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EASE OF DOING BUSINESS - DIRECT TAXES

G. - Memorandum Explaining the Provisions in The Finance Bill, 2017 - Bill - G. - G. EASE OF DOING BUSINESS Clarity relating to Indirect transfer provisions Section 9 of the Act deals with cases of income which are deemed to accrue or arise in India. Sub-section (1) of the said section creates a legal fiction that certain incomes shall be deemed to accrue or arise in India. Clause (i) of said sub-section (1) provides a set of circumstances in which income accruing or arising, directly or indirec .....

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included insertion of Explanation 5 in section 9(1)(i) w.e.f. 1st April, 1962. The Explanation 5 clarified that an asset or capital asset, being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India. In response to various queries raised by stakeholders seeking clarification on the scope of indirect transfer pr .....

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registered as Category-I or Category II Foreign Portfolio Investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992, as these entities are regulated and broad based. The proposed amendment is clarificatory in nature. This amendment will take effect retrospectively from 1st April, 2012 and will, accordingly, apply in relation to assessment year 2012-13 and subsequent years. [Clause 4] .....

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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 the section. 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 broad basing, investment diversification and payment of remuneration to fund manager at arm' .....

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average of the corpus of the fund to an amount which would not be less than one hundred crore rupees as required. In order to rationalise the regime and to address the concerns of the stakeholders, it is proposed to provide that in the previous year in which the fund is being wound up, the condition that the monthly average of the corpus of the fund shall not be less than one hundred crore rupees, shall not apply. This amendment will take effect retrospectively from 1st April, 2016 and shall ap .....

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rage and sale is pursuant to an agreement or an arrangement entered into by the Central Government; and having regard to the national interest, said foreign company and the said agreement or arrangement are notified by the Central Government in that behalf. The benefit of exemption presently is not available to sale out of the leftover stock of crude after the expiry of said agreement or the arrangement. Given the strategic nature of the project benefitting India to augment its strategic petrole .....

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ill, accordingly, apply in relation to assessment year 2018-19 and subsequent years. [Clause 6] Enabling of Filing of Form 15G/15H for commission payments specified under section 194D The existing provision of sub-section 194D of the Act, inter-alia, provides for tax deduction at source (TDS) at the rate of 5% for payments in the nature of insurance commission beyond a threshold limit of ₹ 15,000 per financial year. Further, the existing provisions of section 197A of the Act , inter-alia p .....

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197A so as to make them eligible for filing self-declaration in Form.No.15G/15H for non-deduction of tax at source in respect insurance commission referred to in section 194D. This amendment will take effect from 1st June, 2017. [Clause 69] Increasing the threshold limit for maintenance of books of accounts in case of Individuals and Hindu undivided family The existing provisions of clause (i) and clause (ii) of sub-section (2) of section 44AA of the Act cast an obligation on every person carryi .....

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otal sales or turn over or gross receipts, etc specified in said clauses exceeds rupees one lakh twenty thousand and rupees ten lakh, respectively. In order to reduce the compliance burden, it is proposed to amend the provisions of section 44AA to increase monetary limits of income and total sales or turn over or gross receipts, etc specified in said clauses for maintenance of books of accounts from one lakh twenty thousand rupees to two lakh fifty thousand rupees and from ten lakh rupees to twe .....

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ired to get his accounts audited if the total sales, turnover or gross receipts in the previous year exceeds one crore rupees. The threshold limit for applicability of presumptive taxation in case of eligible business carried on by eligible person under section 44AD was increased to two crore rupees from one crore rupees with effect from 1st April, 2017 relevant to Assessment year 2017-18 by Finance Act, 2016. Further vide press release dated 20th June, 2016, it was clarified that if an eligible .....

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accordance with the provisions of sub-section (1) of section 44AD and his total sales, total turnover or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year, from requirement of audit of books of accounts under section 44AB. This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years. [Clause 20] Non-deduction of tax in case of exempt compensation under RFCTLA .....

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ion and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, ('RFCTLARR Act') on 26th September, 2013 which came into force on 1st January, 2014. Section 96 of the RFCTLARR Act inter-alia, provides that income-tax shall not be levied on award or agreement made subject to limitations mentioned in section 46 of the said Act. Therefore, compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under section 46 of RFTCLARR Act) .....

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nsation received on compulsory acquisition of land and not tax deduction at source under section 194LA of the Act. Thus in order to rationalise the provisions of the Act, it is proposed to amend the section 194LA to provide that no deduction shall be made under this section where such payment is made in respect of any award or agreement which has been exempted from levy of income-tax under section 96 (except those made under section 46) of RFCTLARR Act. This amendment will take effect from 1st A .....

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exempt the following class of buyers such as the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; local authority as defined in explanation to clause (20) of Section 10; a public sector company which is engaged in the business of carrying passengers, from the applicability of the provision of sub- section (1F) of section 206C of the Act. This amendment will take effect from 1st April, 2017. [C .....

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id/payable exceeds thirty thousand rupees to a person in a financial year. In order to promote ease of doing business, it is proposed to amend section 194J to reduce the rate of deduction of tax at source to two per cent. from ten per cent. in case of payments received or credited to a payee, being a person engaged only in the business of operation of call center. This amendment will take effect from the 1st day of June, 2017. [Clause 65] Scope of section 92BA of the Income-tax Act relating to S .....

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alue of specified domestic transactions (SDTs), method used to determine the arm's length price for SDTs, positions taken with regard to certain transactions not considered as SDTs, etc. This has considerably increased the compliance burden of the taxpayers. In order to reduce the compliance burden of taxpayers, it is proposed to provide that expenditure in respect of which payment has been made by the assessee to a person referred to in under section 40A(2)(b) are to be excluded from the sc .....

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levy of capital gains tax. However, tax neutrality to the conversion of bond or debenture of a company to share or debenture of that company is provided under the section 47. No similar tax neutrality to the conversion of preference share of a company into its equity share is provided. In order to provide tax neutrality to the conversion of preference share of a company into equity share of that company, it is proposed to amend section 47 to provide that the conversion of preference share of a c .....

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shares of an Indian company by a demerged foreign company to a resulting foreign company is not regarded as transfer. It is proposed to amend section 49 so as to provide that cost of acquisition of the shares of Indian company referred to in section 47(vic) in the hands of the resulting foreign company shall be the same as it was in the hands of demerged foreign company. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 .....

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his, they will be given carbon credits. A reduction in emissions entitles the entity to a credit in the form of a Certified Emission Reduction (CER) certificate. The CER is tradable and its holder can transfer it to an entity which needs Carbon Credits to overcome an unfavourable position on carbon credits. Income-tax Department has been treating the income on transfer of carbon credits as business income which is subject to tax at the rate of 30%. However, divergent decisions have been given by .....

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ten per cent (plus applicable surcharge and cess) on the gross amount of such income. No expenditure or allowance in respect of such income shall be allowed under the Act. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years. [Clause 45] Processing of return within the prescribed time and enable withholding of refund in certain cases The provisions of sub-section (1D) of section 143 provide that the proc .....

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of section 143(1D) shall cease to apply in respect of returns furnished for assessment year 2017-18 and onwards. However, to address the concern of recovery of revenue in doubtful cases, it is proposed to insert anew section 241A to provide that, for the returns furnished for assessment year commencing on or after 1st April, 2017, where refund of any amount becomes due to the assessee under section 143(1) and the Assessing Officer is of the opinion that grant of refund may adversely affect the .....

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lments of advance tax and due dates for depositing the same. Clause (b) of sub-section (1) of the said section provides that an eligible assessee engaged in an eligible business referred to in section 44AD is liable to pay advance tax in a single instalment on or before the 15th of March every financial year. Vide Finance Act 2016, presumptive taxation regime has been extended to professionals also. Hence, it is proposed to amend the said clause (b) to provide that the assessee who declares prof .....

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nce Act, 2016, tax on certain dividends received from domestic companies is to be levied under section 115BBDA of the Act with effect from the 1st April, 2017, if such income exceeds ten lakh rupees. However, in view of the uncertain nature of declaration and receipt of dividend incomes, an assessee liable to pay advance tax may not be able to correctly determine such liability within the payment schedule as specified under section 211 and shall, therefore, incur levy of interest on deferment of .....

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and subsequent years. [Clauses 73 & 74] Interest on refund due to deductor The existing section 244A of the Act provides that an assessee is entitled to receive interest on refund arising out of excess payment of advance tax, tax deducted or collected at source, etc. It is proposed to insert a new sub-section (1B) in the said section to provide that where refund of any amount becomes due to the deductor, such person shall be entitled to receive, in addition to the refund, simple interest on .....

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ndment will take effect from 1st April, 2017. [Clause 77] Extension of capital gain exemption to Rupee Denominated Bonds With a view to provide relief to non-resident investor, in the wake of permission to the Indian corporates by the Reserve Bank of India (the RBI) to issue rupee denominated bonds outside India as a measure to enable the Indian corporates to raise funds from a source outside India, the Finance Act, 2016, inter-alia, amended section 48 of the Act with effect from the 1st April, .....

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ident to non-resident for the purpose of increasing acceptability and transferability of such instrument in the foreign market. In order to further provide relief in respect of gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company to secondary holders as well, it is proposed to amend section 48 providing that the said appreciation of rupee shall be ignored for the purposes of computation of full value .....

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nt years. [Clause 24] Enabling claim of credit for foreign tax paid in cases of dispute The existing provisions of section 155 of the Act provide for procedure for amendment of assessment order in case of certain specified errors. In view of rule 128 of the Income-tax Rules, 1962, which provides a mechanism for claim of foreign tax credit, it is proposed to insert sub-section (14A) in section 155 to provide that where credit for foreign taxes paid is not given for the relevant assessment year on .....

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been directly or indirectly claimed or shall not be claimed for any other assessment year. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018-19 and subsequent years. [Clause 62] Amendments to the structure of Authority for Advance Rulings Chapter XIX-B of the Act relates to the Advance rulings under the Act. With a view to promote ease of doing business, it has been decided by the Government to merge the Authority for Advance Ru .....

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oposed to section 245Q which relates to application for advance ruling. It is further proposed to amend the qualifications for appointment as revenue Member of the AAR and provide that an officer of the Indian Revenue Service qualified to be a Member of the Central Board of Direct Taxes Board and an officer of the Indian Customs and Central Excise Service, who is qualified to be a member of the Central Board of Excise & Customs, shall be eligible to be appointed as revenue Member of AAR. In .....

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mber shall be considered as on the date of occurrence of the vacancy. It is also proposed that in the event the Chairman is unable to discharge his functions owing to absence, illness or any other reason, or in the event that the office of the Chairman falls vacant, the Vice-chairman shall discharge the functions of the Chairman until the new Chairman enters upon his office or until the incumbent Chairman resumes his duties. These amendments will take effect from 1st April, 2017. [Clauses 79, 80 .....

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before the Appellate Tribunal. This amendment will take effect from 1st April, 2017. [Clause 82] Empowering Board to issue directions in respect of penalty for failure to deduct or collect tax at source Existing provision of clause (a) of sub-section (2) of section 119 empowers the Board to issue orders setting forth directions or instructions (not being prejudicial to assessees) to be followed by subordinate authorities in the work relating to assessment or collection of revenue or the initiati .....

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ime limits for completion of assessment, reassessment and re-computation and reducing the time for filing revised return The existing provisions of section 153 specify time limit for completion of assessment, reassessment and re-computation of cases mentioned therein. In the effort to minimise human interface and move towards technology, massive computerisation has been carried out in the Department, which has translated into overall enhanced efficiency in the functioning of the Department. In v .....

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amend sub-section (2) of the said section to provide that the time limit for making an order of assessment, reassessment or re-computation under section 147, in respect of notices served under section 148 on or after the 1st day of April, 2019 shall be twelve months from the end of the financial year in which notice under section 148 is served. It is also proposed to amend sub-section (3) of the said section to provide that the time limit for making an order of fresh assessment in pursuance of a .....

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rification of any issue by way of submission of any document by the assessee or any other person or where an opportunity of being heard is to be provided to the assessee, the time limit relating to fresh assessment provided in sub-section (3) shall apply to the order giving effect to such order. It is also proposed to amend sub-section (9) of the said section to provide that where a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or under section 148 has been issued .....

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eference of section 153B therein. It is also proposed to consequentially amend the meaning of conclusion of proceeding in the Explanation to clause (b) of section 245A so as to provide that conclusion of proceedings shall be construed in accordance with the time specified for making assessment or reassessment under sub-section (1) of section 153. These amendments will take effect from 1st April, 2017. In order to expedite assessments of the Department as proposed above, it is critical that the r .....

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& 78] Rationalisation of the provisions in respect of time limits for completion of search assessment The existing provisions of section 153B provide for the time limit for completion of assessment under section 153A. Since the time limit for completion of assessment under section 153 is proposed to be rationalised, the time limit for completion of assessment under section 153A is also proposed to be consequentially rationalised. It is accordingly proposed to amend sub- section (1) of the sa .....

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