4 No Surcharge for all the above assesses irrespective of income levels Rates of TaxationTax RatesAssessee / Income Slabs (Rs in Lacs)Resident Women below 65 yrsResident Senior citizen-Any other individual, HUF, AOP& BOIArtificial juridical personCo operative societyNilUpto Rs 1.90Upto Rs 2.40Upto Rs 1.6010%Rs 1.90 to 3.0Rs 2.40 to 3.0Rs 1.6 to 3.0Upto Rs 0.1020%Rs 3.0 to 5.0Above Rs 0.10 to 0.2030%Above Rs 5.0Above Rs 0.20SurchargeNo Surcharge for all the above assesses irrespective of income levelsNote-The above rates are for total income excluding:Long term capital gains charged at 20%Short term capital gains u/s 111A 15%Income from lotteries, gambling, card games etc 30%
5 Rates of Taxation Particulars Firms Domestic Companies Foreign CompaniesLocal AuthorityTax Rate30%40%SurchargeNil10% if net income exceeds Rs 1 crore2.5% if net income exceeds Rs 1 crore
6 Sec 49(4) & Sec 56(2)(vii) Sec 56(2)(vii) inserted wef 01-10-2009: Aggregate sum of money exceeding Rs 50,000 orAny receipt of a movable or immovable property where the benefit exceeds Rs 50,000Benefit could be without consideration or inadequate considerationCost of acquisition of the asset received shall be FMV for the purpose of 56(2)(vii) s
7 Case Study 1: Sec 49(4) & 56(2)(vii) An assessee is purchasing a property for Rs 50 lacs. The guideline value of the property is Rs 60 lacs. What would be tax implications in the hands of the buyer and the seller?
8 Case Study 1: Sec 49(4) & 56(2)(vii) In the hands of Seller:Guideline value of the property shall be regarded as sale consideration for the purposes of capital gainsIn the case of Buyer:Rs 10 lacs (Rs 60lacs – Rs 50 lacs) shall be regarded as Income from Other Sources – Sec 56(2)(vii)Cost of Acquisition of the property shall be Rs 60 lacs
9 Case Study 2: Sec 56(2)(vii) An assessee received the following assets from his friends during the previous year. Discuss the tax implications:AssetConsiderationRemarksCarRs 50,000FMV: Rs 95,000HouseRs 30,00,000Guideline Value : Rs 40,00,000Cash from ARs 40,000As birthday gift (from Non relative)Cash from BRs 30,000As Wedding day gift (from Non relative)GoldRs 15,000Rs 45,000
10 Case Study 2: Sec 56(2)(vii) AssetConsiderationRemarksBenefitTaxable AmtCarRs 50,000FMV: Rs 95,000Rs 45,000NilLess than Rs 50,000HouseRs 30,00,000Guideline Value : Rs 40,00,000Rs 10,00,000Greater than Rs 50,000Cash from ARs 40,000Birthday giftAggregate exceeding Rs 50,000Cash from BRs 30,000Wedding day giftGoldRs 15,000TotalRs 10,70,000
11 New Pension Scheme – Sec 80CCD Available for all individuals including self employedMaximum investment restricted to10% of salary earned or10% of gross total incomeContributions eligible for deduction (max Rs 1 lac)EET concept of taxationIf maturity amount is reinvested for annuity purchase within the same previous year – no income shall accrue to the assessee.However the annuity received subsequently shall be liable to taxation in the year of receipt.
12 Tax Concession for NPS Trust Income of the trust shall be exempt u/s 10(44)Any dividends paid to the trust shall not be subject to dividend distribution tax u/s 115ONo securities transaction tax shall be levied on transactions made by the NPS – Sec 113A of Finance Act (2) 2004The trust shall receive all its income without deduction of TDS- Sec 197A
13 Explanation 6 to 43(6): WDVAn assessee is engaged in the business of growing and manufacturing Tea.According to Rule 8- 40% of income from growing and manufacturing tea shall be regarded as business income.The remaining 60% of income shall be regarded as agricultural income.
14 Explanation 6 to 43(6) : WDVThe Honorable Supreme Court has held in CIT vs Doom Doma India Ltd (2009) 310 ITR 392:According to Explanation 6 to Sec 43(6)- depreciation actually allowed shall be reduced from the opening balance to arrive at WDV.Where an assessee is engaged in composite business (agri and non agri)- depreciation to the extent of non agri business shall be deemed to be allowed.
15 Amendment : Explanation 7 to 43(6) Where an assessee has both agri and non agri businessFor computing the written down value of assets the total amount of depreciation shall be computedAs if the entire income is derived from the business (non agri)The depreciation so computed shall be deemed to be the depreciation actually allowed under this Act.’.
16 Illustration : Pre and Post Amendment ParticularsPre AmendmentPost AmendmentSale500Operating and Non Expenses200Profit Before Depreciation300Depreciation100Net ProfitBusiness Income (40%)80Agricultural Income (60%)120Depreciation Actually AllowedRemarks40% of total depreciation100% of total depreciation
17 Illustration : Pre and Post Amendment Computation of Writted Down ValueParticularsPre AmendmentPost AmendmentOpening Balance of Fixed Assets700Depreciation Actually Allowed80200Closing WDV620500
18 Presumptive Taxation – Sec 44AD ParticularsPre AmendmentPost AmendmentAssesseeAny PersonResident individual, HUF or a partnership firm (other than LLP) who has:- Not claimed exemption u/s 10A, 10AA, 10B or 10BA- Not claimed deduction under Chapter VI ABusinessCivil Construction or supply of labourAny business other than plying, leasing and hiring of trucks.Income ConditionGross Receipts not to exceed Rs 40 lacsEstimated Income8% of Gross receipts.Note: Assessee can declare income at a higher rate.Note: The Amendment shall be effective from Sec 44AF shall cease to be operative effective
19 Presumptive Taxation – Sec 44AE ParticularsPre AmendmentPost AmendmentAssesseeAny PersonBusinessBusiness of plying, leasing and hiring of trucks.ConditionAssessee does not own more than 10 carriages at any time during the previous yearEstimated IncomeRs 3500 : Heavy VehiclesRs 3150: Other VehiclesRs 5000 : Heavy VehiclesRs 4500: Other VehiclesNote: The Amendment shall be effective from
20 Partner’s Remuneration – Sec 40(b)(v) Pre Amendment Situation :Professional FirmsNon Professional FirmsMaximum LimitFirst Rs.1,00,000 of book profitFirst Rs.75,000 of book profitRs 50,000 or 90% of book profit whichever is highNext Rs 1,00,000 of book profitNext Rs 75,000 of book profit60% of book profitBalance of book profit40% of book profit
21 Partner’s Remuneration – Sec 40(b)(v) Post Amendment: No distinction between professional and non professional firmsBook Profit SlabLimitFirst Rs 3,00,000 or lossRs 1,50,000 or 90% of book profit whichever is higherBalance of book profit60% of book profit
22 Sec 115 JB –Dimunition in the Value of Assets Net Profit as per Books : Rs 100 lacsAdjustments:Provision for bad and doubtful debts : Rs 10 lacsProvision for reduction in investments : Rs 5 lacsProvision for contingent liabilities : Rs 8 lacsProvision for Income Tax : Rs 12 lacsCompute book profit for the purpose of Sec 115JB
24 Sec 115 JB –Dimunition in the Value of Assets ParticularsRs in LacsNet Profit as per Books100AddProvision for Income Tax12Provision for Contingent Liabilities8Book Profit120Provision for bad and doubtful debts and reduction in value of investments are “Provisions for Diminution in Value of Assets” hence not covered by Sec 115JB –The Honorable Supreme Court of India held in the case of CIT vs HCL Comnet Systems and Services Ltd (2008) 305 ITR 409 and Kolkatta Tribunal in Jt CIT vs Usha Martine Industries Ltd (2007) 104 ITD 249
25 Amendment – Finance Act (2)(2009) Amended SectionEffective DateImplicationSec 115JAAny provision for diminution in the value of any asset will also be included in the computation of Book ProfitSec 115JBRate of MAT is increased to 15% from 10%Amendment is with Retrospective Effect – hence could affect pending assessments
26 Summary MAT Rates Assessment year Rate of MAT 2001-02 to 2006-07 7.5% 10%on wards15%
27 Power of Attorney Transactions Sec 50C provides for Stamp Value taxation (as sale consideration) where the sale consideration is lower than Stamp ValueTax planning instances of transfer using:Power of AttorneySale Agreement
28 Sec 50C : AmendmentThe words “assessable” has been inserted in Sec 50C“Assessable” means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty
29 Sec 53A of Transfer of Property Act 1882 Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty,and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract,and the transferee has performed or is willing to perform his part of the contract,
30 Sec 53A of Transfer of Property Act 1882 then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract:
31 Implications of the Amendment Power of attorney transactions would be regarded as transfer – Sec 2(47) read with Sec 53A of Transfer of Property Act 1882Sale consideration or guideline value (whichever is higher) would be regarded as consideration – Sec 50CAffect Segment:Real Estate BrokersShort term investorsBuilders and Real Estate Promoters
32 TDS on Contract Payments – Sec 194C Nature of PaymentTillOn or afterAdvertising contracts1%1% if the payee is an individual or HUF2% in any other caseSub contract paymentsOther contract payments2%Contractors engaged in plying, hiring and leasing of goods carriageNil- if PAN is provided to the payer.- No distinction between contractors and subcontractors- No special rate of taxation for advertising contracts- Where a transporter fails to provide PAN- 20% shall apply with effect from- The scope of the term “work” has been expanded to include certain job work where the materials are supplied by the customer.
33 TDS on Rental Payment – Sec 194 I Nature of PaymentTillFromRent for use of plant and machinery or equipment10%2%Rent for land and/or building, furniture and fittings where payee is an individual or HUF15%Rent for land and/or building, furniture and fittings where payee is any other person20%Where a payee fails to provide PAN- 20% shall apply – with effect from
34 Mandatory PAN – Sec 206AAAny person entitled to receive any sum or income or amount, on which TDS is applicable shall furnish his PAN to the deductor.Else TDS shall be deducted at the higher of the following rates:at the rate specified in the relevant provision of this Act; orat the rate or rates in force; orat the rate of twenty per cent.The Section is effective from
35 Interest on Enhanced Compensation According to Sec 45(5) read with Sec 2(47):Compulsory acquisition is regarded as transferInitial compensation is taxable in the year in which whole or part of the compensation is receivedEnhanced compensation is taxable in the year of receipt
36 Interest on Enhanced Compensation Interest on enhanced compensation is payable from the date of acquisition till the date of receiptSuch interest is received along with enhanced compensation or subsequently at a later stageIn which year is this interest taxableRelevance of Sec 145 need to be examined
37 Court Ruling on Interest received Interest on enhanced compensation for land acquired under Land Acquisition Act, accrues from year to year and cannot be assessed in one lump sum in year in which it is awarded by the Court.Supreme Court in Rama Bai vs. CIT  181 ITR 400K.S. Krishna Rao vs. CIT  181 ITR 408).CIT vs. T.N.K. Govindarajulu Chetty  165 ITR 231
38 Amendment – Finance Act Interest on enhanced compensation shall be taxable as Income from Other Sources – Sec 56(2)(viii)Such interest shall be taxable only in the year of receipt – Sec 145 AA flat deduction of 50% of such interest received shall be allowed as a deduction irrespective of the amount spent – Sec 57(iv)
44 COMMISSIONER OF INCOME TAX, MADURAI VsM/s SRI MANGAYARKARASI MILLS (P) LTD2009-TIOL-86-SC-IT
45 40A(3) Payments – Salem Case Assessee had made certain cash deposits in to the account of a District Cooperative Sugar MillThe payments were made at the instance of the sugar millThe value of the transactions exceeded Rs 20,000.AO disallows the payment u/s 40A(3)Assessee claims payments made for business expediency – Proviso to Sec 40A(3)
46 40A(3) Payments – Salem Case The CIT (A) and the Tribunal pass an order in favour of the assesseeMadras High Court held that:The payment was made to a quasi Government organisationPayment was made at the insistence of the recipientPayment was made by cash owing to business expediencyRevenue’s appeal dismissedCIT Salem vs BG Subramaniam dtd August 18th 2009
47 Sec 50C : Hard RealitiesAn assessee (96 years old) sold a property to Indian Oil Corporation for Rs 99 lacsThe guideline value of the property was Rs croresThe purchaser has not made a reference u/s 47A of the Indian Stamp Act for fair value determinationNo appeal was made by the seller under the Stamp ActThe AO issues as order considering the sale consideration to be Rs 3.92 crores u/s 50C
48 Sec 50C : Hard RealitiesThe assessee filed a writ petition with Madras High CourtThe AO’s argument:No appeal for 47A valuationTime limit for assessment u/s 143(3)Sec 50CAssessee’s argument:Option u/s 50C(2) to refer to a Valuation OfficerNon appeal against 47A is not a ground for order
49 Sec 50C : Hard Realities Madras High Court held: Writ petition is allowedOrder is set asideValuation report to be obtained u/s 50C(2)Assessment to be done based on the valuation report.N. Meenakshi vs ACIT Chennai – Madras High Court dated 11th September 2009
50 Assessment of Chief Minister’s Income Mr Lalu Prasad Yadav – the ex Honorable Chief Minister of Bihar filed his income tax with the following details:Income from other sourcesAcc. Intt. on N.S.C0.00Intt. on F.D. matured2,16,060.00Intt. S/b A/c2,439.00Pay and allowance as Chief Minister72,802.402,91,301.40Short-term capital gainLong-term capital gainGross total income
51 Assessment of Chief Minister’s Income Details of Pay/allowances as Chief MinisterPay23,539.85Allowance35,209.70Sumptuary allowanceTDS reimbursed for financial year82, ,497.0090,786.40Less: Incidental expenses Depreciation on car (on opening WDV at 20%) Insurance/expenses on car (estimated)12, ,000.0017,984.00Net income72,802.40
52 Assessment of Chief Minister’s Income Intimation u/s 143(1)(a) stating:Chief Minister’s pay should be assessed as income from salaries. Hence only standard deduction should of Rs is allowed. The net addition to taxable income would be Rs 2,984.Accrued interest of Rs 6,000 should be assessed as income of the previous yearRemember – interest on NSC is regarded as reinvestment and was eligible for rebate u/s 88The overall tax effect on the transaction was Rs 4305
53 Assessment of Chief Minister’s Income The assessee referred the case to CIT(A) – who upheld the reclassification of income to salaries. However the addition of NSC interest was rejected citing method of accountingBoth the assessee and the revenue filed an appeal against CIT(A)’s order with the TribunalThe case was ultimately settled by the Patna High Court in 11th of November 2008 after more than 10 years of deliberations.
54 Thank You Divakar Vijayasarathy & Associates Chartered Accountants No 3 Vathiar Thottam 1st Street Rangarajapuram Kodambakam ChennaiDivakar Vijayasarathy & Associates