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TMI BlogIncome-tax Explanatory Notes to the provisions of the Finance Act, 2010X X X X Extracts X X X X X X X X Extracts X X X X ..... ivate company or an unlisted public company into a limited liability partnership (LLP), 12.1-12.9 56 Taxation of certain transactions without consideration or for inadequate consideration, 13.1-13.7 80C Deduction in respect of long-term infrastructure bonds, 14.1-14.2 80D Deduction in respect of contribution to the Central Government Health Scheme (CGHS), 15.1-15.4 80-IB(10) Deduction for developing and building housing projects, 16.1-16.5 80-ID Deduction of profits of a hotel or a convention centre in the National Capital Territory (NCT), 17.1-17.3 115JB Minimum Alternate Tax under Section 115JB, 18.1-18.3 143 Centralised Processing of Returns, 19.1-19.4 194B, 194BB, 194C, 194D, 194H, 194-I, 194J Rationalisation of provisions relating to Tax Deduction at Source (TDS), 20.1-20.3 203, 206C Certificate of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS), 21.1-21.3 245A, 245C, 245D Settlement Commission, 22.1-22.5 256, 260A Power of the High Court to condone delay in filing of appeals, 23.1-23.7 282B Document Identification Number, 24.1-24.2 First Schedule Taxation of income of non-life insurance business, 25.1-25.5 1. Introduction 1.1 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ridical person Individual woman, resident in India and below the age of sixty-five years Individual senior citizen, resident in India, who is of the age of sixty- five years or more Up to Rs. 1,60,000 Nil Nil Nil Rs. 1,60,001 - Rs. 1,90,000 10% Nil Nil Rs. 1,90,001 - Rs. 2,40,000 10% 10% Nil Rs. 2,40,001 - Rs. 3,00,000 10% 10% 10% Rs. 3,00,000 - Rs.5,00,000 20% 20% 20% Rs.5,00,000 and above 30% 30% 30% In the case of every individual, Hindu undivided family, association of persons or body of individuals, no surcharge shall be levied. An additional surcharge called the Education Cess on income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed, in all cases. For instance, if the income-tax computed is Rs. 1,00,000, then the education cess of two per cent is to be computed on Rs. 1,00,000 which works out to Rs. 2,000. In addition, the amount of tax computed shall also be increased by an additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of one per cent of such income-tax. No marginal relief shall be available in respect of Education Cess. 3.1-3 CO-OPERATIVE SOCIETIES - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Indian concern under an approved agreement made after 29-2-1964, but before 1-4-1976, shall be taxed at fifty per cent. On the balance of the total income of such company, the tax rate shall be forty per cent. The tax computed shall be enhanced by a surcharge of two and one-half per cent only in the cases where such company has total income exceeding one crore rupees. However, marginal relief shall be allowed in the case of every company to ensure that the additional amount of income-tax payable, including surcharge, on the excess of income over one crore rupees is limited to the amount by which the income is more than one crore rupees. Also, in the case of every company having total income chargeable to tax under section 115JB of the Income-tax Act and where such income exceeds one crore rupees, marginal relief shall be provided. Education Cess on income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed, inclusive of surcharge in the case of every company. Also, such amount of tax and surcharge shall be further increased by an additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of one per cent of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case will amount to Rs. 3,300 (i.e., Rs. 2,200 + Rs. 1,100). 3.3 Rates for computation of advance tax, deduction of income-tax at source from Salaries and charging of income-tax in certain cases during the financial year 2010-11. 3.3-1 The rates for deducting income-tax at source from Salaries and computing advance tax during the financial year 2010-11 have been specified in Part III of the First Schedule to the Act. These rates are also applicable for charging income-tax during the financial year 2010-11 on current incomes in cases where accelerated assessments have to be made, e.g., provisional assessment of shipping profits arising in India to non-residents, assessment of persons leaving India for good during that financial year, assessment of persons who are likely to transfer property to avoid tax, assessment of bodies formed for short duration, etc. The rates are as follows:- 3.3-2 INDIVIDUAL, HINDU UNDIVIDED FAMILY, ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS OR ARTIFICIAL JURIDICAL PERSON - Paragraph A of Part III of the First Schedule specifies the rates of income-tax in the case of every individual. Hindu undivided family, association of persons, body of individuals o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax of thirty per cent has been specified in Paragraph C of Part III of the First Schedule to the Act. No Surcharge shall be levied. The Education Cess on Income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed. In addition, such amount of tax shall be further increased by an additional cess called Secondary and Higher Education Cess on income-tax computed at the rate of one per cent on the amount of tax, in all cases. No marginal relief shall be available in respect of Education Cess. 3.3-5 LOCAL AUTHORITIES - In the case of every local authority, the rate of income-tax has been specified at thirty per cent in Paragraph D of Part III of the First Schedule to the Act. No surcharge shall be levied. However, Education Cess on Income-tax and Secondary and Higher Education Cess on income-tax shall be levied at the rate of two per cent and one per cent respectively of the amount of tax computed. No marginal relief shall be available in respect of Education Cess. 3.3-6 COMPANIES - In the case of a company, the rate of income-tax has been specified in Paragraph E of Part III of the First Schedule to the Act. In case of a domestic company, the rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utility" shall continue to be a "charitable purpose" if the total receipts from any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business do not exceed Rs.10 lakhs in the previous year. 4.4 Applicability - This amendment has been made effective retrospectively from 1st April, 2009 and will, accordingly, apply in relation to the assessment year 2009-10 and subsequent years. 5. Income deemed to accrue or arise in India to a non-resident 5.1 Section 9 provides for situations where income is deemed to accrue or arise in India. Vide Finance Act, 1976, a source rule was provided in section 9 through insertion of clauses (v), (vi) and (vii) in sub-section (1) for income by way of interest, royalty or fees for technical services respectively. It was provided, inter alia, that in case of payments as mentioned under these clauses, income would be deemed to accrue or arise in India to the non-resident under the circumstances specified therein. The intention of introducing the source rule was to bring to tax interest, royalty and fees for technical services, by creating a legal fiction in section 9, eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... state that the income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) of section 9 and shall be included in his total income, whether or not, (a) the non-resident has a residence or place of business or business connection in India; or (b) the non-resident has rendered services in India. 5.4 Applicability - This amendment has been made effective retrospectively from 1st June, 1976 and will, accordingly, apply in relation to the assessment year 1977-78 and subsequent years. 6. Computation of exempted profits in the case of units in Special Economic Zones (SEZs) 6.1 Section 10AA was inserted in the Income-tax Act by the Special Economic Zone Act, 2005 with effect from 10.2.2006. Through the Finance (No.2) Act, 2009, section 10AA(7) of the Income-tax Act, 1961 was amended and the words "by the undertaking" were substituted for "by the assessee" with effect from assessment year 2010-11 and subsequent assessment years. This was done as the existing formula was perceived to be discriminatory in so far as those assessees are concerned who have multiple units in both the SEZ and the domestic tariff area (DT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a university or an Indian Institute of Technology (IIT) or a specified person for the purpose of an approved scientific research programme. 8.2 In order to encourage more contributions to such approved entities for the purposes of scientific research, the Act has been amended to increase this weighted deduction from 125 per cent to 175 per cent. 8.3 Section 35(1)(iii) provide for a weighted deduction from business income to the extent of 125 per cent of any sum paid to an approved and notified university, college or other institution to be used to carry on research in social science or statistical research. Section 80GGA allows deductions for donations made to such association, universities, etc. 8.4 Under the existing section 10(21), exemption was granted in respect of the income of a scientific research association which was approved and notified under section 35(1)(ii). The university, college or other institutions which are approved either under section 35(1)(ii) or under section 35(1)(iii) also qualify for exemption of their income under section 10(23C) of the Act subject to specified conditions. 8.5 The associations which are engaged in undertaking research in social ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew hotel of two-star or above category as classified by the Central Government and commencing operations on or after the 1st day of April, 2010; (i) (ii) building and operating, anywhere in India, a new hospital with at least one hundred beds for patients and commences operation on or after the 1st April, 2010; (iii) developing and building a housing project under a scheme for slum re-development or rehabilitation framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed and commences operation on or after the 1st day of April, 2010. 9.2.1 Sub-section (3) of section 35AD has been substituted so as to provide that where a deduction under this section is claimed and allowed in respect of the specified business for any assessment year, no deduction shall be allowed under the provisions of Chapter VI-A under the heading "C.-Deductions in respect of certain incomes" in relation to such specified business for the same or any other assessment year. A similar amendment has been made in section 80A. 9.2.2 Applicability - These amendments have been made applicable with effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in business exceed forty lakh rupees in the previous year. Similarly, a person carrying on a profession is required to get his accounts audited if the gross receipts in profession exceed ten lakh rupees in the previous year. 11.2 In order to reduce the compliance burden of small businesses and professionals, the Act has been amended to increase the threshold limit from forty lakh rupees to sixty lakh rupees in the case of persons carrying on business and from ten lakh rupees to fifteen lakh rupees in the case of persons carrying on profession. 11.3 In view of the above, the Act has also been amended to increase the maximum penalty, leviable under section 271B for failure to get accounts audited under section 44AB or to furnish a report of such audit, from one lakh rupees to one lakh fifty thousand rupees. 11.4. For the purpose of presumptive taxation under section 44AD, the Act has been amended to increase the threshold limit of total turnover or gross receipts from forty lakh rupees to sixty lakh rupees. 11.5 Applicability - These amendments take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years. 12. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conditions stipulated above are not complied with, the benefit availed by the company or by the shareholders, shall be deemed to be the profits and gains of the successor LLP or the shareholder of the predecessor company, as the case may be, chargeable to tax for the previous year in which the requirements are not complied with. 12.5 The Act has been amended to provide that the aggregate depreciation allowable to the Predecessor Company and successor LLP shall not exceed, in any previous year, the depreciation calculated at the prescribed rates as if the conversion had not taken place. 12.6 The Act has been amended to provide that the actual cost of the block of assets in the case of the successor LLP shall be the written down value of the block of assets as in the case of the predecessor company on the date of conversion. 12.7 It is also provided that the cost of acquisition of the capital asset for the successor LLP shall be deemed to be the cost for which the predecessor company acquired it. 12.8 The Act has been further amended to provide that the cost of acquisition of a capital asset being rights of a partner in successor LLP, shall be deemed to be the cost of acquis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, apply in relation to the assessment year 2011-12 and subsequent years. 13.4 The provisions of section 56(2) (vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income. The provisions were intended to extend the tax net to such transactions in kind. The intent is not to tax the transactions entered into in the normal course of business or trade, the profits of which are taxable under specific head of income. Therefore, the definition of property has been amended to provide that section 56(2)(vii) will have application to the 'property' which is in the nature of a capital asset of the recipient and therefore would not apply to stock-in-trade, raw material and consumable stores of any business of such recipient. 13.5 In several cases of immovable property transactions, there is a time gap between the booking of a property and the receipt of such property on registration, which results in a taxable differential. Therefore clause (vii) of section 56(2) has been amended to provide that it would apply only if the immovable property is received without any consideration and to remove the stipulation regarding transactions involving cases of inadeq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction from the total income has now been allowed in respect of any contribution made to CGHS by including such contribution under the provisions of section 80D. The deduction will be limited to the current aggregate as mentioned in the section. 15.4 Applicability - This amendment has been made applicable with effect from 1st April, 2011 and will accordingly apply to the assessment year 2011-12 and subsequent assessment years. 16. Deduction for developing and building housing projects 16.1 Under the existing provisions of section 80-IB(10), 100 per cent deduction is available in respect of profits derived by an undertaking from developing and building housing projects approved by a local authority before 31.3.2008. This benefit is available subject to, inter alia, the following conditions: (a) the project has to be completed within 4 years from the end of the financial year in which the project is approved by the local authority. (b) the built-up area of the shops and other commercial establishments included in the housing project should not exceed 5 per cent of the total built-up area of the housing project or 2,000 sq.ft. whichever is less. 16.2 To allow for extraordinary c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction for five years, of profits derived by an undertaking from the business of a two-star, three-star or four-star category hotel or from the business of building, owning and operating a convention centre located in the National Capital Territory of Delhi and the districts of Faridabad, Gurgaon, Gautam Budh Nagar and Ghaziabad, provided such hotel has started functioning or such convention centre is constructed during the period 1.4.2007 to 31.3.2010. 17.2 To provide some more time for these facilities to be set up in the light of the Commonwealth Games in October, 2010, clauses (i) and (ii) of section 80-ID have been amended to extend the date by which the hotel has to start functioning or the convention centre has to be constructed, from the existing 31st March, 2010, to 31st July, 2010. 17.3 Applicability - This amendment has been made applicable with effect from 1st April, 2011 and will accordingly apply to the assessment year 2011-12 and subsequent assessment years. 18. Minimum Alternate Tax under Section 115JB 18.1 Under the existing provisions of section 115JB of the Income Tax Act, a company is required to pay a Minimum Alternate Tax (MAT) on its book profit, if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made if the payments do not exceed prescribed threshold limits. 20.2 In order to adjust for inflation and also to reduce the compliance burden of deductors and taxpayers, the Act has been amended to raise the threshold limit for payments mentioned in sections 194B, 194BB, 194C, 194D, 194H, 194-I and 194J as under: Sl. Section Nature of payment Existing threshold Amended threshold No. limit of payment limit of payment (Rupees) (Rupees) 1. 194B Winnings from lottery or crossword puzzle 5,000 10,000 2. 194BB Winnings from horse race 2,500 5,000 3. 194C Payment to contractors 20,000 30,000 (for a single (for a single transaction) transaction) 50,000 75,000 (for aggregate of (for aggregate of transactions during transactions during financial year) financial year) 4. 194D Insurance commission 5,000 20,000 5. 194H Commission or Brokerage 2,500 5,000 6. 194-I Rent 1,20,000 1,80,000 7. 194J Fees for professional or technical services 20,000 30,000 20.3 Applicability - These amendments take effect from 1st July, 2010. 21. Certificate of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) 21.1 The existing provisions of section 203(3) of the Income-tax Act d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en substituted so as to provide that an application can be filed before the Settlement Commission, in cases where proceedings for assessment or reassessment have been initiated as a result of search or as a result of requisition of books of account or other documents or any assets, if the additional amount of income-tax payable on the income disclosed in the application exceeds fifty lakh rupees. It is further proposed that, in other cases, an application can be made before the Settlement Commission, if the additional amount of income-tax payable on the income disclosed in the application exceeds ten lakh rupees. 22.3 Under the existing provisions of section 245D (4A) of the Income-tax Act, Settlement Commission shall pass an order within twelve months from the end of the month in which the application was made. Further, clause (ii) of sub-section (4A) has been amended so as to provide that the Settlement Commission, shall, in respect of an application filed on or after 1st June, 2007 but before 1st June, 2010, pass an order within the said period of twelve months. A new clause (iii) in sub-section (4A) has been inserted so as to provide that the Settlement Commission shall, in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t filing the same within such period. 23.6 Consequential amendments on similar lines have been made in section 27 of the Wealth-tax Act. 23.7 Applicability - These amendments take effect retrospectively from 1st June, 1981. 24. Document Identification Number 24.1 Section 282B (Allotment of Document Identification Number) is a new section inserted by the Finance (No. 2) Act, 2009 in the Income-tax Act with effect from 1st October, 2010. Under the provisions of this section, an income-tax authority is required to allot a computer generated Document Identification Number before issue of every notice, order, letter or any correspondence to any other income-tax authority or assessee or any other person and such number shall be quoted thereon. It also provides that every document, letter, correspondence received by an income-tax authority or on behalf of such authority, shall be accepted only after allotting and quoting of a computer generated Document Identification Number. In order to cover the entire gamut of services mentioned in section 282B on a pan-India basis, it would be essential to have the requisite infrastructure and facilities in place. Section 282B has been amended s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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