TMI BlogFINANCE BILL, 2013 - PROVISIONS RELATING TO DIRECT TAXESX X X X Extracts X X X X X X X X Extracts X X X X ..... on current incomes in certain cases for the financial year 2013-14. 3. The substance of the main provisions of the Bill relating to direct taxes is explained in the following paragraphs:- DIRECT TAXES A. RATES OF INCOME-TAX I. Rates of income-tax in respect of income liable to tax for the assessment year 2013-14. In respect of income of all categories of assessees liable to tax for the assessment year 2013-14, the rates of income-tax have been specified in Part I of the First Schedule to the Bill. These are the same as those laid down in Part III of the First Schedule to the Finance Act, 2012 , for the purposes of computation of advance tax , deduction of tax at source from Salaries and charging of tax payable in certain cases. (1) Surcharge on income-tax Surcharge shall be levied in respect of income liable to tax for the assessment year 2013-14, in the following cases: (a) in the case of a domestic company having total income exceeding one crore rupees, the amount of income-tax computed shall be increased by a surcharge for the purposes of the Union calculated at the rate of five per cent. of such income tax. (b) in the case of a company, other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than a domestic company, shall be increased by a surcharge at the rate of two per cent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees but does not exceed ten crore rupees and it shall be increased by a surcharge at the rate of five per cent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds ten crore rupees. No surcharge will be levied on deductions in other cases. (2) Education Cess Education Cess on income-tax and Secondary and Higher Education Cess on income-tax shall continue to be levied at the rate of two per cent. and one per cent. respectively, of income tax including surcharge wherever applicable, in the cases of persons not resident in India including companies other than domestic company. III. Rates for deduction of income-tax at source from Salaries , computation of advance tax and charging of income- tax in special cases during the financial year 2013-14. The rates for deduction of income-tax at source from Salaries during the financial year 2013-14 and also fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Paragraph shall be increased by a surcharge at the rate of ten percent. of such income-tax in case of a person having a total income exceeding one crore rupees . However, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. B. Co-operative Societies In the case of co-operative societies, the rates of income-tax have been specified in Paragraph B of Part III of the First Schedule to the Bill. These rates will continue to be the same as those specified for financial year 2012-13. The amount of income-tax shall be increased by a surcharge at the rate of ten percent. of such income-tax in case of a co-operative society having a total income exceeding one crore rupees . However, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. C. Firms In the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crore rupees, shall not exceed the total amount payable as income-tax on a total income of one crore rupees, by more than the amount of income that exceeds one crore rupees. The total amount payable as income-tax and surcharge on total income exceeding ten crore rupees, shall not exceed the total amount payable as income-tax and surcharge on a total income of ten crore rupees, by more than the amount of income that exceeds ten crore rupees. In other cases (including sections 115-O, 115QA, 115R or 115TA ) the surcharge shall be levied at the rate of ten percent. For financial year 2013-14, additional surcharge called the Education Cess on income-tax and Secondary and Higher Education Cess on income-tax shall continue to be levied at the rate of two per cent. and one per cent. respectively, on the amount of tax computed, inclusive of surcharge (wherever applicable), in all cases. No marginal relief shall be available in respect of such Cess. [Clause 2 First Schedule] B. ADDITIONAL RESOURCE MOBILISATION Commodities Transaction Tax A new tax called Commodities Transaction Tax (CTT) is proposed to be levied on taxable commodities transactions entered into in a recog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.03.1976 and which are not effectively connected with permanent establishment, if any, of the non-resident in India. The tax is payable on the gross amount of income at the rate of (i) 30% if income by way of royalty or FTS is received in pursuance of an agreement entered on or before 31.05.1997; (ii) 20% if income by way of royalty or FTS is received in pursuance of an agreement entered after 31.05.1997 but before 01.06.2005; and (iii) 10% if income by way of royalty or FTS is received in pursuance of an agreement entered on or after 01.06.2005. India has tax treaties with 84 countries, majority of tax treaties allow India to levy tax on gross amount of royalty at rates ranging from 10% to 25%, whereas the tax rate as per section 115A is 10%. In some cases, this has resulted in taxation at a lower rate of 10% even if the treaty allows the income to be taxed at a higher rate. In order to correct this anomaly, the tax rate in case of non-resident taxpayer, in respect of income by way of royalty and fees for technical services as provided under section 115A, is proposed to be increased from 10% to 25%. This rate of 25% shall be applicable to any income by way of royalty an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinue to apply to the amalgamated company or resulting company, as the case may be. This amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years. [Clause 5] Extension of the sunset date under section 80IA for the power sector Under the existing provisions contained in the clause (iv) of subsection (4) of section 80IA, a deduction of profits and gains is allowed to an undertaking which, (a) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on 1st April, 1993 and ending on 31st March, 2013; (b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on 1st April, 1999 and ending on 31st March, 2013; (c) undertakes substantial renovation and modernisation of the existing network of transmission or distribution lines at any time during the period beginning on 1st April, 2004 and ending on 31st March, 2013. With a view to provide further time to the undertakings to commence the eligi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l not exceed one lakh fifty thousand rupees subject to the conditions provided in the said section. Keeping in view the need for affordable housing, an additional benefit for first-home buyers is proposed to be provided by inserting a new section 80EE in the Income-tax Act relating to deduction in respect of interest on loan taken for residential house property. The proposed new section 80EE seeks to provide that in computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property. It is further provided that the deduction under the proposed section shall not exceed one lakh rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on 1st April, 2014 and in a case where the interest payable for the previous year relevant to the said assessment year is less than one lakh rupees, the balance amount shall be allowed in the assessment year beginning on 1st April, 2015. It is also provided that the deduction sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bonus received under an insurance policy issued on or after 01.04.2013 for the insurance on the life of any person who is (i) a person with disability or a person with severe disability as referred to in section 80U, or (ii) suffering from disease or ailment as specified in the rules made under section 80DDB , shall be exempt under clause (10D) of section 10 if the premium payable for any of the years during the term of the policy does not exceed 15% of the actual capital sum assured. It is also proposed to amend sub-section (3A) of section 80C so as to provide that the deduction under the said section on account of premium paid in respect of a policy issued on or after 01.04.2013 for insurance on the life of a person referred to above shall be allowed to the extent the premium paid does not exceed 15% of the actual capital sum assured. This amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years. [Clauses 4 10] Deduction for contribution to Health Schemes similar to CGHS The existing provisions of section 80D , inter alia, provide that the whole of the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is further proposed to provide that the deduction under this section shall be allowed for three consecutive assessment years, beginning with the assessment year relevant to the previous year in which the listed equity shares or listed units were first acquired by the new retail investor whose gross total income for the relevant assessment year does not exceed twelve lakh rupees. This amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years. [Clause 11] Exemption to income of Investor Protection Fund of depositories Under the provisions of SEBI (Depositories and Participants) Regulations, 1996, as amended in 2012, the depositories are mandatorily required to set up an Investor Protection Fund. Under the existing provisions, section 10(23EA) provides that income by way of contributions from a recognised stock exchange received by a Investor Protection Fund set up by the recognised stock exchange shall be exempt from taxation . On similar lines, it is proposed that income, by way of contribution from a depository, of the Investor Protection Fund set up by the deposito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Holdings Company Limited (NFHCL). In order to provide the exemption on the lines of SUUTI to NFHCL, it is proposed to amend section 10 to grant exemption to National Financial Holdings Company Limited in respect of its income accruing, arising or received on or before 31.03.2014. This amendment will take effect retrospectively from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and assessment year 2014-15. [Clause 4] Lower rate of tax on dividends received from foreign companies Section 115BBD of Income-tax Act provides for taxation of gross dividends received by an Indian company from a specified foreign company (in which it has shareholding of 26% or more) at the rate of 15% if such dividend is included in the total income for the Financial Year 2012-13 i.e. Assessment Year 2013-14. The above provision was introduced as an incentive for attracting repatriation of income earned by residents from investments made abroad subject to certain conditions. In order to continue the tax incentive for one more year, it is proposed to amend section 115BBD to extend the applicability of this section in respect of income by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f issue of long-term infrastructure bonds, as approved by the Central Government, then the interest payment to a non-resident person would be subject to a concessional rate of tax @ 5%. In order to facilitate subscription by a non-resident in the long term infrastructure bonds issued by an Indian company in India (rupee denominated bond ), it is proposed to amend section 194LC of the Income-tax Act so as to provide that where a non-resident deposits foreign currency in a designated bank account and such money as converted in rupees is utilised for subscription to a long-term infrastructure bond issue of an Indian company, then, for the purpose of this section, the borrowing by the company shall be deemed to be in foreign currency. The benefit of reduced rate of tax would, therefore, be available to such non-resident in respect of the interest income arising on such subscription subject to other conditions provided in the section. The designated bank account should be solely for the purpose of deposit of money in foreign currency and such money is to be used, after conversion, for subscription to a rupee denominated long-term infrastructure bond issue of an Indian company. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him or it in case the additional income-tax is not paid to the credit of Central Government. This amendment will take effect from 1st June, 2013. [Clauses 4 30] Securities Transaction Tax (STT) Securities Transaction Tax (STT) on transactions in specified securities was introduced vide Finance (No.2) Act, 2004. It is proposed to amend section 98 of the Finance (No.2) Act, 2004 to reduce STT rates in the taxable securities transactions as indicated hereunder:- TABLE Sl.No. Nature of taxable securities transaction Payable by Existing Rates (in per cent) Proposed Rates (in per cent) (1) (2) (3) (4) (5) 1. Delivery based purchase of units of an equity oriented fund entered into in a recognised stock exchange Purchaser 0.1 Nil 2. Delivery based sale of units of an equity oriented fund entered into in a recognised stock exchange Seller 0.10. 001 3. Sale of a futures in securities Seller 0.017 0.01 4. Sale of a unit of an equity oriented fund to the mutual fund Seller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds are invested in unlisted equity shares or equity linked instruments of venture capital undertaking. (b) No investment has been made by such AIFs in a VCU which is an associate company. (c) Units of a trust set up as AIF or shares of a company set up as AIF, are not listed on a recognised stock exchange. (iii) In the context of AIF regulations, the Venture Capital Undertaking shall be defined as it is defined in the Alternative Investment Funds Regulations. This amendment will take effect retrospectively from 1st April, 2013 and will accordingly apply in relation to assessment year 2013-14 and subsequent assessment years. [Clause 4] E. WIDENING OF TAX BASE AND ANTI TAX AVOIDANCE MEASURES Tax Deduction at Source (TDS) on transfer of certain immovable properties (other than agricultural land) There is a statutory requirement under section 139A of the Income-tax Act read with rule 114B of the Income-tax Rules, 1962 to quote Permanent Account Number (PAN) in documents pertaining to purchase or sale of immovable property for value of Rs.5 lakh or more. However, the information furnished to the department in Annual Informati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holders, or by way of purchase of its own shares (i.e. buy back of shares) at a consideration fixed by it. In the first case, the payment by company is subject to DDT and income in the hands of shareholders is exempt. In the second case the income is taxed in the hands of shareholder as capital gains. Unlisted Companies, as part of tax avoidance scheme, are resorting to buy back of shares instead of payment of dividends in order to avoid payment of tax by way of DDT particularly where the capital gains arising to the shareholders are either not chargeable to tax or are taxable at a lower rate. In order to curb such practice it is proposed to amend the Act, by insertion of new Chapter XII-DA, to provide that the consideration paid by the company for purchase of its own unlisted shares which is in excess of the sum received by the company at the time of issue of such shares (distributed income) will be charged to tax and the company would be liable to pay additional income-tax @ 20% of the distributed income paid to the shareholder. The additional income-tax payable by the company shall be the final tax on similar lines as dividend distribution tax. The income arising to the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty would be charged to tax in the hands of the individual or HUF as income from other sources. The existing provision does not cover a situation where the immovable property has been received by an individual or HUF for inadequate consideration. It is proposed to amend the provisions of clause (vii) of sub-section (2) of section 56 so as to provide that where any immovable property is received for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration, shall be chargeable to tax in the hands of the individual or HUF as income from other sources. Considering the fact that there may be a time gap between the date of agreement and the date of registration, it is proposed to provide that where the date of the agreement fixing the amount of consideration for the transfer of the immovable property and the date of registration are not the same, the stamp duty value may be taken as on the date of the agreement, instead of that on the date of registration. This exception shall, however, apply only in a case where the amount of consideration, or a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t had existed; the fact of payment of taxes by the assessee; and the fact that an exit route was provided by the arrangement, would be relevant but not sufficient to determine whether the arrangement is an impermissible avoidance arrangement. The current provisions of section 97 which provided that these factors would not be relevant has been proposed to be amended accordingly. (D) An arrangement shall also be deemed to be lacking commercial substance, if it does not have a significant effect upon the business risks, or net cash flows of any party to the arrangement apart from any effect attributable to the tax benefit that would be obtained but for the application of Chapter X-A. The current provisions as contained in section 97 are proposed to be amended to provide that an arrangement shall also be deemed to lack commercial substance if the condition provided above is satisfied. (E) The Approving Panel shall consist of a Chairperson who is or has been a Judge of a High Court; one Member of the Indian Revenue Service not below the rank of Chief Commissioner of Income-tax; and one Member who shall be an academic or scholar having special knowledge of matters s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a HUF. Further in case of an Infrastructure debt fund (IDF) set up as a Non-Banking Finance Company (NBFC) the interest payment made by the fund to a non-resident investor is taxable at a concessional rate of 5%. However in case of distribution of income by an IDF set up as a Mutual Fund the distribution tax is levied at the rates described above in the case of a Mutual Fund. In order to bring parity in taxation of income from investment made by a non-resident Investor in an IDF whether set up as a IDF-NBFC or IDF-MF, it is proposed to amend section 115R to provide that tax @ 5% on income distributed shall be payable in respect of income distributed by a Mutual Fund under an IDF scheme to a non-resident Investor. This amendment will take effect from 1st June, 2013. [Clause 29] Enabling provisions for facilitating electronic filing of annexure-less return of net wealth Section 14 of the Wealth-tax Act provides for furnishing of return of net wealth as on the valuation date in the prescribed form and verified in the prescribed manner setting forth particulars of the net wealth and such other particulars as may be prescribed. Currently, certain documents, reports are r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd gains of business or profession . It is also proposed to define the expression State Government Undertaking for this purpose. This amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years. [Clause 7] Amendment in the definition of Capital Asset The existing provisions contained in clause (14) of section 2 of the Income-tax Act define the term capital asset as property of any kind held by an assessee, whether or not connected with his business or profession. Certain categories of properties including agricultural land have been excluded from this definition. Sub-clause (iii) of clause (14) of section 2 provides that (a) agricultural land situated in any area within the jurisdiction of a municipality or cantonment board having population of not less than ten thousand according to last preceding census, or (b) agricultural land situated in any area within such distance not exceeding eight kilometers from the local limits of any municipality or cantonment board, as notified by the Central Government having regard to the extent and scope of urbanization and other relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urance policies but during the term these were assigned to some other person. The Courts have also noticed this loophole in law. With a view to plug the loophole and check such practices to avoid payment of taxes, it is proposed to amend the provisions of clause (10D) of section 10 to provide that a keyman insurance policy which has been assigned to any person during its term, with or without consideration, shall continue to be treated as a keyman insurance policy. The above amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to assessment year 2014-15 and subsequent assessments years. [Clause 4] Contribution not to be in cash for deduction under section 80GGB section 80GGC Under the existing provisions of section 80GGB , any sum contributed by an Indian company to any political party or an electoral trust in the previous year, is allowed as deduction in computing the total income of such Indian company. A similar deduction is available to an assessee, being any person other than local authority and artificial juridical person under section 80GGC . There is no specific mode provided for making such contribution. With a view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... centive under section 80JJAA was intended for employment of blue collared employees in the manufacturing sector whereas in practice, it is being claimed for other employees in other sectors also. It is, therefore, proposed to amend the provisions of section 80JJAA so as to provide that the deduction shall be available to an Indian Company deriving profits from manufacture of goods in its factory. The deduction shall be of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided. It is also proposed to provide that the deduction under this section shall not be available if the factory is hived off or transferred from another existing entity or acquired by the assessee company as a result of amalgamation with another company. This amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to assessment year 2014-15 and subsequent assessment years. [Clause 18] Tax Residency Certificate Section 90 of the Income Tax Act empow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken a view that the term existing liability includes advance tax liability of the assessee, which is not in consonance with the intention of the legislature. The legislative intent behind this provision is to ensure the recovery of outstanding tax/interest/penalty and also to provide for recovery of taxes/interest/penalty, which may arise subsequent to the assessment pursuant to search. Accordingly, it is proposed to amend the aforesaid section so as to clarify that the existing liability does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII of the Act. This amendment will take effect from 1st June, 2013. [Clause 31] Return of Income filed without payment of self- assessment tax to be treated as defective return The existing provisions contained in sub-section (9) of section 139 provide that where the Assessing Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen days. If the defect is not rectified within the time allowed by the Assessing Officer, the return is treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment will take effect from 1st June, 2013. [Clause 33] Exclusion of time in computing the period of limitation for completion of assessments and reassessments The existing provisions of section 153 , inter alia, provide the time limit for completion of assessment and reassessment of income by the Assessing Officer. Explanation to section 153 provides that certain periods specified therein shall be excluded while computing the period of limitation for the purposes of the said section. Under the existing provisions of clause (iii) of Explanation 1 to section 153 , the period commencing from the date on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending with the last date on which the assesee is required to furnish a report of such audit, is excluded in computing the period of limitation for the purposes of assessment or reassessment. However, the existing provision does not provide for exclusion of time in case the direction of the Assessing Officer is set aside by the court. It is proposed to amend clause (iii) of Explanation 1 to section 153 so as to provide that the period comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andates furnishing of annual information return by the specified persons in respect of specified transactions within the time prescribed under sub-section (2) thereof. Sub-section (5) of the section empowers the Assessing Officer to issue notice if the annual information return has not been furnished by the due date. The existing provisions contained in section 271FA of the Income-tax Act provide that if a person who is required to furnish an annual information return, as required under sub-section (1) of section 285BA , fails to furnish such return within the time prescribed under that sub-section, the income-tax authority prescribed under the said sub-section may direct that such person shall pay, by way of penalty, a sum of one hundred rupees for every day during which the failure continues. It is proposed to amend the aforesaid section so as to provide that if a person who is required to furnish an annual information return, as required under sub-section (1) of section 285BA , fails to furnish such return within the time prescribed under sub-section (2) thereof, the income-tax authority prescribed under sub-section (1) of the said section may direct that such person sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 50] Clarification for amount to be eligible for deduction as bad debts in case of banks Under the existing provisions of section 36(1)(viia) of the Income-tax Act , in computing the business income of certain banks and financial institutions, deduction is allowable in respect of any provision for bad and doubtful debts made by such entities subject to certain limits specified therein. The limit specified under section 36(1)(viia)(a) of the Act restrict the claim of deduction for provision for bad and doubtful debts for certain banks (not incorporated outside India) and certain cooperative banks to 7.5% of gross total income (before deduction under this clause) of such banks and 10% of the aggregate average advance made by the rural branches of such banks. This limit is 5% of gross total income (before deduction under this clause) under sections 36(1)(viia)(b) and 36(1)(viia)(c) for a bank incorporated outside India and certain financial institutions. Provisions of clause (vii) of section 36(1) of the Act provides for deduction for bad debt actually written off as irrecoverable in the books of account of the assessee. The proviso to this clause provides that for an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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