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TMI BlogFinance Act, 2006 - Explanatory Notes on provisions relating to Direct TaxesX X X X Extracts X X X X X X X X Extracts X X X X ..... new sections 80AC, 90A, 115BBC, 139B, 271CA in the Income-tax Act, 1961; (iv) amended rule 3 and rule 4 of Part A of the Fourth Schedule to the Income-tax Act, 1961; (v) amended section 97 of the Finance (No. 2) Act, 2004; (vi) amended section 17A of the Wealth-tax Act, 1957. (vii) increased the rates for levy of securities transaction tax in Chapter VII of the Finance (No. 2) Act, 2004. 3. Rate structure 3.1 Rates of income-tax in respect of incomes liable to tax for the assessment year 2006-07 3.1-1 In respect of income of all categories of taxpayers liable to tax for the assessment year 2006-07, the rates of income-tax have been specified in Part I of the First Schedule to the Act. The rates specified in Part I of the First Schedule to the Act are the same as those laid down in Part III of the First Schedule to the Finance Act, 2005 for the purposes of computation of advance tax, deduction of tax at source from Salaries and charging of tax payable in certain cases during the financial year 2005-06. 3.1-2 The salient features of the rates specified in the said Part I are indicated in the following paragraphs: 3.1-3 Individual, Hindu undivided family, association of pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able on all levels of income. 3.1-6 EDUCATION CESS - An additional surcharge called the Education Cess on Income-tax is to be levied at the rate of two per cent on the amount of tax computed, inclusive of surcharge, in all cases. For instance, if the income-tax computed is Rs. 1,00,000 and the surcharge is Rs. 10,000, then the education cess of two per cent is to be computed on Rs. 1,10,000 which works out to be Rs. 2,200. No marginal relief shall be available in respect of the Education Cess. 3.1-7 CO-OPERATIVE SOCIETIES - In the case of every co-operative society, the rates of income-tax have been specified in Paragraph B of Part I of the First Schedule to the Act as under Income chargeable to tax Rate Up to Rs. 10,000 10% Rs. 10,001 - Rs. 20,000 20% Exceeding Rs. 20,000 30% No surcharge shall be levied. Education Cess is to be levied at the rate of two per cent on the amount of tax computed. 3.1-8 FIRMS - In the case of every firm, the rate of income-tax of thirty per cent has been specified in Paragraph C of Part I of the First Schedule to the Act. Surcharge at the rate of ten per cent shall be levied. Education Cess is to be levied at the rate of two per cent on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of tax at source during the financial year 2006-07 from income by way of short-term capital gains referred to in section 111A shall be ten per cent. 3.2-3 In all other cases to which this Part applies; rates for deduction of income-tax at source during the financial year 2006-07 will continue to be the same as those specified in Part II of the First Schedule to the Finance Act, 2005. 3.2-4 The tax deducted at source in each case shall be increased by a surcharge for purposes of the Union as follows: (i) in the case of every individual, Hindu undivided family, association of persons and body of individuals, at the rate of ten per cent, of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to deduction exceeds Rs. 10,00,000; (ii) in the case of every firm, artificial juridical person and domestic company at the rate of ten per cent of such tax; (iii) in the case of every company other than a domestic company, at the rate of two and one-half per cent of such tax. 3.2-5 No surcharge is to be levied on the amount of income-tax deducted in the case of a co-operative society and local authority. 3.2-6 EDUCATION CESS - An additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 2,50,000 30% 30% 30% 3.3-3 The tax payable would be enhanced by a surcharge for the purposes of the Union at the rate of ten per cent of the tax payable, as reduced by rebate under Chapter VIII-A, in the case of every individual, Hindu undivided family, association of persons or body of individuals having total income exceeding Rs. 10,00,000. No surcharge would be payable by persons having incomes of Rs. 10,00,000 or below. As illustrated in para 3.1.4, marginal relief would be provided to ensure that the additional amount of income-tax payable, including surcharge, on the excess of income over Rs. 10,00,000 is limited to the amount by which the income is more than Rs. 10,00,000. 3.3-4 In the case of artificial juridical person, surcharge would be levied at ten per cent of the income-tax payable on all levels of income. 3.3-5 EDUCATION CESS - An additional surcharge called the Education Cess on Income-tax is to be levied at the rate of two per cent on the amount of tax computed, inclusive of surcharge, in all cases. The numerical illustration for the computation of Education Cess is given in para 3.1-6. No marginal relief shall be available in respect of the Education Cess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Education Cess is to be levied at the rate of two per cent on the amount of tax computed, inclusive of surcharge. [Section 2 and First Schedule] 4. Exemption on aircraft lease rentals extended 4.1 Under section 10(15A), any payment made by an Indian company engaged in the business of operation of aircraft to acquire an aircraft or an aircraft engine on lease from the Government of a foreign State or a foreign enterprise under an agreement approved by the Central Government is exempt. This exemption is available subject to the condition that the agreement under which the payment is made is entered into on or before 31-3-2006. 4.2 Further, under clause (6BB) of section 10, any tax payable by the Indian company on behalf of the Government of a foreign State or a foreign enterprise in respect of such lease payments is exempt where the payment is under an agreement entered into on or after 1-4-2006. 4.3 Clause (15A) of section 10 has been amended so as to continue to provide the above-mentioned exemption for lease payments made in pursuance of agreements entered into on or before 31-3-2007. Concomitantly, clause (6BB) of section 10 has been amended to provide the benefit of exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified by the Central Government in the Official Gazette, is exempt from income-tax. 7.2 The section has been amended to provide that any income of such Investor Protection Fund by way of contributions received from recognized stock exchanges and the members thereof, alone, will be tax-exempt. All other income of the Fund will be taxable. 7.3 Applicability - Assessment year 2007-08 onwards. [Section 4] 8. Removal of exemption of income from investment in infrastructure and other projects under section 10(23G) 8.1 Under the provisions of section 10(23G), any income by way of dividends (other than dividends referred to in section 115-O), interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company or a co-operative bank from investments made on or after 1-6-1998, by way of shares or long-term finance in any enterprise or undertaking engaged in an approved eligible business, is exempt from tax. The eligible business are those referred to in section 80-IA(4), section 80-IAB(3), a housing project referred to in section 80-IB(10), a hotel project or a hospital project. 8.2 Section 10(23G) has been omitted from the Act, as a result of wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etrospectively from 1-4-2006 and applies in relation to the assessment year 2006-07 and subsequent years. [Sections 5 and 15] 11. Method for allocating expenditure in relation to exempt income 11.1 Section 14A of the Income-tax Act, 1961, provides that for the purposes of computing the total income under Chapter-IV of the said Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Income-tax Act. In the existing provisions of section 14A, however, no method of computing the expenditure incurred in relation to income which does not form part of the total income has been provided for. Consequently, there is considerable dispute between the taxpayers and the Department on the method of determining such expenditure. 11.2 In view of the above, a new sub-section (2) has been inserted in section 14A so as to provide that it would be mandatory for the Assessing Officer to determine the amount of expenditure incurred in relation to such income which does not form part of the total income in accordance with such method as may be prescribed. However, the Assessing Officer shall foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urance on the health of his employees. However, the deduction is available only if the insurance is in accordance with a scheme framed by the General Insurance Corporation of India and approved by the Central Government for this purpose. 12.4 With a view to align the provisions of section 36(1)(ib) with those of section 80D, the said clause (ib) has been substituted so as to also provide for a deduction of the amount of any premium paid by cheque by the assessee, as an employer, to keep in force an insurance on the health of his employees under a scheme framed by any other insurer and approved by the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999. 12.5 Further, as a rationalisation measure, the provisions contained in clauses (iii) and (iv) of the proviso to clause (2) of section 17 have been amended so as to provide that any premium paid by the employer or any reimbursement of premium paid by the employees for health insurance schemes of other insurers, approved by the Insurance Regulatory and Development Authority, shall also be exempt from the purview of perquisites. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure facility. 14. Reference to the definition of derivatives 14.1 Under the existing provisions of clause (5) of section 43, an eligible transaction in respect of trading in derivatives carried out in a recognised stock exchange is not deemed to be a speculative transaction. The definition of derivatives was earlier referred to in clause (aa) of section 2 of the Securities Contracts (Regulation) Act, 1956. Through an amendment made in January, 2005 to the Securities Contracts (Regulation) Act, 1956, the said clause (aa) was re-lettered as clause (ac). Accordingly, the reference to the definition of the term derivative has been re-lettered in clause (5) in section 43. 14.2 This amendment will take effect retrospectively from 1-4-2006. [Section 11] 15. Deduction in the computation of income against taxes paid on income earned outside India not allowable 15.1 Under the existing provisions contained in sub-clause (ii) of clause (a) of section 40, any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits and gains (hereafter income-tax), is not allowed as de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by the assessee. 16.2 It has come to notice that certain assessees were claiming deduction under section 43B on account of conversion of interest payable on an existing loan into a fresh loan on the ground that such conversion was a constructive discharge of interest liability and, therefore, amounted to actual payment. Claim of deduction against conversion of interest into a fresh loan is a case of misuse of the provisions of section 43B. A new Explanation 3C has, therefore, been inserted to clarify that if any sum payable by the assessee as interest on any loan or borrowing, referred to in clause (d) of section 43B, is converted into a loan or borrowing, the interest so converted, shall not be deemed to be actual payment. 16.3 This amendment takes effect retrospectively from 1-4-1989 i.e. the date from which clause (d) was inserted in section 43B and applies in relation to assessment year 1989-90 and subsequent years.[Section 12] 16.4 Similarly, under the existing provisions contained in clause (e) of section 43B, any sum payable by the assessee as interest on any loan or advances referred to in that clause is allowed as deduction in the computation of income if the sum p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 54EC shall be available only if the long-term capital gains are invested on or after 1-4-2006 in the notified bonds of National Highways Authority of India or Rural Electrification Corporation Limited. It may further be clarified that amended provisions of section 54EC are not applicable for assessment year 2006-07. [Section 13] 18. Withdrawal of exemption under section 54ED 18.1 The existing provisions of section 54ED 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 gains are invested in equity shares forming part of an eligible issue of capital, made by a public company, and offered for subscription to the public. 18.2 Vide the Finance (No. 2) Act, 2004. Securities Transaction Tax has been levied on the value of certain specified transactions of equity shares of a company or units of an equity oriented mutual fund entered into a recognised stock exchange in India. Consequent upon the levy of the securities transaction tax, the long term capital gains arising from the transfer of equity share of a company or unit of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 10 or from the administrator or the specified company under any plan formulated in accordance with such scheme as may be notified by the Central Government. Clause (xiv) of the said sub-section refers to the contribution by an individual to any pension fund set up by any mutual fund notified under clause (23D) of section 10 or by the administrator or the specified company, as the Central Government may, by notification, specify. 19.4 Since clause (23D) of section 10 has since been amended and it also refers to a mutual fund registered under Securities and Exchange Board of India Act, 1992 or regulations made thereunder, the provisions of clauses (xi), (xiii) and (xiv) of sub-section (2) have been amended so as to substitute the words notified under clause (23D) by the words referred to in clause (23D). This amendment is only for the purpose of aligning the provisions of these clauses with that of clause (23D) of section 10. 19.5 Applicability - From assessment year 2007-08 onwards. [Section 16] 20. Rationalisation of provisions of section 80CCC 20.1 Section 80CCC provides that an assessee, being an individual, shall be allowed a deduction (up to rupees ten thousand) from his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end the time limit from 31-3-2006 to 31-3-2010. 21.3 Similarly, clause (iii) of sub-section (4) of section 80-IA provides that an undertaking which develops, develops and operates or maintains and operates an industrial park or special economic zone notified by the Central Government in accordance with the scheme framed and notified by it for the period beginning on 1-4-1997 and ending on 31-3-2006, is eligible for deduction. 21.4 To continue attracting investments to industrial parks, the said clause (iii) has been amended to extend the time limit from 31-3-2006 to 31-3-2009. 21.5 Applicability - From assessment year 2007-08 onwards. [Section 18] 22. Withdrawal of tax benefits available to certain co-operative banks 22.1 Section 80P, inter alia, provides for a deduction from the total income of the Co-operative societies engaged in the business of banking or providing credit facilities to its members, or business of a cottage industry, or of marketing of agricultural produce of its members, or processing, without the aid of power, of the agricultural produce of its members, etc. 22.2 The co-operative banks are functioning at par with other commercial banks, which do not enj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Act or the agreement, it has been clarified that the charge of tax in respect of a company incorporated in the specified territory outside India at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge of levy of tax in respect of such company. 23.4 For this purpose, specified association has been defined to mean any notified institution, association or body, whether incorporated or not, functioning under any law for the time being in force in India, or the laws of the specified territory outside India. Specified territory has been defined to mean any area outside India which may be notified as such by the Central Government for the purposes of the section. Consequential amendments have been made in section 2(37A). 23.5 Applicability - From 1-6-2006 onwards. [Sections 3 and 20] 24. Rationalisation of provisions relating to Transfer Pricing 24.1 The existing provisions of section 92C provide for computation of arms length price. Sub-section (4) of the said section provides that the Assessing Officer may compute the total income of an assessee on the basis of the arms length price. The first proviso to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution by way of anonymous donation shall be included in its total income and taxed at the rate of 30 per cent. Anonymous donation made to wholly charitable and religious trusts or institutions, i.e. mixed purpose trusts or institutions shall be taxed only if it is for any university or other educational institution or any hospital or other medical institution run by them. Anonymous donation to wholly religious trusts or institutions will not be taxed. 25.3 Anonymous donation has been defined in the new section to mean any voluntary contribution referred to in section 2(24)(iia) of the Act, where a person receiving such contribution does not maintain a record of the identity indicating the name and address of the person making such contribution and such other particulars as maybe prescribed. 25.4 Consequential amendments have been made in section 10(23C) and section 13 to provide that any income by way of any anonymous donation which is taxable under section 115BBC, shall be included in the total income of the assessee. 25.5 Applicability - From Assessment year 2007-08 onwards. 25.6 Amendments of clarificatory nature have further been made in section 2(24)(iia) to include in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even assessment years immediately succeeding the assessment year in which the tax credit becomes allowable under the said section. 26.3 Applicability - From assessment year 2007-08 onwards. [Section 23] 27. Rationalisation of provisions relating to Minimum Alternate Tax 27.1 Section 115JB provides that, in the case of a company, if the tax payable on the total income as computed under the Income-tax Act in respect of any previous year relevant to the assessment year commencing on or after the 1st April, 2001 is less than seven and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable for the relevant previous year shall be seven and one-half per cent of such book profit. 27.2 Since the credit for MAT paid under section 115JB has been introduced from assessment year 2006-07 by Finance Act, 2005, and the period for availing the MAT credit has been increased from five years to seven years, sub-section (1) of the said section has been amended to provide that if the income-tax payable on the total income as computed under the Income-tax Act in respect of any previous year relevant to the assessment year com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of higher depreciation through revaluation of assets by certain companies, a new clause (g) has been inserted in the aforesaid Explanation to provide that the book profit shall be increased by the amount of depreciation debited to the profit and loss account and a new clause (iia) has been inserted in the said Explanation to provide that the amount of depreciation claimed in the profit and loss account, excluding the claim of depreciation on account of revaluation of assets, shall be reduced from the book profit. With a view to avoid double taxation on this account, a new clause (iib) has been inserted in the said Explanation to provide that the amount withdrawn from revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in the new clause (iia), shall be reduced from the book profit. 27.8 Applicability - From assessment year 2007-08 onwards. [Sections 4 and 24] 28. Extension of exemption from levy of dividend distribution tax to all equity oriented funds and change in definition of equity oriented funds 28.1 Under section 115R(2), in respect of any amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards. [Sections 4, 26, 27 and 76] 29. Rationalising the provisions of Fringe Benefit Tax 29.1 Section 115WB provides a definition of the term fringe benefits. It, inter alia, means any privilege, service, facility or amenity, directly or indirectly, provided by an employer to his employees, any contribution by the employer to an approved superannuation fund for the employees, etc. 29.2 Sub-section (2) of the said section provides that the fringe benefits shall be deemed to have been provided by the employer to his employees, if the employer has in the course of his business or profession, incurred any expense on or made any payment for the purposes of entertainment, hospitality, conference, sales promotion including publicity, etc. Proviso to clause (D) of sub-section (2) of section 115WB excludes certain expenditure on advertisement from sales promotion including publicity. 29.3 To expand the domain of such exceptions to provide relief to employers, a new clause has been inserted in the proviso to clause (D) of sub-section (2) of the said section 115WB to provide that the expenditure on distribution of free samples of medicines or of medical equipment, to doctors and payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons contained in clause (c) of sub-section (1) of said section 115WC, it is provided that twenty per cent of the expenses referred to in clauses (A) to (K) of sub-section (2) of section 115WB, which includes expenses incurred on conveyance, tour and travel (including foreign travel), shall be the value of fringe benefits. 29.10 A new clause (Q) in sub-section (2) of section 115WB and a new clause (e) in sub-section (1) of section 115WC have been inserted to provide that five per cent of the expenses incurred on tour and travel (including foreign travel) shall be taken for determining the value of fringe benefits. However, twenty per cent of the expenses incurred for the purposes of conveyance shall be continued to be taken for the purposes of valuation of fringe benefits. 29.11 Sub-section (2) of the said section 115WC provides for lower rate for valuation of fringe benefits in the case of certain expenses referred to in sub-section (2) of section 115WB. 29.12 New clauses (aa), (ab), (da) and (db) have been inserted in sub-section (2) of section 115WC to provide that in the case of an employer engaged in the business of carriage of passengers or goods by aircraft or ship, the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of persons. It has also been provided that the Board shall have the power to include any of the conditions specified in clauses (a) to (f) of the Explanation in the forms of return of income prescribed under sub-section (1) and sub-section (6) of section 139. 31.3 This amendment has come into effect from 1st June, 2006. [Section 31] 32. Omission of the one-by-six scheme 32.1 Under the existing provision of the proviso to sub-section (1) of section 139, it has been provided that any person fulfilling any of the six expenditure/asset criteria listed therein, will be required to furnish his return of income, even if his total income did not exceed the maximum amount not chargeable to tax. 32.2 The said proviso to section 139 has been omitted and no return will be required to be furnished under the proviso. 32.3 Applicability - From the assessment year 2006-07 and onwards. [Section 31] 33. Prescribing new class of persons for allotment of PAN and suo motu allotment of PAN 33.1 The existing provisions of sub-sections (1) and (1A) of section 139A provide for class of persons who are required to have a Permanent Account Number. 33.2 A new sub-section (1B) has been inserted so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances under which the authorization given to a Tax Return Preparer may be withdrawn, and any other matter which is required to be or may be specified for the purpose of this section. This amendment has come into effect from 1-6-2006. Tax Return Preparer Scheme, 2006 has been notified vide S.O. 2039(E) dated 28-11-2006. [Section 33] 35. Clarificatory amendment regarding the time limit for issue of notice under section 142 35.1The existing provisions contained in sub-section (1) of said section, inter alia, provide that for the purposes of making assessment in a case where a person has not made a return of his income within the time specified under sub-section (1) of section 139, the Assessing Officer may serve a notice under the said sub-section on such person requiring him to furnish the return of his income in the prescribed form and manner. 35.2 The provisions of clause (i) of sub-section (1) of section 142 have been amended so as to provide that in a case where a person has not made a return of his income before the end of the relevant assessment year, the Assessing Officer may serve a notice after the end of the relevant assessment year under the said sub-section requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time limit for making the assessment, reassessment or re-computation as specified in sub-section (2) of section 153, such notice shall be deemed to be valid notice. 36.4 These amendments will take effect retrospectively from the 1-10-1991. 36.5 An Explanation to sub-section (1) has also been inserted so as to clarify that the provisions of the newly inserted first proviso or the second proviso shall not apply in relation to any return which has been furnished on or after 1-10-2005 in response to a notice served under sub-section (1) of section 148. 36.6 This amendment will have retrospective effect and will be effective from 1-10-2005. [Section 36] 37. Reduction of the time limits provided for completion of assessment and reassessment 37.1 The existing provisions of section 153 provide the time limit for completion of assessments and reassessments. Section 153B of the Income-tax Act provides the time limit or completion of assessment in cases where search has been initiated under section 132 or books of account, other documents or any assets have been requisitioned under section 132A. The existing provisions of section 17A of the Wealth-tax Act provide the time limit for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 115JAA from the tax on the total income; and (b) reduction of the amount of relief of tax allowed under section 90 and 90A and deduction from the Indian Income-tax before furnishing the return of income. 38.3 The credit for the above shall also be allowed under section 140A for calculating tax and interest before furnishing the return of income. 38.4 The above amendments will take effect from 1-4-2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years. 38.5 Avoidable doubts were being raised by contending that there was an option available to the assessee to be charged interest under section 234A or 234B either on tax on total income as determined under sub-section (1) of section 143 or on tax on total income as determined after regular assessment. Though this is a fallacious contention, it has been considered necessary to clarify that interest is to be charged on the amount of tax on the total income as determined under sub-section (1) of section 143, and where a regular assessment is made, on tax on the total income determined after the regular assessment. An option has never been available to the assessee. This clarification is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 200 and under the proviso to sub-section (3) of section 206C. Quarterly statements are the primary documents from which details of tax deducted at source or tax collected at source are captured in the Departmental system. Further, the On-Line Tax Accounting System (OLTAS) is yet to fully stabilize as failure to quote and in many cases quoting of false PAN and TAN have resulted in getting the taxes deducted or collected or paid getting credited to the suspense account. The dematerialisation system is dependent upon filing of TDS or TCS statements by all the deductors or collectors with correct PAN and TAN in all the TDS and TCS statements and challans. Until all taxes deducted, collected or paid are matched in the OLTAS and complete information is populated in the deductees or collectees account, dematerialisation cannot substitute for the existing paper based system. 39.4 Keeping in view the aforementioned factors, the Finance Act, 2006 has deferred the commencement of dematerialisation provisions by two years by making such provisions applicable in respect of taxes deducted or paid [sub-section (3) of section 203] or collected [1st proviso to sub-section (5) of section 206C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . On a similar line, sub-section (7) of section 206C has also been amended to provide that the person responsible for collection of tax and liable to pay interest under sub-section (7) of section 206C shall pay such interest before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3) of that section. 40.3 These amendments will take effect from 1-6-2006. 40.4 On the lines of consequences of failure regarding TDS as enacted under section 201(1), a new sub-section (6A) has also been inserted in section 206C relating to TCS to provide that any person responsible for collecting tax shall be deemed to be an assessee in default if such person does not collect the whole or any part of the tax or fails to pay such tax after having it collected at source. The new provisions further require that before levying any penalty under section 221, the Assessing Officer shall satisfy himself that the person has without good and sufficient reasons failed to collect and pay the tax. 40.5 These amendments will take effect from 1-4-2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years. [Sections 42 and 47] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failure to collect tax at source 42.1 No penalty is, so far, specified under the Income-tax Act for failure to collect tax at source. Subsequent to expansion of the provisions of tax collection at source, Board have been receiving information from various quarters that in a number of cases collection of tax was not being made by the persons responsible for collecting tax. 42.2 A new section 271CA has been inserted to provide for imposition of penalty on any person who is responsible for collecting tax and who has failed to collect tax at source in accordance with the provisions of Chapter XVII-BB of the Act. Such penalty will be a sum equal to the amount of tax which he failed to collect at source and will be imposed by the Joint Commissioner of Income-tax. The order of penalty has been made an appealable order under section 246A. Section 273B has also been amended to provide that no penalty shall be imposed if the concerned person proves that there was a reasonable cause for his failure. 42.3 This amendment will take effect from 1-4-2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent assessment years. [Sections 51, 52 and 55] 43. Penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficates or statements or other documents referred to in sub-section (2) of section 203A, quotes a number which is false and which he either knows or believes to be false or does not believe to be true, such person shall pay by way of penalty a sum of ten thousand rupees. 43.5 Further, under the existing provisions contained in sub-section (2), no penalty can be imposed unless the person concerned has been given a reasonable opportunity of being heard. 43.6 Sub-section (2) has also been amended to include a reference of sub-section (1A) therein for the purpose of giving an opportunity of being heard to the person on whom the penalty is proposed to be imposed under the said sub-section (1A). Reference to sub-section (1A) of section 272BB has also been made in section 273B which enables the assessee or the person, as the case may be to show that there was reasonable cause for failure to comply with the provisions of newly inserted sub-section (1A). 43.7 These amendments will take effect from 1-6-2006. [Sections 54 and 55] 44. Rationalisation of provisions related to granting of recognition to a Provident Fund 44.1 Rule 4 of Part A of Schedule IV to the Income tax Act, 1961 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und does not satisfy the conditions set out in clause (ea) of Rule 4, and any other conditions which the Board may, by rules specify in this behalf, the recognition to such fund shall be withdrawn, if such fund does not satisfy such conditions on or before 31-3-2007. 44.5 Applicability - From assessment year 2007-08 onwards. [Section 56] 45. Securities Transaction Tax 45.1 The existing provisions of Chapter VII of the Finance (No. 2) Act, 2004 provide for levy of a securities transaction tax on the value of transactions in respect of specified securities. 45.2 With a view to mobilize additional resources and plug revenue leakages, the Act has increased the rates for levy of the securities transaction tax with effect from 1-6-2006. The new rates are as follows: Sl. No. Taxable securities transaction Old rate (before 1-6-2006) New rate (on or after 1-6-2006) 1. Purchase of an equity share in a company or a unit of an equity oriented fund, entered into in a recognized stock exchange and settled by actual delivery or transfer of such share or unit 0.1% 0.125% 2. Sale of an equity share in a company or a unit of an equity oriented fund, entered into in a recognized stock ..... X X X X Extracts X X X X X X X X Extracts X X X X
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