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RATIONALISATION MEASURES - DIRECT TAXES

I. - Bill - Memorandum Explaining the Provisions in The Finance Bill, 2017 - Bill - I. - I. RATIONALISATION MEASURES Rationalisation of provisions of section 115JB in line with Indian Accounting Standard (Ind-AS) Central Government notified the Indian Accounting Standards (Ind AS) which are converged with International Financial Reporting Standards(IFRS) and prescribed the Companies (Indian Accounting Standards) Rules, 2015 which laid down a roadmap for implementation of these Ind AS. Globally, .....

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sed on existing Indian GAAP, the Central Board of Direct Taxes (CBDT) constituted a committee in June, 2015 for suggesting the framework for computation of minimum alternate tax (MAT) liability under section 115JB for Ind AS compliant companies in the year of adoption and thereafter. The Committee submitted first interim report on 18th March, 2016 which was placed in public domain by the CBDT for wider public consultations. The Committee submitted the second interim report on 5th August, 2016 wh .....

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is proposed framework are as under: A. MAT on Ind AS compliant financial statement (i) No further adjustments to the net profits before other comprehensive income of Ind AS compliant companies, other than those already specified under section 115JB of the Act shall be made. (ii) The other comprehensive income includes certain items that will permanently be recorded in reserves and hence never be reclassified to the statement of profit and loss included in the computation of book profits. These i .....

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profits at the time of realisation/disposal/retirement or otherwise transferred 3 Remeasurements of defined benefit plans (Ind AS 19) To be included in book profits every year as the remeasurements gains and losses arise 4 Any other item To be included in book profits every year as the gains and losses arise (iii) Appendix A of Ind AS 10 provides that any distributions of non-cash assets to shareholders (for example, in a demerger) shall be accounted for at fair value. The difference between the .....

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by it are recorded at values different from values appearing in the books of account of the demerged company immediately before the demerger, any change in such value shall be ignored for the purpose of computing of book profit of the resulting company. B. MAT on first time adoption (i) The adjustments arising on account of transition to Ind AS from existing Indian GAAP is required to be recorded directly in Other Equity at the date of transition to Ind AS. Several of these items would subsequen .....

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d to the profit and loss shall be included in book profits as specified hereunder- SI. No. Items Point of time 1 Changes in revaluation surplus of PPE and Intangible assets (Ind AS 16 and Ind AS 38) To be included in book profits at the time of realisation/disposal/retirement or otherwise transferred 2 Gains and losses from investments in equity instruments designated at fair value through other comprehensive income (Ind AS 109) To be included in book profits at the time of realisation/disposal/ .....

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II of Schedule III of Companies Act, 2013 and which would otherwise never subsequently be reclassified to the profit and loss account, shall be included in the book profits, equally over a period of five years starting from the year of first time adoption of Ind AS subject to the following- a) PPE and intangible assets at fair value as deemed cost An entity may use fair value in its opening Ind AS Balance Sheet as deemed cost for an item of PPE or an intangible asset as mentioned in paragraphs D .....

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fits. • Depreciation shall be computed ignoring the amount of aforesaid retained earnings adjustment. • Similarly, gain/loss on realisation/disposal/retirement of such assets shall be computed ignoring the aforesaid retained earnings adjustment. b] Investments in subsidiaries, joint ventures and associates at fair value as deemed cost An entity may use fair value in its opening Ind AS Balance Sheet as deemed cost for investment in a subsidiary, joint venture or associate in its separat .....

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ion differences that arose before the date of transition to Ind AS and shall include only the translation differences after the date of transition. • In such cases, to ensure that such Cumulative translation differences on the date of transition which have been transferred to retained earnings, are taken into account, these shall be included in the book profits at the time of disposal of foreign operations as mentioned in paragraph 48 of Ind AS 21. (ii) All other adjustments to retained ear .....

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account of transition to Ind AS shall also be ignored. C. Reference year for first time adoption adjustments In the first year of adoption of Ind AS, the companies would prepare Ind AS financial statement for reporting year with a comparative financial statement for immediately preceding year. As per Ind AS 101, a company would make all Ind AS adjustments on the opening date of the comparative financial year. The entity is also required to present an equity reconciliation between previous Indian .....

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of Ind AS. Such companies are also required to prepare an opening balance sheet as of 1 April 2015 and restate the financial statements for the comparative period 2015-16. In such a case, the first time adoption adjustments as of 31 March 2016 shall be considered for computation of MAT liability for previous year 2016-17 (Assessment year 2017-18) and thereafter. Further, in this case, the period of five years proposed above shall be previous years 2016-17, 2017-18, 2018-19, 2019-20 and 2020-21. .....

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ital gains arising from the transfer of unlisted securities in case of non-resident. There was an uncertainty as to whether the provision of section 112(1)(c)(iii) is applicable to the transfer of share of a private company. Finance Act, 2016 amended section 112(1)(c) to clarify that the share of company in which public are not substantially interested shall also be chargeable to tax at the rate of ten per cent with effect from 1st April, 2017. As the concessional rate was provided with effect f .....

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spectively from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years. [Clause 150] Rationalization of rebate allowable under Section 87A The existing provisions of section 87A provide for a rebate up to ₹ 5000 from the income-tax payable to a resident individual if this total income does not exceed ₹ 5,00,000. In view of proposed rationalisation of tax rates for individuals in the income slab of ₹ 2,50,000 to &# .....

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ion of provisions of Section 10AA Under the existing provisions of the section 10AA, deduction is allowed from the total income of an assessee, in respect of profits and gains from his Unit operating in SEZ, subject to fulfilment of certain conditions. Section 10AA allows deduction in computing the total income of the assessee, hence the deduction is to be allowed for the total income of the assessee as computed in accordance with the provision of the Act before giving effect to the provisions o .....

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to the provisions of the section 10AA and the deduction under section 10AA in no case shall exceed the said total income. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent assessment years. [Clause 7] Consolidation of plans within a scheme of mutual fund Finance Act,2016 amended section 47 of the Act so as to provide tax neutrality to the transfer of units in a consolidating plan of mutual fund scheme made .....

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ual fund scheme were held by the assessee. These amendments will take effect accordingly, from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years. [Clauses 3 & 25] Definition of 'person responsible for paying' in case of payments covered under sub-section (6) of section 195 The existing provisions of section 204 of Act, has defined the meaning of 'person responsible for paying' to include employer, company o .....

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;person responsible for paying' to furnish information relating to payment of any sum, whether chargeable to tax or not. Thus in order to bring clarity to the meaning of 'person responsible for paying' in case of payment by a resident to a non-resident in accordance with section 195(6) of the Act, it is proposed to amend the said section of the Act to provide that in the case of furnishing of information relating to payment to a non-resident, not being a company, or to a foreign comp .....

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erred upon the Central Government to enter into agreement with the Government of any country outside India for granting relief in respect of income on which income- tax has been paid both under the said Act and income-tax Act in that foreign country, avoidance of double taxation of income, exchange of information for the prevention of evasion or avoidance of income-tax or recovery of income-tax. Similar provisions are provided in section 90A of the Act in the case of an agreement entered into by .....

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stent with the provisions of this Act or the agreement. The Income-tax simplification committee in its final report has suggested to bring in more clarity in the Act in respect of interpretation of 'terms' used in an agreement entered under section 90 or 90A for the purposes of its application in order to reduce the avoidable litigation related to taxation of non- residents. In the light of above discussion and to bring in clarity to avoid litigation , it is proposed to amend the section .....

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1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years. [Clauses 39 & 40] Actual cost of asset in case of withdrawal of deduction in terms of Sub-section (7B) of section 35AD The existing provisions of Section 35AD of the Act, inter alia provides for investment linked deduction on amount of capital expenditure incurred, wholly or exclusively, the purposes of business, during the previous year for a specified business excluding capital exp .....

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ction 43 defines "actual cost" for the purposes of claiming depreciation under section 32 of the Act in certain situations. However, there is no clarity on determination of actual cost for the purposes of allowance of depreciation of such assets in respect of which the deduction which is already allowed in a previous year under section 35AD of the Act, is withdrawn in terms of sub-section (7B) of the said section. In light of the recommendations of Income-tax simplification committee a .....

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had the asset been used for the purposes of business since the date of its acquisition. 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 16] Clarity of procedure in respect of change or modifications of object and filing of return of income in case of entities exempt under sections 11 and 12 The existing provisions of section 12A of the Act provide for conditions for applicability of sectio .....

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cordance with its objects subsequent to grant of registration. However, at present there is no explicit provision in the Act which mandates said trust or institution to approach for fresh registration in the event of adoption or undertaking modifications of the objects after the registration has been granted. Therefore, it is proposed to amend section 12A so as to provide that where a trust or an institution has been granted registration under section 12AA or has obtained registration at any tim .....

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tered under section 12AA are required to file return of income under sub-section (4A) of section 139, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax. However, there is no clarity as to whether the said return of income is to be filed within time allowed u/s 139 of the Act or otherwise. In order to provide clarity in this regard, it is proposed to further amend section 12A so as to provide for furt .....

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sting provisions of the section 49 of the Act provides for computation of cost with reference to certain modes of acquisition of capital asset. It is proposed to amend said section so as to provide that where the capital gain arises from the transfer of an asset, being the asset held by a trust or an institution in respect of which accreted income has been computed, and the tax has been paid thereon in accordance with the provisions of Chapter XII-EB, the cost of acquisition of such asset shall .....

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deduction of tax at source (TDS) at higher rate of 20% or the applicable rate whichever is higher) in case of non-quoting of Permanent Account Number (PAN) is provided under section 206AA of the Act and it exist since April, 2010. PAN acts as a common thread for linking the information in the departmental data base. It may also be noted that the process of allotment of PAN is made simple and robust. PAN application can be made online and PAN gets allotted in less than a week. In order to strengt .....

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r cent. whichever is higher. II. that the declaration filed under sub section (1A) of section 206C shall not be valid unless the person filing the declaration furnishes his Permanent Account Number in such declaration. III. that in case any declaration becomes invalid under sub-section (2), the collector shall collect the tax at source in accordance with the provisions of sub-section (1). IV. no certificate under sub section (9) of section 206C shall be granted unless it contains the Permanent A .....

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nent Account Number provided by the collectee is invalid or it does not belong to the collectee, then it shall be deemed that Permanent Account Number has not been furnished to the collector. VIII. to exempt the non-resident who does not have permanent establishment in India from the provisions of this proposed section 206CC of the Act. This amendment will take effect from 1st April, 2017. [Clause 72] Rationalization of deduction under section 80CCG. Under the existing provisions of section 80CC .....

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out this deduction by providing that no deduction under section 80CCG shall be allowed from assessment year 2018-19. However, an assessee who has claimed deduction under this section for assessment year 2017-18 and earlier assessment years shall be allowed deduction under this section till the assessment year 2019-20 if he is otherwise eligible to claim the deduction as per the provisions of this section. This amendment will take effect from the 1st April, 2018 and shall accordingly apply in re .....

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. However, the unabsorbed loss shall be allowed to be carried forward for set-off in subsequent years in accordance with the existing provisions of the Act. This amendment will take effect from 1st April, 2018 and will, accordingly apply in relation to assessment year 2018-19 and subsequent years. [Clause 31] Reason to believe to conduct a search, etc. not to be disclosed Sub-section (1) and (1A) of section 132 provide that where an authority mentioned therein, based on the information in his po .....

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of the assessee to the income-tax authority so authorised. Confidentiality and sensitivity are the hallmarks of proceedings under section 132 and section 132A. However, certain judicial pronouncements have created ambiguity in respect of the disclosure of 'reason to believe' or 'reason to suspect' recorded by the income-tax authority to conduct a search under section 132 or to make requisition under section 132A. It is therefore proposed to insert an Explanation to sub-section (1 .....

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132A from 1st day of October, 1975. [Clauses 50 & 51] Power of provisional attachment and to make reference to Valuation Officer to authorised officer Section 132 of the Act provides the power of search and seizure subject to fulfilment of conditions specified therein. In order to protect the interest of revenue and safeguard recovery in search cases, it is proposed to insert sub-section (9B) and (9C) in the said section, to provide that during the course of a search or seizure or within a .....

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m the date of order of such attachment. In order to enable correct estimation and quantification of undisclosed income held in the form of investment or property by the assessee by the Investigation wing of the Department, it is further proposed to insert a new sub-section (9D) in the said section to provide that in a case of search, the authorised officer may, for the purpose of estimation of fair market value of a property, make a reference to a Valuation Officer referred to in section 142A, f .....

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il, 2017. [Clause 50] Rationalisation of the provisions in respect of power to call for information The existing provisions of section 133 empower certain income-tax authorities to call for information for the purpose of any inquiry or proceeding under the Act. The second proviso to the said section provides that the power in respect of an inquiry, in a case where no proceeding is pending, shall not be exercised by any income-tax authority below the rank of the Principal Director or Director or .....

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posed to amend the second proviso of the said section to provide that the Joint Director, the Deputy Director or the Assistant Director may exercise the powers in respect of such inquiry, without seeking prior approval of higher authorities. These amendments will take effect from 1st April, 2017. [Clause 52] Extension of the power to survey The existing provisions of section 133A empower an income-tax authority to enter any place, at which a business or profession is carried on, or at which any .....

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information under section 133C Section 133C of the Act empowers the prescribed income-tax authority to issue notice calling for information and documents for the purpose of verification of information in its possession. In order to expedite verification and analysis of the information and documents so received, it is proposed to amend section 133C to empower the Central Board of Direct Taxes to make a scheme for centralised issuance of notice calling for information and documents for the purpose .....

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een received or any asset has been acquired out of such income prior to commencement of the Income Declaration Scheme, 2016 (the Scheme), and no declaration in respect of such income is made under the Scheme, then, such income shall be deemed to have accrued, arisen or received, as the case may be, in the year in which a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or section 148 or section 153A or section 153C of the Income-tax Act is issued by the Assessing Off .....

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) and the same is represented in the form of undisclosed investment in any asset, it is proposed that section 153A relating to search assessments be amended to provide that notice under the said section can be issued for an assessment year or years beyond the sixth assessment year already provided upto the tenth assessment year if- (i) the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income which has escaped assessment amounts to .....

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April, 2017. It is also proposed to consequentially amend section 153C to provide a reference to the relevant assessment year or years as referred to in section 153A. These amendments will take effect from 1st April, 2017. [Clauses 59, 61, & 150] Exemption of income of Chief Minister's Relief Fund or the Lieutenant Governor's Relief Fund Under the existing provisions contained in clause (23C) of section 10, exemption is provided in respect of income of certain funds which, inter-alia .....

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