Analysis-of-the-Finance-Bill-2014-with-International

Report
FINANCE BILL, 2014
Announcements
Announcements
Not to ordinarily bring about any change retrospectively.
Instead of tax officers, High Level Committee to scrutinise ‘indirect
transfer’ cases covered by retrospective amendment.
Advance Ruling can now be obtained by resident taxpayers also.
High level Committee to interact with trade and industry regularly and
ascertain areas where clarity in tax laws is required. Appropriate
clarifications to be issued within 2 months.
Announcements
Government to review provisions, consider comments received from
stakeholders’ and take view on the Direct Taxes Code.
Standards for computing tax would be notified separately pursuant to
adoption of new Indian accounting standards.
No policy announcements or amendments in relation to General Anti
Avoidance Rules which are effective from AY 2016-17.
Income-tax survey can now be carried out by Income-tax authorities for
verifying TDS compliances.
Corporate Tax
Investment in New Plant & Machinery – Section 32AC(1A)
& (1B)
W.e.f AY 2015-16, where a company, engaged in the business of
manufacturing or production of any article or thing acquires or installs a
new Plant & Machinery at a cost exceeding Rs.25 Crores from
AY 15-16 up to AY 2017-18, there shall be allowed a deduction of 15% of
the actual cost of the asset acquired and installed.
Further, the assessee who is eligible to claim deduction under existing
combined threshold limit of Rs. 100 Crores for investment made in AY
2014-15 & AY 2015-16, shall continue to be eligible to claim deduction
under the existing provisions of section 32AC(1)
(W.e.f. 1st April 2015)
Deduction in respect of capital expenditure on specified
business – Section 35AD
It is proposed to include two new businesses as ‘specified business’ for
the purposes of the investment-linked deduction so as to promote
investment in these sectors –
laying and operating a slurry pipeline for the transportation of iron
ore;
setting up and operating a semiconductor wafer fabrication
manufacturing unit, if such unit is notified by the Board in
accordance with the prescribed guidelines.
The date of commencement of operations for availing investment linked
deduction in respect of the two new specified businesses shall be on or
after 1st April, 2014.
Deduction in respect of capital expenditure on specified
business – Section 35AD
It is proposed to amend the section to provide that any asset in respect
of which a deduction is claimed and allowed under section 35AD, shall
be used only for the ‘specified business’ for a period of eight years
beginning with the previous year in which such asset is acquired or
constructed.
Where any asset, in respect of which such deduction is claimed and
allowed, is used for a purpose other than the specified business during
the specified period of eight years, the total amount of deduction
claimed and allowed (as reduced by the amount of depreciation
otherwise allowable for income-tax purposes) shall be taxable as
business income of the taxpayer in the year of such use of the asset.
(W.e.f. 1st April 2015)
Deduction in respect of capital expenditure on
specified business – Section 35AD
However, this would not apply to a company which has become a sick
industrial company under sub-section (1) of section 17 of the Sick
Industrial Companies (Special Provisions)Act, 1985 during the specified
period of eight years.
Where a taxpayer claims an investment linked deduction, the same
taxpayer, being a unit in a SEZ, will not be allowed a profit linked
deduction in respect of the same business and vice-versa.
(W.e.f. 1st April 2015)
Corporate Social Responsibility (CSR) –Section 37
It is proposed to add Explanation 2 to S.37(1) to disallow any
expenditure incurred on any activities related to CSR as referred
under section 135 of the Companies Act, 2013, while computing
taxable income, as it shall not be deemed to be expenditure incurred
for the purpose of business or profession.
However, CSR expenditure of the nature described in Section 30 to
Section 36 of the Act shall be allowed under those sections subject
to fulfillment of the prescribed conditions, if any, specified therein.
(W.e.f. 1st April 2015)
Amount Not deductible while computing Total Income –
Section 40(a)(i)
Under clause (i), any amount which is payable outside India or in India to a
non-resident as Interest, royalty and Fees for technical services or any
other sum, on which tax is deductible at source but tax has not been
deducted or deducted but not deposited during the previous year or by
the due date u/s. 200 is not allowable as deduction in the year in which the
expenditure is incurred. Such expenditure is allowable in the year of
payment.
W. e. f. A.Y. 2015-16, it is proposed to allow such expenditure, if tax is
deducted and deposited by the due date for filing the return of income
u/s. 139(1).
Amount Not deductible while computing Total
Income – Section 40(a)(ia)
The provision is now proposed to be in line with the provision applicable to
TDS on payments to residents covered under clause 40(a)(ia).
W.e.f. A.Y. 2015-16, all expenses subject to TDS will be disallowed u/s.
40(a)(ia), in the same manner in which interest, royalty, etc. are
disallowed. However, disallowance under this clause is proposed to be
restricted to 30% of the expenditure instead of 100% disallowable at
present. Such sum shall be allowable in the year in which tax is deducted
and deposited
Speculative Transaction – Section 43
An eligible transaction in respect of trading in commodity
derivatives carried out in a recognised association, which is
chargeable to commodities transaction tax shall not be
deemed to be speculative transaction.
(retrospectively w.e.f. 1st April 2014)
Special Provisions for computing profits and gains of business of
plying, hiring, or leasing goods carriage - Section 44AE
Under the existing provisions of section 44AE, for the purpose of
presumptive taxation in case of an assessee engaged in the business of
plying, hiring or leasing of goods carriages who does not own more than 10
goods carriages, Rs 5,000/- and Rs. 4,500/- for every month or part thereof
is taken as income per heavy goods vehicle (HGV) and vehicle other than
HGV respectively.
Now the distinction between HGV and vehicle other than HGV is sought to
be done away with and it is proposed to take Rs. 7,500/- for every month
or part thereof per vehicle as income under this section.
(W.e.f. 1st April 2015)
Losses in Speculation Business – Section 73
The existing provisions of section 73 of the Act provide that losses
incurred in respect of a speculation business cannot be set off or carried
forward and set off except against the profits of any other speculation
business.
Explanation to section 73 provides that in case of a company deriving its
income mainly under the head “Profits and gains of business or
profession” (other than a company whose principal business is business
of banking or granting of loans and advances), and where any part of its
business consists of purchase or sale of shares, such business shall be
deemed to be speculation business for the purpose of this section.
Explanation to Sec 73 to be amended to provide that provision of the
Explanation shall also not be applicable to a company the
principal business of which is the business of trading in shares.
(W.e.f. 1st April 2015)
Extension of sunset date for power sector
undertaking – Section 80-IA
Currently, a deduction of profits is available to an undertaking, if the
undertaking:
is set up for the generation and distribution of power if it begins
to generate power at any time during the period beginning on
1st April, 1993 and ending on 31st March, 2014;
starts transmission or distribution by laying a network of new
transmission or distribution lines at any time during the period
beginning on 1st April, 1999 and ending on 31st March, 2014;
undertakes substantial renovation and modernization of existing
network of transmission or distribution lines at anytime during
the period beginning on 1st April, 2004 and ending on 31st
March, 2014.
It is proposed to extend the above terminal date from
31 March 2014 to 31 March 2017.
(w.e.f. AY 2015-16)
Dividend distribution Tax and Income Distribution Tax
–Section 1150 & Section 115R
Dividends distributed by domestic companies and mutual funds to be
grossed up.
It is proposed to amend Section 115-O and Section 115-R to provide
that tax would be paid after grossing up the net profit distributed by
the company or the income distributed by the mutual fund.
In other words a) If surcharge and education cess is excluded then effective rate of
Dividend distribution tax will be 17.647% (100×15 ÷85=17.647%). An
extra burden of 2.647%.
b) If surcharge and education cess is included then effective rate of
Dividend distribution tax will be 20.47% (100×16.995
÷83.005=20.47%). An extra burden of 3.48%.
(W.e.f. 1st October 2014)
Furnishing PAN in respect of payment of interest on
long term bonds –Section 206AA
Existing provision under Section 206AA(7) of the Act relating to
requirement of furnishing PAN are not applicable to payment of
interest on long term infrastructure bond referred to in section 194LC
of the Act.
It is proposed to amend Section 206AA (7) to extend the benefit of
exemption to payment of interest in any long term bonds referred to
in Section 194LC of the Act and not restricted to infrastructure bonds.
(W.e.f. 1st October 2014)
Capital Gains Tax
Definition of Short term capital asset - Section 2(42A)
Section 2(42A)amended to provide that securities other than units not
listed in a recognized stock exchange and units of mutual fund other than
equity oriented mutual fund shall be regarded as short term capital asset,
if the same are held for not more than 36.
(W.e.f. 1st April 2015)
Capital Gains – Section 45
In case of compulsory acquisition of capital asset, any enhanced
compensation received by the order of the Court, Tribunal or other
authority, is chargeable to tax in the year in which such amount is received
by the assessee.
It is proposed to provide that, if any amount of compensation is received
pursuant to an interim order passed by the Court, Tribunal or other
authority, such amount shall be taxable in the year in which the final
order of such Court, Tribunal or other authority is made.
(W.e.f. 1st April 2015)
Transaction not regarded as transfer – Section 47
Any transfer of Government Security carrying a periodic payment of
interest, made outside India through an intermediary dealing in settlement
of securities, by a non-resident to another non-resident, shall not be
regarded as “transfer”.
Section 2(b) of Securities Contracts (Regulation) Act, 1956 defines the
expression “Government Security”
(W.e.f. 1st April 2015)
Taxation of advance for transfer of a capital asset
A new clause (ix) in sub-section (2) of section 56 is proposed to provide
for the taxability of any sum of money, received as an advance or
otherwise in the course of negotiations for transfer of a capital asset if –
such sum is forfeited; and
the negotiations do not result in transfer of such capital asset.
A consequential amendment is also proposed to be made to include
such sum in the definition of the term 'income'.
Correspondingly, section 51 is proposed to be amended to provide that
where tax is paid on the forfeited advance, the same is proposed not to
be reduced from the cost of acquisition of the asset while computing
the capital gains on its transfer.
(W.e.f. 1st April 2015)
Capital gains exemption in case of investment in
long term specified assets – Section 54EC
The existing provisions exempt proportionate capital gains arising from
transfer of a long-term capital asset, if the same is invested in specified
long-term assets within a period of six months.
The investment in such specified long-term assets during any financial
year should not exceed Rs 50 lakhs.
The existing provisions are ambiguous due to the window of six months
being spread in two years in certain cases (transfers post September)
which results in claim of relief of Rs 1 crore instead of the intended relief
of Rs 50 lakhs.
Accordingly, it is proposes to insert a proviso to clarify that the
investment made by a tax payer during the financial year in which the
assets are transferred and in the subsequent financial year should not
exceed Rs 50 lakhs.
(W.e.f. 1st April 2015)
Capital gains exemption in case of investment in a
residential house property – Section 54 & Section 54F
The existing provisions exempt capital gains arising from sale of a long
term capital asset, being a residential property if the gains are utilised
for purchasing/constructing another residential property within the
specified period.
If the gains are utilised in the aforesaid manner the capital gains arising
from transfer of a long term capital asset, other than a residential house
are exempt.
It is proposed to amend section 54 and section 54F to provide
relief only if the investment is made in one residential house situated in
India.
At present instead of ‘one’ the term used is ‘a’. The FM wants to put an
end to the controversy whether investment can be made in more than
one residential house to claim the exemption.
(W.e.f. 1st April 2015)
Tax on Long Term Capital Gains – Section 112
Presently, the concessional tax rate of 10% is applicable on long term
capital gains arising from transfer of listed securities, units of mutual funds
and zero coupon bonds.
Now, the concessional tax rate of 10% shall be applicable only on long term
capital gains arising from the transfer of listed securities (other than units)
and zero coupon bonds.
(W.e.f. 1st April 2015)
Taxation regime for Real
Estate Investment Trust
(REIT) and Infrastructure
Investment Trust (Invit) –
Chapter XII - FA
Taxation regime for REIT and Invit – Chapter XII - FA
Investor
Sponsor
REIT / INVTS
SPV
Taxation regime for Real Estate Investment Trust (REIT)
and Infrastructure Investment Trust – Chapter XII - FA
A specific taxation regime is proposed for two new categories of
investment vehicles namely, the Real Estate Investment Trust (REIT) &
Infrastructure Investment Trust (Invit). Business Trust means a trust
registered as an REIT/Invit, the units of which are required to be listed on a
recognised stock exchange in accordance with SEBI. Trust would be given a
pass-through status.
Listed units of business trust when traded on stock exchange would attract
STT and long term capital gains would be exempt while short term capital
gains would be taxable at 15%.
However, the period of holding of units would be reckoned as long term
only where the units have been held for more than 36 months.
(W.e.f. 1st October 2014)
Taxation regime for Real Estate Investment Trust (REIT)
and Infrastructure Investment Trust – Chapter XII - FA
Sponsor will not be liable to capital gains tax arising at the time of
exchange of shares in SPVs with units of the business trust. However,
sponsor shall be liable to tax at the time of disposal of such units and no
preferential capital gains tax regime (consequential to levy of STT) will be
available to sponsor in respect of units of business trust.
For the purpose of computing capital gain, the cost of units shall be the
original cost of shares to the sponsor. The holding period of shares shall
also be included in the holding period of such units for the sponsor.
Income by way of interest received by the business trust from SPV is not
taxable in the hands of the trust when the SPV makes an interest payment
to the trust. However, withholding tax at the rate of 5% (non-resident unit
holders) and 10% (resident unit holders) shall be applicable in case of
payment of interest component of income distributed to unit holders.
Taxation regime for Real Estate Investment Trust (REIT)
and Infrastructure Investment Trust – Chapter XII - FA
In case of ECBs availed by the business trust, the benefit of reduced
rate of 5% tax on interest payments to nonresident lenders shall be
available for a prescribed period as specified in section 194LC of the
Act.
The dividend received by the trust will be subject to DDT at the level of
SPV but will be exempt in the hands of the trust, and the dividend
component of income distributed by the trust to unit holders will also
be exempt in the hands of unit holders.
Income by way of capital gains on disposal of assets by the trust shall
be taxable in the hands of the trust. However, if such capital gains are
distributed, then the component of distributed income attributable to
capital gains would be exempt in the hands of unit holder.
Any other income of the trust shall be taxable at the maximum
marginal rate
The business trust is required to furnish its return of income.
International Tax
Characterization of income in case of Foreign Institutional
Investors - Section 2(14)
Definition of the term “Capital Asset” has been amended to provide that
securities held by FIIs in accordance with the Securities and Exchange
Board of India Act,1992 regulations will be regarded as Capital Asset asset
only so that any income arising from transfer of such security by a Foreign
Portfolio Investor (FPI) would be taxable under the head “capital gain”.
(W.e.f. 1st April 2015)
Meaning of International Transaction - Section 92B (2)
Under the current transfer pricing provisions, transactions entered into
by an enterprise with a person other than an associated enterprise is
deemed as a transaction between associated enterprises, if there exists
a prior agreement in relation to such transaction between such other
person and an associated enterprise or the terms of the relevant
transaction are determined in substance between such other person and
the associated enterprise.
In order to bring clarity, it has been proposed to amend the deeming
provision as transaction shall be deemed to be an international
transaction irrespective of whether such other person is a resident or
non-resident, as long as either the enterprise or the associated
enterprise or both are non-resident.
(W.e.f. 1st April 2015)
Reduction in tax rate on certain dividends received
from foreign companies – Section 115BBD
The section provides for taxation of gross dividends received by an
Indian company from a specified foreign company at a concessional rate
of 15%, if such dividend is included in the total income for the
AY 2012-13 or AY 2013-14 or AY 2014-15.
With a view to encourage Indian companies to repatriate foreign
dividends into the country, it is proposed to amend the section to
extend the benefit of lower rate of taxation without limiting it to a
particular assessment year.
Thus, such foreign dividends received in FY 2014-15 and subsequent
financial years shall continue to be taxed at the lower rate of 15%.
(W.e.f. 1st April 2015)
Roll back provisions in Advance Pricing Agreement
(APA) Scheme
APA is an agreement between the taxpayer and the income-tax
authorities on an appropriate TP methodology for a set of international
transactions over a fixed time period in future. It is proposed to now
introduce roll back provisions in the APA scheme –
Roll back refers to the applicability of the TP methodology agreed in
an APA to international transactions entered prior to the period
covered under the APA.
Roll back period not to exceed four years preceding the first
financial year for which APA is applicable.
Procedure, conditions and manner in respect of roll back of APAs to
be prescribed.
(W.e.f. 1st October 2014)
Use Of Multiple year data & Computation of the arms
length price
Use Of Multiple year data
Presently, the Indian transfer pricing regulations allow the use of
single year data for comparability analysis and multiple year data
in exceptional cases.
It is proposed to amend the regulations to allow use of multiple
year data for comparability analysis. Rules to be issued on this
aspect.
Computation of arm’s length price
Range concept to be introduced for determination of arm’s
length price.
Concept of arithmetic mean to continue where number of
comparables is inadequate.
TDS on income by way of interest from Indian
company - Section 194LC
The existing provisions of section 194LC of the Act provide for lower
withholding tax rate of 5%, on interest paid by an Indian company to
non-residents on monies borrowed by it in foreign currency from a
source outside India under a loan agreement or through issue of longterm infrastructure bonds at any time on or after the 1st day of July,
2012 but before the 1st day of July,2015 subject to certain conditions.
It is proposed to make Section 194LC applicable to a business trust also.
It is proposed to extend the benefit of this concessional rate to all longterm bonds including long term infrastructure bonds.
It is proposed to extend the benefit of lower withholding tax rate for
overseas borrowing made up to 1st July 2017.
(w.e.f. 1st October 2014)
Personal Tax
TAX RATES
For Companies
There are no changes in the Tax Rates including surcharge and
education cess applicable to Companies for the AY 2015-16.
For Individuals:
Income Slabs (in Rs)
Upto 2,50,000/-*
2,50,001 – 5,00,000
5,00,001 – 10,00,000
Above 10,00,001
Rate of Tax (%)
Nil
10%
20%
30%
Currently, there is no change in surcharge and education cess payable by
individuals
For resident senior citizens of 60 years of age but less than 80 years, the basic
exemption limit is proposed to be raised from Rs. 2,50,000 to Rs 3,00,000/-. and
for resident senior citizens above 80 years the basic exemption limit remains
unchanged at Rs 5,00,000/-
Income from House Property – Section 24
The deduction in respect of interest paid on money borrowed for
the construction, repair and acquisition of self –occupied house
property is proposed to be raised from Rs 1,50,000 to
Rs 2,00,000
(W.e.f. 1st April 2015)
Deductions under Chapter VIA
Section 80C- Deduction in respect of life insurance premia, deferred
annuity, contribution to PF etc. has been raised from Rs 1 Lakh to
Rs 1.5 lakh.
Section 80CCD - Under the existing provisions of section 80CCD,
deduction respect of contribution to pension scheme of Central
Government is allowed to an individual employed by the Central
Government or any other employer on or after 1 January 2004 . Now,
the condition of being employed on or after 1 January 2004 for private
sector employees is proposed to be omitted.
Section 80CCE – Cumulative Limit of deductions under sections 80C,
80CCC and 80CCD has been increased from Rs 1 Lakh to Rs 1.5 Lakh.
(w.e.f. AY 2015-16)
Miscellaneous
Provisions
Income of Charitable Trust and Institution – Section 11&
Section 12
Principal Commissioner or the Commissioner may also by an order in
writing cancel the registration of trust or institution if the activities of trust
or institution is not carried out in a manner that :
its income does not endure for the benefit of general public
it is for the benefit of any particular religious community or caste
any income or property of the trust is applied for the benefit of
specified persons, or
its funds are invested in prohibited mode.
However, registration shall not be cancelled if there was a reasonable
cause to carry out such activity
The power to cancel registration has been expanded. Now for any of the
above failures, the registration of a trust can be cancelled by the
Commissioner.
(W.e.f. 1st October 2014)
Income of Charitable Trust and Institution – Section 11&
Section 12
Where registration granted u/s 12A then benefit of exemption would be
available for earlier years which are pending before AO as on the date of
registration if activities and objects are same. No reopening of assessment
for earlier years do be done merely because trust or institution has not
obtained registration u/s 12AA.
(W.e.f. 1st October 2014)
It is proposed to provide definition of institution (university, hospital or
other educational institution) 'substantially financed by the Government"
u/s 10(23C). A specific percentage will be prescribed for amount of
Government grant as a percentage of total receipts including any voluntary
contribution and when such percentage is exceeded the institution will be
treated as substantially financed by the Government.
(W.e.f. 1st April 2015)
Income of Charitable Trust and Institution – Section 11& Section 12
Double benefit would not be allowable in respect of depreciation and
application of income for acquiring capital asset. Therefore, it is proposed
that under section 11 and section 10(23C), income for the purposes of
application shall be determined without any deduction or allowance by
way of depreciation or otherwise in respect of any asset, acquisition of
which has been claimed as an application of income under these sections
in the same or any other previous year
Any trust or institution registered for availing exemption u/s 11 cannot
claim any other exemption u/s 10 other than exemption related to
agriculture income and exemption u/s 10(23C)
(W.e.f. 1st April 2015)
Anonymous donations - Section 115BBC
As per the existing provisions of section 115BBC, while tax at the
rate of 30% is levied on the amount of anonymous donations
exceeding the threshold (5% of the total donations received by
the assessee or Rs 1 Lakh, whichever is higher), the remaining tax
is chargeable on total income after reducing the full amount of
anonymous donations.
The proper way of computation is to reduce the income by the
amount which has been taxed at the rate of 30%.
It is proposed to amend section 115BBC to provide that the
remaining tax is chargeable on total income after reducing the
income by the amount which has been taxed at the rate of 30%.
(w.e.f. 1st April 2015)
Anonymous donations - Section 115BBC
Total Donations
Rs. 50,00,000
Anonymous
Donation
Tax Payable on
Rs.50,000 @ 30%
Rs. 3,00,000
Amount to be
reduced from
computed income
Anonymous
donation less( 5% of
total donation or
Rs.1,00,000
whichever is
more),i.e., 30% on
Rs.50,000
A. At present
B. As per the
Rs.3,00,000
proposed
amendment
Rs.50,000
Alternate minimum tax - Section 115JC
Under the existing provisions, total income is required to be increased by
deductions claimed under Part C of Chapter VI-A and under section 10AA to
arrive at adjusted total income.
It is proposed to insert a new clause (iii) in sub-section (2) so that the total
income shall be increased by the deduction claimed under section 35AD for
computing adjusted total income. However, the amount of depreciation
allowable in accordance with the provisions of section 32 shall be reduced to
arrive at adjusted total income.
(w.e.f. 1st April 2015)
E.g. Total income : Rs. 60, Deduction claimed under Chapter VI-A : Rs. 40, Deduction claimed
u/s 35AD on a capital asset : Rs. 100.
Computation of adjusted total income for the purposes of AMT
Rs.
Total income
60
Addition:
(i) deduction under Chapter VI-A (on non-specified business)
(ii) deduction under section 35AD (on specified business) -Rs. 100
Less: depreciation under section 32
-(Rs. 15)
Adjusted total income under section 115JC
40
85
185
Credit of AMT - Section 115JEE
The existing provisions provide that provisions of section 115-JEE relating to
AMT are applicable to any person who has claimed a deduction under part C of
Chapter VI-A or under section 10AA. Further, section 115-JEE does not apply to
individuals or HUF or an association of persons or a body of individuals
(whether incorporated or not) or an artificial juridical person if the adjusted
total income does not exceed Rs 20 Lakhs.
However, there was difficulty in claiming AMT credit in subsequent years where
income of specified persons is less than Rs 20 Lakhs or no deduction under part
C of Chapter VI-A or under section 10AA has been claimed.
It is proposed to amend this section to provide credit for tax paid under
section 115JC in subsequent assessment years whether or not the conditions
mentioned above are satisfied or not.
(w.e.f. 1st April 2015)
Power of survey – Section 133A
The Finance Bill, 2014 proposes to extend the power of Income-tax
authority by inserting sub section (2A) after subsection (2). It is
proposed to authorise the Income-tax authority to carry out survey
for the purpose of verifying that tax has been deducted or collected
at source in accordance with the provisions under sub-heading B of
Chapter XVII or under sub-heading BB of Chapter XVII.
However, the Income-tax authority acting under sub section (2A)
cannot impound books of account or take inventory of stock or cash.
Further, the power of income tax authority to impound and retain in
his custody the books of account or documents has been increased
from 10 days to 15 days.
(w.e.f. 1St October 2014)
Power to call for information by prescribed
income-tax authority – Section 133C

Insertion of new section 133C

With a view to enable prescribed Income-tax authority to verify the
information in his possession relating to any person, it is proposed to
empower him to issue a notice to such person requiring him to
furnish information or documents verified in the prescribed manner
which may be relevant to enquiry or proceeding under the Act.
(w.e.f. 1St October 2014)
Return of Income – Section 139
Currently, certain entities such as Mutual Funds, Securitisation Trusts,
Venture Capital Companies and Venture Capital Funds are exempted
from filing income tax returns. These entities are required to furnish
specified statement to the income tax authorities.
It is proposed that these entities will now be required to file their
annual tax return with the income-tax authorities where their total
income before giving effect to the provisions of the Act under which
they are exempt, exceeds the maximum amount which is not
chargeable to tax.
The requirement of filing of statements before an income-tax
authority is proposed to be dispensed with by omitting
sub-section (3A) of section 115R and sub-section (3) of section
115TA.
(w.e.f. AY 2015-16)
Signing and verification of return of income - Section 140
Income tax return can be signed in manuscript or by any electronic mode. In
other words, the return shall be verified by the persons specified u/s 140.
(W.e.f. 1st October 2014)
Estimate by Valuation Officer - Section 142A
The A.O. may refer to a Valuation Officer (V.O.) during the assessment/
reassessment proceedings to estimate the value (including FMV) of any asset,
property or investment whether or not he is satisfied about the correctness or
completeness of the accounts of the assessee.
The V.O. may estimate the value to the best of his judgment, if the assessee
does not co-operate or comply with his direction.
A copy of the Valuation report should be sent to the A.O. and the assessee
within a period of 6 months from the end of the month in which a reference is
made.
(w.e.f. 1st October 2014)
Method of Accounting - Section 145
Presently, the AO may make an assessment in the manner provided in
section 144 of the Act where he is not satisfied that the income has been
computed in accordance with the Accounting standards notified under
section 145(2) of the Act.
It is proposed to amend section 145(2) by substituting the word
“accounting standards” with the word “income computation and
disclosure standards”.
CG may notify the income computation and disclosure standards to be
followed by any class of assessees or in respect of any class of income.
Therefore, if the income has not been computed in accordance with the
notified income computation and disclosure standards, the AO may make
an assessment in the manner provided in section 144 of the Act.
(w.e.f. 1st April,2015)
Time-limit for completion of assessment – Section 153 & 153B
It is proposed to exclude the period commencing from the date on which the
AO makes a reference to the VO under section 142A(1) and ending with the
date on which the report of the VO is received by the AO while computing the
time limit u/s 153 & 153B(search cases) for completion of assessment/
reassessment.
(w.e.f. 1st October 2014)
Assessment of income of a person other than the person who has
been searched – Section 153C
The existing provisions contained in Section 153C(1) provides where the A.O.
of a person has received books of account or documents or assets seized at the
time of search in the premises of another person, he shall proceed against
such person and issues notice to him and assess or reassess his income in
accordance with Section 153A.
Now, it is proposed to provide that the other AO shall assess or reassess the
income of such other person only if he is satisfied that the seized material will
have a bearing on the determination of the total income of such other person.
(w.e.f. 1st October 2014)
TDS on Interest other than Interest on Securities - Section
194A
The interest income referred to in section 10(23FC)
(interest income payable by special purpose vehicle to
a business trust) is proposed to be exempted from the
deduction of tax at source u/s 194A.
(w.e.f. 1st October 2014)
TDS on non-exempt payments made under life
insurance policy - Section 194DA
As per section 10(10D) of the Act, any sum received under a life
insurance policy, including the sum allocated by way of bonus on
such policy is exempt subject to fulfillment of specified conditions. If
such conditions are not fulfilled the amount is taxable.
It is proposed to insert a new section in the Act to provide for
deduction of tax at the rate of 2% on sum paid under a life insurance
policy which are not exempted under section 10(10D) of the Act.
No deduction shall be made if the aggregate amount of such
payments to the payee is less than Rs. 100,000 during the FY.
(w.e.f. 1st October 2014)
Correction of TDS statement - Section 200 & 200A
Currently, a deductor is allowed to file correction statement for
rectification/ updation of the information furnished in the original
TDS statement as per the Centralized Processing of Statements of
TDS Scheme, 2013 notified vide Notification No.03/2013 dated
15th January, 2013. However, no provision is expressed in the Act
which enable a deductor to file correction statement.
It is proposed to amend section 200 of the Act to allow the
deductor to file correction statements.
Consequently, it is also proposed to amend provisions of section
200A of the Act for enabling processing of correction statement
filed.
(w.e.f. 1st October 2014)
Time limit for passing order deeming deductor as
assessee in default - Section 201
It is proposed to omit clause (i) of sub-section (3) of section 201 of
the Act which provides time limit of 2 years for passing order
under section 201(1) of the Act for cases in which TDS statement
have been filed.
It is proposed to provide that time limit for passing an order
deeming a person to be an assessee in default for failure to
deduct the whole or any part of the tax from a person resident in
India shall be 7 years from the end of the FY in which payment is
made or credit is given.
(w.e.f. 1st October 2014)
Tax Payable and Assesee deemed to be in default–
Section 220
Section 220(1) provides that any amount specified as payable in the
notice of demand under section 156 shall be paid within 30 days of
date of receipt of the notice.
Liability of assessee to pay interest on the amount specified in notice
of demand is extended up to the disposal of appeal by last appellate
authority or disposal of proceedings by inserting a new sub-section.
In cases where tax payable was reduced due to order under section
154,155,250,254,260,262,264 or 245D(4) but was restored to earlier
levels, interest under section 220 of the Act shall be payable from the
date of first notice of demand up to the date when demand is paid.
(W.e.f. 1st October 2014)
Mode of taking or accepting certain loans or
deposits – Section 269SS
It is proposed to amend the S.269SS so as to provide that no person
shall take or accept from any other person any loan or deposit
otherwise than by an account payee cheque or account payee bank
draft or use of electronic clearing system through a bank account if,
the amount of such loan or deposit or the aggregate amount of such
loans or deposits is Rs 20,000 or more.
Repayment of Loan or Deposit –Section 269T
It is proposed to amend the S.269T so as to provide that no person
shall repay any loan or deposit made with it otherwise than by an
account payee cheque or account payee bank draft drawn in the name
of the person who has made the loan or deposit or by use of
electronic clearing system through a bank account if, the amount of
the loan or deposit together with interest or the aggregate amount of
such loans or deposits together with interest, if any payable thereon, is
Rs 20,000 or more.
(W.e.f. 1st April 2015)
Levy Of penalty by Transfer Pricing Officers (TPO) –Section
271G
Prior to this amendment only AO or Commissioner (Appeals) had the
authority to levy documentation penalty.
It is proposed to include the TPO as an authority to levy penalty at 2%
of the value of international transaction or specified Domestic
transactions for failure to furnish prescribed information or
documentation.
(W.e.f. 1st October 2014)
Penalty for failure to furnish Annual Information Return
– Section 271FA
It is proposed to provide for penalty for failure to furnish statement of
financial transaction or reportable account.
Providing of Inaccurate information with respect to
AIR - Section271FAA (New)
271FAA provides that where a statement of financial transaction or reportable
account, provides inaccurate information in the statement and where
(a) The inaccuracy is due to non compliance of the due diligence requirement
prescribed under section 285BA(7)(newly added) or is deliberate; or
(b) The person knows of the inaccuracy but fails to inform; or
(c) the person discovers the inaccuracy after the statement of financial
transaction or reportable account is furnished and fails to inform and furnish
correct information within the time specified under section 285BA(6) (newly
added).
then, the prescribed income-tax authority levy a penalty of a sum of Rs
50,000.
(W.e.f. 1st April 2015)
Levy of penalty for failure to furnish statements etc.
(TDS/TCS).- Section 271-H
Existing provisions provide circumstances in which the
person shall be liable to pay penalty and it does not
specify the competent authority.
It is proposed to provide that the penalty shall be
levied by the Assessing officer.
(W.e.f. 1st October 2014)
Failure to produce accounts and documents-Section 276D
At present where a taxpayer wilfully fails to produce books of
accounts and any other documents as required by the Assessing
Officer or wilfully fails to comply with a direction issued under
special audit proceedings, such taxpayer shall be punishable with
an imprisonment which may extend up to one year or be levied a
fine ranging between Rs. 4-10 for each day of default or both.
It is proposed to provide that he shall be punishable with
rigorous imprisonment for a term which may extend to one year
and with fine.
(W.e.f. 1st October 2014)
Provisional attachment to protect revenue.- Section 281B
Existing provision provides that AO in order to protect the interest
of the revenue may attach provisionally the property belonging to
assessee as laid down in schedule 2. S. 281B(2) provides provisional
attachment shall cease to have effect after the expiry of six
months, it may be extended up to a total period of two years by
Chief commissioner or commissioner.
It is proposed to amend S. 281B (2) so as to provide that provisional
attachment shall cease to have effect after the expiry of six months
provided that the Chief Commissioner or Commissioner may extend
the period up to a total period up to two years or sixty days after
the date of assessment or reassessment, whichever is later.
(W.e.f. 1st October 2014)
Obligation To furnish Annual Information return
(AIR) – Section 285BA
It is also proposed that the Central Government may, by rules,
Specify,––
(a) The persons referred to in 285BA (1) to be registered with
the prescribed income-tax authority;
(b) The nature of information and the manner in which such
Information shall be maintained by the persons referred to in
Clause (a); and
(c) The due diligence to be carried out by the persons for the
Purpose of identification of any reportable account referred to
in 285BA(1)
(W.e.f. 1st October 2014)
69
Nihar Jambusaria
[email protected]
[email protected]
70

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