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TMI BlogAmendments at a glance, Rate structure, Amendments to Income-tax Act, Amendments to Wealth-tax Act , Amendments to Companies (Profits) Surtax ActX X X X Extracts X X X X X X X X Extracts X X X X ..... financial corporations established under the State Financial Corporations Act, 1951 26 74A(1)/(3), Carry forward and set off of losses from horse 75(2), 77(2)(b), races 34-37 80, 139(3), 141A(2)(iv), 143(1)(b)(iv), 155(4) and 157 80MM (1), (2) Discontinuance of the exemption in respect of royalties, commission, fees, etc., received by resident non-corporate taxpayers for provision of technical know-how or technical services to Indian concerns 28 80N and its Modification of the provision relating to exemption of dividends received by Expln., 155 (11) Indian companies and resident non-corporate taxpayers on shares allotted to them in a foreign company for the provision of technical "know-how" or technical services to the foreign company 29 80-O (1)/(2), Modifications in the provision relating to concessional taxation of royalties, 155 (12) commission, fees, etc., received by Indian companies or resident non-corporate taxpayers for provision of technical "know-how" or technical services to foreign enterprises 30 139 (1A) Filing of returns of income by certain salaried tax payers to be optional 16-19 209 (1), (2), (3) Ancillary provisions for computing "adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) as against 34.5 per cent (income-tax 30 per cent + surcharge 4.5 per cent) during the financial year 1973-74. The rate at which surcharge will be deductible has been reduced from 4.5 per cent to 3 per cent in view of the position that rate of surcharge on income-tax for the purpose of computation of "advance tax", etc., payable during the financial year 1974-75, has been specified at a uniform rate of 10 per cent in the case of all categories of non-corporate taxpayers (vide paragraph 7 of this circular). The rate for deduction of income-tax at source from interest (other than interest on securities), as also insurance commission has been retained at the existing level of 10 per cent and no surcharge will be deductible at source as at present. The rate at which surcharge will be deductible from any other income (excluding interest payable on tax-free security) has been reduced from 3 per cent to 2 per cent but with a view to maintaining the rate of income-tax deductible at source from dividends in the case of domestic companies and resident non-corporate taxpayers at the same level, the rate at which basic income-tax will be deductible from such income has been raised from 20 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment of persons leaving India [section 174(2)]; assessment of persons likely to transfer property to avoid tax [section 175]; and assessment of profits of a discontinued business [section 176(2)]. Finance Act, 1974 7. The rates specified in Part III of the First Schedule to the Finance Act, 1974 in the case of non-corporate taxpayers are materially different from those specified in Part I of the First Schedule for the assessment of income liable to tax for the assessment year 1974-75. The main differences are as follows : 1. In the case of individuals, Hindu undivided families, unregistered firms, associations of persons, bodies of individuals and artificial juridical persons, the rate schedules have been completely recast. In the case of these categories of taxpayers (excluding Hindu undivided families having one or more members with independent total income exceeding Rs. 6,000), the first slab chargeable to tax at nil rate will extend up to Rs. 6,000 as against Rs. 5,000 last year ; the next higher slab will now be Rs. 6001-Rs. 10,000 as against Rs. 5,001-Rs. 10,000 and the rate of income-tax on this slab will be 12 per cent as against 10 per cent ; the next higher slab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dule to the Finance Act, 1974 are the same as those specified in Part I of that Schedule. Finance Act, 1974 Partially integrated taxation of non-agricultural income with income derived from agriculture 8. The Finance Act, 1973 provided that in the case of individuals, Hindu undivided families, unregistered firms or other associations of persons or bodies of individuals and artificial juridical persons, the net agricultural income would be taken into account for determining the rate of income-tax to be applied to the total income for the purposes of computing "advance tax" payable during the financial year 1973-74 and for charging income-tax on current incomes in special cases where accelerated assessments were required to be made during that financial year, that is to say, for calculation of income-tax under section 132(5) on undisclosed income represented by seized assets, assessment under section174(2) in the case of persons leaving India, assessment under section 175 in the case of persons likely to transfer properties to avoid tax and assessment of profits of a discontinued business under section 176(2). The Finance Act, 1974 seeks to continue the aforesaid scheme of partial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. In the case of an unregistered firm having agricultural income, share of agricultural loss of a partner who has retired or died, will, however, not be set off against income of the firm. For this purpose, the share of a retired or deceased partner in the agricultural loss of the firm will be calculated in the manner laid down in sub-sections (1), (2) and (3) of section 67. Further, a person succeeding another person will not be allowed to set off the loss of the predecessor against his own agricultural income unless the successor inherited the source of the agricultural income of the deceased. The set off of losses in agriculture will, however, be allowed only if such losses have already been determined by the Income-tax Officer. Finance Act, 1974 10. It may be noted that in view of the position that a uniform rate of surcharge of 10 per cent has been specified in Part III of the First Schedule to the Finance Act, 1974 in the case of all non-corporate taxpayers, the marginal provisions contained in the proviso to section 2(2) of the Finance Act, 1974 have not been included in section 2(7) of the Act. Accordingly, the amount of "advance tax" payable in the financial year 1974-7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of his employment Rs. 75 p.m.; (c) in any other case Rs. 50 p.m. 4. Deduction in respect of other expenditure incurred by the taxpayers, which, by the conditions of his service, he is required to spend out of his remuneration wholly, exclusively and necessarily in the performance of his duties. 5. Deduction in respect of any allowance in the nature of entertainment allowance specifically granted to the taxpayer by his employer within the limits specified in this behalf. Finance Act, 1974 14. With a view to simplifying the assessment procedures in the case of salaried taxpayers, the Finance Act, 1974 has substituted the separate deductions in respect of items referred to in (1) to (4) in the preceding paragraph by a standard deduction in respect of expenditure incidental to employment to be allowed in the computation of the taxable salary. The standard deduction will be allowed in an amount equal to 20 per cent of the "salary" up to Rs. 10,000 and 10 per cent of the "salary" in excess thereof, subject to a maximum of Rs. 3,500. For this purpose, the term "salary" will include fees, commission, perquisites of profits in lieu of or in addition to salary but will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is required to be deducted at source by the employer, the taxpayers having only salary income do not ordinarily have to pay any further tax on filing the return of income. The existing requirement of law whereunder such salaried taxpayers are obliged to voluntarily file their returns of income before the due date does not result in any particular benefit to the revenue and, on the other hand, adds infructuous work-load on the staff and officers of the Income-tax Department and also imposes an unnecessary burden on the salaried taxpayers. With the replacement of the separate deductions in respect of books, travelling, taxes on professions and expenditure incurred in the performance of duties by a standard deduction, it will also not be necessary to verify the correctness of the claims in respect of these expenses. In view of this position, the Finance Act, 1974 has amended section 139 with a view to making optional the filing of voluntary returns of income by salaried taxpayers who do not have large income. It will, accordingly, not be necessary for a person to furnish a voluntary return of income or the income of any other person in respect of whose total income he is assessable i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke effect from 1-4-1975 and will accordingly apply for the assessment year 1975-76 and subsequent years. Salaried taxpayers will have to furnish their returns of income voluntarily for the assessment year 1974-75 if their total income exceeds Rs. 5,000 even though tax has been fully deducted at source. [Section 10(a) of the Finance Act] Finance Act, 1974 Tax treatment of gratuities 20. Under section 10(10), as it stood prior to its amendment by the Finance Act, 1974, death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or under any similar scheme of a State Government or a local authority was completely exempt from income-tax. Similarly retiring gratuity received under the new Pension Code applicable to the members of the Defence Services qualified for tax exemption without any ceiling limit. In the case of any other gratuity received by an employee on his retirement or incapacitation or by his widow, children or dependants on his death, the exemption was available to the extent such gratuity did not exceed one-half month's salary for each year of completed service, calculated on the basis of the average salary for the three years im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yable at the rate of 15 days' wages (based on the rate of wages last drawn by the employee) for every completed year of service or part thereof in excess of 6 months, subject to a maximum of 20 months' wages. In the case of employees working in a seasonal establishment, gratuity is calculated at the rate of seven days' wages for each season, subject to the overall limit of 20 months' wages. Section 10(10) has been amended to specifically provide that the entire amount of gratuity received by an employee under sub-section (2) or (3) of section 4 of the Payment of Gratuity Act shall be exempt from income-tax. In this connection, it may, however, be mentioned that under sub-section (5) of section 4 of the Payment of Gratuity Act, an employee can receive better terms of gratuity under any award or agreement or contract with the employer. In cases where a higher amount of gratuity is received by an employee under any award of agreement or contract with the employer, the amount of exempt gratuity will be calculated in accordance with the residuary provision referred to in item (4) below. This amendment will take effect from 1-4-1975 and will accordingly apply for the assessment year 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Government servants will be available only in respect of death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or under the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the Central or State Government employees. Gratuities other than the death-cum-retirement gratuities payable to Central and State Government employees will be exempt only under the residuary provision. To illustrate, "service gratuity" payable under rule 49(1) of the Central Civil Services (Pension) Rules, 1972 in the case of a Central Government servant retiring before completion of the qualifying service of 10 years will be exempt from income-tax only to the extent such gratuity does not exceed one-half month's salary for each year of completed service, calculated on the basis of the average salary for the three years immediately preceding the year in which the gratuity is paid, or 20 months' salary so calculated or Rs. 30,000, whichever is the least. [Section 3(a) and (b) of the Finance Act] Finance Act, 1974 Exemption of payments in commutation of pension received by Government employees 22. Under section 10(10A), as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns arising from the transfer of capital assets of the fund, and of no other sums. These provisions did not, therefore, permit the transfer of the accumulated balance due and becoming payable to an employee participating in a recognized provident fund maintained by his former employer to the credit of the individual account of the employee in another recognized provident fund maintained by his new employer with whom he obtained re-employment. In view of this position, a recognized provident fund was liable to lose exemption from income-tax on the ground that the fund had received on transfer certain amounts from the individual account of a newly participating employee in another recognized provident fund maintained by his former employer. As the withdrawal of tax exemption in such cases resulted in hardship to the employees participating in the fund, the Finance Act, 1974 has made a specific provision in sub-rule (3) of rule 5 of Part A of the Fourth Schedule permitting the transfer of amounts from the individual account of an employee in a recognized provident fund maintained by his former employer and the interest in respect thereof, to another recognized provident fund. This amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in such cases. Further, it has also been provided that in cases where the accumulated balance due and becoming payable to an employee includes any amount transferred from any other recognized provident fund maintained by his former employer, then, in computing the period of continuous service of 5 years for the purposes of the aforesaid provision, the continuous service rendered by the employee with such former employer will also be taken into account. These amendments will take effect from 1-4-1975 and will accordingly apply in relation to the assessment year 1975-76 and subsequent years. [Section 12 of the Finance Act] Other Amendments to the Income-tax Act Finance Act, 1974 Higher deduction of profits transferred to special reserve in the case of financial corporations or joint financial corporations established under the State Financial Corporations Act, 1951 26. Under section 36(1)(viii), financial corporations engaged in providing long-term finance for industrial or agricultural development in India are entitled to a deduction, in the computation of their taxable profits, of the amounts transferred by them out of such profits to a special reserve account, up to a spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Village Industries Commission. With a view to providing encouragement and support to these institutions, the Finance Act, 1974 has made a specific provision in new clause (23B) of section 10 for exempting from income-tax, income derived by such institutions from production, sale or marketing of khadi or products by village industries. These exemptions will be available only to institutions constituted as public charitable trusts or registered under the Societies Registration Act, 1860, or under any law corresponding to that Act in force in any part of India and existing solely for development of khadi and village industries. The exemption will not be allowed unless the institution applies its income or accumulates it for application solely for the development of khadi and village industries. Further, institutions will qualify for this tax exemption only if they are approved for the purposes of this provision by the Khadi and Village Industries Commission. The Khadi and Village Industries Commission will have power to accord approval to such institutions for a period of three years at a time. This amendment will take effect from 1-6-1974 and will accordingly apply for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der which the technical "know-how" or technical services are provided to the foreign company is approved by the Central Board of Direct Taxes. The Finance Act, 1974 has made the following changes in the scheme of tax exemption of such dividends : 1. Section 80N has been amended so as to discontinue the concession under that section in the case of resident non-corporate taxpayers. This amendment will take effect from 1-4-1975 and will accordingly apply in relation to the assessment year 1975-76 and subsequent years. 2. As one of the main objectives of the aforesaid tax concession is to augment our foreign exchange resources, a retrospective amendment has been made in section 80N with effect from 1-4-1969 to specifically provide that the deduction under this provision will be allowed only with reference to the income which is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment so as to allow the deduction in respect of income so received in, or brought into, India. The rectification will be permissible within the period of four years from the date on which such income is received in, or brought into, India. [Sections 8, 13(1) (part) and 17 (part) of the Finance Act] Finance Act, 1974 Modifications in the provision relating to concessional taxation of royalties, commission, fees, etc., received by Indian companies or resident non-corporate taxpayers for provision of technical "know-how" or technical services to foreign enterprises 30. Under section 80-O, an Indian company or a resident non-corporate taxpayer deriving income by way of royalties, commission, fees, etc., from a foreign Government or a foreign enterprise in consideration of the provision of technical "know-how" or technical services is exempted from taxation in India on the whole of such income. This tax concession is available only if the agreement under which the technical 'know-how" or technical services are provided is approved by the Central Board of Direct Taxes. The Finance Act, 1974 has made the following changes in the scheme of taxation of such royalties, commission, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain cases 31. Under the Income-tax Act, "advance tax" is to be paid during every financial year in instalments on specified dates on the taxpayers' income (other than capital gains and certain casual and non-recurring incomes) charged to tax for the assessment year next following the financial year. In the case of persons who have been assessed to income-tax by way of regular assessment, "advance tax" is ordinarily required to be paid with reference to the last assessed income of the taxpayer on the issue of notice of demand by the Income-tax Officer. Persons who have not previously been assessed by way of regular assessment are required to send an estimate of their current income to the Income-tax Officer and pay advance tax thereon at the rates in force. In cases where the total income of the latest previous year on the basis of which tax has been paid by the taxpayer under section 140A exceeds the total income of an earlier previous year assessed by way of regular assessment, the "advance tax" is demanded by the Income-tax Officer on the basis of the total income of the first-mentioned previous year. Finance Act, 1974 32. The Finance Act, 1974 provides that in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In cases where the order of the Income-tax Officer under section 210 is made on the basis of the total income of the families for a previous year for which the family had paid tax on self-assessment under section 140A, the separate rates prescribed for Hindu undivided families will apply if the total income of any member of the family for the assessment year relevant to such previous year exceeds the maximum amount not chargeable to tax in his case. These amendments will take effect from 1-4-1974 and will accordingly apply for the purposes of computing "advance tax" during the financial year 1974-75 and subsequent years. [Section 11 of the Finance Act] Finance Act, 1974 Carry forward and set off of losses from horse races 34. Under section 74A, losses from lotteries, crossword puzzles, races, card games, etc., are allowed to be set off only against income from the same source. Losses relating to these sources incurred in one year are also not allowed to be carried forward to be set off against income of a subsequent year. For this purpose, each of the following sources is regarded as a separate and distinct source : (a) Lotteries. (b) Crossword puzzles. (c) Races, inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the taxpayer carries on the activity of owning and maintaining race horses in the previous year relevant to the subsequent assessment year. For the purposes of section 74A(3), a race horse would mean a horse maintained for running in race upon which wagering or betting may be lawfully made and "income by way of stake money" would mean the gross amount of prize money received on a race horse or race horses by the owner on account of the horse or horses or any one or more of the horses winning or being placed second or in a lower position in a horse race. Finance Act, 1974 36. The Finance Act, 1974 has made another amendment of a drafting nature to section 74A for clearly bringing out the intention that the loss relating to sources specified in that section, i.e., winnings from lotteries, crossword puzzles, races, card games, etc., will be set off only against the income from the same source in the year in which the loss is incurred. Finance Act, 1974 37. Consequential amendments have been made in sections 75, 77, 80, 139, 141A, 143, 155 and 157 with a view to securing the following objectives, namely : 1. Section 75(2) has been amended to provide that losses incurred by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot, therefore, be carried forward to be set off against income of subsequent years. [Sections 6, 10(b) and 13(2) of the Finance Act] Finance Act, 1974 Continuance of development rebate for a limited period in certain cases 38. Under the notification of the Government of India in the Ministry of Finance (Department of Revenue and Insurance) No. SO 2167, dated 28-5-1971 issued under sub-section (5) of section 33, development rebate will not be allowed in respect of ships acquired or machinery or plant installed after 31-5-1974. In several cases, entrepreneurs were not able to obtain timely delivery of machinery or plant from foreign as well as indigenous manufacturers for reasons beyond their control. The critical shortage of petroleum products underlines the need for switch over from oil to coal as a source of energy. In view of this position, the Finance Act, 1974 has made an independent provision in section 16 thereof so as to continue the development rebate for a specified period in the following cases : (a) in the case of ships acquired after 31-5-1974 but before 1-6-1975, if the taxpayer furnishes evidence to the satisfaction of the Income-tax Officer that he had entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hindu undivided families having one or more members with independent net wealth exceeding Rs. 1 lakh, the rate of wealth-tax on the first slab up to Rs. 5,00,000 has been raised from 2 per cent to 3 per cent and on the next slab of Rs. 5,00,001 - Rs. 10,00,000 from 3 per cent to 4 per cent. The rate of wealth-tax on the slab over Rs. 10 lakhs has been retained at the existing level of 8 per cent. The new rates of wealth-tax will apply in relation to the assessment year 1975-76 and subsequent years. [Section 14(3) of the Finance Act] Finance Act, 1974 Modifications of some of the existing exemptions 40. Under section 2(e)(2)(ii) the value of any right to a non-commutable annuity is not included in "assets" and is accordingly exempt from wealth-tax. Under section 5(1)(vi), the value of any right or interest of a taxpayer in any policy of insurance before the moneys covered by the policy become due and payable to the taxpayer is also not included in the net wealth. The aforesaid exemptions have been largely used by taxpayers for reducing the incidence of wealth-tax by taking single premium insurance policies and non-commutable annuities for large amounts. The Finance Act, 1974 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in old age and, accordingly such contracts will be regarded as life insurance policies. The effect will, therefore, be that the value of the taxpayer's right or interest in such an annuity contract will qualify for exemption from wealth-tax, if the premia are payable over a period of ten years or more and a proportionate exemption will be allowed in cases where the premia are payable over a shorter period. Similarly, the value of a right to any life annuity will be exempt from tax if the premia in respect thereof are payable over a period of ten years or more and will qualify for proportionate exemption where such premia is payable over a shorter period. Thus, in the case of a life annuity obtained in consideration of a lump sum payment, the taxpayer will be entitled to an exemption of one-tenth of the value of his right in such annuity. Finance Act, 1974 42. The amendments explained in paragraphs 40 and 41 above will take effect from 1-4-1975 and will accordingly apply for the assessment year 1975-76 and subsequent years. It may be noted that from the assessment year 1975-76 onwards the exemption in respect of rights in annuities and insurance moneys will be available only to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 1-4-1975, and will accordingly apply for the assessment year 1975-76 and subsequent years. [Section 14(1) and (2) of the Finance Act] Amendments to Companies (Profits) Surtax Act Finance Act, 1974 Rates of surtax 45. Under the provisions of the Companies (Profits) Surtax Act, surtax is leviable on so much of the chargeable profits of a company as exceed the statutory deduction at the rates specified in the Third Schedule to that Act. The term "statutory deduction" is defined to mean an amount equal to 10 per cent of the capital of the company computed in accordance with the provisions of the Second Schedule or an amount of Rs. 2,00,000, whichever is greater. At present, surtax is levied in two slabs on the amount by which the chargeable profits exceed the amount of statutory deduction. On the amount of such excess up to 5 per cent of the amount of capital computed in accordance with the Second Schedule, the rate is 25 per cent and on the balance of such excess, 30 per cent. The Finance Act, 1974 has raised the rate on second slab from 30 per cent to 40 per cent. Finance Act, 1974 46. It has further been provided that in the case of a domestic company in which the public ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that under the Finance Act, 1973, a new Rate Schedule of ordinary wealth-tax has been prescribed in the case of Hindu undivided families having one or more members with independent net wealth exceeding Rs. 1 lakh and that these rates would take effect from 1st April, 1974, so as to apply in relation to assessment years 1974-75 and onwards. The Revenue Audit have brought to the notice of the Board many cases where the prescribed higher rates have not been applied correctly. 2. The Board desire that necessary instructions in this regard should be reiterated amongst all the assessing officers in your charge to ensure the application of correct rates. Remedial measures for rectification, etc., may also be taken wherever necessary. Instruction : No. 1193, dated 5-7-1978 [Source : 85th Report of P.A.C. (1981-82) (Seventh Lok Sabha), p. 51]. Application of correct rates of income-tax and wealth-tax in respect of the HUFs which have at least one member having taxable income/wealth for the assessment year It has come to the notice of the Board that there has been a large scale failure on the part of the Departmental officials to apply the higher rates of income-tax and wealth-tax lev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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