Income-tax Act. 1961.
CORPORATE TAX PROPOSALS
Rates of Tax for AY 2010-2011
Ø Basic rate of tax for Domestic and Foreign Companies, Firms remain unchanged @ 30%.Dividend Distribution Tax also remains unchanged @15%.
Ø Rate of MAT under section 115JB is increased to 15% from the existing rate of 10%.
Ø All domestic companies which have a total income of less than Rs. One Crore are exempted from levy of Surcharge @ 10%. This would apply to Companies that are liable to pay Long Term Capital Gains Tax and also Short Term Capital Gains Tax as per the provisions of section 111A.
Ø Company other than a domestic company having total income exceeding Rs.One Crore shall have to pay Surcharge @ 2.5 %.
Dividend Set off
A proposal is made in the Finance Bill to substitute Sub-section (1A) with a new sub-section. As per the provisions of the proposed new sub-section (1A) dividend received from a subsidiary company can be set off against dividend paid by the receiving company for the purpose of payment of dividend tax
(i) If the subsidiary company has paid the tax on the distributed dividend and
(ii) the receiving company is not a subsidiary of another company.
As per the proviso to clause (i) of sub-section (1A) the same amount of dividend shall not be taken into account for reduction more than once. Thus the proposed amend mend has checked the percolation of the benefit down to second level subsidiaries under the same chain.
As per clause (ii) of sub-section (1A) the amount of dividends referred to in sub-section (1) can also be reduced by the amount of dividend, if
any, paid to any person for, or on behalf of, the New Pension System Trust referred in clause (44) of Section 10.
This amendment will take effect retrospectively from 1st April 2009.
Deemed income relating to certain companies
Section 115JA provided that in the case of company the total income computed in respect of the any previous year commencing on or after 1st day of April, 1997 but before 1st day of April, 2001 is less than 30% of its book profit, the total income so such company chargeable to tax for he relevant previous year shall be deemed to be an amount equal to 30% of such book profit. For the purpose of this section book profit means the net profit as shown in the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 as increased by certain adjustments as specified in this section.
As per the proposed amendment a new clause (g) will be inserted after clause (f) of the Explanation to sub-section (2) of the section which reads as under:
“(g) the amount or amounts set aside as provision for diminution in the value of any asset.”
The above amendment will take effect retrospectively from 141998.
Tax Credit in respect of tax paid on deemed income relating to certain companies
As per the provisions of sub-section (3A) of Section 115JAA tax credit, determined under sub-section (2A) i.e the difference to tax paid for any assessment year under sub-section (1) of Section 115JB and the amount of tax payable by the assessee on total income computed in accordance with the other provisions of Income-tax Act, can be carried forward in accordance with the provisions of sub-sections (4) and (50 of the section but such carry forward shall not be allowed belong the seventh assessment year immediately succeeding the assessment year in which the tax credit becomes allowable under sub-section (1A) of that section.
The proposed amendment to sub-section (3A) allows such carry forward of tax credit up to the tenth assessment year.
This amendment will take effect from 1st April 2010 and will accordingly, apply to the assessment year 2010-11 and subsequent years.
Computation of Book Profit under MAT
Section 115JB of the Income-tax Act, 1961 provides for levy of Minimum Alternate Tax (MAT) on the basis of book profit of a company. “Book Profit” means the net profit as shown in the profit and loss account prepared in accordance with provisions of Part II and Part II of Schedule VI to the Companies Act, 1956 as increased or reduced by certain adjustments, as specified in Explanation 1 to sub- section (2).
It is proposed in insert clause (i) after clause (h) of Explanation! to sub-section (2) of section 115JB. The proposed clause (i) reads as under:
“(i) the amount or amounts set aside as provision for diminution in the value of any asset.”
The above amendment will take effect retrospectively from 1st April 2001 and accordingly will apply to the assessment year 2001-02 and subsequent years.
It is proposed to increase the percentage of criteria from 10% to 15% to make liable a company to pay MAT under section 115JB.
Accordingly in the case of a company if the tax payable on the total income as computed under the provisions of this Act is less than 15% of the Book Profit of the company, the book profit shall be deemed to be the total income of the company. This amendment will take with effect from 1st April 2010 and accordingly will apply to the assessment year 2010 and subsequent assessment years.
Earlier the percentage of criteria is 10%.
Part D – Chapter IV of Income-tax Act, 1961
Profits and Gains of Business or Profession
Amendment of Section 28-Profits and gains of business or profession
It is proposed to insert clause insert the following clause (vii) in Section 28 after clause (vi).
“(vii) any sum, whether received or receivable, in cash or kind, on account of any capital asset (other than land or good will or financial instrument) being demolished, destroyed, discarded or transferred, if the whole of the expenditure on such capital asset has been allowed as a deduction under section 35AD.”
The Finance Bill proposed to insert a new section – Section 35AD. As per the provisions of sub-section (1) of proposed new section 35AD, the whole of any expenditure of capital nature incurred wholly and exclusively, for the purposes of any specified business carried on by the assessee, will be allowed as deduction.
The proposed clause (vii) of section 28 clarifies that if any sum, whether received or receivable, in cash or kind, on account of any capital asset (other than land or good will or financial instrument) being demolished, destroyed, discarded or transferred, if the whole of the expenditure on such capital asset has been allowed as a deduction under section 35AD will be chargeable to tax under the head “profits and gains of business or profession.”
Amendment of section 32-Depreciation
The expression “assets” shall be substituted for the expression “assets” and “block of assets” in Explanation 3 to section 32 (1) as proposed to amend as per clause 11 of Finance Bill.
Consequent to the proposed amendment the expression “block of assets” as assigned to it in clause (11) of Section 2.
This proposed amendment will take effect from 1st April 2010. Accordingly apply to the assessment year 2010-11 and subsequent years.
Amendment of section 35-Expenditure on scientific research
As per the existing provisions of section 35(2AB) weighted deduction equal to one and one and half times of the expenditure incurred on in-house research and development facility as approved by the prescribed authority by a company engaged in the business of biotechnology or in the business of manufacture or production of any drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemicals or any other article or thing notified by the Board.
The proposed amendment will extend the benefit of the said deduction to all businesses engaged in the manufacture or production of article or thing except those specified in the Eleventh Schedule by substituting the words
“any business of manufacture or production or thing, not being an article or thing specified in the list of the Eleventh Schedule”
for the words
“the business of manufacture or production of any drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemicals or any article or thing notified by the Board”.
This proposed amendment will take effect from 1st April 2010. Accordingly apply to the assessment year 2010-11 and subsequent years.
Insertion of new section – Section 35AD – Capital Expenditure for the purpose of specified business
The Finance Bill proposed to insert a new section – section 35AD after section 35AC of the Income-tax Act, 1961.
v The proposed new section allows any capital expenditure as deduction other than the expenditure incurred on the acquisition of any land or good will or financial instrument during the year wholly and exclusively for specified business during the year.
The specified business has been defined to mean
(i) setting up and operating of cold chain facilities for storage or transportation of agricultural produce, dairy products and other related items
(ii) setting up and operating warehousing facility for storage of agricultural produce
(iii) laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being integral part of such net work.
v The deduction is allowable only if the conditions laid down in sub-section (2) are fulfilled.
v The provisions of sub-section (3) prevents an assessee prevent from claiming deductions under chapter VIA who claimed deduction under this section.
v Sub-section (4) of the proposed section 35AD clarifies that no other deduction in respect of the expenditure referred to in sub-section (1) be allowed under any other section in any previous year, under this section in any other previous year.
v Sub-section (7) clarifies that the provisions of sub-section (6) of section 80A and the provisions of sub-sections (7) and (10) of section 80-IA shall so far as may be, apply to this section in respect of goods or services or assets held for the purpose of specified business.
As per the provisions of sub-section (5) the benefits of this section are available to the assessee in respect of the specified business if the operations are commenced
(a) on or after 1st day of April, 2007, where the specified business is in the nature of laying and operating a cross-country natural gas pipeline net work for distribution, including storage facilities being an integral part of such net work; and
(b) on or after 1st day of April, 2009, in all other cases not falling under clause (a).
Sub-section (6) of the section clarifies that a further deduction in the previous year relevant to the assessment year beginning on the 1st day of April, 2010, of an amount in respect of expenditure of capital nature incurred during any earlier previous year if
(a) the business referred to in clause (a) of sub-section (5) has commenced at any time during the period beginning on or after 1st day of April, 2007 and ending on the 31st day of March, 2009.
(b) No other deduction for such amount has been allowed or is allowable to the assessee in any earlier previous year.
Clause (d) of Sub-section (8) defined the words “plant and machinery previously used”
Under the following circumstances any machinery or plant shall not be regarded as “machinery and plant previously used for any purpose”
Ø Any machinery or plant which was used out side India by any person other than the assessee and
Ø Such machinery or plant was not, at any time prior to the date of installation by the assessee, used in India;
Ø Such machinery or plant is imported into India from any country outside India and
Ø No deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee;
Clause (ii) of sub-section (2) lays a condition that the specified business is not set up by the transfer of machinery or plant previously used for any purpose;
Clause (e) of sub-section (8) clarifies that, in case, any machinery or plant previously used, is transferred to the specified business if the value of the machinery or plant so transferred does not exceed 20% of the total value of the machinery or plant used in such business, then, for the purpose of clause (ii) of subsection (2), the condition specified there in shall be deemed to have been complied with.
Amendment of section 36-Other deductions
v The amendment proposed to insert the word “scheduled bank” in Explanation (1) to clause (iiia) of subsection (1) of section 36 is consequential in nature. This amendment will take effect retrospectively from 1st April 2009.
v Clause (viii) of sub-section (1) of section 36 allows deduction in respect of special reserve created and maintained by eligible entities carrying out eligible businesses for an amount not exceeding 20% of profits from eligible business activities, carried to such reserve.
v Explanation to clause (viii) of subsection (1) defines the expressions ‘specified entity’ and ‘eligible business’ for the purpose of availing deduction.
v It is proposed to amend the eligible business defined in sub-clause (i) of clause (b) of the explanation by substituting the words “housing development” for the words “construction or purchase of houses in India for residential purposes.”
This proposed amendment will take effect from 1st April 2010. Accordingly apply to the assessment year 2010-11 and subsequent years.
v Clause (xvi) of subsection (1) of section which enables the claim of deduction of commodity transaction tax if the income arising from such taxable commodities transactions is included in the total income. Now it is proposed to omit clause (xvi). The said deduction is not available from the assessment year 2009-10 since the amendment will take effect from 1st April 2009.
Amendment of section 40 – Amounts not deductible
Section 40 restricts deduction of certain expenses. One of such expenses is remuneration to workings partners of a firm. Earlier the remuneration exceeding the amount as quantified under the provisions of clause (v) of section is not admissible as deductible expense. This quantification is specified differently for professional firm and non-professional firm.
Ø Now it is proposed to specify the quantification for professional and nonprofessional firms uniformly by amending clause (v) of section 40. As per the proposed amendment the quantification of remuneration to working partners is as follows:
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On the first Rs.3,00,000/- of the book profit or in case of a loss
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Rs.1,50,000/- or at the rate of 90% of the book-profit, which ever is more
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On the balance
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60% of book-profit
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This proposed amendment will take effect from 1st April 2010. Accordingly apply to the assessment year 2010-11 and subsequent years.
Amendment of section 40A – Expenses or payments not deductible in certain circumstances
It is proposed to insert a second proviso after subsection (3A) of section 40A.
Ø The new proviso proposed to be inserted exempts the following payments from the clutches of the provisions of subsection (3) and subsection (3A).
“Payments made not exceeding thirty five thousand rupees other than by way of account payee cheque drawn on a bank, or account payee bank draft plying, hiring or leasing goods carriages.”
Ø This amendment take effect form 1st October, 2009.
Amendment of section 43 – Definition of certain terms relevant to income from profits and gains of business or profession
Sub-section (1) of section 43 defined the term “actual cost”. Actual cost means the actual cost of the assets to the assessee, reduced by the portion of the cost there of, if any, as has been met directly or indirectly by any other person or authority.
An amendment is proposed to section 43 by inserting Explanation 13 after Explanation 12.
“Actual Cost”
Ø According to the new Explanation 13 the actual cost of an asset on which deduction u/s 35AD has been allowed or is allowable to the assessee shall be “nil”
(a) In the case of such assessee and
(b) in any other case if the capital asset is acquired or received the
(ii) by way of gift or will or an irrevocable trust
(iii) on any distribution on liquidation of the company and
(iv) by such modes of transfer as is referred in clauses (i), (iv), (vib), (xiii) and (xiv) section 47.
“Written Down Value”
Ø Clause (b) of subsection (6) of section 43 says that the written down value in the casse of assets acquired before the previous year, the actual cost to the assessee less all the depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922, or any Act, recepealed by that Act, or under any executive order issued when the Indian Income-tax Act, 1886 was in force:
Ø It is also proposed to insert Explanation 7 after Explanation 6 of subsection (6) to clarify the definition of “written down value”
The explanation clarifies that in the case of an asset acquired before the previous year, where the income of the assessee is derived partly from business of the assessee chargeable under the head “Profits and gains business and profession” the written down value of such asset will be determined after deducting depreciation computed as if the entire income is derived from the business of the assessee and the depreciation so computed shall be deemed to the depreciation actually allowed during the previous year under the Income-tax Act, 1961.
This proposed amendment will take effect from 1st April 2010. Accordingly apply to the assessment year 2010-11 and subsequent years.
Amendment of section 44AA – Maintenance of accounts by certain persons carrying on profession or business
As per the provisions of clause (iii) of subsection (2) of Section 44AA of the Income-tax Act, every person carrying on business or profession not being a profession referred to I subsection (1) and who claims that his income is lower than the profits or gains so deemed to be the profits and gains of his business under section 44AD or section 44AE or section 44AF or section 44BB or section 44BBB as the case may be shall have to keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act.
v It proposed to substitute the figures and letters “section 44AE” for the figures and letters “section 44AD or section 44AE or section 44AF”.
v It has also been proposed to substitute the words “previous year” at the end of the clause with words “previous year or”
v A new clause (iv) shall be inserted after the clause (iii). The new clause (iv) reads as under:
“(iv) where the profits and gains from the business are deemed to be the profits and gains of the assessee under the section 44AD and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his business and his income exceeds the maximum amount which is not chargeable to income-tax during such previous year,”
The proposed amendment makes it mandatory the maintenance of accounts by an assesse who falls under the ambit of new section 44AD, if he claims that his income from profits and gains of the business is lower than the profits and gains as computed in accordance with the provisions of section 44AD and if his income exceeds the maximum amount which is not chargeable to income-tax.
This amendment will take effect from 1st April 2011. Accordingly apply to the assessment year 2011-12 and subsequent years.
Amendment of section 44AB – Audit of accounts of certain persons carrying on business or profession
It is proposed to amend clause (c) of section 44AB. As per the proposed amendment for the words, figures and letters “section 44AD or section 44AE or section 44AD or section 44AE or section 44AF”, the word, figure and letters “section 44AE shall be substituted.
Ø As per the proposed amendment Every Person who is engaged in the business of plying, hiring or leasing such goods carriages, if he claims that his income from the said business is lower than the presumptive income as specified in subsection (2) of section 44AE has to keep and maintain such books of account and other documents as required under subsection (2) of section 44AA and get his accounts audited and furnish a report of such audit as required under section 44AB before the specified date.
Ø As per the proposed new clause (d) to be inserted Every Person who claims that his income from business deemed to be the profits under section 44AD to be lower than the profits and gains so deemed to be profits and gains so deemed to be the profits and gains of his business and his income exceeds the maximum amount which is not chargeable t income-tax in any previous year get his accounts of such previous year audited by an accountant before the specified date.
This amendment will take effect from 1st April, 2011. Accordingly apply to the assessment year 2011-12 and subsequent years.
Amendment of section 44AD – Special provision for computing profits and gains of business of civil constructions, etc.,
This section has been completely redrafted and substituted for the old section.
Ø The provisions of this section apply to eligible assessees engaged in eligible business.
Ø The terms eligible assessee and eligible business have been defined in the Explanation.
Ø An eligible assessee means (1) A resident Individual (2) A resident HUF and (3) A resident partnership Firm. LLP is excluded from the partnership firm for this section. Hence LLP is not an eligible assessee for this section.
Ø Eligible business means any business except the business of plying, hiring or leasing of goods carriages referred to in section 44AE.
Ø The income of the eligible assessee from the eligible business in the previous year is computed @ 8% on the gross receipts or total turnover or a sum higher than the said sum claimed to have been earned by the eligible assessee.
Ø All deductions under sections 30 to 38 shall be deemed to have been given full effect in arriving at the income of the eligible assessee from the eligible business and no further deductions are available under these sections.
Ø If the eligible assessee is a partnership firm the deduction towards interest and partenrs’ remuneration shall be allowed subject to the limits and conditions laid down in section 40(b).
Ø Written down value of any asset of an eligible business shall be deemed to have been calculated as if the eligible assessee has calimed the depreciation and he was actually allowed the depreciation for each of the relevant assessment year.
Ø The eligible assessee who is engaged in the eligible business is under no obligation from payment of Advance Tax as the provisions of Chapter XVII-C are not applicable.
Ø There is ambiguity in subsection (5) of the proposed section 44AD.
Ø The eligible assessee is under an obligation to maintain such books of account and other documents as required under subsection (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB, if claims that his profits and gains from the eligible business are lower than the profits and gains specified under subsection (1) of this section and his income exceeds the maximum amount which is not chargeable to tax.
Ø As seen from the above an assessee whose profits are lower than the prescribed rate 8% of his gross receipts or total turnover and his income exceeds the maximum amount which is not chargeable to tax.
Ø Both the conditions are simultaneous.
Ø An amendment is necessary to do away with the ambiguity.
The provisions of this section shall take effect from 1st April 2011 and accordingly apply to the assessment year 2011-12 and subsequent year
Amendment of section 44AE – special provisions for computing profits and gains of business of plying, hiring or leasing goods carriages
Subsection (2) of section 44AE is proposed to be amended.
The deemed profits from the business as per the provisions of amended section are-
§ Rs.5,000/- per month per each heavy vehicle owned in the previous year by the assessee or the amount actually claimed to have earned by the assessee from such vehichle which ever is higher.
§ Rs.4,500/- per month per each heavy vehicle owned in the previous year by the assessee or the amount actually claimed to have earned by the assessee from such vehichle which ever is higher.
§ Other provisions of this section remained unchanged.
The amended provisions shall take effect from 1st April 2011. Accordingly will apply to the assessment year 2011-12 and subsequent years.
Deletion of section 44AF – Special Provisions for computing profits and gains of retail business
A new subsection (6) has been proposed to be inserted with effect from 1st April 2011 in section 44AF. As per the proposed subsection the provisions of section 44AF are not applicable from the assessment year 2001-12 onwards.
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