profits and gains of business
or profession”. The non-deductible expense under the said section also includes
statutory dues like fringe benefit tax, income-tax, wealth-tax, etc.
Disputes have
arisen in respect of income-tax assessment of some State Government
undertakings as to whether any sum paid by way of privilege fee, license fee,
royalty, etc. levied or charged by the State Government exclusively on its
undertakings are deductible or not for the purposes of computation of income of
such undertakings. In some cases, orders have been issued to the effect that
surplus arising to such undertakings shall vest with the State Government. As a
result it has been claimed that such income by way of surplus is not subject to
tax.  It is a settled law that State
Government undertakings are separate legal entities than the State and are
liable to income-tax.
In order to
protect the tax base of State Government undertakings vis-à-vis exclusive levy
of fee, charge, etc. or appropriation of amount by the State Governments from
its undertakings, it is proposed to amend section 40 of the Income-tax Act to
provide that any amount paid by way of fee, charge, etc., which is levied
exclusively on, or any amount appropriated, directly or indirectly, from a
State Government undertaking,   by the
State Government,  shall not be allowed
as deduction for the purposes of computation of income of such undertakings
under the head “Profits and gains of business or profession”. It is also
proposed to define the expression “State Government Undertaking” for this
purpose.
This  amendment will take effect from 1st   April, 
2014 and will, accordingly, apply in relation to the  assessment year 2014-15  and subsequent assessment years.
[Clause 7]
Amendment in the definition of
Capital Asset
The existing
provisions contained in clause (14) of section 2 of the Income-tax Act define
the term “capital asset” as property of any kind held by an assessee, whether
or not connected with his business or profession. Certain categories of
properties including agricultural land have been excluded from this definition.
Sub-clause (iii) of clause (14) of section 2 provides that (a) agricultural
land situated in any area within the jurisdiction of a municipality or
cantonment board having population of not less than ten thousand according to
last preceding census, or (b) agricultural land situated in any area within
such distance not exceeding eight kilometers from the local limits of any
municipality or cantonment board, as notified by the Central Government having
regard to the extent and scope of urbanization and other relevant factors,
forms part of capital asset.
It is proposed
to amend item (b) of sub-clause (iii) of clause (14) of section 2 so as to
provide that the land situated in any area within the distance, measured
aerially (shortest aerial distance), (I) not being more than two kilometers,
from the local limits of any municipality or cantonment board referred to in
item (a)  and which has a population of
more than ten thousand but not exceeding one lakh; or (II) not being more than
six kilometers, from the local limits of any municipality or cantonment board
referred to in item (a) and which has a population of more than one lakh but
not exceeding ten lakh; or (III) not being more than eight kilometers, from the
local limits of any municipality or cantonment board referred to in item (a)
and which has a population of more than ten lakh, shall form part of capital
asset.
It is also
proposed to define the expression “population” to mean population according to
the last preceding census of which the relevant figures have been published
before the first day of the previous year.
Similar
amendments are also proposed in clause (1A) of section 2 of the Income-tax Act,
1961 relating to the definition of “agricultural income” and in respect of the
definition of “urban land” in the Wealth-tax Act, 1957.
These amendments
will take effect from 1st  April, 2014
and will, accordingly, apply in relation to assessment year 2014-15 and  subsequent 
assessment  years.
[Clauses 3 & 51]
Keyman insurance policy
The existing
provisions of clause (10D) of section 10, inter alia, exempt any sum received
under a life insurance policy other than a keyman insurance policy. Explanation
1 to the said clause (10D) defines  a
keyman insurance policy to  mean a life
insurance policy taken by a person on the life of another person who is or was
the employee of the first-mentioned person or is or was connected in any manner
whatsoever with the business of the first-mentioned person.
It has been
noticed that the policies taken as keyman insurance policy are being assigned
to the keyman before its maturity. The keyman pays the remaining premium on the
policy and claims the sum received under the policy as exempt on the ground
that the policy is no longer a keyman insurance policy. Thus, the exemption
under section 10(10D) is being claimed for policies which were originally
keyman insurance policies but during the term these were assigned to some other
person.  The Courts have also noticed this
loophole in law.
With a view to
plug the loophole and check such practices to avoid payment of taxes, it is
proposed to amend the provisions of clause (10D) of section 10 to provide that
a keyman insurance policy which has been assigned to any person during its
term, with or without consideration, shall continue to be treated as a keyman
insurance policy.
The above
amendment will take effect from 1st 
April, 2014 and will, accordingly, apply in relation to  assessment year 2014-15  and subsequent assessments years.
[Clause 4]
Contribution not to be in cash
for deduction under section 80GGB & section 80GGC
Under the
existing provisions of section 80GGB, any sum contributed by an Indian company
to any political party or an electoral trust in the previous year, is allowed
as deduction in computing the total income of such Indian company.  A similar deduction is available to an
assessee, being any person other than local authority and artificial juridical
person under section 80GGC. There is no specific mode provided for making such
contribution.
With a view to
discourage cash payments by the contributors, it is proposed to amend the
provisions of aforesaid sections, so as to provide that no deduction shall be
allowed under section 80GGB and 80GGC in respect of any sum contributed by way
of cash.
This  amendment will take effect from 1st   April, 
2014 and will, accordingly, apply in relation to the  assessment year 2014-15  and subsequent assessment years.
[Clauses 15 &
16]
Clarification of the phrase
“tax due” for the purposes of recovery in certain cases
Section 179 of
the Income-tax Act provides that where the tax due from a private company
cannot be recovered from such company, then the director (who was the director
of such company during the previous year to which non-recovery relates) shall
be jointly and severally liable for payment of such tax unless he proves that
the non-recovery of tax cannot be attributed to any gross neglect, misfeasance
or breach of duty on his part. This provision is intended to recover
outstanding demand under the Act of a private company from the directors of
such company in certain cases. However, some courts have interpreted the phrase
‘tax due’ used in section 179 to hold that it does not include penalty,
interest and other sum payable under the Act.
In view of the above, it is
proposed to clarify that for the purposes of this section, the expression “tax
due” includes penalty, interest or any other sum payable under the Act.
Amendments on the similar lines for clarifying the expression ‘tax due’ is
proposed to be made to the provisions of section 167C.
These amendments will take effect
from 1st  June, 2013.
[Clauses   40 & 41]
Deduction for additional wages
in certain cases
The existing
provisions contained in section 80JJAA of the Income-tax Act provide for a
deduction of an amount equal to thirty per cent of additional wages paid to the
new regular workmen employed in any previous year by an Indian company in its
industrial undertaking engaged in manufacture or production of article or
thing. The deduction is available for three assessment years including the
assessment year relevant to the previous year in which such employment is
provided.
No deduction
under this section is allowed if the industrial undertaking is formed by
splitting up or reconstruction of an existing undertaking or amalgamation with
another industrial undertaking.
The tax
incentive under section 80JJAA was intended for employment of blue collared
employees in the manufacturing sector whereas in practice, it is being claimed
for other employees in other sectors also. It is, therefore, proposed to amend
the provisions of section 80JJAA so as to provide that the deduction shall be
available to an Indian Company deriving profits from manufacture of goods in
its factory.  The deduction shall be of
an amount equal to thirty per cent of additional wages paid to the new regular
workmen employed by the assessee in such factory, in the previous year, for
three assessment years including the assessment year relevant to the previous
year in which such employment is provided.
It is also
proposed to provide that the deduction under this section shall not be
available if the factory is hived off or transferred from another existing
entity or acquired by the assessee company as a result of amalgamation with
another company.
This amendment
will take effect from 1st April, 2014 and will, accordingly, apply in relation
to assessment year 2014-15 and subsequent 
assessment  years.
[Clause 18]
Tax Residency Certificate
Section 90 of
the Income Tax Act empowers the Central Government to enter into an agreement
with the Government of any foreign country or specified territory outside India
for the purpose of –
(i) granting
relief in respect of avoidance of double taxation,
(ii) exchange of
information and
(iii) recovery
of taxes.
Further section
90A of the Income-tax Act empowers the Central Government to adopt any
agreement between specified associations for above mentioned purposes.
In exercise of
this power, the Central Government has entered into various Double Taxation
Avoidance Agreements (DTAAs) with different countries and has adopted
agreements between specified associations for relief of double taxation. The
scheme of interplay between DTAA and domestic legislation ensures that a
taxpayer, who is resident of one of the contracting country to the DTAA, is
entitled to claim applicability of beneficial provisions either of DTAA or of
the domestic law.  Sub-section (4) of
sections 90 and  90A of the Income-tax
Act inserted by Finance Act, 2012  makes  submission of Tax Residency Certificate
containing prescribed particulars, as a condition for availing benefits of the
agreements referred to in these sections.
It is proposed
to amend sections 90 and 90A in order to provide that submission of a tax
residency certificate is a necessary but not a sufficient condition for
claiming benefits under the agreements referred to in sections 90 and 90A.  This position was earlier mentioned in the
memorandum explaining the provisions in Finance Bill, 2012, in the context of
insertion of sub-section (4) in sections 90 & 90A.
These  amendments will take effect retrospectively
from 1st   April,  2013 and will, accordingly, apply in  relation to the assessment year 2013-14 and
subsequent assessment years.
[Clauses 21 &
22]
Application of seized assets
under section 132B
The existing
provisions contained in section 132B of the Income-tax Act, inter alia,
provide that seized assets may be adjusted against any existing liability under
the Income-tax Act, Wealth-tax Act, the Expenditure-tax Act, the Gift-tax Act
and the Interest-tax Act and the amount of liability determined on completion
of assessments pursuant to search, including penalty levied or interest payable
and in respect of which such person is in default or deemed to be in default.
Various courts
have taken a view that the term “existing liability” includes advance tax
liability of the assessee, which is not in consonance with the intention of the
legislature. The legislative intent behind this provision is  to 
ensure the recovery of outstanding tax/interest/penalty and also to
provide for recovery of taxes/interest/penalty, which may arise subsequent to
the assessment pursuant to search.
Accordingly, it
is proposed to amend the aforesaid section so as to clarify that the existing
liability does not include advance tax payable in accordance with the
provisions of Part C of Chapter XVII of the Act.
This amendment
will take effect from 1st  June, 2013.
[Clause 31]
Return of Income filed without
payment of self- assessment tax to be treated as defective return
The existing
provisions contained in sub-section (9) of section 139 provide that where the
Assessing Officer considers that the return of income furnished by the assessee
is defective, he may intimate the defect to the assessee and give him an
opportunity to rectify the defect within a period of fifteen days. If the
defect is not rectified within the time allowed by the Assessing Officer, the
return is treated as an invalid return. The conditions, the non-fulfillment of
which renders the return defective, have been provided in the Explanation to
the aforesaid sub-section.
Section 140A
provides that where any tax is payable on the basis of any return, after taking
into account the prepaid taxes, the assessee shall be liable to pay such tax
together with interest payable under any provision of this Act for any delay in
furnishing the return or any default or delay in payment of advance tax, before
furnishing the return.
It  has 
been  noticed  that 
a  large  number 
of  assessees  are 
filing  their  returns 
of  income  without 
payment  of self-assessment  tax.
It is,
therefore, proposed to amend the aforesaid Explanation so as to provide
that the return of income shall be regarded as defective unless the tax
together with interest, if any, payable in accordance with the provisions of
section 140A has been paid on or before the date of furnishing of the return.
This amendment
will take effect from 1st  June, 2013.
[Clause 32]
Direction for special audit
under sub-section (2A) of section 142
The existing
provisions contained in sub-section (2A) of section 142 of the Income-tax Act,
inter alia, provide that if at any stage of the proceeding, the Assessing
Officer having regard to the nature and complexity of the accounts of the
assessee and the interests of the revenue, is of the opinion that it is
necessary so to do, he may, with the approval of the Chief Commissioner or
Commissioner, direct the assessee to get his accounts audited by an accountant
and to furnish a report of such audit.
The expression
“nature and complexity of the accounts” has been interpreted in a very
restrictive manner by various courts. It is, therefore, proposed to amend the
aforesaid sub-section so as to provide that if at any stage of the proceedings
before him, the Assessing Officer, having regard to the nature and complexity
of the accounts, volume of the accounts, doubts about the correctness of the
accounts, multiplicity of transactions in the accounts or specialized nature of
business activity of the assessee, and the interests of the revenue, is of the
opinion that it is necessary so to do, he may, with the previous approval of
the Chief Commissioner or the Commissioner, direct the assessee to get his
accounts audited by an accountant and to furnish a report of such audit.
This amendment
will take effect from 1st  June, 2013.
[Clause 33]
Exclusion of time in computing
the period of limitation for completion of assessments and reassessments
The existing
provisions of section 153, inter alia, provide the time limit for completion of
assessment and reassessment of income by the Assessing Officer.
Explanation to
section 153 provides that certain periods specified therein shall be excluded
while computing the period of limitation for the purposes of the said section.
Under the
existing provisions of clause (iii) of Explanation 1 to section 153, the
period commencing from the date on which the Assessing Officer directs the
assessee to get his accounts audited under sub-section (2A) of section 142 and
ending with the last date on which the assesee is required to furnish a report
of such audit, is excluded in computing the period of limitation for the
purposes of assessment or reassessment.
However, the
existing provision does not provide for exclusion of time in case the direction
of the Assessing Officer is set aside by the court.
It is proposed
to amend clause (iii) of Explanation 1 to section 153 so as to provide
that the period commencing from the date on which the Assessing Officer directs
the assessee to get his accounts audited under sub-section (2A) of section 142
and ending with the last date on which the assessee is required to furnish a
report of such audit under that sub-section; or where such direction is challenged
before a court, ending with the date on which the order setting aside such
direction is received by the Commissioner, shall be excluded in computing the
period of limitation for the purposes of section 153.
Similarly, the
existing provisions contained in clause (viii) of Explanation I to
section 153 provide for exclusion of the period commencing from the date on
which a reference for exchange of information is made by an authority competent
under an agreement referred to in section 90 or section 90A and ending with the
date on which the information so requested is received by the Commissioner or a
period of one year, whichever  is less,
in computing the period of limitation for the purposes of section 153.
At times more
than one reference for exchange of information is made in one case and the
replies from the foreign Competent Authorities are also received in parts. In
such cases, there will always be a dispute for counting the period of exclusion
i.e. whether it should be from the date of first reference for exchange of
information made or from the date of last reference. Similar dispute may also
arise with regard to the date on which the information so requested is
received.
With a view to
clarify the above situation, it is proposed to amend the aforesaid clause
(viii) so as to provide that the period commencing from the date on which a
reference or first of the references for exchange of information is made by an
authority competent under an agreement referred to in section 90 or section 90A
and ending with the date on which the information requested is last received
by  the Commissioner or a period of one
year, whichever is less, shall be excluded in computing the period of
limitation for the purposes of section 153.
Similar
amendments are also proposed in the Explanation to section 153B of the
Income-tax Act relating to time limit for completion of search assessment.
These amendments
will take effect from 1st  June, 2013.
[Clauses 37 &
38]
Penalty under section 271FA
for non-filing of Annual Information Return
Section  285BA 
mandates  furnishing  of 
annual  information  return 
by  the  specified 
persons  in  respect 
of  specified transactions within
the time prescribed under sub-section (2) thereof. Sub-section (5) of the
section empowers the Assessing Officer to issue notice if the annual
information return has not been furnished by the due date.
The existing
provisions contained in section 271FA of the Income-tax Act provide that if a
person who is required to furnish an annual information return, as required
under sub-section (1) of section 285BA, fails to furnish such return within the
time prescribed under that sub-section, the income-tax authority prescribed
under the said sub-section may direct that such person shall pay, by way of penalty,
a sum of one hundred rupees for every day during which the failure continues.
It is proposed
to amend the aforesaid section so as to provide that if a person who is
required to furnish an annual information return, as required under sub-section
(1) of section 285BA, fails to furnish such return  within the time prescribed under sub-section
(2) thereof, the income-tax authority prescribed under sub-section (1) of the
said section may direct that such person shall pay, by way of penalty, a sum of
one hundred rupees for every day during which the failure continues.
It is further
proposed to provide that where such person fails to furnish the return within
the period specified in the notice under sub-section (5) of section 285BA, he
shall pay, by way of penalty, a sum of five hundred rupees for every day during
which the failure continues, beginning from the day immediately following the
day on which the time specified in such notice for furnishing the return
expires.
This amendment
will take effect from 1st  April, 2014.
[Clause 48]
Extension of time for approval
in Part A of the Fourth Schedule to the Income-tax Act, 1961
Rule 4 in Part A
of the Fourth Schedule to the Income-tax Act provides for conditions which are
required to be satisfied by a Provident Fund for receiving or retaining
recognition under the Income-tax Act. One of the requirements of rule 4 as
contained in clause (ea) is that the establishment has to be notified by the
Central Provident Fund Commissioner under section 1(4) of the Employees’
Provident Funds and Miscellaneous Provisions Act, 1952 [EPF & MP Act] and
has obtained exemption under section 17 of the said Act.
Rule 3 in Part A
of the Fourth Schedule provides that the Chief Commissioner or the Commissioner
of Income-tax may accord recognition to any provident fund which, in his
opinion, satisfies the conditions specified under the said rule 4 and the
conditions which the Board may specify by rules.
The first
proviso to sub-rule (1) of rule 3, inter alia, specifies that in a case where
recognition under the Income-tax Act has been accorded to any provident fund on
or before 31st March, 2006, but such provident fund does not satisfy the
conditions set out in clause (ea) of rule 4 on or before 31st  March 2013, the recognition to such fund
shall be withdrawn.
It has been
noticed that a number of applications are yet to be processed by the Employees’
Provident Fund Organization (EPFO) for grant of exemption under section 17 of
EPF & MP Act. With a view to provide further time to the EPFO to decide on
the pending applications seeking exemption under section 17 of the EPF & MP
Act, it is proposed to amend the first proviso, so as to extend the time limit
from 31st  March, 2013 to 31st   March, 2014.
This amendment
will take effect retrospectively from 1st 
April, 2013.
[Clause 50]
Clarification for amount to be
eligible for deduction as bad debts in case of banks
Under the
existing provisions of section 36(1)(viia) of the Income-tax Act, in computing
the business income of certain banks and financial institutions, deduction is
allowable in respect of any provision for bad and doubtful debts made by such
entities subject to certain limits specified therein. The limit specified under
section 36(1)(viia)(a) of the Act restrict the claim of deduction for provision
for bad and doubtful debts for certain banks (not incorporated outside India)
and certain cooperative banks to 7.5% of gross total income (before deduction
under this clause) of such banks and 10% of the aggregate average advance made
by the rural branches of such banks. 
This limit is 5% of gross total income (before deduction under this
clause) under sections
36(1)(viia)(b) and 36(1)(viia)(c)
for a bank incorporated outside India and certain financial institutions.
Provisions of
clause (vii) of section 36(1) of the Act provides for deduction for bad debt
actually written off as irrecoverable in the books of account of the assessee.
The proviso to this clause provides that for an assessee, to which section
36(1)(viia) of the Act applies, deduction under said clause (vii) shall be
limited to the amount by which the bad debt written off exceeds the credit
balance in the provision for bad and doubtful debts account made under  section 36(1) (viia) of the Act.
The provisions
of section 36(1)(vii) of the Act are subject to the provisions of section 36(2)
of the Act. The clause (v) of section 36(2) of the Act provides that the
assessee, to which section 36(1)(viia) of the Act applies, should debit the
amount of bad debt written off to the provision for bad and doubtful debts
account made under section 36(1) (viia) of the Act.
Therefore, the
banks or financial institutions are entitled to claim deduction for bad debt
actually written off under section 36(1)(vii) of the Act only to the extent it
is in excess of the credit balance in the provision for bad and doubtful debts
account made under section 36(1)(viia) of the Act.   However, certain judicial pronouncements
have created  doubts about the scope and
applicability of proviso to section 36(1)(vii) and held that the proviso to
section 36(1)(vii) applies only to provision made for bad and doubtful debts
relating to rural advances.
Section
36(1)(viia) of the Act contains three sub-clauses, i.e. sub-clause (a),
sub-clause (b) and sub-clause (c) and only one of the sub-clauses i.e.
sub-clause (a) refers to rural advances whereas other sub-clauses do not refer
to the rural advances. In fact, foreign banks generally do not have rural
branches.  Therefore, the provision for
bad and doubtful debts account made under clause (viia) of section 36(1) and
referred to in proviso to clause (vii) of section 36(1) and section 36(2)(v)
applies to all types of advances, whether rural or other advances.
It has also been
interpreted that there are separate accounts in respect of provision for bad
and doubtful debt under clause (viia) for rural advances and urban advances and
if the actual write off of debt relates to urban advances, then, it should not
be set off against provision for bad and doubtful debts made for rural
advances.  There is no such distinction
made in clause (viia) of section 36(1).
In order to
clarify the scope and applicability of provision of clause (vii), (viia) of
sub-section (1) and sub-section (2), it is proposed to insert an Explanation in
clause (vii) of section 36(1) stating that for the purposes of the proviso to
section 36(1)(vii) and section 36(2)(v), only one account as referred to
therein is made in respect of provision for bad and doubtful debts under
section 36(1)(viia) and such account relates to all types of advances,
including advances made by rural branches. 
Therefore, for an assessee to which clause (viia) of section 36(1)
applies, the amount of deduction in respect of the bad debts actually written
off under section 36(1)(vii) shall be limited to the amount by which such bad
debts exceeds the credit balance in the provision for bad and doubtful debts
account made under section 36(1)(viia) without any distinction between rural
advances and other advances.
This  amendment will take effect from 1st   April, 
2014 and will, accordingly, apply in relation to the  assessment year 2014-15  and subsequent assessment  years.
[Clause   6]

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