Amendment of Section 10
4. In section 10 of the Income-tax Act,—
(I) in clause (10D), with effect from the 1st day of April, 2014,—
(i) in sub-clause (d), after the second proviso, the following proviso shall be inserted, namely:—
Provided also that where the policy, issued on or after the 1st day of April, 2013, is for insurance on 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, the provisions of this sub-clause shall have effect as if for the words “ten per cent.”, the words “fifteen per cent.” had been substituted.’;
(ii) in Explanation 1, after the words “business of the first-mentioned person” occurring at the end, the words “and includes such policy which has been assigned to a person, at any time during the term of the policy, with or without any consideration” shall be inserted;
(II) after clause (23D), the following clause shall be inserted with effect from the 1st day of April, 2014, namely:—
(23DA) any income of a securitisation trust from the activity of securitisation.
Explanation.—For the purposes of this clause,—
(a) “securitisation” shall have the same meaning as assigned to it,—
(i) in clause (r) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Securities Contracts (Regulation) Act, 1956; (42 of 1956) or
(ii) under the guidelines on securitisation of standard assets issued by the Reserve Bank of India;
(b) “securitisation trust” shall have the meaning assigned to it in the Explanation below section 115TC;’;
(III) after clause (23EC), the following clause shall be inserted with effect from the 1st day of April, 2014, namely:—
(23ED) any income, by way of contributions received from a depository, of such Investor Protection Fund set up in accordance with the regulations by a depository as the Central Government may, by notification in the Official Gazette, specify in this behalf: Provided that where any amount standing to the credit of the Fund and not charged to income-tax during any previous year is shared, either wholly or in part with a depository, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is so shared and shall, accordingly, be chargeable to income-tax.
Explanation.—For the purposes of this clause,—
(i) “depository” shall have the same meaning as assigned to it in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996; (22 of 1956)
(ii) “regulations” means the regulations made under the Securities and Exchange Board of
India Act, 1992 (15 of 1992) and the Depositories Act, 1996;’(22 of 1956)
(IV) in clause (23FB), for Explanation 1, the following Explanation shall be substituted, namely:—
‘Explanation.—For the purposes of this clause,—
(a) “venture capital company” means a company which—
(A) has been granted a certificate of registration, before the 21st day of May, 2012, as a Venture Capital Fund and is regulated under the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 (hereinafter referred to as the Venture Capital Funds Regulations) made under the Securities and Exchange Board of India Act, 1992; (15 of 1992) or
(B) has been granted a certificate of registration as Venture Capital Fund as a sub-category of Category I Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (hereinafter referred to as the Alternative Investment Funds Regulations) made under the Securities and Exchange Board of India Act, 1992, (15 of 1992) and which fulfils the following conditions, namely:—
(i) it is not listed on a recognised stock exchange;
(ii) it has invested not less than two-thirds of its investible funds in unlisted equity shares or equity linked instruments of venture capital undertaking; and
(iii) it has not invested in any venture capital undertaking in which its director or a substantial shareholder (being a beneficial owner of equity shares exceeding ten per cent. of its equity share capital) holds, either individually or collectively, equity shares in excess of fifteen per cent. of the paid-up equity share capital of such venture capital undertaking;
(b) “venture capital fund” means a fund—
(A) operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908), which—
(I) has been granted a certificate of registration, before the 21st day of May, 2012, as a Venture Capital Fund and is regulated under the Venture Capital Funds Regulations; or
(II) has been granted a certificate of registration as Venture Capital Fund as a sub-category of Category I Alternative Investment Fund under the Alternative Investment Funds Regulations and which fulfils the following conditions, namely:—
(i) it has invested not less than two-thirds of its investible funds in unlisted equity shares or equity linked instruments of venture capital undertaking;
(ii) it has not invested in any venture capital undertaking in which its trustee or the settler holds, either individually or collectively, equity shares in excess of fifteen per cent. of the paid-up equity share capital of such venture capital undertaking; and
(iii) the units, if any, issued by it are not listed in any recognised stock exchange; or
(B) operating as a venture capital scheme made by the Unit Trust of India established under the Unit Trust of India Act, 1963;(52 of 1963)
(c) “venture capital undertaking” means—
(i) a venture capital undertaking as defined in clause (n) of regulation 2 of the Venture Capital Funds Regulations; or
(ii) a venture capital undertaking as defined in clause (aa) of sub-regulation (1) of regulation
2 of the Alternative Investment Funds Regulations;’;
(V) after clause (34), the following clause shall be inserted with effect from the 1st day of April, 2014, namely:—
(34A) any income arising to an assessee, being a shareholder, on account of buy back of shares (not being listed on a recognised stock exchange) by the company as referred to in section 115QA;”;
(VI) after clause (35), the following clause shall be inserted with effect from the 1st day of April, 2014, namely:—
(35A) any income by way of distributed income referred to in section 115TA received from a securitisation trust by any person being an investor of the said trust.
Explanation.—For the purposes of this clause, the expressions “investor” and “securitization trust” shall have the meanings respectively assigned to them in the Explanation below section 115TC;’;
(VII) after clause (48), the following clause shall be inserted, namely:—
“(49) any income of the National Financial Holdings Company Limited, being a company set up by the Central Government, of any previous year relevant to any assessment year commencing on or before the 1st day of April, 2014.”.
Notes on Clauses:
Clause 4 of the Bill seeks to amend section 10 of the Income tax Act relating to incomes not included in total income.
Under the existing provisions contained in clause (10D) of the aforesaid section, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, is exempt, subject to the condition that the premium paid for such policy does not exceed ten per cent. of the actual capital sum assured.
It is proposed to insert a new proviso in sub-clause (d) of the aforesaid clause (10D), so as to provide a higher limit of fifteen per cent. where the policy referred to in sub-clause (d) is for 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. This proviso shall apply in respect of an insurance policy, issued on or after 1st day of April, 2013.
Clause (10D) of the said section, inter alia, exempts any sum received under a life insurance policy other than a Keyman insurance policy.
Explanation 1 to clause (10D) defines a Keyman insurance policy to mean a life insurance policy taken by a person on the life of another person who is or was the employee of the first mentioned person or is or was connected in any manner whatsoever with the business of the first-mentioned person.
It is proposed to amend the said Explanation 1 to provide that a Keyman insurance policy which has been assigned to a person during its term, with or without consideration, shall continue to be treated as a Keyman insurance policy for the purposes of clause (10D) of section 10.
It is further proposed to insert a new clause (23DA) to provide for exemption in respect of any income of a securitisation trust from the activity of securitisation.
It is also proposed to insert a new clause (23ED) to provide for exemption in respect of any income, by way of contributions received from a depository, of such Investor Protection Fund set up in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 and the Depositories Act, 1996 by a depository, as the Central Government may, by notification in the Official Gazette, specify in this behalf.
These amendments will take effect from 1st April, 2014 and will, accordingly, apply in relation to assessment year 2014-15 and subsequent assessment years.
The existing provisions contained in clause (23FB) of section 10 provide that any income of a venture capital company or venture capital fund set up to raise funds for investment in a venture capital undertaking does not form part of total income. The definitions of “venture capital company”, “venture capital fund” and “venture
capital undertaking” are provided in Explanation 1.
It is proposed to substitute Explanation 1 of clause (23FB) so as to provide the new definitions of “venture capital company”, “venture capital fund” and “venture capital undertaking”.
Clause (a) of the proposed Explanation defines the venture capital company as a company which has been registered before 21st day of May, 2012 under the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 (Venture Capital Funds Regulations) or which has been registered as venture capital fund being a sub-category of Category I Alternative Investment Fund under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (Alternative Investment Funds Regulations). The company has to satisfy the conditions mentioned in clause (a).
Clause (b) of the proposed Explanation defines the venture capital fund as a trust which has been registered before 21st day of May, 2012 under the Venture Capital Funds
Regulations or which has been registered as venture capital fund being a sub-category of Category I Alternative Investment Fund under the Alternative Investment Funds Regulations. The trust has to satisfy the conditions mentioned in clause (b).
Clause (c) of the proposed Explanation defines the venture capital undertaking as is defined under the Venture Capital Funds Regulations or under the Alternative Investment Funds Regulations.
This amendment will take effect retrospectively from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.
It is further proposed to insert a new clause (34A) in section 10 so as to provide for exemption in respect of any income arising to an assessee being a shareholder on account of buy back of shares (not being listed on a recognised stock exchange) by the company as referred to in section 115QA.
It is also proposed to insert a new clause (35A) in section 10 so as to provide for exemption in respect of any income by way of distributed income referred to in section 115TA received from a securitisation trust by any person being an investor of the said trust. An Explanation has been inserted to define the expressions ‘investor’ and ‘securitisation trust’ occurring in the proposed amendment.
These amendments will take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.
Government, of any previous year relevant to any assessment year commencing on or before 1st April, 2014.
This amendment will take effect retrospectively from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and the assessment year 2014-15.
