CA. Kejal V. Pandya B.com, FCA, DISA, DIRM Kejal Pandya & Associates Chartered Accountants 1 Amendments by Finance Bill, 2012 with reference to Tax Audit Venue: ICAI BHAWAN, VADODARA

Presentation Overview Amendments in relation to Business and Profession Amendments in relation to Deductions from Gross Total Income Amendments in relation to TDS provisions 2

Section 32(1) (iia) Section 32(1) (iia) Extending benefit of initial/additional depreciation Amendment to existing provision w.e.f Existing provision Benefit of initial /additional depreciation available to an assessee engaged in the business or manufacture of any article or thing Amendment Eligible Assessee – An assessee engaged in the business of generation or generation and distribution of power What is allowed - Additional depreciation at the rate of 20% of actual cost of eligible new machinery or plant (other than ships and aircraft) acquired and installed in a previous year. 3

Section 32(1) (iia)… Depreciation on addition after September To be calculated as per the regular method as per Income Tax Act, 1961 – 50% of applicable rate of depreciation Balance depreciation to be claimed in next year 4

Section 35(2AB) Section 35(2AB) D eduction for in-house scientific research and development Amendment to existing provision Existing provision Deduction was available upto Amendment Eligible Assessee – A company engaged in business of bio technology or in manufacture or production of article or thing other than specified in Eleventh Schedule, who spends on in-house research and development What is allowed – Weighted deduction of 200% of revenue and capital expenditure (not being in the nature of cost of any land or building) For a further period of 5 years i.e. up to

Section 35AD Section 35AD Deduction in respect of capital expenditure on specified business Amendment to existing provision w.e.f Eligible Assessee – Three new businesses added to the list of “specified business” for the purposes of the investment-linked deduction of 100% of the capital expenditure under section 35AD, namely:-  Setting up and operating an inland container depot or a container freight station notified or approved under the Customs Act, 1962;  Bee-keeping and production of honey and beeswax; and  Setting up and operating a warehousing facility for storage of sugar. What is allowed – deduction of 100% of the capital expenditure in “specified business” Date of commencement of operations for availing investment linked deduction - on or after

Section 35AD... Eligible Assessee – Businesses commencing operations on or after namely:-  Setting up and operating a cold chain facility;  Setting up and operating a warehousing facility for storage of agricultural produce;  Building and operating, anywhere in India, a hospital with at least one hundred beds for patients;  Developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed; and  Production of fertilizer in India. What is allowed – Weighted deduction of 150% of the capital expenditure under section 35/AD(1A) of the Income-tax Act 7

Section 35AD... A new sub-section (6A) inserted in section 35AD w.r.e.f. AY Eligible Assessee – Where the assessee builds a hotel or two-star or above category as classified by the Central Government and subsequently, while continuing to own the hotel, transfers the operation thereof to another person the assessee shall be deemed to be carrying on the specified business of building and operating hotel and What is allowed – shall continue to be eligible for the deduction under section 35AD(100% of capital expenditure) 8

Section 35CCC Section 35CCC Deduction for expenditure incurred on agricultural extension project New section w.e.f Eligible Assessee – Business entities engaged in agricultural extension services What is allowed – Weighted deduction of 150% of the expenditure incurred on agricultural extension project. Deduction not to be allowed in respect of such expenditure under any other provisions of the Income-tax Act for the same or any other assessment year. 9

Section 35CCC… Meaning of Agricultural Extension Service - Application of scientific research and new knowledge to agricultural practices through farmer education Communication and learning activities organized for rural people by educators from different disciplines, including agriculture, agricultural marketing, health, and business studies. 10

Section 35CCD Section 35CCD Deduction for expenditure incurred by a company on skill development project New section Eligible Assessee – Companies investing on skill development projects in the manufacturing sector The skill development project eligible for this weighted deduction shall be notified by the Board in accordance with the prescribed guidelines. What is allowed – Weighted deduction of 150% of expenses (not being expenditure in the nature of cost of any land or building) incurred on skill development project. Deduction not to be allowed in respect of such expenditure under any other provisions of the Income-tax Act for the same or any other assessment year. 11

Section 35CCD... Skill Development aims at - Institution-based skill development including ITIs/ITCs/vocational schools/technical schools/ polytechnics/ professional colleges, etc. Learning initiatives of sectoral skill development organised by different ministries/departments. Formal and informal apprenticeships and other types of training by enterprises Training for self-employment/entrepreneurial development Adult learning, retraining of retired or retiring employees and lifelong learning Non-formal training including training by civil society organizations E-learning, web-based learning and distance learning. 12

Section 40(a) (ia) Section 40(a) (ia) Disallowance of business expenditure on a/c of non- deduction of tax on payment to resident payee Amendment to existing provision w.e.f Existing provision Expenditure were being disallowed if tax was not deducted on the same. Amendment Where – An assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax, AND is not deemed to be an assessee in default under the amended section 201(1) as the tax has been paid by the payee on such income, AND the payee has furnished the return of income 13

Section 40(a) (ia)… Then - for the purpose of allowing deduction of such sum, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee. Therefore, the expenditure on which the tax was actually not deducted, becomes an allowable expenditure. These beneficial provisions are made to be applicable only in the case of resident payee. 14

Proviso to section 40A(2)(a) / Section 80-IA(8) and section 80-IA(10) New Proviso (Domestic Transfer Pricing) Payment to relative and close associates to be treated as specified domestic transaction and should be done at arm’s length price Transactions under section 80-IA(8) (Deduction for infrastructure development – transfer at no/lower price) and section 80-IA(10) (transaction with more than eligible profit) to be treated as specified domestic transactions and should be done at arm’s length price Previously, report to be submitted if asked by AO, now mandatory 15

Section 40A(2) (b) Section 40A(2) (b) Meaning of related person - amended Any other company carrying on business or profession in which the first mentioned company has substantial interest shall be considered as related person 16

Section 44AB Section 44AB Turnover or gross receipts for audit of accounts Increase in the threshold limit of total sales, turnover or gross receipts, for getting accounts audited – NatureOld LimitNew Limit Business60 Lacs1 Crore Profession15 Lacs25 Lacs 17

Explanation to section 44AB Explanation to section 44AB Due date of furnishing audit report w.r.e.f. AY in case of international transactions/specified domestic transactions 30th November of the relevant assessment year in case of assessees carrying on international transaction/specified domestic transaction as per section 92B or specified domestic transaction as per newly inserted section 92BA 18

Section 44AD Section 44AD Presumptive taxation not to apply to professions etc. w.r.e.f. A.Y Sub-section (6) inserted in section 44AD Presumptive scheme is not applicable to:  a person carrying on profession as referred to in section 44AA(1);  a person earning income in the nature of commission or brokerage income; or  a person carrying on any agency business. Threshold limit of total turnover or gross receipts has been increased from Rs.60 Lacs to Rs.1 crore. Practical aspects to be considered before deciding about presumptive taxation 19

Section 80C(3A) Section 80C(3A) Eligibility condition for deduction in respect of life insurance policies Premium or other payment made should not exceed 10% of the actual capital sum assured, in case of Insurance policies other than a contract for deferred annuity Issued on or after Actual capital sum assured shall mean – Minimum amount assured under the policy on happening of the insured event at any time during the term of the policy, not taking into account-  the value of any premiums agreed to be returned, or  any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or may be received under the policy by any person. 20

Section 80CCG Section 80CCG Deduction in respect of investment made under an equity savings scheme Eligible Assessee – An individual who is resident in India, who has- in a previous year, acquired listed equity shares in accordance with a scheme, as may be notified by the Central Government in this behalf, and satisfied the prescribed conditions. What is allowed – 50% of the amount invested in such equity shares OR Rs.25,000/- whichever is less. 21

Section 80CCG… Conditions to the satisfied [Section 80CCG(3)] The gross total income of the assessee for the relevant assessment year should not exceed Rs.10,00,000 The assessee is a new retail investor as may be specified under the scheme notified in this behalf; The investment is made in such listed equity shares as may be specified under the notified scheme; The investment is locked-in for a period of three years from the date of acquisition in accordance with the notified scheme; and Such other condition as may be prescribed. Practically a risky investment 22

Section 80CCG… Consequences if the conditions of Section 80CCG(3) are not satisfied [Section 80CCCG (4)] The deduction originally allowed shall be deemed to be the income of the assessee of such previous year and shall be liable to tax for the assessment year relevant to such previous year. 23

Section 80D Section 80D Deduction for expenditure on preventive health check-up Amendment to existing provision What is eligible Any payment made by an individual on account of preventive health check-up of self, spouse, dependant children or parent(s) during the previous year Payment to be made –  by any mode, including cash, in respect of any sum paid on account of preventive health check-up;  by any mode other than cash, in all other cases. Amount of Deduction Eligible within the overall limits prescribed in the section, not exceed in the aggregate Rs.5,000 24

Section 80D, 80DDB and Section 197A(1C) Section 80D, 80DDB and Section 197A(1C) Reduction of the eligible age for senior citizens Reduced from 65 years to 60 years For section 80D(mediclaim) and 80DDB(medical treatment), effective from A.Y For section 197A(no TDS), effective from

Section 80-IA(4)(iv) Section 80-IA(4)(iv) Extension of sunset date for tax holiday for power sector Terminal date extended for a further period of one year, i.e., up to in case of electricity undertakings 26

Section 80TTA Section 80TTA Deduction in respect of interest on deposits in SB A/C New Section Who is eligible – An Individual and an HUF having interest income from savings account with –  Bank  Co-operative Society engaged in banking businedd  Post office Not available to partners of a partnership firm and to members of an AOP or BOI, where, interest is earned by them from savings account held on behalf of such firm or AOP or BOI, and is part of their taxable income What is allowed – Deduction to the maximum extent of Rs.10,000/- 27

Section 193 Section 193 TDS on payment of interest on debentures Amendment to existing provision Who is eligible – Resident individual or Hindu undivided family receiving interest from debentures of a company What is allowed – TDS not to be deducted by the company on interest on debenture to above upto Rs.5,000/-, if payment is made by account payee cheque (previous limit – Rs.2,500/-) 28

Section 194 E Section 194 E TDS on amount paid/payable to non-resident sports person and an entertainer Amendment to existing provision Rate increased from 10% to 20% 29

Section 194J(1)[ba] Section 194J(1)[ba] TDS on remuneration other than salary to a director Amendment to existing provision w.e.f TDS on the remuneration or fee or commission by whatever name called paid to a director, which is not in the nature of salary at the rate of 10% of such remuneration Employer-employee relationship is a pre-requirement Covers any remuneration or fees or commission or any other payment by whatever name called, other than those on which tax is deductible u/s

Section 194LC Section 194LC TDC on interest payable to a non-resident in respect of borrowing made in foreign currency by a specified company New Section Payment of interest on –  Borrowings by an Indian company  From a non resident, not being a company OR from a foreign company  in foreign currency during to  under a loan agreement OR by way of issue of long term infrastructure bonds  As approved by Central Government At the rate of interest approved by the Central Government 5% 31

Section 195(1) TDS on any interest payable to non-resident Amendment to existing provision w.e.f Section 195 shall not apply to – Interest on infrastructure debt fund (section 194LB) Interest paid by a specified company (section 194 LC) 32

Section 195(7) Section 195(7) AO to decide sum chargeable to TDS Amendment to existing provision w.e.f Notwithstanding anything contained in section 195(1) and (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of sum chargeable, and upon determination, tax shall be deducted under section 195(1) on that proportion of the sum which is so chargeable. 33

Proviso to section 201(1) Proviso to section 201(1) Assessee in default New proviso An assessee not to be considered as an assessee in default when Payment of expenditure without TDS/less TDS Payee –  has furnished his return of income under section 139;  has taken into account such sum for computing income in such return of income  has paid the tax due on the income declared by him in such return of income, AND  the payer furnishes a certificate to this effect from a chartered accountant in such form as may be prescribed 34

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