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TMI BlogExplanatory Notes to the Provisions of the Finance Act, 2016X X X X Extracts X X X X X X X X Extracts X X X X ..... established for specific purposes from the definition of Income, 44.1 - 44.3; Providing legal framework for automation of various processes and paperless assessment, 54.1 - 54.7. 6 Enabling provision for implementation of various provisions of the Act in case of a foreign company held to be resident in India, 4.1 - 4.8. 9 Exemption in respect of certain activity related to diamond trading in "Special Notified Zone", 6.1 - 6.5. 9A Modification in conditions of special taxation regime for off shore funds, 7.1 - 7.6. 10 Exemption of income of Foreign Company from storage and sale of crude oil stored as part of strategic reserves, 5.1 - 5.4; Exemption from Dividend Distribution Tax (DDT) on distribution made by an SPV to Business Trust, 8.1 - 8.4; Tax Treatment of Gold Monetization Scheme, 2015, 23.1 - 23.3; Tax Incentives to International Financial Services Centre, 27.1 - 27.9; Rationalisation of tax treatment of National Pension Scheme, Recognised Provident Funds and Superannuation Funds 31.1 - 31.4 10AA Phasing out of deductions and exemptions, 34.1 - 34.3 17 Rationalisation of tax treatment of National Pension Scheme, Recognised Provident Funds and Superannua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme, Recognised Provident Funds and Superannuation Funds, 31.1 - 31.4 80EE Incentives for Promoting Housing for All, 17.1 - 17.4 80GG Rationalization of limit of deduction allowable in respect of rents paid under section 80GG, 22.1 - 22.3 80-IA Phasing out of deductions and exemptions, 34.1 - 34.3 80-IAB Tax incentives for start-ups, 16.1 - 16.7; Phasing out of deductions and exemptions, 34.1 - 34.3 80-IAC Tax incentives for start-ups, 16.1 - 16.7 80-IB Phasing out of deductions and exemptions, 34.1 - 34.3 80-IBA Incentives for Promoting Housing for All, 17.1 - 17.4 80JJAA Tax incentive for employment generation, 18.1 - 18.5 87A Rationalization of limit of rebate in income-tax allowable under section 87A, 25.1 - 25.3 92CA Extension of time limit to Transfer Pricing Officer in certain cases, 64.1 - 64.3 92D BEPS action plan - Country-By-Country Report and Master file, 13.1 - 13.10 111A Tax Incentives to International Financial Services Centre, 27.1 - 27.8 112 Clarification regarding the definition of the term 'unlisted securities' for the purpose of section 112(1)(c), 28.1 - 28.3 115BA Rates for deduction of income-tax at source from "Salarie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 58.3 192A Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 - 49.2 194BB Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 - 49.2 194C Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 - 49.2 194D Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 - 49.2 194DA Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 - 49.2 194EE Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 - 49.2 194G Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 - 49.2 194H Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 - 49.2 194K Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 - 49.2 194L Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 - 49.2 194LA Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 - 49.2 194LBA Exemption from Dividend Distribution Tax (DDT) on distribution made by an SPV to Business Trust, 8.1 - 8.4 194LBB Rationalization of tax deduction at source provisions relating to payments by Category-I and Category-II Alternate Investment Funds to its investors, 12.1 - 12.6 194LBC New Taxation Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 273A, 273AA or 220(2A), 53.1 - 53.8 276C Rationalisation of penalty provisions, 62.1 - 62.14 279 Rationalisation of penalty provisions, 62.1 - 62.14 281B Provision for bank guarantee under section 281B, 63.1 - 63.8 282A Providing legal framework for automation of various processes and paperless assessment, 54.1 - 54.7 286 BEPS action plan - Country-By-Country Report and Master file, 13.1 - 13.10 288 Rationalisation of penalty provisions, 62.1 - 62.17.5 CHAPTER VIII Equalisation Levy, 32.1 - 32.8 CHAPTER X The Direct Tax Dispute Resolution Scheme, 2016, 68.1 - 68.10 1. Introduction 1.1 The Finance Act, 2016 (hereafter referred to as 'the Act') as passed by the Parliament, received the assent of the President on the 14th day of May, 2016 and has been enacted as Act No. 28 of 2016. This circular explains the substance of the provisions of the Act relating to direct taxes. 2. Changes made by the Act 2.1 The Act has- (i) specified the rates of income-tax for the assessment year 2017-18 and the rates of income-tax on the basis of which tax has to be deducted at source and advance tax has to be paid during financial year 2016-17; (ii) amended sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of persons, body of individuals and artificial juridical person. Individual, resident in India who is of the age of sixty years or more but less than eighty years. (senior citizen) Individual, resident in India who is of the age of eighty years or more (very senior citizen) Up to ₹ 2,50,000 Nil Nil Nil ₹ 2,50,001 - ₹ 3,00,000 10% ₹ 3,00,001 - ₹ 5,00,000 10% ₹ 5,00,001 - ₹ 10,00,000 20% 20% 20% Exceeding ₹ 10,00,000 30% 30% 30% The amount of income-tax so computed shall be increased by a surcharge at the rate of twelve per cent of such income-tax in case of a person having a total income exceeding one crore rupees. However, marginal relief shall be available so the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. The 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 addition, the amount of tax computed shall be further inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the amount of tax computed inclusive of surcharge. In addition, the amount of tax computed 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 such income-tax inclusive of surcharge. No marginal relief shall be available in respect of Education Cess and Secondary and Higher Education Cess. 3.1.4 Firms. In the case of every firm, the rate of income-tax of thirty per cent has been specified in Paragraph C of Part I of the First Schedule to the Act. The amount of income-tax so computed shall be increased by a surcharge at the rate of twelve per cent of such income-tax in case of a firm having a total income exceeding one crore rupees. However, marginal relief shall be available so that the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. The 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 ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 per cent where such company has total income exceeding one crore rupees but not exceeding ten crore rupees. Surcharge at the rate of five per cent shall be levied if the total income of the company other than domestic company exceeds ten crore rupees. However, marginal relief shall be allowed in the case of every company to ensure that (i) the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees, and (ii) the total amount payable as income-tax and surcharge on total income exceeding ten crore rupees shall not exceed the total amount payable as income-tax and surcharge on a total income of ten crore rupees by more than the amount of income that exceeds ten crore rupees. Education Cess on income-tax shall continue to be levied at the rate of two per cent on the amount of tax compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided family, association of persons, body of individuals, artificial juridical person, co-operative society, local authority, firm, being a resident or a domestic company. 3.2.3 Education Cess. Education Cess on income-tax shall continue to be levied for the purposes of the Union at the rate of two per cent of income-tax and surcharge, if any. For instance, if the amount of income of a foreign company is ₹ 1,20,00,000/- and tax is deducted from such foreign company is ₹ 12,00,000/- at the rate of 10 per cent, then the surcharge at the rate of two per cent on such tax deducted shall be ₹ 24,000/-. Education cess on such amount of tax deducted and surcharge (Rs. 12,00,000/- + ₹ 24,000/- = ₹ 12,24,000/-) shall be ₹ 24,480/-. In addition, the amount of tax deducted 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 in all such cases. Thus in the above illustration, where the amount of tax deducted is ₹ 12,00,000/-, the surcharge is ₹ 24,000/-, the said Secondary and Higher Education Cess will be computed at the rate of one per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of a person having a total income exceeding one crore rupees as against the rate of twelve per cent for the financial year 2015-16. However, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. The 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 addition, the amount of tax computed 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 such income-tax inclusive of surcharge. No marginal relief shall be available in respect of Education Cess and Secondary and Higher Education Cess. 3.3.3 Co-operative Societies. In the case of every co-operative society, the rates of income-tax have been specified in Paragraph B of Part III of the First Schedule to the Act. The rates are as follows- Income chargeable to tax Rate Up to ₹ 10,000 10% ₹ 10,001 -Rs. 20,000 20% Exceeding ₹ 20, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome exceeding one crore rupees. However, marginal relief shall be available. Accordingly, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. 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 income tax and surcharge. No marginal relief shall be available in respect of Education Cess and Secondary and Higher 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 rate of income-tax is twenty nine per cent of the total income, if the total turnover or gross receipts of the company in the previous year 2014-15 does not exceed five crore rupees, and in all other cases, the rate of income tax is thirty per cent of total income. In order to provide relief to newly setup domestic companies engaged solely in the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees, and (ii) the total amount payable as income-tax and surcharge on total income exceeding ten crore rupees shall not exceed the total amount payable as income-tax and surcharge on a total income of ten crore rupees, by more than the amount of income that exceeds ten crore rupees. 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 income-tax computed including surcharge. No marginal relief shall be available in respect of Education Cess and Secondary and Higher Education Cess. 3.4 Surcharge on Additional Income-tax. Where additional income-tax has to be paid under section 115-O or section 115-QA or Sub-section (2) of section 115R or section 115TA or section 115TD of the Income-tax Act, that is to say, on distribution of dividend by domestic companies or distribution of income by a company on buy-back of shares from shareholders or on distribution of income by a mutual fund to its unit holde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct in India. This determination would be well after closure of the previous year and it may not be possible for company to undertake many of procedural requirements. Representations have also been made by stakeholders that the implementation of POEM be deferred by a year, by which time clarity regarding guidelines and applicability of other provisions of the Income-tax Act would be in place. 4.5 In order to provide clarity in respect of implementation of POEM based rule of residence and also to address concerns of the stakeholders, amendments to section 6 of the Income-tax Act and section 4 of the Finance Act, 2015 have been made. These amendments have been made so as to defer the applicability of POEM based residence test by one year and the determination of residence based on POEM shall be applicable from 1st of April 2017. Further, a new Chapter XII-BC consisting of section 115JH has been inserted in the Income- tax Act. The provisions of section 115JH of Income-tax Act,- (a) 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 has been empowered to notify exception, modific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en through participation of private players including foreign national oil companies (NOCs) and multinational companies (MNCs) storing and selling crude oil from outside India. However, the storage of crude oil by NOCs/ MNCs and its sale in India would create tax liability for these entities. 5.3 In order to achieve neutrality in terms of taxation to encourage the NOCs and MNCs to store their crude oil in India and to build up strategic oil reserves, the provisions of section 10 of the Income-tax Act have been amended to provide that any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India shall not be included in the total income, if, - (i) such storage and sale by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government; and (ii) having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf. 5.4 Applicability: This amendment takes effect retrospectively from 1st of April, 2016 and will, ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 section. 7.2 Sub-section (3) of section 9A provides for the conditions for the eligibility of the fund. These conditions, inter-alia, are related to residence of fund, corpus size, investor base, investment diversification and payment of remuneration to fund manager at arm's length. In respect of residence of the fund, the condition is that the fund has to be resident of a country or territory with which India has entered into a Double Taxation Avoidance Agreement (DTAA) or Tax Information Exchange Agreement (TIEA). 7.3 In respect of activities of fund, there is a restriction that the fund shall not carry on or control and manage, directly or indirectly, any business in India or from India and shall neither engage in any activity which constitutes a business connection in India nor have any person acting on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e SEBI regulation, these business trusts can hold the income generating asset either directly or through a Special Purpose Vehicle (SPV). The SPV can be a company or an LLP. Under SEBI Regulation, SPV is defined to mean any company or LLP in which REIT holds or proposes to hold controlling interest which is not less than fifty per cent of the equity share capital or interest. The SPV should hold at least 80% of the assets in properties and not invest in other SPV. The existing tax regime provides that in case of REITs, the income by way of interest paid by SPV being a company to REIT is given pass through i.e. it is not taxed at the level of REIT but in the hands of respective investors of REIT. The rental income from directly held assets by REIT is also allowed a pass through. In respect of assets held through an SPV, if SPV is a company then the company pays normal corporate tax and thereafter when the income is distributed to the REIT being a shareholder, it suffers Dividend Distribution Tax (DDT) under section 115-O of the Income-tax Act 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f accumulated and current profits up to this date shall be liable for levy of DDT as and when any dividend out of these profits is distributed by the company either to the business trust or any other shareholder. 8.4 Applicability: The amendments to sections 115-O and 194LBA take effect from 1st June, 2016. The amendments to sections 10 and 115UA take effect from 1st of April, 2017 and will, accordingly apply in relation to assessment year 2017-18 and subsequent assessment years. 9. Tax on distributed income to shareholder. 9.1 Section 115QA of the Income-tax Act provides for the levy of additional Income-tax at the rate of 20 per cent of the distributed income on account of buy back of unlisted shares by a company. The distributed income as defined in the section prior to its amendment by the Act meant the consideration paid by the company on buy back of shares as reduced by the amount which was received by the company for issue of such shares. Buyback had also been defined to mean the purchase of a company of its own shares in accordance with the provisions of section 77A of the Companies Act, 1956. 9.2 Doubts have arisen regarding the effect of buybacks undertaken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0% if the distribution was to others. Further, no distribution tax was to be levied if the distribution was made to an exempt entity. Consequent to the levy of distribution tax, the income of the investor, received from the securitisation trust, was exempt under section 10(35A) of the Income-tax Act and the income of securitisation trust itself is exempt under section 10(23DA) of the Income-tax Act. 10.2 The existing regime did not cover the trusts set up by reconstruction companies or the securitisation companies are not covered although such trusts were also engaged in securitisation activity. These companies are established for the purposes of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and their activities are regulated by the Reserve Bank of India (RBI). Further, the final levy in the form of distribution tax was tax inefficient for the investors specially the banks and financial institutions. Disallowance of expenditure in respect of income received from securitisation trust increased the effective rate of taxation. The non-resident and resident investors were also unable to take benefits of their s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly apply in relation to assessment year 2017-18 and subsequent assessment years. 11. Levy of tax where the charitable institution ceases to exist or converts into a non-charitable organization. 11.1 Section 2(24) of the Income-tax Act defines "Income" in an inclusive manner. Any voluntary contribution received by a charitable trust or institution or a fund is included in the definition of income. Sections 11 and 12 of the Income-tax Act provide for exemption to trusts or institutions in respect of income derived from property held under trust and voluntary contributions, subject to various conditions contained in the said sections. The primary condition for grant of exemption is that the income derived from property held under trust should be applied for the charitable purposes, and where such income cannot be applied during the previous year, it has to be accumulated and invested in the modes prescribed and applied for such purposes in accordance with various conditions provided in the section. If the accumulated income is not applied in accordance with the conditions provided in the said section within a specified time, then such income is deemed to be taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of conversion into, or merger with, any non-charitable form or on transfer of assets of a charitable organisation on its dissolution to a non-charitable institution. The main elements of this regime are: (i) The accretion in income (accreted income) of the trust or institution shall be taxable on conversion of trust or institution into a form not eligible for registration u/s 12 AA or on merger into an entity not having similar objects and registered under section 12AA or on non-distribution of assets on dissolution to any charitable institution registered u/s 12AA or approved under section 10(23C) within a period of twelve months from the end of the month of dissolution. (ii) Accreted income shall be amount of aggregate of Fair Market Value (FMV) of total assets as reduced by the liability as on the specified date. The method of valuation is to be prescribed in rules. However, for the purposes of computation of accreted income, the following asset and related liability, if any, shall be excluded: (a) any asset which is established to have been directly acquired from agricultural income; (b) any asset acquired during the period from the date of creation or establishment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income-tax Act. Under this regime, the income of the investment fund (not being in the nature of business income) is exempt in the hands of investment fund but income received by the investor from the investment fund (other than income which is taxed at the level of investment fund) is taxable in the hands of investor. The taxation in the hands of investors is in the same manner and in the same proportion as it would have been, had the investor received such income directly and not through the investment fund. 12.2 Section 194LBB of the Income-tax Act prior to its amendment by the Act provided that in respect of any income credited or paid by the investment fund to its investor, a tax deduction at source (TDS) shall be made by the investment fund at the rate of 10 per cent of the income. Under section 197 of the Income-tax Act, facility for certificate for deduction of tax at lower rate or no deduction was available in respect of sections enumerated therein, if the Assessing Officer is satisfied that total income of the recipient justifies issue of such certificate, section 194LBB was not included in this provision. 12.3 The existing TDS regime had created certain difficu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in the BEPS report that the countries should adopt a standardised approach to transfer pricing documentation. A three-tiered structure has been mandated consisting of: (i) a master file containing standardised information relevant for all multinational enterprises (MNE) group members; (ii) a local file referring specifically to material transactions of the local taxpayer; and (iii) a country-by-country (CbC) report containing certain information relating to the global allocation of the MNE's income and taxes paid together with certain indicators of the location of economic activity within the MNE group. 13.3 The report mentioned that taken together, these three documents (country-by-country report, master file and local file) will require taxpayers to articulate consistent transfer pricing positions and will provide tax administrations with useful information to assess transfer pricing risks. It will facilitate tax administrations to make determinations about where their resources can most effectively be deployed, and, in the event audits are called for, provide information to commence and target audit enquiries. 13.4 The country-by-country report requires MNEs to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in respect of the group to the prescribed authority on or before the due date of furnishing of return of income for the Assessment Year relevant to the Financial Year (previous year) for which the report is being furnished; (iii) the parent entity shall be an entity which is required to prepare consolidated financial statement under the applicable laws or would have been required to prepare such a statement, had equity share of any entity of the group been listed on a recognized stock exchange in India; (iv) every constituent entity in India, of an international group having parent entity that is not resident in India, shall provide information regarding the country or territory of residence of the parent of the international group to which it belongs. This information shall be furnished to the prescribed authority on or before the prescribed date; (v) the report shall be furnished in prescribed manner and in the prescribed form and would contain aggregate information in respect of revenue, profit & loss before Income-tax, amount of Income-tax paid and accrued, details of capital, accumulated earnings, number of employees, tangible assets other than cash or cash equivalent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time-limits before prescribed authority when called for, a penalty of ₹ 5,000/- per day shall apply. Similar to the above, if default continues even after service of penalty order, then penalty of ₹ 50,000/- per day shall apply for default beyond date of service of penalty order; (xii) If the entity has provided any inaccurate information in the report and,- (a) the entity knows of the inaccuracy at the time of furnishing the report but does not inform the prescribed authority; or (b) the entity discovers the inaccuracy after the report is furnished and fails to inform the prescribed authority and furnish correct report within a period of fifteen days of such discovery; or (c) the entity furnishes inaccurate information or document in response to notice of the prescribed authority, then penalty of ₹ 5,00,000/- applies under section 271GB of the Income-tax Act; (xiii) The entity can offer reasonable cause defence for non-levy of penalties mentioned above. The remaining aspects shall be prescribed through rules. 13.7 The amendments made in respect of maintenance of master file and furnishing it are: (a) the entities being constituent of an intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as long term capital assets 15.1 Clause (29A) of section 2 of the Income-tax Act defines "long-term capital asset" to mean a capital asset which is not a short-term capital asset. Clause (42A) of section 2 defines short-term capital asset to mean a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer. The first proviso to the clause (42A), inter alia, provides for a reduced period of holding of twelve months for certain securities including listed shares of a company. 15.2 In order to reduce the holding period of unlisted shares of a company, section 2 of the Income-tax Act has been amended to provide that in case of unlisted shares of a company, period of holding shall be twenty-four months instead of thirty-six month for these shares to be treated as long-term capital asset. 15.3 Applicability: This amendment takes effect from 1st of April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years. 16. Tax incentives for start-ups 16.1 With a view to provide an impetus to start-ups and facilitate their growth in the initial phase of their busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estor. 16.5 Further, section 54GB before its amendment by the Act required that the company should invest the proceeds in the purchase of new asset being new plant and machinery but does not include, inter alia, computers or computer software. 16.6 With a view to avoid incidence of the aforesaid condition on start-up where computers or computer software form the core asset base owing to nature of business activity, section 54GB of the Income-tax Act has further been amended so as to provide that the expression "new asset" includes computers or computer software in case of technology driven start-ups so certified by the Inter-Ministerial Board of Certification notified by the Central Government in the official Gazette. 16.7 Applicability:These amendments take effect from 1st of April, 2017 and will, accordingly apply in relation to assessment year 2017-18 and subsequent assessment years. 17. Incentives for Promoting Housing for All 17.1 With a view to incentivise affordable housing sector as a part of larger objective of 'Housing for All', a new section 80-IBA has been introduced to provide for hundred per cent deduction of the profits of an assessee deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent assessment years. 18. Tax incentive for employment generation 18.1 The provisions of section 80JJAA of the Income tax Act, before its substitution by the Act provided for a deduction of thirty per cent of additional wages paid to new regular workmen in a factory for three years. The provisions apply to the business of manufacture of goods in a factory where 'workmen' are employed for not less than three hundred days in a previous year. Further, benefits are allowed only if there is an increase of at least ten per cent in total number of workmen employed on the last day of the preceding year. 18.2 With a view to encourage employment generation and provide incentive to all sectors, section 80JJAA has been substituted to provide that the deduction under the said provisions shall be available in respect of cost incurred on any employee whose total emoluments are less than or equal to twenty five thousand rupees per month. No deduction, however, shall be allowed in respect of cost incurred on those employees, for whom the entire contribution under Employees' Pension Scheme notified in accordance with Employees' Provident Fund and Miscellaneous Provisions Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, with a view to provide relief to non-resident investor who bears the risk of currency fluctuation, section 48 of the Income-tax Act has been amended to provide that the capital gains, arising in case of appreciation of rupee between the date of issue and the date of redemption against the foreign currency in which the investment is made shall be exempt from tax on capital gains. 20.2 Applicability: This amendment takes effect from 1st of April, 2017 and will accordingly apply in relation to assessment year 2017-18 and subsequent assessment years. 21. Consolidation of 'plans' within a 'scheme' of mutual fund 21.1 Under the provisions of clause (xviii) of section 47 of the Income-tax Act, any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating scheme of a mutual fund, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated scheme of the mutual fund is not chargeable to tax. 21.2 Security Exchange Board of India (SEBI) has issued guidelines for consolidation of mutual fund plans within a scheme. To extend the tax exemption, available on merger or consoli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (14) of section 2 of the Income-tax Act has been amended so as to exclude Deposit Certificates issued under Gold Monetisation Scheme, 2015 notified by the Central Government, from the definition of capital asset and thereby to exempt it from tax on capital gains. Further, clause (15) of section 10 of the Income-tax Act has also been amended so as to provide that the interest on Deposit Certificates issued under the Scheme, shall be exempt from tax. 23.3 Applicability: These amendments take effect retrospectively from 1st of April, 2016 and will, accordingly, apply in relation to assessment year 2016-17 and subsequent assessment years. 24. Rationalization of section 56 of the Income-tax Act 24.1 The provision contained in clause (vii) of sub-section (2) of section 56 of the Income-tax Act before amendment by the Act provided for chargeability of income from other sources in case any money, immovable property or other property with or without consideration in excess of ₹ 50,000 is received by an assessee being an individual or an HUF. The provisions also apply where shares of a company are received as a consequence of demerger or amalgamation of a company. Such a transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come chargeable at a rate lower than the rate specified in section 115JB of the Income-tax Act shall be reduced from the book profits and the corresponding expenditure will be added back. However, since this amendment was prospective w.e.f assessment year 2016-17, the issue for assessment year prior to 2016-17 remained to be addressed. 26.3 A Committee on Direct Tax matters headed by Justice A.P. Shah, set up by the Government to look into the matter, recommended for an amendment of section 115JB to clarify the applicability of Minimum Alternate Tax (MAT) provisions to Foreign Institutional Investors/Foreign Portfolio Investors (FIIs/FPIs) in view of the fact that FIIs and FPIs normally do not have a place of business in India. 26.4 In view of the recommendations of the committee and with a view to provide certainty in taxation of foreign companies, section 115JB of the Income-tax Act has been amended 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. 27.5 Section 115-O of the Income-tax Act has also been amended so as to provide that no tax on distributed profits shall be chargeable in respect of the total income of a company being a unit located in International Financial Services Centre, deriving income solely in convertible foreign exchange, for 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. 27.6 The existing provisions relating to securities transaction tax and commodities transaction tax provide for levy of tax on transactions in taxable securities and commodities respectively. Section 113A of the Finance (No.2) Act, 2004 has been substituted so as to provide that the provisions of Chapter VII shall not apply to taxable securities transactions entered into by any person on a recognized stock exchange located in International Financial Services Centre where the consideration for such transaction is paid or payable in foreign currency, thereby exempting such transaction from securities transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on authority for the purpose of payment of stamp duty shall be taken as the full value of consideration for the purposes of computation of capital gains. This provision does not provide any relief where the seller has entered into an agreement to sell the property much before the actual date of transfer of the immovable property and the sale consideration is fixed in such agreement, whereas similar provision exists in section 43CA of the Income-tax Act i.e. when an immovable property is sold as stock-in-trade. 29.2 Section 50C of the Income-tax Act has been amended so as to provide that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration. It has been further provided that this provision shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, on or before the date of the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hedule to the Act contributions made by employer to the credit of an employee participating in a recognised provident fund, which are in excess of twelve per cent of the salary of the employee, are liable to tax in the hands of the employee. However, there is no monetary limit for the contribution made by the employer. Part A of Fourth schedule was amended to provide a monetary cap of rupees one lakh and fifty thousand on tax-free contribution by an employer in employee's account in a recognised provident fund. Further, under section 17, perquisite in the hands of the assessee includes the amount of any contribution exceeding one lakh rupees to an approved superannuation fund by the employer. In order to bring parity between the tax-free employer's contribution to both approved superannuation fund and recognised provident fund, section 17 has been amended to increase the limit of employer contribution to one lakh and fifty thousand rupees without attracting tax. 31.4 Applicability: These amendments take effect from 1st of April, 2017 and will, accordingly, apply from assessment year 2017-18 and subsequent assessment years. 32. Equalisation Levy 32.1 If permanent estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Government through notification in Official Gazette. Subsequently, the Central Government vide Notification. No 37(SO 1904E), dated 27th May 2016 appointed 1st of June, 2016 as the date from which the provisions of this Chapter will come into force. 33. Tax Collection at Source (TCS) on sale of vehicles; goods or services 33.1 The existing provision of section 206C of the Income-tax Act, inter alia, provides that the seller shall collect tax at source at specified rate from the buyer at the time of sale of specified items such as alcoholic liquor for human consumption, tendu leaves, scrap, mineral being coal or lignite or iron ore, bullion etc. in cash exceeding two lakh rupees. 33.2 In order to reduce the cash transactions in sale of goods and services, and for curbing the flow of unaccounted money in to the trading system and to bring high value transactions into tax net, sub-section (1D) of section 206C of the Income-tax Act has been amended by the Act to provide that the seller shall collect tax at the rate of one per cent from the purchaser on sale in cash of any goods (other than bullion and jewellery) or providing of any services (other than payment on which tax is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority or to an approved association or institution, etc. on certain eligible social development project or a scheme. No deduction shall be available with effect from 1.4.2017 (i.e from previous year 2017-18 and subsequent years). 3 35CCD-Expenditure project on skill development Weighted deduction of 150 per cent on any expenditure incurred (not being expenditure in the nature of cost of any land or building) on any notified skill development project by a company. Deduction shall be restricted to 100 per cent from 01.04.2020 (i.e. from previous year 2020-21 onwards). 4 35CCC- Expenditure on notified agricultural extension project. Weighted deduction of 150 per cent of expenditure incurred on notified agricultural extension project. Deduction shall be restricted to 100 per cent from 01.04.2020 (i.e. from previous year 2020-21 onwards). 5 Section 80IA; 80IAB, and 80IB - Deduction in respect of profits derive from (a) development, operation and maintenance of an infrastructure (b) facility (80-IA) development of special economic zone (80- IAB) (c) production of mineral oil and natural gas [80-IB(9)] 100 per cent profit linked deductions for specified period on elig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contribution to an approved research association or university or college or other institution to be used for research in social science or statistical research. Deduction shall be restricted to 100 per cent with effect from 01.04.2017 (i.e. from previous year 2017-18 and subsequent years). 5 35(2AA) - Expenditure on scientific research. Weighted deduction from the business income to the extent of 200 per cent of any sum paid to a National Laboratory or a university or an Indian Institute of Technology or a specified person for the purpose of approved scientific research programme. Weighted deduction shall be restricted to 150 per cent with effect from 01.04.2017 to 31.03.2020 (i.e. from previous year 2017-18 to previous year 2019-20). Deduction shall be restricted to 100 per cent from 01.04.2020 (i.e. from previous year 2020-21 onwards). 6 35(2AB) - Expenditure on scientific research. Weighted deduction of 200 per cent of the expenditure (not being expenditure in the nature of cost of any land or building) incurred by a company, engaged in the business of bio-technology or in the business of manufacture or production of any article or thing except some items appearing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amortisation of spectrum fee for purchase of spectrum 36.1 Government has newly introduced spectrum fee for auction of airwaves and has allowed the payment for acquiring right to spectrum to be paid either lump sum or over instalments along with interest. There is uncertainty in tax treatment of above mentioned payments (lump sum or instalments) in respect of Spectrum i.e. whether spectrum is an intangible asset and the spectrum fees paid is eligible for depreciation under section 32 of the Income-tax Act or whether it is in the nature of a 'license to operate telecommunication business' and eligible for deduction under section 35ABB of the Income-tax Act. 36.2 In order to provide clarity and avoid any future litigation and controversy, the Act, inserted a new section 35ABA in the Income-tax Act to provide that the fees paid for obtaining right to use the spectrum is to be amortized over the period for which the right to use the spectrum has been granted. The following detailed tax treatment of spectrum fee is provided,- (i) any capital expenditure incurred and actually paid by an assessee or payable by an assessee in such manner as may be prescribed for the acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , a new section 115BBF has been inserted in the Income-tax Act to provide for concessional tax regime. It has been provided that where the total income of the eligible assessee income includes any income by way of royalty in respect of a patent developed and registered in India, such royalty shall be taxable at the rate of ten per cent (plus applicable surcharge and cess) on the gross amount of royalty. No expenditure or allowance in respect of such royalty income shall be allowed under the Income-tax Act. It is further provided that this concessional tax regime is optional and the eligible assessee may exercise the option for taxation under this section in prescribed manner on or before the due date of furnishing the return of income under section 139(1) of the Income-tax Act. It has been also provided that where an eligible assessee declares income by way of royalty for any previous year in accordance with the provisions of this section but he does not declares such income for any of the five consecutive assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of this section, he shall not be eligible to claim the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The scheme will apply to such resident assessee who is an individual, Hindu undivided family or partnership firm but not Limited Liability partnership firm. 38.3 Under the scheme, the assessee will be deemed to have been allowed the deductions under section 30 to 38 of the Income-tax Act. 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. 38.4 It has also been provided that the assessee will not be required to maintain books of account under sub-section (1) of section 44AA and get the accounts audited under section 44AB in respect of such income unless the assessee claims that the profits and gains from the aforesaid profession are lower than the profits and gains deemed to be his income under sub-section (1) of section 44ADA and his income exceeds the maximum amount which is not chargeable to income-tax. 38.5 Applicability: These amendments take effect from 1st of April, 2017 and will, accordingly, apply from assessment year 2017-18 and subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puts restriction on deduction of amounts, otherwise allowable under section 30 to 38. 40.4 It has been further provided that where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five consecutive assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of this section, he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of this section. For example, an eligible assessee claims to be taxed on presumptive basis under section 44AD for Assessment Year 2017-18 and offers income of ₹ 8 lakh on the turnover of ₹ 1 crore. For Assessment Year 2018-19 and Assessment Year 2019-20 also he offers income in accordance with the provisions of section 44AD. However, for Assessment Year 2020-21, he offers income of ₹ 4 lakh on turnover of ₹ 1 crore. In this case since he has not offered income in accordance with the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny engaged in manufacturing or production of any article or thing subject to the condition that the acquisition and installation has to be done in the same previous year. This tax incentive is available up to 31.03.2017. 42.2 The dual condition of acquisition and installation causes genuine hardship in cases in which assets having been acquired could not be installed in same previous year. 42.3 The provision of sub-section (1A) of section 32AC of the Income-tax Act has been amended so as to provide that the acquisition of the plant & machinery of the specified value has to be made in the previous year. However, installation may be made by 31.03.2017 in order to avail the benefit of investment allowance of 15%. It has been further provided 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. 42.4 Applicability: This amendment takes effect retrospectively from 1st of April, 2016 and will, accordingly, apply in relation to assessment year 2016-17 and subsequent assessment years. 43. Exemption from requirement of furnishing PAN under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntral Government for the purpose of the corpus of a trust or institution established by the Central Government or State government shall not form part of income. 44.3 Applicability: This amendment takes effect from 1st of April, 2017 and will, accordingly, apply from assessment year 2017-18 and subsequent assessment years. 45. Extension of scope of section 43B to include certain payments made to Railways 45.1 The existing provisions of section 43B of the Income-tax Act, inter alia, provide that any sum payable by the assessee by way of tax, cess, duty or fee, employer contribution to Provident Fund, etc., is allowable as deduction of the previous year in which the liability to pay such sum was incurred (relevant previous year) if the same is actually paid on or before the due date of furnishing of the return of income irrespective of method of accounting followed by a person. 45.2 With a view to ensure the prompt payment of dues to Railways for use of the Railway assets, the provision of section 43B of the Income-tax Act has been amended so as to expand its scope to include payments made to Indian Railways for use of Railway assets within its ambit. 45.3 Applicability: Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argeable to tax under the head "Capital gains", would not be taxable as profits and gains of business or profession. Under section 45 of the Income-tax Act, any capital receipt arising out of transfer of any business or commercial rights is taxable under the head "Capital gains". The amount of "Capital gains" is computed according to section 48 of the Income-tax Act. For this purpose, 'cost of acquisition' and 'cost of improvement' are defined under section 55. However, non-compete fee received/receivable in relation to carrying out of profession are not covered under these provisions. Clause (va) of section 28 of the Income-tax Act has been amended so as to bring the non-compete fee received/receivable( which are recurring in nature) in relation to not carrying out any profession, within the scope of section 28 of the Income-tax Act i.e. the charging section of profits and gains of business or profession. Further, the proviso to clause (va) of section 28 of the Income-tax Act has also been amended to clarify that receipts for transfer of right to carry on any profession, which are chargeable to tax under the head "Capital gains&qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person responsible for payment of any specified sum to any person is required to deduct tax at source at the prescribed rate and deposit it with the Central Government within specified time. However, no deduction is required to be made if the payments do not exceed prescribed threshold limit. In order to rationalise the rates and base for TDS provisions, the existing threshold limit for deduction of tax at source and the rates of deduction of tax at source are rationalised by amending the respective sections of the Income-tax Act through the Act as mentioned in Table 3 and Table 4 respectively. TABLE - 3 Present section Heads Threshold Limit prior to Amendment by Finance Act, 2016 (in Rs.) Revised Threshold Limit as per amendments made in the Finance Act, 2016 (in Rs.) 192A Payment of accumulated balance due to an employee 30,000 50,000 194BB Winnings from Horse Race 5,000 10,000 194C Payments to Contractors Aggregate annual limit of 75,000 Aggregate annual limit of 1,00,000 194LA Payment of Compensation on acquisition of certain Immovable Property 2,00,000 2,50,000 194D Insurance commission 20,000 15,000 194G Commission on sale of lottery tickets 1,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction of self-occupied house property for claiming deduction of interest 51.1 The existing provision of clause (b) of section 24 of the Income-tax Act provides that interest payable on capital borrowed for acquisition or construction of a house property shall be deducted while computing income from house property. The second proviso to the said clause provides that a deduction of an amount of two lakh rupees shall be allowed where a house property referred to in sub-section (2) of section 23 of the Income-tax Act (self-occupied house property) has been acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed. 51.2 In view of the fact that housing projects often take longer time for completion, the second proviso to clause (b) of section 24 of the Income-tax Act has been amended to provide that the deduction under the said proviso on account of interest paid on capital borrowed for acquisition or construction of a self-occupied house property shall be available if the acquisition or construction is completed within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e penalty amount in certain circumstances. 53.3 Section 273AA of the Income-tax Act provides inter alia that the Principal Commissioner or the Commissioner may grant immunity from penalty, if penalty proceedings have been initiated in case of a person who has made application for settlement before the Settlement Commission and the proceedings for settlement had abated under the circumstances contained in section 245HA of the Income-tax Act. 53.4 Under the existing provisions no time limit has been provided regarding the passing of orders either under section 220 or sections 273A or 273AA of the Income-tax Act. Further, these provisions do not specifically mandate that assessee be given an opportunity of being heard in case such application is rejected by an authority. Therefore, in order to rationalise the provisions and provide for specific time-line, amendment to the existing provisions have been made. 53.5 In view of the above, section 220 of the Income-tax Act has been amended to provide that an order accepting or rejecting application of an assessee shall be passed by the concerned Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection may be served on the assessee by the Assessing Officer or the prescribed income-tax authority, either to attend the office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence on which the assessee may rely in support of the return. 54.6 The existing provision of section 2 of the Income-tax Act has also been amended by inserting new clause (23C) to define the term "hearing" to include communication of data and documents through electronic mode. 54.7 Applicability: These amendments effect from 1st June, 2016. 55. Filing of return of Income 55.1 Existing provisions of sub - section (1) of section 139 of the Income-tax Act provide that every person referred to therein shall file a return of income on or before the due date. The sixth proviso to the said section provides that every person, being an individual or Hindu undivided family or an association of person or a body of individual, whether incorporated or not or any artificial juridical person, if his total income or of any other person in respect of which he is assessable under this Act during the previous year, without giving effect to provisions of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a return within the time allowed to him under sub-section (1), may furnish the return for any previous year at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. 55.8 Sub-section (5) of the aforesaid section has been substituted so as to provide that if any person, having furnished a return under sub-section (1) or under sub-section (4), or in a return furnished in response to notice issued under sub-section (1) of section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. 55.9 Clause (aa) of the Explanation to sub-section (9) of aforesaid section has been omitted to provide that a return which is otherwise valid would not be treated defective merely because self-assessment tax and interest payable in accordance with the provisions of section 140A of the Income-tax Act has not been paid on or before the date of furnishing of the return. 55.10 Applicability: The amendment to sub-section (3) of section 139 takes effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to nine months from the end of the financial year in which the notice under section 148 was served; (iii) the period for completion of fresh assessment in pursuance of an order under section 254 or section 263 or section 264, setting aside or cancelling an assessment has been changed from existing one year to nine months from the end of the financial year in which the order under section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, or the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner 57.2 It is further provided that the period for giving effect to an order, under sections 250 or 254 or 260 or 262 or 263 or 264 of the Income-tax Act or an order of the Settlement Commission under sub-section (4) of section 245D of the Income-tax Act, where effect can be given wholly or partly otherwise than by making a fresh assessment or reassessment shall be three months from the end of the month in which order is received or passed, as the case may be, by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. It is also provided th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents take effect retrospectively from 1st of June, 2016. 58. Rationalisation of time limit for assessment in search cases 58.1 The time limit for completion of assessments made under section 153A or section 153C of the Income-tax Act has been amended to bring it in sync with the new time limits provided for other cases. In order to simplify the provisions of existing section 153B of the Income-tax Act by retaining only those provisions that are relevant to the current provisions of the Act, section 153B of the Income-tax Act has been substituted with the following changes in time limit from the existing time limits as under: (i) The limitation for completion of assessment under section 153A of the Income-tax Act, in respect of each assessment year falling within six assessment years referred to in clause (b) of sub-section (1) of section 153A of the Income-tax Act and in respect of the assessment year relevant to the previous year in which search is conducted under section 132 of the Income-tax Act or requisition is made under section 132A of the Income-tax Act has been changed from existing two years to twenty-one months from the end of the financial year in which the last o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue collections during a financial year with greater accuracy. 59.3 It is further provided that an eligible assessee in respect of eligible business referred to in section 44AD of the Income-tax Act opting for computation of profits or gains of business on presumptive basis shall be required to pay advance tax of the whole amount in one instalment on or before the 15th March of the financial year. 59.4 Consequential amendments have also been made to section 234C of the Income-tax Act which provides for chargeability of interest for deferment of advance tax to bring it in sync with the amendments made in section 211 of the Income-tax Act. 59.5 It is also provided that interest under section 234C of the Income-tax Act shall not be chargeable in case of an assessee having income under the head "Profits and gains of business or profession" for the first time, subject to fulfilment of conditions specified therein. 59.6 Applicability: These amendments take effect from 1st of June, 2016. 60. Payment of interest on refund 60.1 Section 244A of the Income-tax Act inter alia provides that an assessee is entitled to interest on refund arising out of excess payment of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, the reference of "Senior Vice-President" has been omitted from the above provisions of section 252 of the Income-tax Act. 61.3 Sub-section (2A) of section 253 of the Income-tax Act provides that the Principal Commissioner or Commissioner may, if he objects to any direction issued by the Dispute Resolution Panel (DRP) under sub-section (5) of section 144C of the Income-tax Act in pursuance of which the Assessing Officer has passed an order completing the assessment or reassessment, direct the Assessing Officer to appeal to the Appellate Tribunal against such order. 61.4 Further, sub-section (3A) of section 253 of the Income-tax Act provides that every appeal under sub-section (2A) shall be filed within sixty days of the date on which the order sought to be appealed against is passed by the Assessing Officer in pursuance of the directions of the DRP under sub-section (5) of section 144C of the Income-tax Act. 61.5 In line with the decision of the Government to minimise litigation, sub-sections (2A) and (3A) of section 253 of the Income-tax Act have been omitted in order to do away with the filing of appeal by the Assessing Officer against the order of the DRP. Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be levied under the newly inserted section 270A of the Income-tax Act with effect from 1st of April, 2017. The new section 270A of the Income-tax Act provides for levy of penalty in cases of under reporting and misreporting of income. 62.2 Sub-section (1) of section 270A of the Income-tax Act provides that the Assessing Officer, Commissioner (Appeals) or the Principal Commissioner or Commissioner during the course of any proceedings under the Act may levy penalty if a person has under reported his income. 62.3 It provides that a person shall be considered to have under reported his income if,- (a) the income assessed is greater than the income determined in the return processed under clause (a) of sub-section (1) of section 143 of the Income-tax Act; (b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished; (c) the income reassessed is greater than the income assessed or reassessed immediately before such re-assessment; (d) the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or 115JC of the Income-tax Act, as the case may be, is greater than the deemed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome assessed as per the provisions contained in section 115JB or section 115JC of the Income-tax Act; D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC of the Income-tax Act been reduced by the amount of under reported income. However, where the amount of under reported income on any issue is considered both under the provisions contained in section 115JB of the Income-tax Act or and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D. 62.7 It is clarified that in a case where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that loss into income, the amount of under reported income shall be the difference between the loss claimed and the income or loss, as the case may be, assessed or reassessed. 62.8 Calculation of under-reported income in a case where the source of any receipt, deposit or investment is linked to earlier year shall be provided based on the existing Explanation 2 to sub-section (1) of section 271 of the Income-tax Act. 62.9 It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f tax calculated on under reported income as if it was the total income. (c) In any other case, difference between the tax calculated on the under reported income as increased by the total income determined under section 143(1)(a) of the Income-tax Act or total income assessed/reassessed/recomputed in the immediately preceding order as if it was the total income and the tax calculated under section 143(1)(a) of the Income-tax Act or total income assessed/reassessed/recomputed in the immediately preceding order as if it was the total income. 62.12 It is also provided that no addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year. 62.13 Consequential amendments have been made in sections 119, 253, 271A, 271AA, 271AAB, 273A, 276C and 279 of the Income-tax Act to provide reference to newly inserted section 270A of the Income-tax Act. 62.14 Applicability: These amendments take effect from 1st of April, 2017 and will, accordingly, apply from assessment year 2017-18 and subsequent assessment years. 62.15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47 of the Income-tax Act Under-reported Income (-)40 minus (-)90 = 50 20 minus (-)40 = 60 Tax Payable on under-reported Income 30 % of 50 = 15 30 % of 60 = 18 Penalty Leviable* 50 % of 15 = 7.5 50 % of 18 = 9 * Considering under-reported income is not on account of misreporting 62.16 Amendment of section 271AAB of the Income-tax Act 62.16.1 Existing provision of clause (c) of sub-section (1) of section 271AAB of the Income-tax Act provides that in a case not covered under the provisions of clauses (a) and (b) of the said sub-section of section 271AAB of the Income-tax Act, a penalty of a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year shall be levied in case where search has been initiated under section 132 of the Income-tax Act on or after the 1st of July, 2012. 62.16.2 In order to rationalise the rate of penalty and to reduce discretion, clause (c) of sub-section (1) of section 271AAB of the Income-tax Act has been amended to provide for levy of penalty on such undisclosed income at a flat rate of sixty per cent of such income. 62.16.3 Applicability: This amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der, whichever is later. 63.2 The Income Tax Simplification Committee (Easwar Committee) had recommended that provisional attachment of property could be substituted by a bank guarantee subject to fulfilment of certain conditions. Having considered this recommendation, section 281B of the Income-tax Act has been amended provided that the Assessing Officer shall revoke provisional attachment of property made under sub - section (1) of the aforesaid section in a case where the assessee furnishes a bank guarantee from a scheduled bank, for an amount not less than the fair market value of such provisionally attached property or for an amount which is sufficient to protect the interests of the revenue. 63.3 It is also provided that to determine the fair market value of the property, the Assessing Officer may, make a reference to the Valuation Officer, who shall be required to submit the report of the estimate of the property to the Assessing Officer within a period of thirty days from the date of receipt of such reference. 63.4 In order to ensure the revocation of attachment of property in lieu of bank guarantee in a time bound manner, it has been provided that an order revoking t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange of information has been made by the competent authority, the time available to the Transfer Pricing Officer for making an order after excluding the time for which assessment proceedings were stayed or the time taken for receipt of information, as the case may be, is less than sixty days, then such remaining period shall be extended to sixty days. 64.3 Applicability: This amendment takes effect from 1st June, 2016. 65. Assumption of jurisdiction of Assessing Officer 65.1 The existing sub-section (3) of the section 124 of the Income-tax Act provides inter alia that no person shall be entitled to call in question the jurisdiction of an Assessing Officer in a case where return is filed under section 139 of the Income-tax Act, after the expiry of one month from the date on which he was served with a notice issued under sub-section (1) of section 142 of the Income-tax Act or sub-section (2) of section 143 of the Income-tax Act or after the completion of the assessment, whichever is earlier. Currently, this provision does not specifically refer to notices issued under section 153A of the Income-tax Act or section 153C of the Income-tax Act which relate to assessment in cases w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the mismatch between the return and the information available with the Department, the scope of adjustments that can be made at the time of processing of returns under sub-section (1) of section 143 of the Income-tax Act has been expanded. It has been provided that such adjustments can be made based on the data available with the Department in the form of audit report filed by the assessee, returns of earlier years of the assessee, 26AS statement, Form 16, and Form 16A. However, before making any such adjustments, in the interest of natural justice, intimation shall be given to the assessee either in writing or through electronic mode requiring him to respond to such adjustments. The response received, if any, will be duly considered before making any adjustment. However, if no response is received within thirty days of issue of such intimation, the processing shall be carried out incorporating the adjustments. 66.6 Applicability: The amendments to sections 133 and 147 take effect from 1st June, 2016. The amendment to section 143 takes effect from 1st of April, 2017 and will, accordingly apply in relation to assessment year 2017-18 and subsequent assessment years. 67. Immunit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Act or an application for revision under section 264 of the Income-tax Act shall be admissible against the order of assessment or reassessment referred to in clause (a) of sub-section (1), in a case where an order under section 270AA of the Income-tax Act has been made accepting the application. 67.5 Clause (b) of sub-section (2) of section 249 of the Income-tax Act provides that an appeal before the Commissioner (Appeals) is to be made within thirty days of the receipt of the notice of demand relating to an assessment order. 67.6 In line with the insertion of section 270AA of the Income-tax Act, the provisions of section 249 of the Income-tax Act have also been amended to provide that in a case where the assessee makes an application under section 270AA of the Income-tax Act seeking immunity from penalty and prosecution, then, the period beginning from the date on which such application is made to the date on which the order rejecting the application is served on the assessee shall be excluded for calculation of the aforesaid thirty days period. The said amendment is consequential to the insertion of section 270AA of the Income-tax Act. 67.7 Applicability: These amendme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for arbitration, conciliation or mediation have been initiated by the declarant or he has given any notice under any law or agreement entered into by India, whether for protection of investment or otherwise, he shall withdraw such notice or claim for availing benefit under this Scheme. 68.3 The person making declaration in respect of specified tax shall furnish an undertaking in the prescribed form and verified in the prescribed manner, waiving the right, whether direct or indirect, to seek or pursue any remedy or claim in relation to the specified tax which otherwise be available to him under any law, in equity, by statute or under an agreement, whether for protection of investment or otherwise, entered into by India with a country or territory outside India. No appellate authority 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. 68.4 Where the declarant violates any of the conditions referred to in the scheme or any material particular furnished in the declaration is found t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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