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TMI BlogFINANCE ACT, 1989X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of section 115B of the Income-tax Act on any income from winnings from lotteries, etc., shall be increased by a surcharge calculated at the rate of 5 per cent of the income-tax. No surcharge shall, however, be payable by a non-resident. Finance Act, 1989 Rates for deduction of income-tax at source during the financial year 1989-90 from incomes other than "salaries" 5.1 The rates of deduction of income-tax at source during the financial year 1989-90 from incomes other than "salaries", have been specified in Part II of the First Schedule to the Finance Act, 1989. These rates apply to income by way of interest on securities, interest other than interest on securities, dividends, insurance commission, winnings from lotteries, crossword puzzles and horse races and income of non-residents (including non-resident Indian) other than salary income. These rates are basically the same as those specified in Part II of the First Schedule to the Finance Act, 1988 for purposes of deduction of tax at source during the financial year 1988-89. In respect of payments referred to above as also payments made to a contractor or a sub-contractor where tax is deducted at source, the amount of tax s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case of co-operative societies, and local authorities the rates of income-tax have been specified in Paragraph B and Paragraph C respectively, of Part III of the First Schedule to the Act, which is the same as in Part I of the First Schedule to the Finance Act, 1988. The rate Schedule applicable in the case of individuals, Hindu undivided families (other than those having at least one member with independent total income exceeding the exemption limit), unregistered firms, associations of persons, bodies of individuals and artificial juridical persons has been restructured for reducing the rate of tax in the slab of income from Rs. 18,000 to Rs. 25,000 from 25 per cent to 20 per cent. The impact of this relief on income up to Rs. 50,000 is as under: TABLE Total income Tax relief Total income Tax relief Rs. Rs. Rs. Rs. 18,000 Nil 24,000 300 19,000 50 25,000 350 20,000 100 30,000 350 21,000 150 40,000 350 22,000 200 50,000 350 23,000 250 Finance Act, 1989 Rates of tax applicable to companies 8.1 In the case of companies, the rates of income-tax have been specified in Paragraph E of Part III of the First Schedule. These rates are the same as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 'revenue' within the meaning of section 2(1A)(a) of the Income-tax Act. Finance Act, 1989 10.3 This amendment will take effect retrospectively from 1st April, 1970 and will, accordingly, apply in relation to the assessment year 1970-71 and subsequent years. [Section 3 of the Finance Act, 1989] Finance Act, 1989 Incentives under the Exchange Risk Administration Scheme 11.1 The Finance Minister, in his Budget Speech for 1988-89, had announced the framing of a Scheme for exchange risk protection to borrowers of foreign currency from the financial institutions. In accordance with the said announcement, a scheme known as the Exchange Risk Administration Scheme (ERAS) has been evolved. Finance Act, 1989 11.2 Under the ERAS, a separate fund known as the 'Exchange Risk Administration Fund' (ERAF) can be set up by the financial institutions which will make a suitable initial contribution to the corpus of the Fund. Finance Act, 1989 11.3 The benefit of coverage of exchange risk under the Scheme is available only to foreign currency loans provided by institutions out of their external commercial borrowings. For the foreign currency loans covered under ERAS, the principal repayment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etiring Government employees to seek alternative sources for investment of their retirement benefits and also to maintain the level of funds in various employees welfare schemes, a new deposit scheme has been formulated in which a retiring Government employee may invest the whole or part of his retirement benefits for a lock-in period of three years. The scheme will apply to all Central or State Government employees. The following tax concessions are allowable in respect of the deposits made under the scheme: (i) the interest earned in respect of deposits shall be exempt from income-tax [Section 10(15)(iv)(i)]; and (ii) the deposits made shall be fully exempt from wealth-tax [Section 5(1)(xxviic)]. Finance Act, 1989 12.2 These amendments will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. [The relevant notifications and Press Note issued by the Ministry of Finance are at Annexures A-1 to A-5]. [Sections 4 and 27 of the Finance Act, 1989]. Finance Act, 1989 Measures to grant relief to Salaried Taxpayers 13.1 Under the existing provisions of clause (i) of section 16 of the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salaried employees, if a separate deduction was not allowed to them. Persons deriving income from business or profession are allowed to claim deduction in respect of such tax as business expenses. Finance Act, 1989 13.4 With a view to providing relief to the salaried taxpayers, it has been provided by amending section 16 of the Income-tax Act that the tax on employment, by whatever name called, levied by a State under article 276 of the Constitution shall be allowed as a deduction in computing their income under the head "Salaries". Finance Act, 1989 13.5 These amendments will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. [Sections 5 and 6 of the Finance Act, 1989] Finance Act, 1989 Modification of provisions relating to Investment Deposit Account 14.1 Under the existing provisions of section 32AB of the Income-tax Act, a deduction of 20 per cent of the profits is allowed only to those assessees who carry on "eligible business or profession", which means (i) business or profession other than the business of construction, manufacture or production of any article or thing specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act provides that the amounts deposited with the Development Bank in accordance with the Scheme, shall not be permitted to be withdrawn before the expiry of a period of five years from the date of deposit except in the case of (a) closure of business, (b) death of the taxpayer, (c) partition of Hindu undivided family, (d) dissolution of the firm, (e) liquidation of the company, and (f) in such other circumstances as may be specified in the Scheme. This sub-section is being interpreted in a manner that in a case withdrawal is made by a taxpayer of any amount standing to his credit in the deposit account after a period of five years from the date of deposit, the condition regarding the purposes for which a withdrawal can be made as specified in the Scheme do not have to be complied with, and no tax will be levied on the amount of withdrawal. Such an interpretation is against the legislative intent and may lead to protracted litigation. Finance Act, 1989 14.5 With a view to clarify the correct legislative intention in this regard, an amendment has been made in section 32AB, so as to provide that where any amount is released by the Development Bank even after a period of five year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts revolves around the use of the words "any sum payable". The interpretation given to these words is that the amount payable in a particular year should also be statutorily payable under the relevant statute in the same year. Thus, the sales tax in respect of sales made in the last quarter was held to be totally outside the purview of section 43B since the same is not statutorily payable in the financial year to which it relates. This is against the legislative intent and, therefore, by way of inserting an Explanation it has been clarified that the words"any sum payable", shall mean any sum, liability for which has been incurred by the taxpayer during the previous year irrespective of the date by which such sum is statutorily payable. Finance Act, 1989 15.3 This amendment will take effect retrospectively from 1st April, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years. Finance Act, 1989 15.4 Unlike other payments referred to in section 43B of the Income-tax Act, the deduction regarding employer's contribution, if denied in a year, is not available as a deduction in any subsequent year also. On account of various reasons like pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a turnkey power project shall be deemed at 10 per cent of the amount paid or payable to such assessee or to any person on his behalf, whether in or out of India. For this purpose, the turnkey power project should be approved by the Central Government and should be financed under any international aid programme. It is also clarified that erection of plant or machinery or testing or commissioning thereof will include laying of transmission lines and systems. Finance Act, 1989 16.3 This amendment will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91. [Section 10 of the Finance Act, 1989] Finance Act, 1989 Incentives for venture capital undertakings 17.1 The Finance Minister, in his Budget Speech for 1988-89 had referred to the difficulties faced by new entrepreneurs in raising equity capital and declared that "it has been decided to formulate a scheme under which Venture Capital Companies/Funds will be enabled to invest in new companies and be eligible for the concessional treatment of capital gains available to non-corporate entities". Finance Act, 1989 17.2 The Department of Economic Affairs has since is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent of Rs. 10,000 under the overall ceiling of Rs. 40,000. (iii) by amending section 54E of the Income-tax Act to provide that the taxpayers will now get tax exemption/concession on capital gains, if the net consideration is invested in the bonds and debentures issued by the National Housing Bank; (iv) by amending section 5 of the Wealth-tax Act to provide that the investment made in the National Housing Bank will be exempt from wealth-tax subject to the overall ceiling of Rs. 5 lakhs. Finance Act, 1989 18.2 The amendments will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. [Sections 12, 14 and 27 of the Finance Act, 1989] Finance Act, 1989 Providing standard deduction in respect of family pension 19.1 Under the existing provisions of the Income-tax Act, there was no provision for allowing standard deduction on family pension received by the widows and heirs of deceased employees. Finance Act, 1989 19.2 As a welfare measure and to remove their hardship, by an amendment of section 57 of the Income-tax Act it has been provided that in a case where a person is in receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that persons engaged in poultry farming have been facing hardship because of various adverse circumstances. Therefore, as a measure of fiscal support to persons engaged in poultry farming, a deduction at the rate of thirty-three and one-third per cent of the income from poultry farming is being provided by insertion of the new section 80JJ in the Income-tax Act. The deduction under this section would be available also to persons engaged in poultry breeding. Finance Act, 1989 21.2 This amendment will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. [Sections 16 and 25 of the Finance Act, 1989] Finance Act, 1989 Extending the tax concession available to totally blind or physically handicapped resident persons 22.1 Under section 80U of the Income-tax Act, totally blind or permanently handicapped persons are entitled to a deduction of Rs. 15,000 from their gross income. The deduction is allowed only if the permanent physical disability is such as to have the effect of reducing substantially the capacity of a person to engage in gainful employment or occupation. However, under the exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business will be taxed at the rate of ten per cent of its actuarial surplus for another year, i.e., assessment year 1990-91, if it deposits two and one-half per cent of its profits and gains and thirty-three and one-third per cent of the income-tax so payable during the relevant previous year, in the Social Security Fund set up and notified by the Government of India. Finance Act, 1989 23.2 This amendment will take effect from 1st April, 1990 and will be applicable only for one year, i.e., for the assessment year 1990-91. [Section 18 of the Finance Act, 1989] Finance Act, 1989 Amendment of the provisions relating to levy of minimum tax on 'book profits' of certain companies 24.1 Under the existing provisions, where the total income of a company is less than 30 per cent of its book profits, the income chargeable to tax is deemed to be 30% of such book profits (section 115J). For the purposes of the aforesaid provision, "book profits" means the net profit as shown in the profit and loss account in the relevant previous year prepared in accordance with the provisions of Parts II & III of the Sixth Schedule to the Companies Act,1956, subject to certain adjustments which increas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave gone to increase the book profits in any year when the provisions of section 115J of the Income-tax Act were applicable. Finance Act, 1989 24.5 This amendment will come into force with effect from 1st April, 1988 and will, accordingly, apply in relation to assessment year 1988-89 and subsequent years. [Section 19 of the Finance Act, 1989] Finance Act, 1989 Modification of provisions relating to time limit for completion of assessment and reassessment 25.1 Under the existing provisions of section 153 of the Income-tax Act, no order of assessment can be made at any time after the expiry of two years from the end of the assessment year in which income is first assessable. Under sub-section (4) of section 139 of the Income-tax Act, a return of income for the assessment year commencing on the first day of April, 1988 or any earlier assessment year can be filed up to two years from the end of the relevant assessment year. Similarly, under sub-section (5) of section 139, a return of income for an assessment year commencing on the 1st day of April, 1988 or any earlier assessment year can be revised at any time before the assessment is completed or up to two years from the end of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advance to employees of Government or public sector undertakings. Finance Act, 1989 26.2 With a view to reduce infructuous work in the Income-tax Department, sub-section (2A) of section 192 has been amended so as to give similar powers to other employers being a company, co-operative society, local authority, institution, association or body. Finance Act, 1989 26.3 Under the existing provisions of section 193 of the Income-tax Act, tax has to be deducted at source by the person responsible for making any payment in the nature of interest on securities at the time of payment. The liability to deduct tax at source was being postponed by making a provision for such payment. In order to prevent the postponement of liability to deduct tax and payment to the credit of the Central Government, the Finance Act has provided that tax will be deducted at source either at the time of credit to the account of the payee or at the time of payment thereof, whichever is earlier. For this purpose, credit to any suspense account or any other account, by whatever name called, shall be deemed to be a credit of such income to the account of the payee. Finance Act, 1989 26.4 Further, clause (v) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ways been in existence. Some appellate authorities have, however, decided that the Explanation will apply only prospectively, i.e., only to those orders which are passed by the Commissioner after 1-6-1988. Such an interpretation is against the legislative intent and section 263 of the Income-tax Act has been amended so as to clarify that the provisions of the Explanation shall be deemed to have always been in existence. Finance Act, 1989 27.2 Sections 24 and 25 of the Gift-tax and Wealth-tax Acts have also been amended on the above lines. [Sections 23, 30 and 32 of the Finance Act, 1989] Finance Act, 1989 Modification of the provisions relating to submission of statements by producers of cinematograph films 28.1 Under the existing provisions of section 285B of the Income-tax Act, a producer of cinematograph films has to file a statement with the Assessing Officer, giving particulars of all payments of over five thousand in the aggregate made by him to each such person as is engaged by him as employee or otherwise. The prescribed statement has to be furnished within thirty days from the end of the financial year or within thirty days from the date of completion of the producti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Wealth-tax Act, 1957 and the Gift-tax Act, 1958 stand extended to the State of Sikkim pursuant to the Central Government's notification No. SO 148(E), dated 23rd February, 1989. The Wealth-tax Act will, therefore, apply to the net wealth of the residents of Sikkim on the valuation date being 31st March, 1990 or thereafter. The Gift-tax Act, 1958 also will have effect from 1st April, 1990 so as to apply in respect of gifts made by a person residing in the State of Sikkim on or after the first day of April, 1989. Finance Act, 1989 29.3 A new clause has been inserted in section 10 of the Income-tax Act whereby winnings from lotteries in the hands of residents of Sikkim has been exempted in respect of payments received by them pursuant to agreements entered into up to 28th day of February, 1989 between the State Government of Sikkim and the organising agents of lotteries. Finance Act, 1989 Exemption from wealth-tax of the right or interest in any annuity plan of the Life Insurance Corporation of India referred to in section 80CCA of the Income-tax Act, 1961 30.1 Under the existing provisions of section 80CCA of the Income-tax Act, any deposit made under the National Savings Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 4 of the Expenditure Tax Act, 1987, tax is chargeable at the rate of ten per cent of any chargeable expenditure incurred in a hotel to which the Act applies. By amendment, the rate of tax has been enhanced from ten per cent to twenty per cent. Finance Act, 1989 32.2 This amendment will take effect from 1st June, 1989. [Section 33 of the Finance Act, 1989] Finance Act, 1989 ANNEXURE A-1 NOTIFICATION The Government of India hereby notifies following Deposit Scheme with effect from 1st July, 1989 until further orders: Short title 2. This Scheme may be called Deposit Scheme for Retiring Government Employees, 1989. Definition 3. In this Scheme, unless the context otherwise requires: (a) 'Account' means an account opened under this Scheme. (b) 'Accounts Office' means any branch of State Bank of India or its subsidiaries or any other nationalised banks, as may be authorised to accept deposits under the Scheme. (c) 'Depositor' means a retired Central or State Govt. employee by whom or on whose behalf money is deposited in an account and deposit means money so deposited. (d) 'Retirement benefits' means any payment due to the depositor on account of his retirem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee years from the date of deposits. Where depositor elects to make part withdrawal, the balance amount will be held as a deposit in the account. (d) The depositor may also make premature withdrawal of principal amount subject to the conditions specified in paragraph 7. (e) There shall not, be more than one withdrawal in respect of a deposit in a calendar year. Interest on deposits 6. (a) All deposits made in accordance with this scheme shall carry interest at the rate of 9% per annum from the date of the respective deposits. The interest will be paid from the date of deposit to 30th June/31st December, as the case may be, and thereafter, interest will be paid half-yearly on the 30th June and 31st December. The interest in fraction of a rupee will be rounded off to the next higher rupee. (b) Where on expiry of three years, the account is continued, the balance amount in the account will earn interest at the same rate till the account is closed. (c) If so authorised, interest payable every six months may be deposited by accounts office in a separate savings account opened by depositor at that accounts office. (d) Interest due on the deposits but not drawn on due date will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to change of his residence. Issue of duplicate pass book 12. In the event of loss or destruction of a pass book issued by an accounts office, the office may on an application made to it in this behalf, and on payment of rupee one by the depositor, issue a duplicate thereof to him. Power to relax 13. Where the Central Government is satisfied that the operation of any of the provisions of this Scheme causes undue hardship to a subscriber, it may, by order, for reasons to be recorded in writing relax the requirements of that provision. FINANCE ACT, 1989 FORM 1 [See para 4] Serial No........... Name and address of Bank Form of application for opening an account under Deposit Scheme for Retiring Government Employees, 1989 Name & Agency No. of Agent introducing the account.........……………………………………………………………...…….............. ................................................................................................................ Signature of Agent..................................... To The Manager, Bank of................................... Sir, I hereby apply for opening an account under the Deposit Scheme for Retiring Government Employees, 1989, in my name and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ............................................................................................................ Name............................................................ ......................................................................... Address.................................................................................................................................. Date of Issue........................................................................................................................ Particulars regarding nomination: Sl. Name of the nominee Permanent address Date of birth No. of nominee in case of minor (Signature of issuing authority) Manager (Name of the bank) Form of pages inside the book : Date Particulars Amount Amount Amount Interest Balance Signature deposited with draw paid _______________________________________________________________________ 1 2 3 4 5 6 7 8 _______________________________________________________________________ FINANCE ACT, 1989 FORM 3 [See para 5(c)] Name and address of Bank Application for withdrawal under the Deposit Scheme for Retiring Government Employees, 1989 The Manager, Bank of....... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r(s), I appoint Shri/Smt./Kumari..................................................... address...............................................................................................................................................…………………to receive the sum due under the said account in the event of my death during the minority of the nominee(s). Signature of witness: Name and address: Signature/Thumb Impression of Depositor Date: *Delete if not applicable. FOR THE USE OF ACCOUNTS OFFICE The above nomination has been registered on.........................and an entry made in the pass book. Date............ Signature of Authorised Officer FINANCE ACT, 1989 FORM 5 [See para 8] Cancellation or variation of nomination previously made in respect of Account No....................... under Deposit Scheme for Retiring Government Employees, 1989. To The Manager, Bank of....................... ........................................ I, ..........................the depositor under Deposit Scheme for Retiring Government Employees, 1989 Account No............................ hereby cancel the nomination dated............................... made by me in respect of the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of pension. (iv) Cash equivalent of leave, and (v) Savings element of Government Insurance Scheme payable to employee on retirement. Any employee desiring to open an account under this Scheme will be required to produce a certificate from employer indicating the retirement benefits. 4. No withdrawals will be permitted for a period of three years from the date of deposit although premature withdrawal may be made at any time after one year from the deposit subject to the special provisions made in the Scheme regarding such premature withdrawals. After expiry of three years from the date of deposit, depositor will have an option to either withdraw the entire balance amount thereof or part thereof and if depositor makes a part withdrawal, the balance amount will be held as a deposit in the account. 5. All deposits made under the Scheme shall carry interest at the rate of 9% per annum and the interest will be paid every six months on 30th June and 31st December. The interest due on the deposits if not drawn on the due date will continue to earn interest at the same rate. 6. Nomination facility will be available. 7. The account under the Scheme may be opened by depositor either i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Government of India, Ministry of Finance (Department of Economic Affairs) Notification No. F. 2/14/89-NS.II, dated 7th June, 1989: 1. In para 4, in sub-paragraph (a), after the words "within three months from the date of receiving the retirement benefits", the words and figures "or up to 31st December, 1989, whichever is later", shall be added; (b) for the words "three months" in the first proviso, the words "six months" shall be substituted. 2. These amendments shall take effect from 1-10-1989. Note: The Deposit Scheme was notified vide Notification No. F.2/14/89-NS.II, dated 7-6-1989 and amended vide Notification No. F.2/14/89-NS.II, dated 10th August, 1989. FINANCE ACT, 1989 ANNEXURE A5 To The Secretary, Small Savings, Finance Department, Government of Gujarat, Sachivalaya Complex, Sardar Bhavan, Block-4, Gandhinagar-382010. Subject: Deposit Scheme for Retiring Government Employees, 1989 - Tax liability of nominee - Clarification regarding Sir, I am directed to refer to your Letter No. NBY-RGS-1589-GOI-46/B/90 dated 15th July, 1989 on the subject cited and to state that it has been clarified by CBDT that no tax liability under the Income-tax Act and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anagers and administrators and persons with adequate experience of industry, finance, accounts, etc. If established by subsidiaries of banks/institutions, or in-house schemes, they should maintain their independence and an arm's length relationship. They would, however, be free to draw upon the professional expertise and infrastructure of the parent organisation in the interests of their shareholders and clients, and minimising costs. (ii) No person would be permitted to be the full time Chairman/President, Chief Executive, M.D. or Executive Director or a wholetime Director of a VCC/VCF if he holds any of the above positions in any other company, except that he may hold such a position in an assisted company by virtue of his position in the VCC/VCF. Venture Capital Assistance 3. (i) It is intended that Venture Capital Assistance should go mainly to enterprises where the risk element is comparatively high due to the technology involved being relatively new, untried or very closely held, and/or the entrepreneurs being relatively new and not affluent though otherwise qualified; and the size being modest. For successful units, the possibility of high returns would exist, but the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ze of a VCC/VCF would be Rs. 10 crores. If it desires to raise funds from the public, the promoters' share shall not be less than 40%. Capital issues 5. (i) Funds may be raised through public issues and/or private placements to finance VCF/VCCs. (ii) Foreign equity up to 25% multilateral/international financial organisations, development finance institutes, reputed mutual funds, etc., would be permitted, provided these are management-neutral and are for medium to long-term investments. (iii) NRI investment would be permitted up to 74% on a non-repatriable basis and up to 25%/40% on a repartriable basis. (iv) An application should be addressed to Ministry of Finance, Investment Division, North Block, New Delhi, with a copy to Chairman, Securities Exchange Board of India for foreign/NRI participation in capital issues. Debt-equity ratio 6. Debt-equity ratio may be maximum 1 : 1.5. Underwriting/listing 7. (i) The VCC/VCF may be listed according to the prescribed norms. Its issue may be underwritten at the discretion of the promoters. (ii) For assisted units also, listing guidelines would apply. Investment by widely held VCF would be treated as public participation for this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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