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Finance Act ,2013

Finance Act ,2013 . An Overview. CA Sanjeev Lalan. Tax Rates. Individual, HUF, AOP, BOI:-. No Change in threshold-limits or slabs Surcharge to be levied @ 10% where total income exceeds Rs. 1Crs. No Change in Edu Cess & S.H. Edu Cess of 2% and 1% respectively

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Finance Act ,2013

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  1. Finance Act ,2013 An Overview CA Sanjeev Lalan

  2. Tax Rates Individual, HUF, AOP, BOI:- • No Change in threshold-limits or slabs • Surcharge to be levied @ 10% where total income exceeds Rs. 1Crs. • No Change in Edu Cess & S.H. Edu Cess of 2% and 1% respectively • Effective tax rates shall be as under (subject to AMT):- • A new section 87A has been inserted to provide rebate of upto Rs. 2,000/- from tax payable by a resident individual in India having total income of upto Rs. 5,00,000/-

  3. Tax Rates Firm/LLP/Corporates:- • No Change in basic tax rates • For firm & LLP – Surcharge to be levied @ 10% where total income exceeds Rs. 1Crs. • For domestic company – Surcharge increased from 5% to 10% where total income exceeds Rs. 10 Crs. • For Foreign company – Surcharge increased from 2% to 5% where total income exceeds Rs. 10 Crs. • No Change in Edu Cess & S.H. Edu Cess of 2% and 1% respectively. • The effective tax rates shall be as under: • No change in AMT / MAT rates except for increase in surcharge

  4. Tax Rates TDS under chapter XVII – B to be inclusive of surcharge • The amount of TDS under chapter XVII – B shall be increased by surcharge in the following cases– • Simply put, in case of a non-resident, TDS would be subject to surcharge.

  5. Tax Rates Securities Transaction Tax • STT rates have been significantly revised by FA, 2013 as under– • * Equity Oriented Fund (w.e.f. 01-June-2013) • ** Recognized stock Exchange

  6. Tax Rates Commodities Transaction Tax • Chapter VII of the Finance Bill 2013 introduces new levy in the form of Commodities Transaction Tax (CTT), the brief features of which are as under– • Taxable Transaction : Sale of commodity derivatives in respect of commodities other than agricultural commodities on recognized association. • Rate : 0.01% on sale value of commodity derivative to be paid by seller. • Applicability : From the date of notification in this regard (notification not out yet). • Allowance as deduction : Sub-clause (xvi) has been reinstated in section 36(1), for allowing the said CTT as an deduction while computing the income arising out of commodity derivative transactions under the head “Profits and gains of business and profession”.

  7. Tax Rates Rationalization of tax on income distributed by Mutual Fund • Additional income tax payable u/s. 115R on income distributed to a individual or HUF by a mutual fund other than a money market mutual fund or a liquid fund has been brought at par with the income distributed to a individual or HUF by a money market mutual fund or a liquid fund @ 25% instead of erstwhile 12.5%. • Further, section 115R has also been amended to provide tax @ 5% on income distributed in respect of income distributed by a Mutual Fund under an Infrastructure Debt Fund (IDF) scheme to a non-resident Investor to bring parity between taxation of income from investment made by a non-resident Investor in an IDF set up as a IDF-MF with that of an Infrastructure Debt Fund (IDF) set up as a IDF-NBFC. • (w.e.f. 01-June-2013)

  8. Individual Taxation Assigned Keyman Insurance Policies • Section 10(10D), inter alia, exempts sums received under a life insurance policies other than keyman insurance policy. • Till date, there was an ambiguity with respect to the definition of “Keyman Insurance policy” which has been defined in Explanation 1 to the said section The issue was whether it even includes even a policy which has been assigned in favour of the keyman before its maturity and with respect to which the subsequent payments were made by the keyman himself. • In this regards, the air has now been cleared by amending the said explanation to include with in its ambit a policy which has been assigned to a person, at any time during the term of the policy, with or without consideration. • In effect, Delhi High Court judgments in “CIT vs. Rajan Nanda [(2012) 349 ITR 8 (Del)]” and “Escort Heart Institute & Research Centre vs. CIT [(2013) 30 taxmann.com 4]” have been overruled by the amendment.

  9. Individual Taxation Immovable property received for inadequate consideration • Presently, provisions of section 56(2)(vii)(b) are attracted only in respect of an immovable property which is transferred “without any consideration” i.e. to say, it doesn’t include, having regard to its stamp duty value, transfer for “inadequate consideration”. • This inequity is sought to be plugged by the Finance Act, 2013 by covering, in the ambit of section 56(2)(vii)(b), both the scenario namely, transfer of an immovable property, the stamp duty value of which exceeds Rs. 50,000/-, without any consideration and also a situation where transfer is for inadequate consideration, where the inadequacy, having regard to stamp duty value exceeds Rs. 50,000/-. • The said section has been further amended to provide that where the date of agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not same, the stamp duty value on the date of agreement may be considered for the said transfer. However, the said exception shall apply only in cases where amount of consideration or part thereof for the transfer has been received by any mode other than cash on or before the date of the agreement for the transfer of asset.

  10. Fair Market Value u/r. 11U & 11UA u/s. 56 • Section 56(2)(vii) and (viia) of the Income-tax Act,1961 (the Act) provides that the taxpayer receiving specified properties without consideration or at a consideration lower than the FMV, than the difference between FMV and consideration shall be considered as income in the hands of the taxpayer. • Rule 11UA deals with determination of fair market value (FMV) for the purpose of Section 56 and Rule11 defines certain terms used in Rule 11UA. • The Finance Act, 2012 inserted clause (viib) to Section56(2) of the Act, which provides that a closely held company issuing shares to resident person for a consideration higher than its FMV, then the difference of consideration over the FMV of its shares shall be considered as income in the hands of issuing company. • As the provisions of Section 56(2)(vii)/(viia) and (viib) are governing different circumstances, existing provisions of Rule 11UA were not sufficient to deal with both the provisions. Therefore, Rule 11UA is amended to provide for specific valuation principles applicable to unquoted equity shares under Section 56(2)(viib) of the Act. Similarly, certain definitions under Rule 11U of the Rules are amended as follows:

  11. Cont…Fair Market Value u/r. 11U & 11UA u/s. 56

  12. Cont…Fair Market Value u/r. 11U & 11UA u/s. 56

  13. Individual Taxation Premium on LIP’s for persons with disabilities or disease • Provisions of section 10(10D) & 80C have been amended to soften the limitations for the applicability of the said provisions for the following categories of persons, by enhancing the premium limit from 10% to 15% of capital sum assured, namely– • persons with disabilities or persons with severe disabilities as referred to in section 80U or • persons suffering from disease or ailment specified in rule 11DD made u/s. 80DDB.

  14. Individual Taxation Extension of benefit even for contributions made to health schemes • Provisions of section 80D has been extended so as to allow the benefits of deduction of amount not exceeding Rs. 15,000/- in respect of any payment or contribution made by the assessee to such other schemes as may be notified by the Central Government.

  15. Individual Taxation Deduction in respect of interest on loan for acquiring residential house property • A new section 80EE has been introduced to provide additional benefit for the first time home buyers in respect of interest payment on loan taken from any financial institution for residential house property. • However, the said benefit comes with certain restrictions and limitations which are as under – • The said deduction shall be applicable only to an individuals; • The deduction shall not exceed Rs. 1,00,000/- and shall be allowed only for AY 2014-15; • In case the interest payable for AY 2014-15 is less than Rs. 1,00,000/-, the unexhausted balance shall be allowed as deduction for AY 2015-16; • The loan has to be sanctioned by the financial institution between 01st April, 2013 and 31st March, 2014 • The amount of loan sanctioned does not exceed Rs. 25,00,000/- • The value of residential house property does not exceed Rs. 40,00,000/-.

  16. Individual Taxation Cont….Deduction in respect of interest on loan for acquiring residential house property • The assessee does not own any residential house property on the date of the sanction of the loan. • The assessee will not be eligible for claiming deduction with respect to the said interest under any other section of the Act either for the same assessment year or any other assessment year. (This primarily intents to cover section 24(b) in its ambit)

  17. Individual Taxation Extension & Liberalization of Rajiv Gandhi Equity Savings Scheme • As per the present provisions of section 80CCG, a resident individual, being a first time retail investor and whose total income during the previous year does not exceed Rs. 10,00,000/- is eligible to claim a deduction of 50% up to maximum of Rs. 25,000/- in the year of investment, subject to satisfaction of certain other conditions. This deduction was initially available only once, i.e. in the year in which investment is made for the first time. • Finance Act, 2013 has extended the benefits of said section to investments even in listed units of an equity oriented fund defined in section 10(38). Further, it has also been provided, that the said benefit shall now be available over a period of three consecutive assessment years beginning with the assessment year in which investment is first made. Also, the condition as to limit of total income of the individual investor in the year in which investment is made has been enhanced to Rs. 12,00,000/- from current limit of Rs. 10,00,000/-. • In this regards, Rajiv Gandhi Equity savings scheme, 2012 has been notified by the CG vide notification no. 51 dated 23-11-2012.

  18. Corporate Taxation 15% deduction on investment in new assets by manufacturing company • A new section 32AC has been inserted to allow to a company, a sum equal to 15% of the actual cost of the new assets acquired and installed between 31st March, 2013 and 01st April, 2015 if the aggregate amount of actual cost of such new asset exceeds Rs. 100crs. This deduction is available only if the company is engaged in manufacture or production of any article or thing. This deduction is available for two years as under– • for AY 2014-15, 15% of the actual cost of the new assets acquired and installed between 31st March, 2013 and 01st April, 2014 • for AY 2015-16, 15% of the actual cost of the new assets acquired and installed between 31st March, 2013 and 01st April, 2015 as reduced by the amount of deduction allowed under clause (a), if any. • For the purpose of this new section, “New asset” means any new plant and machinery except the following:- • ship and aircraft • any second hand P&M, whether used inside or outside India.

  19. Corporate Taxation Cont….15% deduction on investment in new assets by manufacturing company • any P&M installed in any office premises or any residential accommodation or a guest house • any office appliances (including computers or computer software) • any vehicle • Any P&M, the whole of the actual cost of which is allowed as deduction whether as depreciation or otherwise • However, if the said new asset is sold or otherwise transferred (except owing to amalgamation or demerger), within 5yrs from the date of its installation, the amount allowed as deduction under this section shall be taxable as income of the PY in which the said asset is sold or otherwise transferred. The said income shall be in addition to the gains arising on account of transfer of the said new asset. • Where the new asset is transferred in connection with the amalgamation or demerger within a period of 5yrs from the date of its installation, the deduction shall not be withdrawn. However, the above referred restriction on selling and transfer of said new asset shall apply to amalgamated company or resulting company, as the case may be.

  20. Corporate Taxation Disallowances of certain expenditures in case of State Government Undertaking • Till date there was ambiguity in relation to allowability of certain expenditure in the form of privilege fee, licence fee, royalty, etc., levied or charged by State Government exclusively on its own undertakings. • To clarify this issue, section 40(a) has been amended by Finance Act, 2013 by inserting a new sub-clause (iib), whereby now payments in the nature of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is exclusively levied on or which is appropriated, directly or indirectly, from, a state Government Undertaking by the State Government would be disallowed. • Further, an explanation has also been inserted to the said sub-clause to define what a State Government Undertaking is.

  21. Corporate Taxation Extension of the sunset clause under section 80IA for the power sector • Presently, under section 80IA(4)(iv), a deduction is allowed to an undertaking, if it― • is set up in any part of India for the generation or generation and distribution of power, if it begins to generate power at any time between 1/4/1993 to 31/3/2013; • starts transmission or distribution by laying a network of new transmission or distribution lines at any time between 1/4/1999 to 31/3/2013; • undertakes substantial renovation and modernisation of existing network of transmission or distribution lines at any time between 1/4/2004 to 31/3/2013. • However, now the said section has been amended to extend the time limit upto 31/3/2014 for the undertakings to commence the above activities to avail the said deduction.

  22. Corporate Taxation Deduction on additional wages u/s 80JJAA restricted • Under the existing provisions of section 80JJAA, 30% of amount of additional wages paid to the new regular workmen employed by an Indian company in its industrial undertaking engaged in manufacture or production of article or thing is allowed as a deduction. This deduction is available for 3 AY’s including the AY in which such employment is provided. Also, no deduction is available if the industrial undertaking is formed by splitting up or reconstruction of an existing undertaking or amalgamation with another industrial undertaking. • Now, by FA 2013, the said section stands amended, restricting the benefit of deduction merely to profits and gains derived from the manufacture of goods in a factory instead of any industrial undertaking engaged in manufacture or production of article or thing. Furthermore, the computation of additional wages will be reckoned with employment provided in factory only and not in respect of all the workmen employed by the assessee company. • It has also been provided that the deduction shall not be allowed if the factory is hived off or transferred from another existing entity or acquired by assessee company as a result of amalgamation with another company. • The reference to the word “undertaking” wherever it occurs in the explanation, has been substituted by “factory” by inserting clause (iv) to the explanation to define factory as per section 2(m) of the Factories Act, 1948. • In effect, this amendment is meant to overcome decision of Bangalore Bench of ITAT in ACIT v. Texas Instruments (India) (P.) Ltd. [(2008) 115 TTJ 976 (URO)].

  23. Corporate Taxation Additional Income-tax on buy-back of unlisted shares • FA 2013, by inserting a new chapter XII-DA (sections 115QA to 115QC), has provided that in case of a domestic company, which opts for distributing its income by buying back its own unlistedshares from its shareholder, shall be liable to pay additional income-tax @ 20% on such distributed income without allowing any deduction against such income. • For the said purposes, “distributed income” would mean the amount paid by the company on buy-back of shares as reduced by the amount that was received by the shareholders at the time of issuance of such shares. • The said income has been made exempt in the hands of the shareholders by inserting a new clause 34A to section 10. • The said amendment has primarily been done to put a bar on tax avoidance scheme which were being resorted to by many companies by buying back their own shares rather than distributing surplus by way of dividends which otherwise would have been subject to DDT u/s. 115-O. • The said amendment shall take effect from 1st June, 2013

  24. Corporate Taxation Concessional rate of TDS on interest in case of certain rupee denominated long-term infrastructure bonds • In line with the existing provisions of section 194LC, which provides for concessional rate of TDS @ 5% in respect of interest on money borrowed by an Indian company in foreign currency and such borrowing is either under a loan agreement or by way of issue of long-term infrastructure bonds, as approved by the Central Government, a new section namely 194LD has been inserted to extend the same benefit to investment made in a rupee denominated bond of an Indian company or a Government security by “Foreign Institutional Investors” and “Qualified Foreign Investor”. • However, it has also been provided that in order to avail this benefit, it needs to be ensured that the rate of interest on said bonds does not exceed the rate as may be notified by the Central Government in this behalf. • The said amendment shall take effect from 1st June, 2013.

  25. Individual Taxation Concessional rate of tax for non-residents on income referred in section 194LC / 194LD • Section 115A, which provides for special rates of tax for a non-resident has been amended by FA, 2013, to ensure that interest income as referred to in section 194LC & 194LD shall be charged @ of 5%. • Consequential amendments have been made in section 115AD, which deals with taxation on income of FII from securities or capital gains arising from their transfer, to ensure that even FII are taxed @ 5% on the interest income referred to in section 194LD. • In addition to above, the requirement to furnish PAN u/s. 206AA has now been exclusively removed in respect of payment of interest on long-term infrastructure bonds, as referred to in section 194LC, to a NR, not being a company or a foreign company.

  26. Corporate Taxation Extension of sunset clause for lower rate of tax on dividends from specified foreign company • Section 115BBD of Income-tax Act provides for taxation of gross dividends received by an Indian company from a specified foreign company (in which it has shareholding of 26% or more) at the rate of 15% if such dividend is included in the total income for the Financial Year 2012-13 i.e. Assessment Year 2013-14. • The above provision was introduced as an incentive for repatriation of income earned by residents from investments made abroad subject to certain conditions. • In order to continue the tax incentive for one more year, section 115BBD has been amended to extend the applicability of this section in respect of income by way of dividends received from a specified foreign company in Financial Year 2013-14 also, subject to the same conditions.

  27. Corporate Taxation Removal of cascading effect of DDT even on dividends received from specified foreign company • Section 115-O was previously amended by FA 2012, and earlier Finance Act’s to remove cascading effect of DDT wherein DDT paid dividends distributed by a company’s subsidiary company was ultimately distributed by its holding company (in both two-tier & multi-tier structures). • In order to ensure removal of cascading effect of DDT even on dividends specified in section 115BBD received from a specified foreign company as well, the provisions of section 115-O has now been further amended by FA 2013 to provide that the amount subject to DDT would be reduced by amount of dividend received by the domestic company during a financial year from a specified foreign company as defined in 115BBD.

  28. Corporate Taxation Clarificatory amendment specifying amount eligible for deduction as bad debts in case of banks • Section 36(1)(vii) deals with the allowability of bad-debts w/off in books of account of any assessee whereas section 36(1)(viia) deals with the allowability of provision for bad and doubtful debts only in case of certain specified banks, inter alia, which includes rural branches of certain specified banks. • However, proviso to section 36(1)(vii) provides that for an assessee, to whom section 36(1)(viia) is applicable, deduction under said clause (vii) shall be limited to the amount by which the bad debt written off exceeds the credit balance in the provision for bad and doubtful debts account made under section 36(1) (viia) of the Act. • Hon’ble Supreme Court in case of “Catholic Syrian Bank Ltd. vs. CIT (2012) 343 ITR 270” has accepted the proposition that where separate accounts for provisions for bad debts are maintained for rural and urban advances and if the actual write-off relates to urban advances then same cannot be set-off against provision for bad debts of rural advances. It has been held that provisions of sections 36(1)(vii) and 36(1)(viia) are distinct and independent items of deductions and operate in their respective fields.

  29. Corporate Taxation Cont….Clarificatory amendment specifying amount eligible for deduction as bad debts in case of banks • As this was never the legislative intent, to overcome the above judicial interpretation, section 36(1)(vii) has been amended by FA Act, 2013 by inserting an explanation 2, to clarify that there shall be only one account maintained in respect of provision for bad and doubtful debts under section 36(1)(viia) and such account relates to all types of advances, including advances made by rural branches. • It implies that, now for an assessee to which clause (viia) of section 36(1) applies, the amount of deduction in respect of the bad debts actually written off under section 36(1)(vii) shall be limited to the amount by which such bad debts exceeds the credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia) without any distinction between rural advances and other advances.

  30. Corporate Taxation Exemption to National Financial Holdings Company Ltd. • National Financial Holdings Company Limited (NFHCL) is a company wholly owned by the Central Government and was incorporated to succeed the Specified Undertaking of Unit Trust of India, which itself was a successor to erstwhile Unit Trust of India. In section 10 a new clause (49) has been inserted to grant exemption in respect of any income of NFHCL.

  31. Anti-Avoidance Provisions Deeming provisions similar to section 50C made applicable to assets held as SIT • Provisions of section 50C, deeming stamp duty value to be the full value of the consideration, is applicable only in case of transfer of any capital asset, being land or building or both. The said section has no applicability in respect of transfer of immovable property which is held as stock-in-trade by an assessee [K.R. Palanisamy v. UOI (2008) 306 ITR 61 (Mad), CIT-II v. Kan Construction and Colonizers (P.) Ltd. (2012) 208 Taxman 478 (All)]. • On similar lines, with the intention of deeming stamp duty value to be the full value of the consideration for assets, being land or building or bothheld as stock-in-trade by an assessee, a new section 43CA has been introduced in “Chapter IV-D – Profits and gains of business or profession” wherein the said assets (other than when they are held as capital asset) is sold for a consideration less than the value adopted for stamp duty purpose by an authority of State Government, then the value so adopted for stamp duty purpose shall be deemed to be the value of the consideration received or accruing as a result of such transfer for computing income under the heads profits and gains. • The remedies provided for in section 50C by allowing a reference to the Valuation Officer and by treatment of value of stamp duty authority as final, where Valuation Officer’s value exceeds the stamp duty valuation, are also provided for in the matters falling within the purview of section 43CA.

  32. Anti-Avoidance Provisions Cont….Deeming provisions similar to section 50C made applicable to assets held as SIT • The said section further provides that where the date of an agreement fixing the value of consideration for the transfer of the asset and date of registration of the transfer of the asset are not same, the stamp duty value may be taken as the value on the date of the agreement for transfer and not as on the date of the registration of such transfer. This exception shall apply only in those cases where amount of consideration or part thereof for the transfer has been received by any mode other than cash on or before the date of the agreement for transfer of asset. This particular provision is similar to that of amended portion of section 56(2)(vii)(b).

  33. Anti-Avoidance Provisions Amendment in the definition of “speculative transaction” u/s. 43(5) • Clause (5) of section 43 provides for the definition of “speculative transaction”. • The said clause, by virtue of a proviso, specifies certain transactions which shall not be construed as a “speculative transaction”. FA, 2013 has made an addition to this list of by inserting in its ambit “an eligible transaction in respect of trading in commodity derivatives carried out in a recognized association”i.e. to say that the said transaction shall not be considered as speculative transaction. • For the said amendment, certain expressions have been defined as under:- • "commodity derivative" - shall have the meaning as assigned to it in Chapter VII of the Finance Act, 2013 • "eligible transaction" means any transaction,— • carried out electronically on screen-based systems through member or an intermediary, registered under the bye-laws, rules and regulations of the recognized association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and the rules, regulations or bye-laws made or directions issued under that Act on a recognized association; and

  34. Anti-Avoidance Provisions Cont…Amendment in the definition of “speculative transaction” u/s. 43(5) • which is supported by a time stamped contract note issued by such member or intermediary to every client indicating in the contract note, the unique client identity number allotted under the Act, rules, regulations or bye-laws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act; • "recognized association" means a recognized association as referred to in clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfills such conditions as may be prescribed and is notified by the Central Government for this purpose;

  35. Anti-Avoidance Provisions Applicability of TDS on transfer of immovable property • Under the existing provisions of the income tax Act, section 194LA provides for deduction of tax at source @ 10% in case of transfer of immovable property (other than agricultural land) only when such property is subject to compulsory acquisition under any law for the time being in force, where the aggregate of payments exceeds Rs. 2,00,000/-. • With the intention of extending the TDS provisions on transfer of immovable properties (other than agricultural land) on transfers otherwise than by way of compulsory acquisition and also to curb the practise of not quoting PAN or quoting of incorrect PAN with registrar or sub-registrar at the time of registration of the properties, a new section 194-IA has been introduced by FA, 2013 which mandates deduction of tax at source @ 1% where payments are made to a resident in excess of Rs. 50,00,000/-. • For the compliance of aforesaid provisions, the deductor is not required to procure a tax deduction account number u/s 203A. • Similar provisions were sought to be introduced by Finance Bill, 2012, but was dropped at the time of passage of the bill in parliament. The said provisions shall now come into effect from 1st June, 2013.

  36. New rules for TDS on immovable property u/s 194-IA • The CBDT by amending rules 30, 31, 31A of Income Tax Rules, 1962, vide notification no. 39 dated 31.05.2013, has provided the mechanism for deduction and payment of TDS u/s 194-IA, the salient features are as under:- • Any sum deducted u/s. 194-IA shall be paid to the credit of the CG within the period of 7 days from the end of the month in which the deduction is made. • TDS payment u/s. 194-IA shall be accompanied by a challan-cum-statement in new form no. 26QB. • Where tax deducted is to be deposited accompanied by a challan-cum-statement in form no. 26QB, the amount of tax so deducted shall be deposited to the credit of the CG by remitting it electronically within the time specified in sub-rule (2A) into the RBI or SBI or any authorized bank. • Every person responsible for deduction of tax u/s. 194-IA shall furnish the certificate of TDS in form no. 16B to the payee within 15 days from the due date for furnishing the challan-cum-statement in form no. 26QB. • Form 16B & 26QB have been made available online.

  37. TCS u/s. 206(1D) now made applicable on bullion even if weighing 10grams or less • TCS on cash sale of bullion and jewellery:- • Finance Act, 2012, in order to reduce the quantum of cash transaction in bullion and jewellery sector and to curb the flow of unaccounted money, amended the section 206C of the Income-tax Act by introducing a new sub- Section (1D) to provide that the seller of bullion and jewellery should collect tax @1% from buyer in cash the consideration is received in cash and such amount exceeds: • Rs. 2 lakhs, on sale of bullion (excluding any coin or any article weighing 10grams or less); • Rs. 5 lakhs, on sale of jewellery. • However, FA, 2013, has done away with exception of excluding bullion in the form of coin or any article weighing 10grams or less by bringing all the bullion transaction exceeding Rs. 2 lakhs in the of TCS.

  38. Anti-Avoidance Provisions Cash contribution to any political party or electoral party or electoral trust ineligible for deduction • Currently, deduction is available for any contribution made, to any political party or electoral trust, by an Indian company or any person (other than local authority or artificial juridical person wholly or partly funded by the Government) under sections 80GGB or 80GGC respectively. • However, with the intention of discouraging cash payments by contributors and curbing the stash of black money with political parties/electoral trust, the said provisions have been amended by FA, 2013 by restricting the allowability of deductions only if the contributions are made in a mode other than cash.

  39. Anti-Avoidance Provisions General Anti-Avoidance Rule (GAAR) • The General Anti Avoidance Rule (GAAR) was introduced in the Income-tax Act by the Finance Act, 2012. The substantive provisions relating to GAAR are contained in Chapter X-A (consisting of sections 95 to 102) of the Income-tax Act. The procedural provisions relating to mechanism for invocation of GAAR and passing of the assessment order in consequence thereof are contained in section 144BA. The provisions of Chapter X-A as well as section 144BA were initially suppose to come into force with effect from 1st April, 2014. • A number of representations were received against the provisions relating to GAAR. Hence, an Expert Committee was constituted by the Government with broad terms of reference including consultation with stakeholders and finalizing the GAAR guidelines and a road map for implementation. The Expert Committee’s recommendations included suggestions for legislative 12 amendments, formulation of rules and prescribing guidelines for implementation of GAAR. The major recommendations of the Expert Committee have been accepted by the Government, with some modifications. Some of the recommendations accepted by the Government require amendment in the provisions of Chapter X-A and section 144BA.

  40. Anti-Avoidance Provisions Cont…General Anti-Avoidance Rule (GAAR) • In order to give effect to the recommendations the following amendments have been made in GAAR provisions currently provided in the Act:- • The provisions of Chapter X-A and section 144BA will come into force with effect from 1stApril, 2016 as against the current date of 1stApril, 2014. Hence, the provisions shall apply from the assessment year 2016-17 instead of assessment year 2014-15. • An arrangement, the main purpose of which is to obtain a tax benefit, would be considered as an impermissible avoidance arrangement. The current provision of section 96 providing that it should be “the main purpose or one of the main purposes” has been proposed to be amended accordingly. • The factors like, period or time for which the arrangement had existed; the fact of payment of taxes by the assessee; and the fact that an exit route was provided by the arrangement, would be relevant but not sufficient to determine whether the arrangement is an impermissible avoidance arrangement. The current provisions of section 97 which provided that these factors would not be relevant has been proposed to be amended accordingly.

  41. Anti-Avoidance Provisions Cont…General Anti-Avoidance Rule (GAAR) • An arrangement shall also be deemed to be lacking commercial substance, if it does not have a significant effect upon the business risks, or net cash flows of any party to the arrangement apart from any effect attributable to the tax benefit that would be obtained but for the application of Chapter X-A. The current provisions as contained in section 97 are proposed to be amended to provide that an arrangement shall also be deemed to lack commercial substance if the condition provided above is satisfied. • The Approving Panel shall consist of a Chairperson who is or has been a Judge of a High Court; one Member of the Indian Revenue Service not below the rank of Chief Commissioner of Income-tax; and one Member who shall be an academician or scholar having special knowledge of matters such as direct taxes, business, accounts and international trade practices. The current provision of section 144BA ,that the Approving Panel shall consist of not less than three members being income-tax authorities and an officer of the Indian Legal Service has been proposed to be amended accordingly. • The directions issued by the Approving Panel shall be binding on the assessee as well as the income-tax authorities and no appeal against such directions can be made under the provisions of the Act. The current provisions of section 144BA providing that the direction of the Approving Panel will be binding only on the Assessing Officer have been proposed to be amended accordingly.

  42. Anti-Avoidance Provisions Cont…General Anti-Avoidance Rule (GAAR) • The Central Government may constitute one or more Approving Panels as may be necessary and the term of the Approving Panel shall be ordinarily for one year and may be extended from time to time up to a period of three years. The provisions of section 144BA have been proposed to be amended accordingly. • The two separate definitions in the current provisions of section 102, namely, “associated person” and “connected person” will be combined and there will be only one inclusive provision defining a ‘connected person’. The provisions of section 102 have been proposed to be amended accordingly. • These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.

  43. Procedural Provisions Defective Return • Section 139(9) deals with a defective return. Explanation to Section 139(9) provides a list of situations wherein a return shall be regarded as defective. FA, 2013, has extended the provisions of the said section even to a return on which self-assessment tax along with with interest, if any, payable in accordance with the provisions of section 140A, has not been paid on or before the date of furnishing of the return. • The above amendment shall take effect from 1st June, 2013.

  44. Procedural Provisions Additional requirement on the basis of which special audit 142(2A) can be directed • As per the current provisions of income tax, an Assessing Officer (AO) can direct an assessee to get its accounts audited if he deems it necessary having regard to the nature and complexity of the accounts of the assessee. • Till date, there has been many litigation with respect to the justifiability of AO’s direction for getting assessee’s books audited and in majority of the cases, Courts have ruled in favour of the assessee by interpreting the expression “nature and complexity of the accounts” in a very restrictive manner. • With the intention of avoiding any further litigations, the requirements for directing the special audit has been extended to include in its ambit the following:- • Volume of the accounts, • Doubts about correctness of the accounts, • Multiplicity of transactions in accounts, • Specialized nature of business • The above amendment shall take effect from 1st June, 2013.

  45. Procedural Provisions Electronic filing of Wealth-tax returns • As per the current provisions of the Wealth Tax Act, 1957, a returnof wealth is mandatorily required to be filed in paper form and that too along with the specified documents. • Sections 139C and 139D of the Income-tax Act contain provisions for facilitating filing of annexure-less return of income in electronic form by certain class of income-tax assessees. • On similar lines, FA, 2013, has amended Wealth Tax Act by introducing a new section 14A, empowering Board to notify class or classes of persons who can file return of wealth which may not be accompanied by statements, receipts, certificates, audit reports, reports of registered valuer or any other documents, which are otherwise required to be accompanied under any other provisions of Wealth-tax Act. • Furthermore, another new section 14B, has been introduced empowering Board to notify class or classes of persons who would be mandatorily required to file return of wealth electronically without any documents. • However, the amendments even provides that such assessee would be required to submit the documents on demand made by the Assessing Officer. Consequential amendments in the section 46 – “power to make rules” by the Board, are also made. • The above amendment shall take effect from 1st June 2013.

  46. Procedural Provisions Amendment to clarify “Tax due” for the purpose of recovery u/s 167C and 179 • Sections 167C and 179 provides for recovery of “tax due” from partner/director (who was the partner / director of such LLP/Private Company at any time during the previous year to which tax due relates) in case the same could not be recovered from LLP / private company. • The Delhi High Court in the case of Sanjay Ghai [(2012) 26 taxmann.com 203] has interpreted the phrase “tax due” used in section 179 to hold that it does not include penalty, interest and other sum payable under the Act. Similar view has also been taken by Gujarat High Court in MaganbhaiHansrajbhai Patel v. ACIT [(2012) 211 Taxman 386]. • As this was never the legislative intent, clarificatory amendments have been made in both the sections by inserting a new explanation providing that the expression “tax due” includes penalty, interest or any other sum payable under the Act.

  47. Procedural Provisions Revision of Penalty u/s. 271FA on failure to furnish AIR u/s. 285BA • Section 285BA(1) mandates furnishing of annual information return (AIR) by the specified persons in respect of specified transactions within the time prescribed under sub-section (2) thereof. Sub-section (5) of the section empowers the Assessing Officer to issue notice if the annual information return has not been furnished by the due date. • In relation to the punishment for failure to furnish AIR, section 271FA provides for a penalty of Rs. 100/- per day during the period for which the failure continues. However, this penalty relates only to failure pertaining to AIR by persons specified under sub-section (1) and does not cover in its ambit, failure respond to a notice under sub-section (5). • To remove such a flaw, section 271FA has been amended so as to include in its ambit, a penalty of Rs. 500/- per day in case of failure to furnish return within period specified in notice issued u/s. 285BA(5), from the date of expiry of the period specified in the notice.

  48. Procedural Provisions Tax Residency Certificate • The Finance Act, 2012 has amended the provisions of Section 90 and Section 90A of the Act to make the submission of a Tax Residency Certificate [“TRC”] containing prescribed particulars compulsory for non-residents assessee’s to avail benefits under the applicable Double Tax Avoidance Agreement [“DTAA”]. • Memorandum explaining the provisions of the Finance Bill, 2012, mentioned that “TRC” would be a necessary but not a sufficient condition for claiming benefits under the applicable DTAA. However the same was not incorporated in the Income Tax Act and hence was lacking a statutory force. • Though, the proposed Finance Bill, 2013 intended giving the above a legal validity, but ultimately the final bill, as passed by LokSabha, abolished the same. • Now, as per the amended provisions, a non-resident assessee who intends to take the benefit of the said section, shall merely require to obtain a certificate of his being a resident in any country outside India or specified territory outside India, as the case may be, from the Government of that country or specified territory.However, the assessee shall have to provide such other documents and information, as may be prescribed.

  49. Procedural Provisions Cont…Tax Residency Certificate • The “TRC” referred to above i.e. in sections 90(4) & 90A(4), has now been notified by the CBDT vide notification no. 39/2012 dated 17-9-2012, inserting a new rule 21AB along with introduction of new Form nos. 10FA & 10FB. • As per the said notification, the certificate is to be obtained by an assessee, not being a resident in India, from the Government of the country or the specified territory shall contain the following particulars, namely:- • Name of the assessee; • Status (individual, company, firm etc.) of the assessee; • Nationality (in case of individual); • Country or specified territory of incorporation or registration (in case of others); • Assessee's tax identification number in the country or specified territory of residence or in case no such number, then, a unique number on the basis of which the person is identified by the Government of the country or the specified territory; • Residential status for the purposes of tax; • Period for which the certificate is applicable; and • Address of the applicant for the period for which the certificate is applicable;

  50. Procedural Provisions Cont…Tax Residency Certificate • In has been further stated in the said rule that the certificate shall be duly verified by the Govt of country/specified territory of the assessee who claims to be a resident for the purposes of the tax. • For procuring the said certificate, the assessee (resident in India) shall make an application in Form no. 10FA to the AO. • The AO shall issue the said certificate in Form No. 10FB.

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