Presentation on theme: "Finance Act,2013 An Overview 1 CA Sanjeev Lalan. 2 Tax Rates Individual, HUF, AOP, BOI:- No Change in threshold-limits or slabs Surcharge to be levied."— Presentation transcript:
Finance Act,2013 An Overview 1 CA Sanjeev Lalan
2 Tax Rates Individual, HUF, AOP, BOI:- No Change in threshold-limits or slabs Surcharge to be 10% where total income exceeds Rs. 1Crs. No Change in Edu Cess & S.H. Edu Cess of 2% and 1% respectively Effective tax rates shall be as under (subject to AMT):- A new section 87A has been inserted to provide rebate of upto Rs. 2,000/- from tax payable by a resident individual in India having total income of upto Rs. 5,00,000/- Taxable Income SlabTax Rates GeneralSr. CitizenVery Sr. Citizen Upto 2,00,000NIL 2,00,001 upto 2,50, %NIL 2,50,001 upto 5,00, % NIL 5,00,001 upto 10,00, % 10,00,001 upto 1,00,00, % 1,00,00,001 & above33.99%
3 Tax Rates Firm/LLP/Corporates:- No Change in basic tax rates For firm & LLP – Surcharge to be 10% where total income exceeds Rs. 1Crs. For domestic company – Surcharge increased from 5% to 10% where total income exceeds Rs. 10 Crs. For Foreign company – Surcharge increased from 2% to 5% where total income exceeds Rs. 10 Crs. No Change in Edu Cess & S.H. Edu Cess of 2% and 1% respectively. The effective tax rates shall be as under: No change in AMT / MAT rates except for increase in surcharge AssesseeT. Income <= Rs. 1crs. T. Income > Rs. 1crs. < = Rs. 1crs. T. Income > Rs. 10crs. Firm / LLP30.90%33.99% D. Company30.90%32.45%33.99% F. Company41.20%42.024%43.26%
4 Tax Rates TDS under chapter XVII – B to be inclusive of surcharge The amount of TDS under chapter XVII – B shall be increased by surcharge in the following cases– Simply put, in case of a non-resident, TDS would be subject to surcharge. PayeeT. Income <= Rs. 1crs. T. Income > Rs. 1crs. < = Rs. 1crs. T. Income > Rs. 10crs. NR (other than company) No Surcharge 10% Foreign CompanyNo 2% 5%
5 Tax Rates Securities Transaction Tax STT rates have been significantly revised by FA, 2013 as under– * Equity Oriented Fund (w.e.f. 01-June-2013) ** Recognized stock Exchange Sl. No Nature of transaction Payable by Existing Rates (%) Revised Rates (%) 1.Delivery based purchase of units of EOF* through RSE** Purchaser0.1NIL 2.Delivery based sale of units of EOF* through RSE** Seller Sale of a futures in securities Seller Sale of a unit of an EOF* to the Mutual Fund Seller
6 Tax Rates Commodities Transaction Tax Chapter VII of the Finance Bill 2013 introduces new levy in the form of Commodities Transaction Tax (CTT), the brief features of which are as under– Taxable Transaction : Sale of commodity derivatives in respect of commodities other than agricultural commodities on recognized association. Rate : 0.01% on sale value of commodity derivative to be paid by seller. Applicability : From the date of notification in this regard (notification not out yet). Allowance as deduction : Sub-clause (xvi) has been reinstated in section 36(1), for allowing the said CTT as an deduction while computing the income arising out of commodity derivative transactions under the head “Profits and gains of business and profession”.
7 Tax Rates Rationalization of tax on income distributed by Mutual Fund Additional income tax payable u/s. 115R on income distributed to a individual or HUF by a mutual fund other than a money market mutual fund or a liquid fund has been brought at par with the income distributed to a individual or HUF by a money market mutual fund or a liquid 25% instead of erstwhile 12.5%. Further, section 115R has also been amended to provide 5% on income distributed in respect of income distributed by a Mutual Fund under an Infrastructure Debt Fund (IDF) scheme to a non-resident Investor to bring parity between taxation of income from investment made by a non-resident Investor in an IDF set up as a IDF-MF with that of an Infrastructure Debt Fund (IDF) set up as a IDF-NBFC. (w.e.f. 01-June-2013)
8 Individual Taxation Assigned Keyman Insurance Policies Section 10(10D), inter alia, exempts sums received under a life insurance policies other than keyman insurance policy. Till date, there was an ambiguity with respect to the definition of “Keyman Insurance policy” which has been defined in Explanation 1 to the said section The issue was whether it even includes even a policy which has been assigned in favour of the keyman before its maturity and with respect to which the subsequent payments were made by the keyman himself. In this regards, the air has now been cleared by amending the said explanation to include with in its ambit a policy which has been assigned to a person, at any time during the term of the policy, with or without consideration. In effect, Delhi High Court judgments in “CIT vs. Rajan Nanda [(2012) 349 ITR 8 (Del)]” and “Escort Heart Institute & Research Centre vs. CIT [(2013) 30 taxmann.com 4]” have been overruled by the amendment.
9 Individual Taxation Immovable property received for inadequate consideration Presently, provisions of section 56(2)(vii)(b) are attracted only in respect of an immovable property which is transferred “without any consideration” i.e. to say, it doesn’t include, having regard to its stamp duty value, transfer for “inadequate consideration”. This inequity is sought to be plugged by the Finance Act, 2013 by covering, in the ambit of section 56(2)(vii)(b), both the scenario namely, transfer of an immovable property, the stamp duty value of which exceeds Rs. 50,000/-, without any consideration and also a situation where transfer is for inadequate consideration, where the inadequacy, having regard to stamp duty value exceeds Rs. 50,000/-. The said section has been further amended to provide that where the date of agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not same, the stamp duty value on the date of agreement may be considered for the said transfer. However, the said exception shall apply only in cases where amount of consideration or part thereof for the transfer has been received by any mode other than cash on or before the date of the agreement for the transfer of asset.
Section 56(2)(vii) and (viia) of the Income-tax Act,1961 (the Act) provides that the taxpayer receiving specified properties without consideration or at a consideration lower than the FMV, than the difference between FMV and consideration shall be considered as income in the hands of the taxpayer. Rule 11UA deals with determination of fair market value (FMV) for the purpose of Section 56 and Rule11 defines certain terms used in Rule 11UA. The Finance Act, 2012 inserted clause (viib) to Section56(2) of the Act, which provides that a closely held company issuing shares to resident person for a consideration higher than its FMV, then the difference of consideration over the FMV of its shares shall be considered as income in the hands of issuing company. As the provisions of Section 56(2)(vii)/(viia) and (viib) are governing different circumstances, existing provisions of Rule 11UA were not sufficient to deal with both the provisions. Therefore, Rule 11UA is amended to provide for specific valuation principles applicable to unquoted equity shares under Section 56(2)(viib) of the Act. Similarly, certain definitions under Rule 11U of the Rules are amended as follows: 10 Fair Market Value u/r. 11U & 11UA u/s. 56
11 AmendmentFMV under Section 56(2)(vii) / (viia) FMV under Section 56(2)(viib) Methods to calculate FMV of equity shares Net Assets Value as per prescribed formula continues with certain need based changes. Taxpayer company has option to choose from the following two methods: Option 1 - Net Assets Value method as per prescribed formula (same as applicable to Section 56(2)(vii)/(viia)); OR Option 2 - Discounted Free Cash Flow method as determined by a merchant banker or an accountant Definition of Balance sheet Balance sheet of the company as on the date on which the property or consideration is received by the taxpayer as audited by the auditor of the company Audited Balance sheet of the company, adopted by the AGM, immediately preceding the date on which the consideration is received by the taxpayer, unless Balance sheet of the company as on the date, on which the consideration is received by the taxpayer is drawn up and is audited by the auditor of the company. Cont…Fair Market Value u/r. 11U & 11UA u/s. 56
12 AmendmentFMV under Section 56(2)(vii) / (viia) FMV under Section 56(2)(viib) Definition of Accountant (relevant for identifying person, other than merchant banker, who is eligible for carrying out valuation) Same as under Section 288 of the Act. – no change FCA (Fellow member of ICAI) not being auditor or tax auditor of the company. Cont…Fair Market Value u/r. 11U & 11UA u/s. 56
13 Individual Taxation Premium on LIP’s for persons with disabilities or disease Provisions of section 10(10D) & 80C have been amended to soften the limitations for the applicability of the said provisions for the following categories of persons, by enhancing the premium limit from 10% to 15% of capital sum assured, namely– persons with disabilities or persons with severe disabilities as referred to in section 80U or persons suffering from disease or ailment specified in rule 11DD made u/s. 80DDB.
14 Individual Taxation Extension of benefit even for contributions made to health schemes Provisions of section 80D has been extended so as to allow the benefits of deduction of amount not exceeding Rs. 15,000/- in respect of any payment or contribution made by the assessee to such other schemes as may be notified by the Central Government.
15 Individual Taxation Deduction in respect of interest on loan for acquiring residential house property A new section 80EE has been introduced to provide additional benefit for the first time home buyers in respect of interest payment on loan taken from any financial institution for residential house property. However, the said benefit comes with certain restrictions and limitations which are as under – The said deduction shall be applicable only to an individuals; The deduction shall not exceed Rs. 1,00,000/- and shall be allowed only for AY ; In case the interest payable for AY is less than Rs. 1,00,000/-, the unexhausted balance shall be allowed as deduction for AY ; The loan has to be sanctioned by the financial institution between 01 st April, 2013 and 31 st March, 2014 The amount of loan sanctioned does not exceed Rs. 25,00,000/- The value of residential house property does not exceed Rs. 40,00,000/-.
16 Individual Taxation Cont….Deduction in respect of interest on loan for acquiring residential house property The assessee does not own any residential house property on the date of the sanction of the loan. The assessee will not be eligible for claiming deduction with respect to the said interest under any other section of the Act either for the same assessment year or any other assessment year. (This primarily intents to cover section 24(b) in its ambit)
17 Individual Taxation Extension & Liberalization of Rajiv Gandhi Equity Savings Scheme As per the present provisions of section 80CCG, a resident individual, being a first time retail investor and whose total income during the previous year does not exceed Rs. 10,00,000/- is eligible to claim a deduction of 50% up to maximum of Rs. 25,000/- in the year of investment, subject to satisfaction of certain other conditions. This deduction was initially available only once, i.e. in the year in which investment is made for the first time. Finance Act, 2013 has extended the benefits of said section to investments even in listed units of an equity oriented fund defined in section 10(38). Further, it has also been provided, that the said benefit shall now be available over a period of three consecutive assessment years beginning with the assessment year in which investment is first made. Also, the condition as to limit of total income of the individual investor in the year in which investment is made has been enhanced to Rs. 12,00,000/- from current limit of Rs. 10,00,000/-. In this regards, Rajiv Gandhi Equity savings scheme, 2012 has been notified by the CG vide notification no. 51 dated
18 Corporate Taxation 15% deduction on investment in new assets by manufacturing company A new section 32AC has been inserted to allow to a company, a sum equal to 15% of the actual cost of the new assets acquired and installed between 31 st March, 2013 and 01 st April, 2015 if the aggregate amount of actual cost of such new asset exceeds Rs. 100crs. This deduction is available only if the company is engaged in manufacture or production of any article or thing. This deduction is available for two years as under – a)for AY , 15% of the actual cost of the new assets acquired and installed between 31 st March, 2013 and 01 st April, 2014 b)for AY , 15% of the actual cost of the new assets acquired and installed between 31 st March, 2013 and 01 st April, 2015 as reduced by the amount of deduction allowed under clause (a), if any. For the purpose of this new section, “New asset” means any new plant and machinery except the following:- ship and aircraft any second hand P&M, whether used inside or outside India.
19 Corporate Taxation Cont….15% deduction on investment in new assets by manufacturing company any P&M installed in any office premises or any residential accommodation or a guest house any office appliances (including computers or computer software) any vehicle Any P&M, the whole of the actual cost of which is allowed as deduction whether as depreciation or otherwise However, if the said new asset is sold or otherwise transferred (except owing to amalgamation or demerger), within 5yrs from the date of its installation, the amount allowed as deduction under this section shall be taxable as income of the PY in which the said asset is sold or otherwise transferred. The said income shall be in addition to the gains arising on account of transfer of the said new asset. Where the new asset is transferred in connection with the amalgamation or demerger within a period of 5yrs from the date of its installation, the deduction shall not be withdrawn. However, the above referred restriction on selling and transfer of said new asset shall apply to amalgamated company or resulting company, as the case may be.
20 Corporate Taxation Disallowances of certain expenditures in case of State Government Undertaking Till date there was ambiguity in relation to allowability of certain expenditure in the form of privilege fee, licence fee, royalty, etc., levied or charged by State Government exclusively on its own undertakings. To clarify this issue, section 40(a) has been amended by Finance Act, 2013 by inserting a new sub-clause (iib), whereby now payments in the nature of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is exclusively levied on or which is appropriated, directly or indirectly, from, a state Government Undertaking by the State Government would be disallowed. Further, an explanation has also been inserted to the said sub-clause to define what a State Government Undertaking is.
21 Corporate Taxation Extension of the sunset clause under section 80IA for the power sector Presently, under section 80IA(4)(iv), a deduction is allowed to an undertaking, if it ― 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 between 1/4/1993 to 31/3/2013; starts transmission or distribution by laying a network of new transmission or distribution lines at any time between 1/4/1999 to 31/3/2013; undertakes substantial renovation and modernisation of existing network of transmission or distribution lines at any time between 1/4/2004 to 31/3/2013. However, now the said section has been amended to extend the time limit upto 31/3/2014 for the undertakings to commence the above activities to avail the said deduction.
22 Corporate Taxation Deduction on additional wages u/s 80JJAA restricted Under the existing provisions of section 80JJAA, 30% of amount of additional wages paid to the new regular workmen employed by an Indian company in its industrial undertaking engaged in manufacture or production of article or thing is allowed as a deduction. This deduction is available for 3 AY’s including the AY in which such employment is provided. Also, no deduction is available if the industrial undertaking is formed by splitting up or reconstruction of an existing undertaking or amalgamation with another industrial undertaking. Now, by FA 2013, the said section stands amended, restricting the benefit of deduction merely to profits and gains derived from the manufacture of goods in a factory instead of any industrial undertaking engaged in manufacture or production of article or thing. Furthermore, the computation of additional wages will be reckoned with employment provided in factory only and not in respect of all the workmen employed by the assessee company. It has also been provided that the deduction shall not be allowed if the factory is hived off or transferred from another existing entity or acquired by assessee company as a result of amalgamation with another company. The reference to the word “undertaking” wherever it occurs in the explanation, has been substituted by “factory” by inserting clause (iv) to the explanation to define factory as per section 2(m) of the Factories Act, In effect, this amendment is meant to overcome decision of Bangalore Bench of ITAT in ACIT v. Texas Instruments (India) (P.) Ltd. [(2008) 115 TTJ 976 (URO)].
23 Corporate Taxation Additional Income-tax on buy-back of unlisted shares FA 2013, by inserting a new chapter XII-DA (sections 115QA to 115QC), has provided that in case of a domestic company, which opts for distributing its income by buying back its own unlisted shares from its shareholder, shall be liable to pay additional 20% on such distributed income without allowing any deduction against such income. For the said purposes, “distributed income” would mean the amount paid by the company on buy-back of shares as reduced by the amount that was received by the shareholders at the time of issuance of such shares. The said income has been made exempt in the hands of the shareholders by inserting a new clause 34A to section 10. The said amendment has primarily been done to put a bar on tax avoidance scheme which were being resorted to by many companies by buying back their own shares rather than distributing surplus by way of dividends which otherwise would have been subject to DDT u/s. 115-O. The said amendment shall take effect from 1 st June, 2013
24 Corporate Taxation Concessional rate of TDS on interest in case of certain rupee denominated long-term infrastructure bonds In line with the existing provisions of section 194LC, which provides for concessional rate of 5% in respect of interest on money borrowed by an Indian company in foreign currency and such borrowing is either under a loan agreement or by way of issue of long-term infrastructure bonds, as approved by the Central Government, a new section namely 194LD has been inserted to extend the same benefit to investment made in a rupee denominated bond of an Indian company or a Government security by “Foreign Institutional Investors” and “Qualified Foreign Investor”. However, it has also been provided that in order to avail this benefit, it needs to be ensured that the rate of interest on said bonds does not exceed the rate as may be notified by the Central Government in this behalf. The said amendment shall take effect from 1st June, 2013.
25 Individual Taxation Concessional rate of tax for non-residents on income referred in section 194LC / 194LD Section 115A, which provides for special rates of tax for a non-resident has been amended by FA, 2013, to ensure that interest income as referred to in section 194LC & 194LD shall be of 5%. Consequential amendments have been made in section 115AD, which deals with taxation on income of FII from securities or capital gains arising from their transfer, to ensure that even FII are 5% on the interest income referred to in section 194LD. In addition to above, the requirement to furnish PAN u/s. 206AA has now been exclusively removed in respect of payment of interest on long-term infrastructure bonds, as referred to in section 194LC, to a NR, not being a company or a foreign company.
26 Corporate Taxation Extension of sunset clause for lower rate of tax on dividends from specified foreign company 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 i.e. Assessment Year The above provision was introduced as an incentive for 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, section 115BBD has been amended to extend the applicability of this section in respect of income by way of dividends received from a specified foreign company in Financial Year also, subject to the same conditions.
27 Corporate Taxation Removal of cascading effect of DDT even on dividends received from specified foreign company Section 115-O was previously amended by FA 2012, and earlier Finance Act’s to remove cascading effect of DDT wherein DDT paid dividends distributed by a company’s subsidiary company was ultimately distributed by its holding company (in both two-tier & multi-tier structures). In order to ensure removal of cascading effect of DDT even on dividends specified in section 115BBD received from a specified foreign company as well, the provisions of section 115-O has now been further amended by FA 2013 to provide that the amount subject to DDT would be reduced by amount of dividend received by the domestic company during a financial year from a specified foreign company as defined in 115BBD.
28 Corporate Taxation Clarificatory amendment specifying amount eligible for deduction as bad debts in case of banks Section 36(1)(vii) deals with the allowability of bad-debts w/off in books of account of any assessee whereas section 36(1)(viia) deals with the allowability of provision for bad and doubtful debts only in case of certain specified banks, inter alia, which includes rural branches of certain specified banks. However, proviso to section 36(1)(vii) provides that for an assessee, to whom section 36(1)(viia) is applicable, 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. Hon’ble Supreme Court in case of “Catholic Syrian Bank Ltd. vs. CIT (2012) 343 ITR 270” has accepted the proposition that where separate accounts for provisions for bad debts are maintained for rural and urban advances and if the actual write-off relates to urban advances then same cannot be set-off against provision for bad debts of rural advances. It has been held that provisions of sections 36(1)(vii) and 36(1)(viia) are distinct and independent items of deductions and operate in their respective fields.
29 Corporate Taxation Cont….Clarificatory amendment specifying amount eligible for deduction as bad debts in case of banks As this was never the legislative intent, to overcome the above judicial interpretation, section 36(1)(vii) has been amended by FA Act, 2013 by inserting an explanation 2, to clarify that there shall be only one account maintained 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. It implies that, now 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.
30 Corporate Taxation Exemption to National Financial Holdings Company Ltd. National Financial Holdings Company Limited (NFHCL) is a company wholly owned by the Central Government and was incorporated to succeed the Specified Undertaking of Unit Trust of India, which itself was a successor to erstwhile Unit Trust of India. In section 10 a new clause (49) has been inserted to grant exemption in respect of any income of NFHCL.
31 Anti-Avoidance Provisions Deeming provisions similar to section 50C made applicable to assets held as SIT Provisions of section 50C, deeming stamp duty value to be the full value of the consideration, is applicable only in case of transfer of any capital asset, being land or building or both. The said section has no applicability in respect of transfer of immovable property which is held as stock-in-trade by an assessee [K.R. Palanisamy v. UOI (2008) 306 ITR 61 (Mad), CIT-II v. Kan Construction and Colonizers (P.) Ltd. (2012) 208 Taxman 478 (All)]. On similar lines, with the intention of deeming stamp duty value to be the full value of the consideration for assets, being land or building or both held as stock-in-trade by an assessee, a new section 43CA has been introduced in “Chapter IV-D – Profits and gains of business or profession” wherein the said assets (other than when they are held as capital asset) is sold for a consideration less than the value adopted for stamp duty purpose by an authority of State Government, then the value so adopted for stamp duty purpose shall be deemed to be the value of the consideration received or accruing as a result of such transfer for computing income under the heads profits and gains. The remedies provided for in section 50C by allowing a reference to the Valuation Officer and by treatment of value of stamp duty authority as final, where Valuation Officer’s value exceeds the stamp duty valuation, are also provided for in the matters falling within the purview of section 43CA.
32 Anti-Avoidance Provisions Cont….Deeming provisions similar to section 50C made applicable to assets held as SIT The said section further provides that where the date of an agreement fixing the value of consideration for the transfer of the asset and date of registration of the transfer of the asset are not same, the stamp duty value may be taken as the value on the date of the agreement for transfer and not as on the date of the registration of such transfer. This exception shall apply only in those cases where amount of consideration or part thereof for the transfer has been received by any mode other than cash on or before the date of the agreement for transfer of asset. This particular provision is similar to that of amended portion of section 56(2)(vii)(b).
33 Anti-Avoidance Provisions Amendment in the definition of “speculative transaction” u/s. 43(5) Clause (5) of section 43 provides for the definition of “speculative transaction”. The said clause, by virtue of a proviso, specifies certain transactions which shall not be construed as a “speculative transaction”. FA, 2013 has made an addition to this list of by inserting in its ambit “an eligible transaction in respect of trading in commodity derivatives carried out in a recognized association”i.e. to say that the said transaction shall not be considered as speculative transaction. For the said amendment, certain expressions have been defined as under:- "commodity derivative" - shall have the meaning as assigned to it in Chapter VII of the Finance Act, 2013 "eligible transaction" means any transaction,— carried out electronically on screen-based systems through member or an intermediary, registered under the bye-laws, rules and regulations of the recognized association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and the rules, regulations or bye-laws made or directions issued under that Act on a recognized association; and
34 Anti-Avoidance Provisions Cont…Amendment in the definition of “speculative transaction” u/s. 43(5) which is supported by a time stamped contract note issued by such member or intermediary to every client indicating in the contract note, the unique client identity number allotted under the Act, rules, regulations or bye-laws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act; "recognized association" means a recognized association as referred to in clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfills such conditions as may be prescribed and is notified by the Central Government for this purpose;
35 Anti-Avoidance Provisions Applicability of TDS on transfer of immovable property Under the existing provisions of the income tax Act, section 194LA provides for deduction of tax at 10% in case of transfer of immovable property (other than agricultural land) only when such property is subject to compulsory acquisition under any law for the time being in force, where the aggregate of payments exceeds Rs. 2,00,000/-. With the intention of extending the TDS provisions on transfer of immovable properties (other than agricultural land) on transfers otherwise than by way of compulsory acquisition and also to curb the practise of not quoting PAN or quoting of incorrect PAN with registrar or sub-registrar at the time of registration of the properties, a new section 194-IA has been introduced by FA, 2013 which mandates deduction of tax at 1% where payments are made to a resident in excess of Rs. 50,00,000/-. For the compliance of aforesaid provisions, the deductor is not required to procure a tax deduction account number u/s 203A. Similar provisions were sought to be introduced by Finance Bill, 2012, but was dropped at the time of passage of the bill in parliament. The said provisions shall now come into effect from 1 st June, 2013.
The CBDT by amending rules 30, 31, 31A of Income Tax Rules, 1962, vide notification no. 39 dated , has provided the mechanism for deduction and payment of TDS u/s 194-IA, the salient features are as under:- Any sum deducted u/s. 194-IA shall be paid to the credit of the CG within the period of 7 days from the end of the month in which the deduction is made. TDS payment u/s. 194-IA shall be accompanied by a challan-cum-statement in new form no. 26QB. Where tax deducted is to be deposited accompanied by a challan-cum-statement in form no. 26QB, the amount of tax so deducted shall be deposited to the credit of the CG by remitting it electronically within the time specified in sub-rule (2A) into the RBI or SBI or any authorized bank. Every person responsible for deduction of tax u/s. 194-IA shall furnish the certificate of TDS in form no. 16B to the payee within 15 days from the due date for furnishing the challan-cum-statement in form no. 26QB. Form 16B & 26QB have been made available online. 36 New rules for TDS on immovable property u/s 194-IA
TCS on cash sale of bullion and jewellery:- Finance Act, 2012, in order to reduce the quantum of cash transaction in bullion and jewellery sector and to curb the flow of unaccounted money, amended the section 206C of the Income-tax Act by introducing a new sub- Section (1D) to provide that the seller of bullion and jewellery should collect from buyer in cash the consideration is received in cash and such amount exceeds: Rs. 2 lakhs, on sale of bullion (excluding any coin or any article weighing 10grams or less); Rs. 5 lakhs, on sale of jewellery. However, FA, 2013, has done away with exception of excluding bullion in the form of coin or any article weighing 10grams or less by bringing all the bullion transaction exceeding Rs. 2 lakhs in the of TCS. 37 TCS u/s. 206(1D) now made applicable on bullion even if weighing 10grams or less
38 Anti-Avoidance Provisions Cash contribution to any political party or electoral party or electoral trust ineligible for deduction Currently, deduction is available for any contribution made, to any political party or electoral trust, by an Indian company or any person (other than local authority or artificial juridical person wholly or partly funded by the Government) under sections 80GGB or 80GGC respectively. However, with the intention of discouraging cash payments by contributors and curbing the stash of black money with political parties/electoral trust, the said provisions have been amended by FA, 2013 by restricting the allowability of deductions only if the contributions are made in a mode other than cash.
39 Anti-Avoidance Provisions General Anti-Avoidance Rule (GAAR) The General Anti Avoidance Rule (GAAR) was introduced in the Income-tax Act by the Finance Act, 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 were initially suppose to come into force with effect from 1st April, A number of representations were received against the provisions relating to GAAR. Hence, an Expert Committee was constituted by the Government with broad terms of reference including consultation with stakeholders and finalizing the GAAR guidelines and a road map for implementation. The Expert Committee’s recommendations included suggestions for legislative 12 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.
40 Anti-Avoidance Provisions Cont…General Anti-Avoidance Rule (GAAR) In order to give effect to the recommendations the following amendments have been made in GAAR provisions currently provided in the Act:- The provisions of Chapter X-A and section 144BA will come into force with effect from 1 st April, 2016 as against the current date of 1 st April, Hence, the provisions shall apply from the assessment year instead of assessment year 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. 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.
41 Anti-Avoidance Provisions Cont…General Anti-Avoidance Rule (GAAR) 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. 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 academician 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. 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.
42 Anti-Avoidance Provisions Cont…General Anti-Avoidance Rule (GAAR) 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. 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. These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year and subsequent assessment years.
43 Procedural Provisions Defective Return Section 139(9) deals with a defective return. Explanation to Section 139(9) provides a list of situations wherein a return shall be regarded as defective. FA, 2013, has extended the provisions of the said section even to a return on which self-assessment tax along with with interest, if any, payable in accordance with the provisions of section 140A, has not been paid on or before the date of furnishing of the return. The above amendment shall take effect from 1 st June, 2013.
44 Procedural Provisions Additional requirement on the basis of which special audit 142(2A) can be directed As per the current provisions of income tax, an Assessing Officer (AO) can direct an assessee to get its accounts audited if he deems it necessary having regard to the nature and complexity of the accounts of the assessee. Till date, there has been many litigation with respect to the justifiability of AO’s direction for getting assessee’s books audited and in majority of the cases, Courts have ruled in favour of the assessee by interpreting the expression “nature and complexity of the accounts” in a very restrictive manner. With the intention of avoiding any further litigations, the requirements for directing the special audit has been extended to include in its ambit the following:- Volume of the accounts, Doubts about correctness of the accounts, Multiplicity of transactions in accounts, Specialized nature of business The above amendment shall take effect from 1 st June, 2013.
45 Procedural Provisions Electronic filing of Wealth-tax returns As per the current provisions of the Wealth Tax Act, 1957, a return of wealth is mandatorily required to be filed in paper form and that too along with the specified documents. 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. On similar lines, FA, 2013, has amended Wealth Tax Act by introducing a new section 14A, empowering Board to notify class or classes of persons who can file return of wealth which may not be accompanied by statements, receipts, certificates, audit reports, reports of registered valuer or any other documents, which are otherwise required to be accompanied under any other provisions of Wealth-tax Act. Furthermore, another new section 14B, has been introduced empowering Board to notify class or classes of persons who would be mandatorily required to file return of wealth electronically without any documents. However, the amendments even provides that such assessee would be required to submit the documents on demand made by the Assessing Officer. Consequential amendments in the section 46 – “power to make rules” by the Board, are also made. The above amendment shall take effect from 1 st June 2013.
46 Procedural Provisions Amendment to clarify “Tax due” for the purpose of recovery u/s 167C and 179 Sections 167C and 179 provides for recovery of “tax due” from partner/director (who was the partner / director of such LLP/Private Company at any time during the previous year to which tax due relates) in case the same could not be recovered from LLP / private company. The Delhi High Court in the case of Sanjay Ghai [(2012) 26 taxmann.com 203] has 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. Similar view has also been taken by Gujarat High Court in Maganbhai Hansrajbhai Patel v. ACIT [(2012) 211 Taxman 386]. As this was never the legislative intent, clarificatory amendments have been made in both the sections by inserting a new explanation providing that the expression “tax due” includes penalty, interest or any other sum payable under the Act.
47 Procedural Provisions Revision of Penalty u/s. 271FA on failure to furnish AIR u/s. 285BA Section 285BA(1) mandates furnishing of annual information return (AIR) 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. In relation to the punishment for failure to furnish AIR, section 271FA provides for a penalty of Rs. 100/- per day during the period for which the failure continues. However, this penalty relates only to failure pertaining to AIR by persons specified under sub-section (1) and does not cover in its ambit, failure respond to a notice under sub-section (5). To remove such a flaw, section 271FA has been amended so as to include in its ambit, a penalty of Rs. 500/- per day in case of failure to furnish return within period specified in notice issued u/s. 285BA(5), from the date of expiry of the period specified in the notice.
48 Procedural Provisions Tax Residency Certificate The Finance Act, 2012 has amended the provisions of Section 90 and Section 90A of the Act to make the submission of a Tax Residency Certificate [“TRC”] containing prescribed particulars compulsory for non-residents assessee’s to avail benefits under the applicable Double Tax Avoidance Agreement [“DTAA”]. Memorandum explaining the provisions of the Finance Bill, 2012, mentioned that “TRC” would be a necessary but not a sufficient condition for claiming benefits under the applicable DTAA. However the same was not incorporated in the Income Tax Act and hence was lacking a statutory force. Though, the proposed Finance Bill, 2013 intended giving the above a legal validity, but ultimately the final bill, as passed by Lok Sabha, abolished the same. Now, as per the amended provisions, a non-resident assessee who intends to take the benefit of the said section, shall merely require to obtain a certificate of his being a resident in any country outside India or specified territory outside India, as the case may be, from the Government of that country or specified territory. However, the assessee shall have to provide such other documents and information, as may be prescribed.
49 Procedural Provisions Cont…Tax Residency Certificate The “TRC” referred to above i.e. in sections 90(4) & 90A(4), has now been notified by the CBDT vide notification no. 39/2012 dated , inserting a new rule 21AB along with introduction of new Form nos. 10FA & 10FB. As per the said notification, the certificate is to be obtained by an assessee, not being a resident in India, from the Government of the country or the specified territory shall contain the following particulars, namely:- Name of the assessee; Status (individual, company, firm etc.) of the assessee; Nationality (in case of individual); Country or specified territory of incorporation or registration (in case of others); Assessee's tax identification number in the country or specified territory of residence or in case no such number, then, a unique number on the basis of which the person is identified by the Government of the country or the specified territory; Residential status for the purposes of tax; Period for which the certificate is applicable; and Address of the applicant for the period for which the certificate is applicable;
50 Procedural Provisions Cont…Tax Residency Certificate In has been further stated in the said rule that the certificate shall be duly verified by the Govt of country/specified territory of the assessee who claims to be a resident for the purposes of the tax. For procuring the said certificate, the assessee (resident in India) shall make an application in Form no. 10FA to the AO. The AO shall issue the said certificate in Form No. 10FB.
51 Procedural Provisions Certain exclusions while computing time limits specified in section 153 Section 153 of the Act, which deals with time limits for completion of assessments and reassessments, inter alia, provides that while computing the time limit for completing the special audit u/s. 142(2A) the period commencing from the date on which AO directs the assessee to get his accounts audited and ending with the last date on which the assessee is required to furnish a report of such audit shall be excluded. 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. The said provision has, therefore, now been amended by FA, 2013, so as to include in in its ambit, in addition to above, a situation where the direction is challenged before a court, by excluding from the limitation period, the period commencing from the date on which AO directs the assessee to get his accounts audited and ending with the date on which the order setting aside such direction is received by the commissioner.
52 Procedural Provisions Cont…..Certain exclusions while computing time limits specified in section 153 Similarly, the said section 153, inter-alia, also provides 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. In order to deal with practical situations and with the intention of providing more clarity to the said provision, it has been amended 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. On similar lines, time limits specified u/s. 153B of the Act relating to the time limit for completion of a search assessment has also been amended. These amendments shall take effect from 1 st June, 2013.
53 Procedural Provisions Clarificatory amendment to section 132B - Application of seized or requisitioned assets As per the current provisions of section 132B, adjustments of seized assets is permitted against any existing liabilities. While interpreting the said law, some of the judicial pronouncements, namely, [Pandurang Dayaram Talmale (2004) 187 CTR 625 (Bom), Shri Ram S. Sarda v. Dy. CIT (2012) 17 taxmann.com 23 (Rajkot)], have held that advance tax liability is also an existing liability for the purposes of section 132B. As this was never the legislative intent behind enacting the said provision, in order to overrule the flawed interpretation, a new explanation 2 has been inserted in the said section clarifying that the “existing liability” does not include advance tax payable in its ambit.
54 Agricultural Income & Land Amendment in definition of capital asset The current definition of capital asset u/s. 2(14), inter alia excludes an agricultural land subject to the fulfilment of the following conditions, namely:- the land should not be situated within the jurisdiction of municipality or a cantonment board having population of 10,000 or more as per the last published census figures And The land should not be situated within 8 Km of such municipalities or cantonment board, which the Central Government may notify. Interpreting the said law, it was held in CIT vs. Madhukumar N. (HUF) [(2012) 208 Taxman 394 (Kar), that to classify a agricultural land as a capital asset for the purposes of section 2(14), apart from other conditions, a notification from the Central Government is a mandatory requirement that cannot be done away with. Further, the courts have even interpreted that the distance is to be measured as per the road distance and not as per the straight line distance on a horizontal plain. [CIT vs. Lal Singh  325 ITR 588 (PUNJ & HAR), Laukik Developers vs. DCIT  108 TTJ 364 (MUM)]
55 Agricultural Income & Land Cont…Amendment in definition of capital asset However, with the intention of doing away with the requirement of notification for classifying a agricultural land as capital asset, and clarifying certain other issues, section 2(14) stands significantly amended as under:- Now, an agricultural land shall be considered as a capital asset in the following circumstances, namely:- If the land is situated within the jurisdiction of municipality or a cantonment board having population of 10,000 or more as per the last published census figures; Or If the land is situated in an area within the distance of 2 km, measured aerially, from the local limits of any municipality or cantonment board and which has a population of more than 10,000 but upto 1,00,000; Or If the land is situated in an area within the distance of 6 km, measured aerially, from the local limits of any municipality or cantonment board and which has a population of more than 1,00,000 but upto 10,00,000; Or If the land is situated in an area within the distance of 8 km, measured aerially, from the local limits of any municipality or cantonment board and which has a population of more than 10,00,000;
56 Agricultural Income & Land Cont…Amendment in definition of capital asset Similar amendments have been made in section 2(1A) which defines “agricultural income”, so as to exclude, from its ambit, income derived from any buildings situated on or within immediate vicinity of agricultural land which is classified as capital asset for the purposes of section 2(14). Futhermore, similar amendments have even been made to the definition of “Urban land” in section 2 of Wealth-tax Act, 1957.
57 Other Major Amendments 100% Deduction for donations to National Children’s Fund The benefit of 100% deduction u/s 80G, has now been extended to National Children’s Fund, referred to in clause (iiib) of sub-section (2) of section 80G, which was erstwhile subject to merely 50% deduction.
58 Other Major Amendments Taxation of Securitization Trusts and its investors Section 161(1A) 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 securitization 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 securitization process, Income Tax Act, 1961 has been amended to provide a special taxation regime in respect of taxation of income of securitization entities, set up as a trust, from the activity of securitization. Apart from amendment of section 10, a new Chapter XII-EA has been inserted providing for a special tax regime. The salient features of the special regime are :- In case of securitization 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 securitization of such trusts will be exempt from taxation.
59 Other Major Amendments Cont…Taxation of Securitization Trusts and its investors The securitization 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 25% in case of distribution being made to investors who are individual and HUF 30% in other cases. However, no additional income tax shall be payable if the income distributed by the securitization trust is received by a person who is exempt from tax under the Act. Consequent to the levy of distribution tax, the distributed income received by the investor will be exempt. The securitization trust will be liable to pay interest at the rate of 1% for every month or part of the month on the amount of additional income-tax not paid within the specified time. The person responsible for payment of income or the securitization 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.
60 Other Major Amendments 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. In other words, 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, 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, The SEBI (Alternative Investment Funds) Regulations, 2012 (AIF regulations) have replaced the SEBI (Venture Capital Fund) Regulations, 1996 (VCF regulations) from 21st May, 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, section 10(23FB) now stands amended to provide that–
61 Other Major Amendments Cont….Pass through status to certain Alternative Investment Funds 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. 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:- That at least two-thirds of its investible funds are invested in unlisted equity shares or equity linked instruments of venture capital undertaking. No investment has been made by such AIFs in a VCU which is an associate company. Units of a trust set up as AIF or shares of a company set up as AIF, are not listed on a recognized stock exchange. 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 and subsequent assessment years.
62 Other Major Amendments Cont….Pass through status to certain Alternative Investment Funds 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 recognized stock exchange received by a Investor Protection Fund set up by the recognized 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 recognized 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.
The concept of Advanced pricing agreement (APA) was introduced by the Finance Act, 2012, w.e.f by enacting two new sections namely, 92CC & 92CD, wherein the CG may enter into an advance pricing agreement with any person, to determine the ALP or specifying the manner in which ALP is to be determined, in relation to an international transaction to be entered into by that person. (However, the said agreements are not made available to SDT) The provisions of sub-section (9) of section 92CC authorized CBDT to prescribe a scheme specifying the manner, form, procedure and any other matter in respect of APA. In this regards, new rules 10F to 10T has been enacted by the IT (Tenth Amdt.) Rules, 2012, w.e.f The contents of the scheme are briefed hereunder- Meaning of expression used in matters in respect of advance pricing agreement (Rule 10F); Persons eligible to apply (Rule 10G); Pre-filing consultation (Rule 10H) – New Form 3CEC; Application for advance pricing agreement (Rule 10-I) – New Form 3CED; Withdrawal of application for agreement (Rule 10J) – New Form 3CEE; Preliminary processing of application (Rule 10K); 63 Application for advance pricing agreement
Procedure (Rule 10L); Terms of the agreement (Rule 10M); Amendments to Application (Rule 10N); Furnishing of Annual Compliance Report (Rule 10-O) – New Form 3CEF; Compliance Audit of the agreement (Rule 10P); Revision of an agreement (Rule 10Q); Cancellation of an agreement (Rule 10R); Renewing an agreement (Rule 10S); Miscellaneous (Rule 10T). 64 Application for advance pricing agreement
Alternate Minimum Tax (AMT) In order to widen the tax base vis-a-vis profit linked investments, Chapter XII-BA of the Income-tax Act, 1961, which contains special provision relating to certain limited liability partnerships has now been amended so as to make them applicable to any person (other than company) who are claiming deduction under chapter VI –A under the heading “C- Deduction in respect of certain incomes” or under Section “10AA”. Accordingly, section 115JC has been replaced by new section 115JC, the salient features of which are as under: Payment of Alternate Minimum Tax (AMT): As per the provisions, there is a requirement to compute Adjusted Total Income (ATI), in the following manner:- Total income of any person (other than company) would be increased by:- Deduction claimed, if any, under Chapter-VIA under the heading “C – Deduction in respect of certain incomes” (under Section 80 H to Section 80 TT(other than Section 80 P)); Deduction claimed, if any, under Section 10AA On this ATI, alternate minimum tax would be computed at the rate of 18.5% (which is at par with MAT rates for Companies). 65 Finance Act, 2012 Alternate Minimum Tax (AMT)
With non-obstante clause, it is further provided that where regular Income-tax payable for a previous year is less than the AMT, the AMT shall be deemed to be the total tax liability of such person (just the way MAT provides). However, in terms of section 115JEE, AMT would not be applicable to individual, HUF, AOP, BOI or any artificial juridical person if the ATI does not exceed Rs. 20 lakhs. Hence, AMT would now be applicable even to Firms without any threshold limit just the way it is applicable to Limited Liability Partnership. Credit of AMT in terms of section 115JD. The current provisions relating to the credit of AMT paid against the tax paid under the normal provisions would continue to apply. The credit of AMT shall be available for a consecutive period of 10 succeeding years. With the intention of giving effects to above provisions, consequential changes have been made in section 140A. These amendment will take effect from 1st April, 2013 and will accordingly, apply from the assessment year Finance Act, 2012 Cont…Alternate Minimum Tax (AMT)
Brief Background The Finance Bill 2012 extended the applicability of Transfer Pricing (TP) Regulations to "specified domestic transactions” from F.Y A new insertion, section 92BA, defines SDT. Inter alia (more particularly defined later), it provides that only a transaction, where the aggregate of specified transaction exceeds a sum of Rs. 5Crs, it would be considered as SDT. The existing provisions providing for tax holiday & related party transactions paid emphasis on “fair market value” or “market value” of the transactions. However, in the absence of specific guidelines for computation of such “value” of goods and services, much was left to the discretion of both taxpayers and Revenue, thus leading to ambiguity and litigation. This amendment is based on the observations of the Supreme Court in case of CIT vs. Glaxo Smithkline Asia (P) Ltd. Hence a recommendation was made by the court so as to Transfer Pricing Provisions should be extended to domestic transactions to “reduce litigation” Sub-section (2A) has been inserted in Section 92 w.e.f. 1 st April, 2013, which reads as under:- “Any allowance for an expenditure or interest or allocation of any cost or expense or any income in relation to the specified domestic transaction shall be computed having regard to arm’s length price”. 67 Finance Act, 2012 Specified Domestic Transactions (SDT)
68 Domestic Transfer Pricing Regulations Subsection 8 of Section 80-IA( Inter unit trf of goods/services of the tax payer claiming tax holiday ) Chapter VI-A or Section 10AA (where provisions of Section 80IA are applicable ) Subsection 10 of Section 80- IA (Trf of goods/services from the unit of tax payer claiming tax holiday to a person with close connection) Section 40A(2)(b) payments to specified related parties Sections Covered under SDT
69 SectionTransactions/Examples Implication of Amendment on Sections covered under SDT 40A(2b)Payments to Relatives: Powers to the assessing officer to disallow unreasonable expenses or payments made to related parties. However there was no criteria for estimating the reasonableness of the transaction The application of the arm’s length standard to domestic intra group transactions or with related parties in goods or services with units/ undertakings/enterprises eligible for certain income tax deductions will ensure that companies do not misuse the deductions by undertaking non arm’s length transactions in order to increase the profits eligible for income tax deductions or increasing losses. 80AThis Sec prescribes certain conditions to be applied while computing deduction from GTI. AO is empowered to re- compute income (based on FMV) of the undertaking, provided there are tr. With related parties or other undertakings of same entity Transactions included as SDT
70 Sectio n 80- IA Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc Sub section 8 of Section 80-IA Goods or services held for the purposes of the undertaking or unit or enterprise or eligible business are transferred to any other business carried on by the assessee-Consideration received should be at the market price The application of the arm’s length standard to domestic intra group transactions or with related parties in goods or services with units/ undertakings/enterprises eligible for certain income tax deductions will ensure that companies do not misuse the deductions by undertaking non arm’s length transactions in order to increase the profits eligible for income tax deductions or increasing losses. Sub section 10 of Section 80-IA It appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business and any other person the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits the Assessing Officer shall, in computing the profits and gains of such business for take the amount of profits as may be reasonably deemed to have been derived therefrom. Transactions included as SDT
Definition of Related Party Expanded in sec 40A(2)(b) Sub-Clause (iv) is modified by adding words- “or any other company carrying on business or profession in which the first mentioned company has substantial interest”. This would bring under its purview transactions between subsidiaries of common parent company holding more than 20% in both the Companies. 71 Finance Act, 2012 Cont….Specified Domestic Transactions (SDT)
Deterrent for shifting of profits from a profit making entity to a loss making entity There is no provision for “Corresponding Adjustment” i.e. it will lead to Double Taxation The penal consequences currently applicable to transfer pricing regulations are also applicable to SDT. The due dates for filing remains the same as applicable to Transfer Pricing Audits i.e. 30 th November. Tax Payers will have to formalize their product pricing within group as detailed documentation would be needed as a part of compliance It would be possible for such taxpayers to utilize TP concepts and methodologies (such as FAR analysis, benchmark driven pricing) for both commercial as well as taxation purposes. Benchmarking would pose problems for certain transactions such as – Director’s remuneration 72 Cont…Specified Domestic Transaction Analysis of Amendment
Documentation: The taxpayers have also to maintain the documentation as mentioned in section 92 D and obtain report in Form 3CEB from the Accountant as per the provisions of Sec 92E. Compliance: File form 3CEB along with their return (Sec 92E). Methods: Follow the Transfer Pricing Methods as applicable to determine the ALP. Penal Provision: Be subject to penal provisions as provided U/s 271AA, 271G, 271BA and 271(1)(c). 73 Procedural Aspect of SDT Cont…Specified Domestic Transaction
Section 92C(1) provides for various methods for determination of arm’s length price in relation to an international transaction or specified domestic transaction, which, inter alia includes under clause (f) of sub-section (1) “such other method as may be prescribed by the board”. In this regards, new rule 10AB has been enacted by the IT (Sixth Amdt.) Rules, 2012, w.r.e.f (i.e. applicable for AY and subsequent years) which provides for the methodology of determination of arm’s length price as under:- “any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts”. 74 Residuary method for computation of “arm’s length price”
Relevant Amendments / Additions to Income Tax Rules,
Section 10(47) of the Income Tax Act, 1961, exempts any income of an infrastructure debt fund (IDF) which is notified by the Central Government in the Official Gazette, provided the fund is set up in accordance with guidelines as may be prescribed. In this regards, new rule 2F has been enacted by the IT (Fifth Amdt.) Rules, 2012, w.e.f which provides for the guidelines for setting up an Infrastructure Debt Fund, the salient features of which are as under:- The IDF shall be a NBFC, set up in conformity with IDF-NBFC (Reserve Bank) Directions, The funds shall be invested only in PPP infrastructure projects, more particularly described in the rule 2F. The IDF shall issue rupee denominated bonds or foreign currency bonds. In case of a non-resident investor, the minimum lock in period shall be of 3yrs. However, at the time of first investment by such non-resident investor, the minimum lock in period shall be of 5yrs. The said NR’s investors are allowed to transfer the bond to another NR investor within such lock in period. The maximum investment that can be made in an individual project or project belonging to a group at any time shall be 25% of the corpus of the fund. 76 Guidelines for setting up an Infrastructure Debt Fund u/s 10(47) – New Rule 2F
The IDF shall not make any investment in any project where its sponsor or the associate enterprise or the group of such sponsor has a substantial interest. The IDF shall file its return of income u/s. 139(4C) on or before the due date. For the purposes of the said Rule 2F, the following words shall have the following meaning:- “associate enterprise” – meaning as assigned to it in section 92A of the Act. "concern" – meaning as in clause (a) of Explanation 3 of sub-section (22) of section 2 of the Act; "corpus" means the total funds of the Infrastructure Debt Fund raised for the purpose of investment; "group" – meaning as defined in clause (mm) of section 2 of Securities and Exchange Board of India (Mutual Funds) Regulations, a person shall be deemed to have substantial interest in – a company, if he is the beneficial owner (including beneficial ownership held by one or more of his relatives, in case the person is an individual) of shares (not being the shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than 10 per cent of the voting power; or 77 Cont…Guidelines for setting up an Infrastructure Debt Fund u/s 10(47) – New Rule 2F
a concern other than a company if he is, at any time during the previous year, beneficially entitled to not less than 20 per cent of the income of such concern. “relative” – similar to the meaning assigned to it in section 56(2)(vi) in Income Tax Act, “sponsor” – means a non-banking financial company, or a bank which is allowed to act as sponsor of Infrastructure Debt Fund in accordance with the directions of Reserve Bank of India. 78 Cont…Guidelines for setting up an Infrastructure Debt Fund u/s 10(47) – New Rule 2F
Finance Act, 2012, extended the benefits of deduction available u/s. 35AD towards development of housing project under a scheme for affordable housing framed by the CG or SG and notified by the board in this behalf. In this regards, a new rule 11-OA has been inserted by the IT (First Amdt.) Rules, 2012, w.e.f and also a new form - 3CN, has been inserted. The provision of the rule states as under- the applicant shall apply for notification of the project in Form No. 3CN to Member (IT), Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, North Block, New Delhi; the manner / time-limits subject to which the approval may be granted or withdrawn; certain other issues; Further, all the following conditions needs to be fulfilled by the project, for it to qualify for the approval, namely:- the project shall commence on or after 1 st April, 2011; the project shall have prior sanction from the competent authority; the project shall be on a plot of land which has a minimum area of one acre; 79 Scheme for affordable housing project u/s 35AD
at least 30% of the total allocable rentable area of the project shall comprise of affordable housing units of Economically Weaker Sections (EWS) category; at least 60% of the total allocable rentable area of the project shall comprise of affordable housing units of EWS and Lower Income Group (LIG) categories; at least 90% of the total allocable rentable area of the project shall comprise of affordable housing units of EWS, LIG and MIG categories; the balance 10% or less of the total allocable rentable area of the project may comprise of other residential or commercial units; the layout and specifications including design of the project shall be approved by the State or Union territory Government or its designated implementing agency; the project shall be completed within a period of 5yrs from the end of the financial year in which the project is sanctioned by the competent authority empowered under the Scheme of Affordable Housing in Partnership framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India. the assessee shall maintain separate books of accounts pertaining to capital expenditure which is intended to be claimed as a deduction u/s 35AD; the assessee shall file return of income within the relevant due date; 80 Cont…Scheme for affordable housing project u/s 35AD
Certain important definitions, for the said rule:- “affordable housing units” shall be of the following categories:- “housing unit” means an independent residential unit with separate facilities for living, cooking and sanitary requirements, distinctly separated from other residential units within the building – directly accessible from an outer door or through an interior door in a shared hallway and not by walking through another household's living space and excluding any shared dining areas; 81 Cont…Scheme for affordable housing project u/s 35AD
“specified cities” shall mean the following:- Greater Mumbai urban agglomeration; Delhi urban agglomeration; Kolkata urban agglomeration; Chennai urban agglomeration; Hyderabad urban agglomeration; Bangalore urban agglomeration; Ahmedabad urban agglomeration; District of Faridabad; District of Gurgaon; District of Gautam Budh Nagar; District of Ghaziabad; District of Gandhinagar; and City of Secunderabad; "total allocable rentable area" means the total rentable area of all the proposed housing units or non-housing units but excluding the areas earmarked for common facilities and services. 82 Cont…Scheme for affordable housing project u/s 35AD
Rule 12 of the Income Tax Rules, 2012, deals with ITR’s, which are subject to the following amendments for the AY relevant to FY :- Form SAHAJ (ITR 1) and Form SUGAM (ITR 4S) Tax payers are mandatorily required to furnish their bank details irrespective of any refund arising to them or not. Earlier details of MICR code were required to be furnished. Now, instead of MICR code, Indian Financial System Code (IFSC) is required to be quoted by the tax payer. IFSC code is an eleven digit code assigned by Reserve Bank of India to identify every banks branch uniquely, that are participating in National Electronic Fund Transfer system in India The said forms shall not be applicable to tax payers in the following circumstances: If tax payers have losses under the head income from other sources then such tax payers cannot utilize Form SAHAJ to file their income tax returns. If a tax payer being is a ‘resident’ but ‘not ordinarily resident’ and has assets located outside India or possesses authority to sign in any account located outside India. Tax payers claiming benefits under Section 90 and 90A of the IT Act. If tax payers have income not chargeable to tax exceeding Rs. 5,000/-. 83 Income Tax Returns (ITR’s) – Rule 12
Amendments to Form ITR 2 In case of short term capital gains arising to a non-resident tax payer, gains earned are to be bifurcated into shares / units on which Securities Transaction Tax (STT) has been paid and on those on which STT has not been paid. If a tax payer has claimed benefit under Section 54GB, the Permanent Account Number (PAN) of the Company is to be provided. A separate schedule FSI has been inserted requiring tax payers to declare ‘Details of Income accruing or arising outside India’. The tax payer has to provide details like country code, tax identification number, income earned under the five heads of income and division of such income where a tax treaty is applicable and where not. Schedule TR pertaining to details of taxes paid outside India has been amended to provide for details of the relevant article of the tax treaty. Schedule FA pertaining to ‘Details of Foreign Assets’ has been amended requiring a tax payer to declare its account number if it has maintained a foreign bank account or possesses signing authority for any account located outside India. If a tax payer is a trustee of a trust formed outside India, the tax payer has to provide details like country name, country code and the name and addresses of trustees, settlers and the beneficiaries. 84 Cont…Income Tax Returns (ITR’s) – Rule 12
Amendments to Form ITR 3 and ITR 4 Schedule AL has been inserted requiring a tax payer to report details of their personal assets and liabilities in India if the tax payer’s income exceeds Rs. 25 lakhs. The assets covered under the said schedule are land, building, bank (including all deposits), shares and securities, insurance policies, loans and advances given cash in hand, jewellery, bullion, archaeological collections, drawings, painting, sculpture or any work of art, vehicles, yachts, boats and aircrafts is provided. Further, the value has to be reported at cost. The taxpayers can report any liability against these assets in the schedule. Electronic filing of Tax Audit Reports (TAR), Transfer Pricing (TPR) and Minimum Alternate Tax Report (MATR) along-with income tax returns Until last year tax payers filing their income tax returns electronically were not required to enclose any papers / documents / reports with their income tax returns. Now clause 2 of Rule 12 of the IT Rules has been amended to provide that tax payers are required to file the aforesaid reports electronically along-with their income tax returns. 85 Cont…Income Tax Returns (ITR’s) – Rule 12
Mandatory electronic filing of income tax returns Last year individuals and Hindu Undivided Families having total income in excess of Rs. 1 million were required to furnish their income tax returns electronically. Pursuant to amendment in Clause 3 of Rule 12 of the IT Rules, not only individuals or HUFs but all persons other than a company, charitable trusts, political parties, scientific research associations, news paper agencies, colleges or universities etc. earning income of more than Rs. 5 lakhs shall be required to mandatorily file income tax returns in electronic form. Clause (aab) has been inserted providing tax payers claiming benefits under Section 90 and 90A of the IT Act to mandatorily file income tax returns electronically. Conclusion The said notification shows the intention of the Indian government and tax authorities to require tax payers to declare maximum details of their income and wealth. The notification, by amending Rule 12 of the IT Rules serves a dual purpose for the Indian tax authorities. Firstly it has widened the scope of electronic filing of income tax returns for various taxpayers i.e. corporate and individuals and secondly aims to achieve simplification of the procedural and administrative requirements. All tax payers filing their income tax returns for the AY i.e. income earned during the financial year 1 April 2012 to 31 March 2013, shall be required to adhere to the aforesaid amendments. 86 Income Tax Returns (ITR’s) – Rule 12
As per the amended provisions of section 201 by FA, 2012, any person who fails to deduct the whole or any part of the tax on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident— has furnished his return of income under section 139; has taken into account such sum for computing income in such return of income; and has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed: In this regard, a new rule 31ACB has been introduced by the IT(Second Amdt.) Rules, 2013 w.e.f along with new form 26A, which states as under:- The said certificate shall be furnished in new Form 26A to the Director General of Income-tax (Systems) or the person authorized by the DGIT(systems); The DGIT (Systems) shall specify the procedures, formats and standards for the purposes of furnishing and verification of the Form 26A and be responsible for the day-to-day administration in relation to furnishing and verification of the Form 26A in the manner so specified. On similar lines, rule 37J along with form 27BA has been inserted with respect to non treatment of the assessee to be in default on account of failure to collect whole or part of tax at source. 87 Certificate for not treating a person to be assessee in default u/s.201 – new rule 31ACB
As per the provisions of section 153A and 153C the AO is required to issue notices, requiring the assessee to file return of income, for 6 AY’s in case the assessee/or any other person wherefrom assets belonging to assessee has been found, is subject to search u/s. 132 or requisition is made u/s. 132A However, FA, 2012 amended the said provisions, by inserting new proviso, to state that the CG, by way of rules, specify the class or classes of cases wherein the AO will not be required to issue notice for assessing or reassessing the total income of 6 AY’s. In this regards, the CG has come with new rule 112F, specifying the class / cases where notices u/s. 153A / 153C are not required to be issued for 6AY’s, namely:- where, a person is found to be in possession of any money, bullion, jewellery or other valuable articles or things, whether or not he is the actual owner of such money, bullion, jewellery etc. pursuant to search u/s132 or requisition u/s 132A; and where, such search is conducted or such requisition is made in the territorial area of an assembly or parliamentary constituency in respect of which a notification has been issued under section 30 read with section 56 of the Representation of the People Act, 1951 (43 of 1951), or where the assets so seized or requisitioned are connected in any manner to the ongoing election in an assembly or parliamentary constituency. However, the said exceptions shall be applicable to cases where search u/s. 132 or requisition u/s. 132A has taken place after the hours of poll so notified. 88 Class / Cases where AO not required to issue notices for 6 AY’s pursuant to search or requisition.
Following forms have been subject to certain amendments:- Form 15G [declaration u/s. 197A(1) and section 197A(1A)] Form 15H [declaration u/s. 197A(1C)] Form 16 [certificate u/s. 203 of the Income-Tax Act, 1961 for TDS under salary] Form 16A [certificate u/s. 203 of the Income-Tax Act, 1961 for TDS other than salary] Form 24Q [quarterly statement for TDS - Salary] Form 26Q [quarterly statement for TDS – other than Salary] Form 27C [declaration u/s. 206(1A) for obtaining goods without collection of tax] Form 27D [certificate u/s. 206C for TCS] Form 27EQ [quarterly statement for TCS] Form 27Q [quarterly statement for TDS – NR other than salary] Form 29C [Report u/s. 115JC – other than company] 89 Forms subject to certain amendments
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