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Ease of doing Business/dispute resolution- DIRECT TAXES

G - Bills - Memorandum Explaining the Provisions in The Finance Bill, 2016 - FINANCE BILL, 2016 - G - G. Ease of doing Business/dispute resolution Exemption from Dividend Distribution Tax (DDT) on distribution made by an SPV to Business Trust. In respect of taxation of business trusts comprising of Real Estate Investment Trust (REITs) and Infrastructure Investment Trust (Invits) regulated by SEBI a specific taxation regime has been incorporated in the Act. Under this regime, the multiple taxatio .....

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to the REIT being a shareholder, it suffers DDT which is paid by the SPV and thereafter the income is exempt both in the hands of REIT and also its investors. In case of Invits, there is a similar regime with only exception being that there is no pass through for Invits holding income generating assets directly as normally such large infrastructure projects are not held directly in the trust but are held through an SPV. As an incentive in the case of sponsor (the person setting up trust), capita .....

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rs, it is proposed to provide a special dispensation and exemption from levy of dividend distribution tax. The salient features of the proposed dispensation are: - (a) exemption from levy of DDT in respect of distributions made by SPV to the business trust; (b) such dividend received by the business trust and its investor shall not be taxable in the hands of trust or investors; (c) the exemption from levy of DDT would only be in the cases where the business trust either holds 100% of the share c .....

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vestment fund, the fund management activity carried out through an eligible fund manager acting on behalf of such fund shall not constitute business connection in India of the said fund. Further, an eligible investment fund shall not be said to be resident in India merely because the eligible fund manager undertaking fund management activities on its behalf is located in India. The benefit under section 9A is available subject to the conditions provided in sub-sections (3), (4) and (5) of this s .....

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ed stating that there are many instances where a fund may not qualify as a tax resident of a country on account of domestic tax laws or legal framework of the country. The global structure of these funds had been based on applicable legal and regulatory framework of their country of incorporation and cannot be modified in respect of any investment made in a particular country. Examples of large pension funds or mutual funds from USA or SICAVs (open ended collective investment schemes) from Luxem .....

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ng and managing any business in India or from India shall be restricted only in the context of activities in India. The amendments will take effect from 1st April, 2017 and shall apply to the assessment year 2017-18 and subsequent assessment years. [Clause 6] Enabling provision for implementation of various provisions of the Act in case of a foreign company held to be resident in India. The provisions of section 6 of the Act provide for conditions in which residence in India is determined in cas .....

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and has not earlier been assessed to tax in India, have arisen. In particular, the issues relate to applicability of specific provisions of the Act relating to Advance tax payment, applicability of TDS provisions, computation of total income, set off of losses and manner of application of transfer pricing regime. These provisions have compliance requirements which would not have been undertaken by the company at relevant time due to absence of any such requirement under tax laws of country of i .....

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rmination of residence based on POEM shall be applicable from 01/04/17. (b) provide a transition mechanism for a company which is incorporated outside India and has not earlier been assessed to tax in India. The Central Government is proposed to be empowered to notify exception, modification and adaptation subject to which, the provisions of the Act relating to computation of income, treatment of unabsorbed depreciation, setoff or carry forward and setoff of losses, special provision relating to .....

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y from assessment year 2017-18 and subsequent assessment years. [Clause 4, 54 & 235] Introduction of Presumptive taxation scheme for persons having income from profession The existing scheme of taxation provides for a simplified presumptive taxation scheme for certain eligible persons engaged in certain eligible business only and not for persons earning professional income. In order to rationalize the presumptive taxation scheme and to reduce the compliance burden of the small tax payers hav .....

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be deemed to have been allowed the deductions under section 30 to 38. Accordingly, the written down value of any asset used for the purpose of the profession of the assessee will be deemed to have been calculated as if the assessee had claimed and had actually been allowed the deduction in respect of depreciation for the relevant assessment years. It is also proposed that the assessee will not be required to maintain books of account under sub-section (1) of section 44AA and get the accounts au .....

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rupees in the case of persons carrying on profession. These amendments will take effect from 1st April, 2017 and will, accordingly, apply to the assessment year 2017-18 and subsequent assessment years. [Clause 25] Increase in threshold limit for presumptive taxation scheme for persons having income from business. The existing provisions of section 44AD provide for a presumptive taxation scheme for an eligible business. Where in case of an eligible assessee engaged in eligible business having tot .....

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specified in the definition of "eligible business" to two crore rupees. It is also proposed that the expenditure in the nature of salary, remuneration, interest etc. paid to the partner as per clause (b) of section 40 shall not be deductible while computing the income under section 44AD as the said section 40 does not mandate for allowance of any expenditure but puts restriction on deduction of amounts , otherwise allowable under section 30 to 38. It is also proposed that where an eli .....

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ince he has not offered income in accordance with the provisions of section 44AD for five consecutive assessment years, after Assessment Year 2017-18, he will not be eligible to claim the benefit of section 44AD for next five assessment years i.e. from Assessment Year 2021-22 to 2025-26. Further as the turnover limit of presumptive taxation scheme has been enhanced to rupees two crore, it is proposed to provide that eligible assessee shall be require to pay advance tax. However, in order to keep .....

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sectors of society, it is proposed to amend the provision of clause (viia) of sub-section (1) of section 36 so as to provide deduction from total income (computed before making any deduction under this clause and Chapter-VIA) on account of provision for bad and doubtful debts to the extent of five per cent of the total income in the case of NBFCs. This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment .....

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It is further proposed to provide that where the installation of the new asset is in a year other than the year of acquisition, the deduction under this sub-section shall be allowed in the year in which the new asset is installed. These amendments will take effect retrospectively from 1stApril, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and 2017-18. [Clause 14] Exemption from requirement of furnishing PAN under section 206AA to certain non-resident. The existin .....

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6. [Clause 85] Applicability of Minimum Alternate Tax (MAT) on foreign companies for the period prior to 01.04.2015. Under the existing provisions contained in sub-section (1) of the 115JB in case of a company, if the tax payable on the total income as computed under the Income-tax Act, is less than eighteen 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 by the assessee for the relevant previous year shall be .....

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ormally do not have a place of business in India. In view of the recommendations of the committee and with a view to provide certainty in taxation of foreign companies, it is proposed to amend the Income-tax Act so as to provide that with effect from 01.04.2001, the provisions of section 115JB shall not be applicable to a foreign company if - (i) the assessee is a resident of a country or a specified territory with which India has an agreement referred to in sub-section (1) of section 90 or the .....

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Financial Services Centres into a world class financial services hub, it is proposed to amend the section 10 so as to provide for exemption from tax on capital gains to the income arising from transaction undertaken in foreign currency on a recognised stock exchange located in an International Financial Services Centre even when securities transaction tax is not paid in respect of such transactions. Under the existing provisions of the 115JB in case of a company, if the tax payable on the total .....

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any assessment year on any amount declared, distributed or paid by such company, by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2017 out of its current income, either in the hands of the company or the person receiving such dividend. These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years. The existing provisions relating to securities transaction tax and c .....

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transaction tax. The above two amendments will take effect from 1st June, 2016. [Clause 7, 53, 55, 230 & 234] The Income Declaration Scheme, 2016 An opportunity is proposed to be provided to persons who have not paid full taxes in the past to come forward and declare the undisclosed income and pay tax, surcharge and penalty totalling in all to forty-five per cent of such undisclosed income declared. The scheme is proposed to be brought into effect from 1st June 2016 and will remain open up t .....

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er Special Court Act, 1992, or cases covered under Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act, 1967, the Prevention of Corruption Act, 1988. It is proposed that payment of tax, surcharge and penalty may be made on or before a date to be notified by the Central Government in the Official Gazette and non-payment up to the date so notified shall render the declaration made under the scheme void. It is proposed to provide tha .....

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ax under the Income-tax Act in the previous year in which such declaration is made. In cases where any income has accrued, arisen or received or any asset has been acquired out of such income prior to commencement of this Scheme, and no declaration in respect of such income is made under the Scheme such income shall be deemed to have accrued, arisen or received, or the value of the asset acquired out of such income shall be deemed to have been acquired or made, in the year in which a notice unde .....

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een a major area of concern in direct taxes. In order to reduce the huge backlog of cases and to enable the Government to realise its dues expeditiously, it is proposed to bring the Direct Tax Dispute Resolution Scheme, 2016 in relation to tax arrear and specified tax. The salient features of the proposed scheme are as under: The scheme be applicable to "tax arrear" which is defined asthe amount of tax, interest or penalty determined under the Income-tax Act or the Wealth-tax Act, 1957 .....

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ed in consequence of or is validated by an amendment made with retrospective effect in the Income-tax Act or Wealth-tax Act, as the case may be, for a period prior to the date of enactment of such amendment and a dispute in respect of which is pending as on 29.02.2016 (referred to as specified tax). For availing the benefit of the Scheme, such declarant shall be required to withdraw any writ petition or any appeal filed against such specified tax before the Commissioner (Appeals) or the Tribunal .....

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uthority or Arbitrator or Conciliator or Mediator shall proceed to decide an issue relating to the specified tax in the declaration in respect of which an order is made by the designated authority or in respect of the payment of the sum determined to be payable. It is proposed that where the declarant violates any of the conditions referred to in the scheme or any material particular furnished in the declaration is found to be false at any stage, it shall be presumed as if the declaration was ne .....

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initiated before 29.02.2016. (ii) Search or survey cases where the declaration is in respect of tax arrears. (iii) Cases relating to undisclosed foreign income and assets. (iv) Cases based on information received under Double Taxation Avoidance Agreement under section 90 or 90A of the Income-tax Act where the declaration is in respect of tax arrears. (iv) Person notified under Special Courts Act, 1992. (v) Cases covered under Narcotic Drugs and Psychotropic Substances Act, Indian Penal Code, Pr .....

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e declaration. Nothing contained in this Scheme shall be construed as conferring any benefit, concession or immunity on the declarant in any proceedings other than those in relation to which the declaration has been made. It is proposed that the Central Government may be given the power to issue such orders, instructions and directions for the proper administration of this Scheme to persons employed in the execution of this Scheme shall observe and follow such orders, instructions and directions .....

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nth for the period during which the default continues. Sub-section (2A) of said section inter-alia, empowers the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner to reduce or waive the amount of interest paid or payable under sub-section (2) of the said section. Sub-section (4) of section 273A, inter alia, provides that the Principal Commissioner or the Commissioner may, on an application made by an assessee, reduce or waive the amount of any penalty payab .....

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or rejecting application of an assessee shall be passed by the concerned Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner within a period of twelve months from the end of the month in which such application is received. It is further proposed to amend section 273A and section 273AA to provide that an order accepting or rejecting the application of an assessee shall be passed by the Principal Commissioner or Commissioner within a period of twelve months fro .....

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be signed by that authority in manuscript. It is proposed to amend sub-section (1) of section 282A so as to provide that notices and documents required to be issued by income-tax authority under the Act shall be issued by such authority either in paper form or in electronic form in accordance with such procedure as may be prescribed. Sub-section (2) of section 143 provides that, if the Assessing Officer considers it necessary and expedient to ensure that the assessee has not understated the inco .....

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