TMI BlogTax Rates and TDS Rates under Income-taxX X X X Extracts X X X X X X X X Extracts X X X X ..... so computed for deduction at source in the case of individuals (for income above Rs. 60,000), companies, firms, co-operative societies and local authorities (except foreign companies) will be enhanced by a surcharge calculated at the rate of two per cent of such tax. 4.2.2 These rates are broadly the same as those specified in Part II of the First Schedule to the Finance Act, 2000, for the purposes of deduction of income-tax at source during the financial year 2000-2001 except that the rate of tax to be deducted from winnings from lotteries or crossword puzzles and winnings from horse races has been reduced from forty per cent to thirty per cent. Rates for deduction of income-tax at source from Salaries computation of advance tax and charging of income-tax in special cases during the financial year 2001-2002. 4.3 The rates for deduction of income-tax at source from Salaries during the financial year 2001-2002 and also for computation of advance tax payable during that year in the case of all categories of tax payers have been specified in Part III of the First Schedule to the Act. These rates are also applicable for charging income-tax during the financial ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 50,000 Nil Rs. 50,001 to 10 % Rs. 50,001 10 % Rs. 60,000 to Rs. 60,000 Rs. 60,001 to 20 % Rs. 60,001 to 20 % Rs. 1,50,000 Rs. 1,50,000 Above Rs. 1,50,000 30 % Above Rs. 1,50,000 30 % 4.3.2 Effect of levy of surcharge - The effect of levy of surcharge in the case of individuals, HUFs, etc., at different income levels would be as under : Total income Existing tax New Tax Tax saving Tax saving liability liability (Rs.) (Rs.) (Rs.) (Rs.) (%) 50,000 Nil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,52,000 22,932 19,992 2,940 12.82 2,00,000 39,780 34,680 5,100 12.82 3,00,000 74,880 65,280 9,600 12.82 4,00,000 1,09,980 95,880 14,100 12.82 5,00,000 1,45,080 1,26,480 18,600 12.82 10,00,000 3,20,580 2,79,480 41,000 12.82 4.3.3 Co-operative societies - In the case of co-operative societies the rates of income-tax have been specified in Paragraph B of Part III of the First Schedule to the Act. These rates are the same as those specified in the corresponding Paragraph of Part I of the First Schedule to the Act, except that the maximum marginal rate leviable on the incomes above Rs. 20,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00, the Act has provided definitions of 'books of account' and 'document' in section 2 of the Income-tax Act, so as to include electronic records within the meaning of these terms. 5.2 A new clause (12A) has been inserted in section 2 to define books of account as including ledgers, day-books, cash books, account-books and other books whether kept in written form or as print-outs of data stored in a floppy disc, tape or any other form of electro-magnetic data storage device. 5.3 Another new clause (22AA) has been inserted in the section to define the expression document as including an electronic record as defined in clause (t) of section 2 of the Information Technology Act, 2000, as per which electronic record means data, record or data generated, image or sound stored, received or sent in an electronic form or micro film or computer generated micro fiche. 5.4 These amendments take effect from 1st June, 2001. [Sections 3(a) 3(b)] Definition of lottery and card game and other game of any sort 6.1 Sub-clause (ix) of clause (24) of section 2 of the Income-tax Act refers to income as including any winnings from lotteries, crossword puz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take effect with effect from 1st April, 2002, and will accordingly, apply in relation to the assessment year 2002-2003 and subsequent assessment years. [Section 4] Exemption of amount received under VRS extended to Central and State Government employees 8.1 Under the existing provisions contained in clause (10C) of section 10, any amount received by an employee of a public sector company or any other company or an authority established under a Central, State or Provincial Act or a local authority or a co-operative society or a University or an Indian Institute of Technology or a notified Institute of management, at the time of his voluntary retirement/separation is not included in computing his total income. The exemption is available for amounts received upto Rupees five lakhs and if the payment is in accordance with a scheme of voluntary retirement/separation framed by the employer as per the prescribed guidelines. 8.2 Clause (10C) of section 10 has been amended through Finance Act, 2001, so as to extend the exemption to the employees of Central and State Governments also. 8.3 This amendment will take effect from 1st April, 2002, and will accordingly, appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest related to such moneys borrowed or debts owed before 1st June, 2001. (v) Part (e) of sub-clause (iv) of clause (15) of section 10 has been amended so as to limit the exemption in respect of income by way of interest payable by financial institutions on money borrowed from sources outside India on or after 1st June, 2001 under an approved loan agreement for specified purposes. (vi) Part (f) of sub-clause (iv) of clause (15) of section 10 has been amended so as to limit the exemption in respect of income by way of interest payable by an industrial undertaking in India on moneys borrowed from sources outside India under a loan agreement approved by the Central Government on or before 1st June, 2001. 9.2 After withdrawal of income tax exemption on interest payable on ECBs, the interest received by foreign entities on ECBs which are payable by Indian entities has now become taxable if such interest relates to moneys borrowed on or after 1st June, 2001 or if the agreements for the loan have been entered into or approved on or after 1st June, 2001, as the case may be. In other words, the exemption will be available only for interest in respect of borrowings made or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect from 1st April, 2002, and will, accordingly, apply in relation to the assessment years 2002-2003 and subsequent assessment years. [Section 5(d)] Educational and medical institutions not required to invest their funds being part of corpus before 1st day of June, 1998 in specified securities. 13.1 Through Finance Act, 1999, the blanket exemptions available under sections 10(22) and 10(22A) to educational or medical institutions established for educational or philanthropical purposes were withdrawn. Sections 10(22) and 10(22A) provided that the income of a University or other educational institution or a hospital or other medical institution is not includible while computing the total income. Such institutions are now required to maintain a discipline similar to trusts under section 11. The exemption is available if the institution applies its income or accumulates it for application, wholly and exclusively for the objective for which it is established. The income so accumulated is required to be invested in securities as specified under sub-section (5) of section 11. 13.2 The sixth proviso to section 10(23C) further provides that the educational and medical ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such income is accumulated after the 1st day of April, 2001, by any such fund or trust or institution or any university or other educational institution or any hospital or other medical institutions, as the case may be, will be five years only. If, however, the income accumulated is less than twenty-five per cent of the income earned during the year by these educational and medical institutions, there is no limitation on the period of accumulation. 14.3 This amendment will take effect from 1st April, 2002, and will accordingly, apply in relation to the assessment year 2002-2003 and subsequent assessment years. [Section 5(e)] Exemption to continue for a Venture Capital Company or Venture Capital Fund if the shares of venture capital undertaking get listed 15.1 A new section 10(23FB) was introduced in the Income-tax Act through the Finance Act, 2000, with effect from 1.4.2001, with respect to the taxation of Venture Capital. The section provides that any income of a Venture Capital Company (VCC) or a Venture Capital Fund (VCF) set up to raise funds for investment in a Venture Capital Undertaking (VCU) shall not be included in computing the total income for the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund or an infrastructure capital company by way of interest, dividend (other than dividends referred to in section 115-O) and long term capital gains from investment made by way of equity or long-term finance in an approved enterprise wholly engaged in the business of (i) developing, (ii) maintaining and operating, or (iii) developing, maintaining and operating an infrastructure facility shall not be included in computing the total income. 17.2 Fiscal incentives for development of infrastructure have been provided in the Income-tax Act as a package, so that tax holiday is allowed under section 80-IA to the infrastructure enterprise and income from long-term investment made by the Infrastructure Capital Company or Infrastructure Capital Fund in the approved enterprise is exempt under section 10(23G). Thus, whenever a decision is taken to revise the scope of fiscal incentives to infrastructure by amending section 80-IA, necessary amendments are required to be made in sections 10(23G) as well. 17.3 Thus, as a measure of rationalisation, Finance Act, 2001, has amended section 10(23G) so as to provide that income by way of interest, dividend or long term capital gains of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by way of credit enhancement fees or guarantee commission by a financial institution from an approved enterprise. 19.3 This amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent assessment years. [Section 5(g)] Exemption in respect of income received in respect of units of UTI and Mutual Fund not to include income arising on transfer of such units 20.1 The Finance Act, 1999, amended clause (33) of section 10 so as to provide that any income by way of income received in respect of units from the Unit Trust of India and units of a Mutual Fund specified in section 10(23D) shall not be included while computing the total income. 20.2 While making this amendment, the intention of the legislature was to tax the income received in respect of the units of the UTI and the Mutual Fund on lines similar to dividends distributed by a domestic company. The income received in respect of units from UTI and Mutual Funds was exempted simultaneously with the insertion of the provisions of Chapter XII-E which provided that the UTI and MFs shall be liable to pay additional income-tax on suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved from domestic sales of articles or things or computer software would be liable to tax. The proposed amendment will take effect from the assessment year 2002-03. 21.3 Sub-section (9) provides that where during any previous year, the ownership or beneficial ownership interest in the undertaking is transferred, the benefit of the deduction would not be allowed for that year and subsequent years. An explanation applicable in cases of companies further provides that where 51% of shares are not beneficially held by persons, who held these shares at the time of setting up of the unit, it will be deemed to be a transfer of ownership. 21.4 Owing to difficulties in monitoring change in shareholding pattern in listed companies in which the public are substantially interested, the amendment provides that the provisions of sub-section (9) would not be applicable in the case of a company where its shareholding undergoes any change as a result of its becoming a company in which public are substantially interested. The proviso would also not be applicable to a company in which public are substantially interested at the time of setting up of the undertaking. In other words, the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... religious purposes or is accumulated for such purposes, provided such accumulation is not more than 25% of the total income of the trust and the money is accumulated or set apart for application for charitable or religious purposes. If the trust does not apply 75% of its income for charitable purposes, then the exemption is available only if the unapplied income is accumulated for application to charitable purposes subject to the conditions specified in section 11(2). These conditions, inter alia specify that the maximum period for which such income can be accumulated is ten years. 23.2 Sub-section 2 of section 11 has been amended so as to reduce the maximum period for which accumulation is permitted to five years in respect of any income accumulated or set apart after the 1st day of April, 2001. 23.3 These amendments will take effect from 1st April, 2002, and will accordingly, apply in relation to the assessment year 2002-2003 and subsequent assessment years. [Section 9] Charitable Trusts, etc., to publish their abridged accounts in a local newspaper 24.1 Under the provisions contained in section 11, income from property held under a trust and used wholly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of such exempt income. This in effect means that the tax incentive given by way of exemptions to certain categories of income, is being used to reduce also the tax payable on the non-exempt income by debiting the expenses incurred to earn the exempt income against taxable income. This is against the basic principles of taxation whereby only the net income, i.e., gross income minus the expenditure, is taxed. On the same analogy, the exemption is also in respect of the net income. Expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. 25.2 Through Finance Act, 2001, a new section 14A has been inserted so as to clarify the intention of the legislature since the inception of the Income-tax Act, 1961, that no deduction shall be made in respect of any expenditure incurred by the assessee in relation to income which does not form part of the total income under the Income-tax Act. 25.3 It is also being clarified that the assessments where the proceedings have become final before the first day of April, 2001 should not be re-opened under section 147 of the Act to disallow expenditure relatable to the exempt income by applyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cised and the fair market value on the date of exercise and secondly, as capital gains. The Finance Act, 2000, sought to tax stock options only once, at the time of sale as capital gains, if such shares, debentures or warrants were issued to such employees under the Employees Stock Option Plan or Scheme. Since these provisions did not specify the nature of such plan or scheme, the provision has been suitably modified to provide that such shares, debentures or warrants are to be issued to employees in accordance with the guidelines issued by the Central Government in this regard. Detailed guidelines governing such stock options have been issued by the Central Government, vide Notification No.1021(E), dated 11-10-2001. 27.2 The Finance Act, 2001, also clarifies that in those cases, where tax has been levied under section 17 of the Income-tax Act as perquisite at the time of the exercise of the option by the employees, the fair market value at the time of exercise of such shares shall be the cost of the share for working out the capital gains. This clarificatory amendment will take care of shares issued during the previous year relevant to the assessment year 2000-01 to avoid dou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized. With the various amendments made over the years in this section, the provisions had become quite complicated, disjointed and difficult for the taxpayer to understand. With a view to rationalize these provisions, the Act has substituted section 23 so as to provide for a simplified determination of annual value after allowing deductions in computing the annual value itself on account of vacancy and unrealized rent. 29.2 The substituted section 23 retains the existing concept of annual value as being the sum for which the property might reasonably be expected to be let from year to year i.e., annual letting value (ALV). However, in case of let out property, the concept of annual rent has been removed. The new section provides that where the property or any part of the property is let and the actual rent received or receivable is in excess of the ALV, the amount so received or receivable shall be the annual value. This will be the case even if the property (or part of the property) was vacant for a part of the year, but the actual rent received or receivable during the year is still higher than the ALV. Where the property or any part of the property is let and was vacant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty. The limit on deduction of interest payable on housing loans for acquiring or constructing a self-occupied house has been enhanced from the existing Rupees one lakh to Rupees one lakh fifty thousand in cases where the capital is borrowed on or after 1st April, 1999. In other cases, the existing limit of Rupees thirty thousand shall continue. 29.7 A new section 25AA has been introduced to provide that in cases where unrealised rent has not been included in the actual rent receivable (and consequently the annual value) for any previous year, and subsequently any amount in respect of such rent is realised by the assessee, the amount so realised shall be charged to tax as income from house property for the previous year in which it is realised, even if the assessee is no longer the owner of the house property in that previous year. 29.8 Consequential amendments have been made by amending sections 25, 25A, 25B, 27 and 80GG of the Income-tax Act. 29.9 These amendments will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent years. [Sections 14 to 20 and 40] Modification of provisions relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncessions for scientific research 32.1 Section 35 of the Income-tax Act relates to expenditure on scientific research. Sub-section (2AA) of the section allows for a weighted deduction of one and one-fourth times of the sum paid by an assessee to an approved National Laboratory or a University or an Indian Institute of Technology for carrying out approved programme of scientific research. Sub-section (2AB) allows a deduction of a sum equal to one and one-half times of the expenditure incurred on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility, as approved by the prescribed authority, to a company engaged in the business of manufacture or production of any drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemicals or any other article or thing notified by the Board. 32.2 With a view to give further boost to research and development activities and to provide impetus to economic growth, the Act has amended sub-sections (2AA) and (2AB) of section 35. 32.3 As per the amended provisions, the weighted deduction under sub-section (2AA) will also be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee. 34.2 The amendment will take effect retrospectively from 1st April, 1989, and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent years. [Section 25] Capital gains not to arise on transfer of capital assets of a Stock Exchange under an approved scheme of corporatisation 35.1 Stock exchanges in India are generally mutual associations of stock brokers, who hold not only trading rights but also an undivided interest in the ownership of the exchange. The exchanges are managed mainly by the brokers. Corporatisation of such stock exchanges could ensure professional management and better regulation, by delinking the trading rights from ownership rights and providing a more diversified ownership. It could also help the exchanges in raising capital, attracting skilled manpower, and in economic growth through mergers or other forms of corporate restructuring. 35.2 With a view to encouraging such corporatisation of stock exchanges in the country, the Act has provided a one-time exemption from capital gains tax in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han the prescribed presumptive profits. Such person is required to get his accounts audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant. The second proviso to the said section lays down that where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of the said section if such person gets his accounts audited under such other law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report in the form prescribed under the said section. 37.2 The Act has amended the said section to provide that in the cases where the accounts are required to be audited by or under any other law, it shall be sufficient compliance with the provisions of the said section if the person gets the accounts audited under such law before the specified date and furnishes by that date, the report of the audit under such other law and a further report from an accountant in the form prescribed under the said section. 37.3 The amendment takes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [Section 31] Long-term capital gains on securities and units exempt if reinvested in primary issues 40.1 With a view to promote development of the primary market, the Act has inserted a new section 54ED in the Income-tax Act, to provide that the capital gains arising from transfer of a long-term capital asset, being listed securities or units of a mutual fund or of the Unit Trust of India shall be exempt from tax to the extent such capital gain is invested in equity shares forming part of an eligible issue of capital, made by a public company, and offered for subscription to public. 40.2 The newly acquired shares are subject to a lock-in period of one year and if they are sold or transferred during this period, the capital gains from the original asset will be charged to tax in the year of sale or transfer. 40.3 The new section also provides that where the cost of the new equity shares has been taken into account for the purposes of this section, no tax rebate with reference to such cost shall be allowed under section 88. 40.4 This amendment will take effect from 1st day of April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in relation to the assessment year 2002-2003 and subsequent years. [Section 34] Providing for a definition of the term industrial undertaking in section 72A 43.1 Under the existing provisions contained in sub-section (1) of section 72A (as substituted by Finance Act, 2000), the set-off and carry forward of loss and allowance for depreciation under the Income-tax Act is allowed in the case of amalgamation of a company owning an industrial undertaking or a ship with another company. However, the term industrial undertaking has not been defined in the provision while different definitions of the term are provided in certain other sections. The interpretation of this term could therefore become the subject matter of litigation. With a view to avoid such disputes, and consistent with the intention underlying section 72A, the Act has inserted a definition of the term industrial undertaking in the section to mean any undertaking engaged in the manufacture or processing of goods, or the manufacture of computer software or the business of generation or distribution of electricity or any other form of power or mining or the construction of ships, aircrafts or rail system ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of profits retained for export business, profits from export of computer software etc., and profits from export or transfer of film software etc. The Finance Act, 2000, amended these provisions to the effect that the extent of deduction would be reduced to 80% for the assessment year 2001-2002, 60% for the assessment year 2002-2003, 40% for the assessment year 2003-2004 and 20% for the assessment year 2004-2005. The deduction would cease to be available from the assessment year 2005-2006 and onwards. 46.2 To cushion the impact of difficulties induced by competition on the one hand and infrastructural bottlenecks faced by exporters on the other, Finance Act, 2001, has amended the rate of phasing out of these deductions. The deduction from profits shall now be reduced to 70% for assessment year 2002-2003, 50% for assessment year 2003-2004 and 30% for assessment year 2004-2005. The deduction would however cease to be available from the assessment year 2005-2006 and onwards. 46.3 The amendments will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years. [Sections 41, 42 and 43] Tax holi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifteen years. 47.4 The condition that such infrastructure facility shall be transferred to the Central Government, State Government or local authority has also been removed. However, the agreement with such authorities for creation of such infrastructure will have to be entered into. 47.5 Under sub-section (8) of section 80-IA, where any goods are transferred for a consideration to any other business of the assessee, the consideration should correspond to the market value of such goods. As in certain cases, the transfer may relate to services, the provision has been accordingly amended to clarify that this would include services. Such services may include marketable services of operation and maintenance (O M) in case of infrastructure facilities, marketable services for distribution of electricity and specified marketable services in telecom. Instead of the words industrial undertaking occurring in section 80-IA, the word undertaking has also been substituted in the provision for the same reason. 47.6 These amendments will take effect from the 1st day of April, 2002, and will, apply in relation to the assessment years 2002-03 and subsequent years. [Section 44] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod has now been extended to undertakings commencing generation of power or laying a network of new transmission and distribution lines on or before 31.3.2006. The fiscal benefit available has been further relaxed and such undertakings shall now be entitled to a ten year tax holiday in place of the existing two tier tax benefit. The ten year tax holiday can be availed of consecutively in the block of initial fifteen years. 49.3 The amendment will take effect from the 1st day of April, 2002, and will apply in relation to the assessment year 2002-03 and subsequent years. [Section 44] Tax holiday to developers of Special Economic Zones and Industrial Parks 50.1 Under the provisions of section 80-IA, any undertaking which develops, develops and operates or operates and maintains an industrial park during the period beginning on the 1st day of April, 1997, and ending on the 31st day of March, 2002, is entitled to a five year tax holiday and a deduction of 30% of profits in the subsequent five years. The two-tier benefit may be availed of within a period of any ten consequent assessment years out of fifteen years beginning from the year in which the undertaking develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, being an individual or a Hindu Undivided Family in respect of income derived from certain specified deposits and securities etc. The deduction is, however, subject to a ceiling of Rs.12,000. An exclusive amount of Rs. 3,000 can be availed of if it is derived from interest on any security of the Central or State Government. 52.2 The amendment reduces the limit of Rs. 12,000 to Rs. 9,000. The deduction of Rs. 3,000 for Government securities shall continue to be available. 52.3 The amendment will come into effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment years 2002-03 and subsequent years. [Section 46] Relief in rebate for low category of salaried employees 53.1 Section 88 of the Income-tax Act provides relief on life insurance premia, contribution to provident fund, etc., to individuals or Hindu undivided families. The rebate is twenty per cent of the aggregate amount or twenty five per cent in the case of an author, playwright, artist, musician or sportsman, of the amount specified in the provision. 53.2 The Act amends the provision to provide that in the case of a taxpayer having a gross salary of up to Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income in the case of non-residents. It referred to a close connection which was undefined and vague. It provided for adjustment of profits rather than adjustment of prices, and the rule prescribed for estimating profits was not scientific. It also did not apply to individual transactions such as payment of royalty, etc., which are not part of a regular business carried on between a resident and a non-resident. There were also no detailed rules prescribing the documentation required to be maintained. 55.3 With a view to provide a detailed statutory framework which can lead to computation of reasonable, fair and equitable profits and tax in India, in the case of such multinational enterprises, the Act has substituted section 92 with a new section, and has introduced new sections 92A to 92F in the Income-tax Act, relating to computation of income from an international transaction having regard to the arm's length price, meaning of associated enterprise, meaning of international transaction, computation of arm's length price, maintenance of information and documents by persons entering into international transactions, furnishing of a report from an accountant by persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d enterprises, based on the concept of participation in management, control or capital, sub-section (2) specifies the circumstances under which the two enterprises shall be deemed to be associated enterprises. 55.7 Section 92B provides a broad definition of an international transaction, which is to be read with the definition of transaction given in section 92F. An international transaction is essentially a cross border transaction between associated enterprises in any sort of property, whether tangible or intangible, or in the provision of services, lending of money, etc.. At least one of the parties to the transaction must be a non-resident. The definition also covers a transaction between two non-residents, where for example, one of them has a permanent establishment whose income is taxable in India. 55.8 Sub-section (2) of section 92B extends the scope of the definition of international transaction by providing that a transaction entered into with an unrelated person shall be deemed to be a transaction with an associated enterprise, if there exists a prior agreement in relation to the transaction between such other person and the associated enterprise, or the terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax-payer to determine an arm's length price in accordance with the rules, and to substantiate the same with the prescribed documentation. Where such onus is discharged by the assessee and the data used for determining the arm's length price is reliable and correct, there can be no intervention by the Assessing Officer. This is made clear by sub-section (3) of section 92C which provides that the Assessing Officer may intervene only if he is, on the basis of material or information or document in his possession, of the opinion that the price charged in the international transaction has not been determined in accordance with sub-sections (1) and (2), or information and documents relating to the international transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made thereunder; or the information or data used in computation of the arm's length price is not reliable or correct; or the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D. If any one of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cified by rules made by the Board. The Board may also specify by rules the period for which the information and documents are required to be retained. The documentation required to be maintained has been prescribed under Rule 10D. Such documentation includes background information on the commercial environment in which the transaction has been entered into, and information regarding the international transaction entered into, the analysis carried out to select the most appropriate method and to identify comparable transactions, and the actual working out of the arm's length price of the transaction. The documentation should be available with the assessee by the specified date defined in section 92F and should be retained for a period of 8 years. During the course of any proceedings under the Act, an Assessing Officer or Commissioner (Appeals) may require any person who has undertaken an international transaction to furnish any of the information and documents specified under the rules within a period of thirty days from the date of receipt of a notice issued in this regard, and such period may be extended by a further period not exceeding thirty days. 55.15 The new section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner (Appeals) that the price charged or paid in such transaction has been determined in accordance with section 92C in good faith and with due diligence. 55.19 The new section 271AA provides that if any person who has entered into an international transaction fails to keep and maintain any such information and documents as specified under section 92D, the Assessing Officer or Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two per cent of the value of the international transaction entered into by such person. 55.20 The new section 271BA provides that if any person fails to furnish a report from an accountant as required by section 92E, the Assessing Officer may direct that such person shall pay by way of penalty, a sum of one lakh rupees. 55.21 The new section 271G provides that if any person who has entered into an international transaction fails to furnish any information or documents as required under sub-section (3) of section 92D, the Assessing Officer or the Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two per cent of the value of the international transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o been provided in the Explanation after sub-section (7) of section 94. 56.5 This amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent years. [Section 50] SEBI to be approving authority for overseas financial organisation 57.1 Under the existing provisions contained in section 115AB, overseas financial organisation has been defined to mean any fund, institution, association or body, whether incorporated or not, established under the laws of a country outside India, which has entered into an agreement for investment in India with any public sector bank or public financial institution or a Mutual Fund specified under clause (23D) of section 10 and such arrangement is approved by the Central Government for this purpose. 57.2 As the Securities and Exchange Board of India (SEBI) is the regulatory authority under section 115AB, presently, any application received by the Government for the approval of the above-mentioned arrangement is being referred to it. With a view to simplify the procedure, it is provided through the Finance Act, 2001, that the SEBI will be the authority to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he non-resident in foreign currency through an approved intermediary; or (d) GDRs issued against the shares of a listed Indian company on the disinvestment of such company of its shareholdings in its listed subsidiary company, in accordance with such scheme as the Central Government may notify in the Official Gazette, and purchased by the non-resident in foreign currency through an approved intermediary. 58.4 Consequential amendments have also been made in sections 47 and 196C of the Income-tax Act. 58.5 These amendments will take effect with effect from 1st April, 2002, and will accordingly, apply in relation to the assessment year 2002-2003 and subsequent assessment years. [Sections 29, 52 and 76] GDRs issued to employees under ESOPs extended to subsidiary companies and other knowledge-based industries 59.1 Under the existing provisions contained in section 115ACA, income by way of dividends or long term capital gains in respect of Global Depository Receipts (GDRs) of an Indian company purchased by a resident employee of such company engaged in information technology software and information technology services, in accordance with a notified Employees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rates of interest chargeable from the assessees for various defaults vary from 15% to 24% per annum. In order to rationalize these rates, the Act has prescribed a uniform rate of 15% per annum for various defaults. Accordingly, the rates have been decreased from 1.5% or 2% for every month or part of a month, as the case may be, to 1.25% for every month or part of a month in respect of interest chargeable under sections 115P, 115S, 158BFA(1), 206C(7), 220(2), 234A, 234B and 234C of the Income-tax Act. In respect of interest chargeable under sub-section (1A) of section 201, the rate has been reduced from 18% to 15% per annum. 62.2 These amendments will take effect from 1st June, 2001. [Sections 56, 58, 67, 74, 75, 76, 78, 79 80] Tax on income distributed by Unit Trust of India and Mutual Funds 63.1 Under the existing provisions of section 115R, any amount of income distributed by the Unit Trust of India or by Mutual Funds to their unit holders is chargeable to tax and the Unit Trust of India or Mutual Funds are liable to pay tax on such distributed income at the rate of twenty per cent. 63.2 This rate was increased from 10% to 20% through Finance Act, 2000. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies have not been filing returns on the plea that they have not earned any income. The Act, therefore, amends section 139(1) to provide that every company is required to file a return, whether it is a return of income or of loss. 65.2 This amendment takes effect retrospectively from 1st April, 2001, and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 59] Compulsory quoting of Permanent Account Number (PAN) by every person deducting or collecting tax at source in certain returns and certificates 66.1 Persons responsible for deducting tax from certain payments, and persons responsible for collecting tax from buyers of certain goods, are required to deliver returns and issue certificates in respect of such tax deducted or collected by them. The forms prescribed for delivering such returns or issuing such certificates contain columns for mentioning the permanent account number of the persons from whose income the tax is deducted, or from whom the tax is collected. However, in many cases, such number is not so mentioned. With a view to enable processing of the information contained in such returns or certificates for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears. [Sections 61, 78 79] Rationalisation of time-limits for issue of refunds, re-assessment, rectification and re-opening of assessments 68.1 A period of two years for sending an intimation alongwith refund or demand notice, if any, to the assessee is provided for in section 143(1). With a view to expedite issue of refunds as also to ensure early collection of taxes, and considering the computer aids now available in the Department, the Act has amended the second proviso to sub-section (1) of section 143 to provide that such intimations shall be sent within one year from the end of the financial year in which the return of income is made. The existing time-limit of two years, however, will continue to apply in respect of returns already filed for the assessment year 1999-2000. 68.2 Under the existing provision contained in section 149(1) of the Income-tax Act, a notice under section 148 for assessment, reassessment or recomputation of income of any year can be issued within a period of four, seven or ten years from the end of the relevant assessment year, depending on whether an assessment was made earlier for the relevant year, and the amount of income escapi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which the application is received by it, either making the amendment or refusing to allow the claim. The overall time-limit of four years provided in the section for passing any rectification order shall however continue to apply. In other words, the period of six months mentioned in the new sub-section (8) cannot extend, under any circumstances, beyond the overall time-limit of four years from the end of the financial year in which the order sought to be rectified was passed. 68.6 These amendments will take effect from 1st June, 2001. [Sections 62, 63, 64 65] Rationalising the block period 69.1 Under the existing provisions contained in clause (a) of section 158B of the Income-tax Act relating to assessment in cases of search or requisition, block period means the previous years relevant to ten assessment years preceding the previous year in which the search was conducted under section 132 or any requisition was made under section 132A, and includes, in the year in which the search was conducted or requisition was made, the period upto the date of commencement of such search or as the case may be, the date of such requisition. 69.2 In line with the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or crossword puzzle. 72.2 With a view to widen its scope the Act has amended the section so as to make it applicable to any income by way of winnings from card game and other game of any sort. 72.3 The amendment will take effect from 1st June, 2001. [Section 70] Insertion of a new provision for deduction of tax at source from payments in the nature of commission or brokerage 73.1 An effective method of widening the tax base is to enlarge the scope of deduction of income-tax at source. Apart from bringing in more persons in the tax net, it also helps in the reporting of correct income. An item of income which needs to be covered within the scope of deduction of income-tax at source is the income by way of commission (not being insurance commission referred to in section 194D) and brokerage. The Act has, therefore, inserted a new section 194H relating to deduction of tax at source from income by way of commission (not being insurance commission referred to in section 194D) and brokerage. 73.2 Under this section, the person responsible for paying any income by way of commission or brokerage for services rendered (not being professional services) or for any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the document will not prejudicially affect the recovery of any existing tax liability. This procedural requirement resulted, in many cases, in delay in registration of the relevant documents. Further, the relevant information sought to be obtained through the application could always be collected from the Registrar of Properties, as PAN is required to be quoted in all documents pertaining to such transfer. With a view to simplify procedures, the Act has omitted section 230A. 75.2 This amendment takes effect from 1st June, 2001. [Section 77] Withdrawal of power to withhold refunds 76.1 Under the existing provisions of section 241 of the Income-tax Act, the Assessing Officer may, with the previous approval of the Chief Commissioner or Commissioner, withhold the refund of any amount due to the assessee till such time as the Chief Commissioner or Commissioner determines, under the circumstances specified in the said section if the grant of refund is likely to adversely affect the revenue. 76.2 As a measure of simplification, the Act has omitted the said section so as to withdraw the powers conferred upon the Assessing Officers to withhold the refund. 76.3 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f demand till the disposal of appeal, makes the demand irrecoverable for several months or even years. It has been observed that many assessees file appeals to the Tribunal only to obtain stay of demand and avoid payment of justified taxes. In order to discourage this practice, and ensure speedier collection of outstanding tax, the Act has amended section 254 to provide that where, in an appeal filed by the assessee, the Appellate Tribunal passes an order granting stay, the Tribunal shall hear and decide such appeal within a period of one hundred and eighty days from the date of passing such order granting stay, failing which the stay granted shall stand vacated on the expiry of the aforesaid period. 79.2 This amendment takes effect from 1st June, 2001. [Section 84] Enhancing the fees for filing of revision applications 80.1 Under the existing provisions contained in section 264, the Commissioner may, either of his own motion or on an application by the assessee for revision, revise any order passed by an authority subordinate to him. Sub-section (5) of the said section provides that every application by an assessee for revision under this section shall be accompa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt number or to quote such number in certain documents, so as to enhance the penalty and to provide for levy of a fixed amount of penalty of a sum of rupees ten thousand, as against the existing penalty, which could extend to five thousand rupees; (v) section 271F, to enhance the penalty for failure to furnish return of income as required under section 139(1) before the end of the assessment year, and under the proviso to section 139(1) before the due date, from one thousand rupees to five thousand rupees and from five hundred rupees to five thousand rupees, respectively. 81.3 These amendments take effect from 1st June, 2001. [Sections 86, 87, 90, 92 and 93] Wealth-tax Rationalisation of time-limits for assessment, reassessment and re-opening of wealth-tax assessments 82.1 As in the case of the Income-tax Act, the Act has introduced certain amendments to rationalise and streamline the provisions relating to time-limits for processing of returns, re-assessments and re-opening of assessments under the Wealth-tax Act. 82.2 The Act has amended section 17 (1A) of the Wealth-tax Act to modify the present provisions contained in section 17( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be. 84.3 The amendments will take effect from 1st June, 2001. [Section 100] expenditure-tax Rationalization of interest chargeable from the assessee 85.1 Under the existing provisions of section 14 of the Expenditure-tax Act, interest is chargeable from the assessee at the rate of 1.5% for every month or part of a month. 85.2 As a measure of rationalization, the Act has reduced the rate of interest chargeable to 1.25% for every month or part of a month. 85.3 The amendment will take effect from 1st June, 2001. [Section 101] National Bank for Agriculture and Rural Development, National Housing Bank and Small Industries Development Bank of India liable to pay income-tax 86.1 Certain statutory bodies have been exempted from payment of any income-tax or wealth-tax by having a provision for the same in the Act through which these bodies were set up. These entities are claiming exemption not through the provisions of the Direct Tax statutes but by a non obstante clause in the Act under which they were set up. 86.2 National Bank for Agriculture and Rural Development (NABARD) is exempted from payment of income-tax and other taxes o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Small Industries Development Assistance Fund is exempted from payment of income-tax and other taxes on any income, profits or gains derived or any amount received by it, under section 50 of the Small Industries Development Bank of India Act, 1989. 86.3 These institutions are in existence for a considerable period and are working on commercial basis and there is no rationale for providing them tax exemption while similar institutions are paying taxes. Finance Act, 2001, has amended these Acts by omitting section 55 of the National Bank for Agriculture and Rural Development Act, 1981, section 48 of the National Housing Bank Act, 1987, and section 50 of the Small Industries Development Bank of India Act, 1989. 86.4 These amendments will take effect from 1st April, 2002, and will accordingly, apply in relation to the assessment year 2002-2003 and subsequent assessment years. [Sections 140, 141 and 142] National Bank for Agriculture and Rural Development, National Housing Bank and Small Industries Development Bank of India liable to pay income-tax 86.1 Certain statutory bodies have been exempted from payment of any income-tax or wealth-tax by having a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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