Direct Tax Amendments proposed by Finance Bill 2023

Direct Tax Amendments proposed

• No change in Minimum threshold limits of Income Tax Exemptions prescribed under old Income Tax Regime;
• No change in surcharge slabs as compared to earlier previous year except where taxable income exceeds Rs.5 crores& assessee has opted for new tax regime (no benefits of interest on housing loan, HRA, Chapter VIA benefits like 80C,80D, 80G, 80T etc.), only then can the surcharge of 37% as applicable under old tax regime get reduced to a maximum of 25%.(Comment: One needs to examine whether opting for new tax regime is beneficial or not depending on each case under consideration; in my view opting for new tax regime is not suitable for people earning up to certain scale of earnings only.)(Food for thought -- why such kind of differential tax treatment for the taxpayers who contribute by way of taxes in the interest of the nation?)(Refer to Table given below)
• New Tax Regime u/s 115BAC is made applicable to all individuals, HUFs, AOPs, BOIs whether incorporated or not or artificial jurisdictional person as defined u/s 2(31).
• Under New Tax Regime u/s 115BAC, 6 slabs have been reduced to 5 Slabs (Refer to the Table Below).
• New Tax Regime u/s 115BAC is deemed to be opted for unless opted out by filing the request on or before time limits specified u/s 139(1) of the Income Tax Act 1961.
• To remain in Old Tax Regime, every year an application needs to be filed by the Assessee (other than an assessee filing ROI which includes Profits and Gains of Business) on or before time limits u/s 139(1) of the Income Tax Act 1961.
• Assessee carrying on Business or Profession is required to opt for old tax regime only for the first time under the old tax regime.
• No changes in Marginal relief in the cases where surcharge is proposed to levied as compared to earlier previous years.
• No change in Health & Education Cess which is maintained at 4% for all categories of Tax payers;
• No changes in Corporate Tax Rates, Firms/LLP Tax Rates or Co-operative society tax rates as compared to earlier years.
• Standard deduction u/s 16 is maintained at Rs.50,000/- for all the salaried employees whether opting for New Tax Regime or old Tax regime. But if assessee has opted for the new tax regime, then also standard deduction u/s 16 is available also which was not available earlier under new regime;(Comment: One needs to examine whether opting for new tax regime is beneficial or not depending on each case under consideration, the moot question being whether it is prudent not to claim benefits of interest on housing loan, HRA, Chapter VIA benefits like 80C,80D, 80G, 80T etc.In my personal view, opting for new tax regime is not suitable for people earning up to certain scale of earnings only.)(Refer to Table given below)
• Rebate u/s 87A is continued amounting to Rs.12500/- for all Assessees having taxable income up to Rs.5,00,000/- under old regime of taxation; (Refer to Table given below)
• Rebate u/s 87A is provided @ 100% of Tax payable if the assessee has opted for the new tax regime u/s 115BAC where such person’s income doesn’t exceed Rs.7 Lakhs.(Comment: the moot question being whether it is prudent not to claim benefits of interest on housing loan, HRA, Chapter VIA benefits like 80C,80D, 80G, 80T etc. In my personal view, opting for new tax regime is not suitable for people earning up to certain scale of earnings only.)(Refer to Table given below)
• No changes in Tax Rates for Companies, Firms and Co-operative Societies other than specified in specific sections (like section 115BAA or section 115BAB for domestic companies, 115BAC for individual/HUF and 115BAD for cooperative societies)
• New Tax Rate @15% is provided for the manufacturing co-operatives only up to 31st March 2024 subject to terms and conditions.

• Insurance policies issued on or after 1.04.2023, if the LIC premium paid exceeds Rs.5 Lakhs (one or several policies), then benefit of exemption is not available u/s 10(10D) of the Income Tax Act, 1961 except when such monies are received on the death of the person.(Comment: Fair proposition but I wish such amendment was not proposed, proposal is detrimental to Insurance Industry)

• In respect of old Insurance Policies issued before 31.03.2023, they would enjoy the tax exemption or continue to be taxed as was applicable earlier.
• New gen common ITR form is planned to be introduced.
• Section 276A providing for levy of penalty in the hands of liquidator is done away w.e.f 1.4.23.
• Limit of Senior Citizens Saving Scheme increased from Rs.15 Lakhs to Rs.30 Lakhs which may provide relief to such Senior Citizens.
• Leave Encashment Limit for Pvt Sector increased from Rs.3 Lakhs to Rs.25 Lakhs (?? - Comment - unable to find any reference other than mentioned in the Budget Speech- Para 151 - we may see such amendment in the approved Finance Budget proposals)

Income from Salaries

• A new clause to provide that the contribution made by the Central Government in the previous year to the Agniveer Corpus Fund account of an individual enrolled in the Agnipath Scheme referred to in section 80CCH shall be considered as salary of that individual.
• Leave Encashment Limit for Pvt Sector increased from Rs.3 Lakhs to Rs.25 Lakhs (?? - Comment - unable to find any reference other than mentioned in the Budget Speech- Para 151 - we may see such amendment in the approved Finance Budget proposals)
• Rationalization of provisions related to the valuation of residential accommodation provided to employees:
  • As per clause (2) of section 17 of the Act, "perquisite" inter alia includes value of rent-free accommodation or value of any concession in the matters of rent provided to employees by the employer. The employer may be either Central/State Government or other than that, with different methodologies of valuation of perquisites for the two categories of employers.
  • In order to rationalize this provision by prescribing a uniform methodology in the Rules for computing the value of perquisite and to clearly classify the two categories of perquisites with respect to accommodation provided by the employers, it is proposed to amend sub-clauses (i) and (ii) of clause (2) of section 17 of the Act. It is proposed to take the power of prescription of the method for computation of the value of rent-free accommodation provided to the assessee by his employer and also the value of any accommodation provided to the assessee by his employer at a concessional rate.
  • It is proposed to amend the Explanation 1 to sub-clause (ii) of clause (2) of section 17 of the Act so as to provide that accommodation shall be deemed to have been provided at a concessional rate if the value of the accommodation computed in the prescribed manner exceeds the rent recoverable from or payable by the assessee.

Agnipath Scheme, 2022

Exempt Income

• New clause 10(12C) is introduced to provide for exemption for any payment received from the Agniveer Corpus Fund by a person enrolled under the Agniveer Scheme,2022 or the nominee of such person.
• Exemption provided to News Agency under section 10(22B) is withdrawn.
• In respect of an insurance policy issued on or after 1.04.2023 on which LIC premium paid exceeds Rs.5 Lakhs (one or several policies), then benefit of exemption is not available u/s 10(10D) of the Income Tax Act, 1961 except when such monies are received on the death of the person.
• Old Insurance Policies issued before 31.03.2023, it would enjoy tax exemption or taxability as was applicable earlier.
• Changes pursuant to SC Judgement of AUDA- Applicable to NGOs and Trusts

The new clause under Section 10(46A) proposes to exempt any income arising to a body or authority or Board or Trust or Commission, not being a company, which has been established or constituted by or under a Central or State Act with one or more of the following purposes, namely: -

(i) dealing with and satisfying the need for housing accommodation;

(ii) planning, development or improvement of cities, towns and villages;

(iii) regulating, or regulating and developing, any activity for the benefit of the general public; or

(iv) regulating any matter, for the benefit of the general public, arising out of the object for which it has been created.

Consequential changes have been introduced in 10(23C) & 11(7) of the Act.

Deductions under Chapter VI-A

• New Section 80CCH has been introduced to provide that in the new tax regime of section 115BAC an individual enrolled in the Agnipath Scheme and subscribing to the Agniveer Corpus Fund shall get a deduction of the government contribution to his Seva Nidhi w.e.f November 1,2022.

Profits and Gains of Business or Profession

Co-operative Societies

• Relief to sugar co-operatives from the past demand is provided on account of business expenditure claimed w.r.to Final Cane Price over and above Statutory Minimum Price by amending section 155 by inserting sub clause (19) to provide the necessary relief u/s 154 by providing time limits from 01.04.2022 to address the undergoing litigation.
• TDS limit u/s 194N (TDS on cash withdrawals) in respect of a Co-operative society is increased from "Rs. 1 Crore" to "Rs. 3 crores" w.e.f 1.4.23.
• Penalty for Cash Loan/transactions against primary co-operatives would be leviable u/s 269SS if such loan or deposit exceeds Rs. 2 Lakhsin place of Rs.20000 in the case of members of PACS(Primary Agricultural Credit Societies) & PCARD (Primary Co-operative Agricultural & Rural Development Bank)
• 15% concessional tax rate provided to promote a new manufacturing co-operative society by introducing Section 115BAE of the Income Tax Act 1961.

Start Ups u/s 80IAC

• Time limit for carrying forward and setting off of losses is increased from "7 years "to"10 Years u/s 79 (1) only for eligible startups.
• In all other cases, old provisions of Section 79 continue without any changes.
• Time limit is extended for eligible startups for exemption u/s 80IAC from existing 1.4.2023 to 1.4.2024.

Tax Incentives to International Financial Services Centre

• Time limit u/s 47(viiad) is extended from existing 31.3.2023 to 31.03.2025 by amending clause (b) of the explanation pertaining to transfer of assets of the original fund or its WOS Purpose Vehicle to a resultant fund in case of relocation.
• Section 10(4E) is amended to provide for exemption to any income distributed on the offshore derivative instruments , entered into with an offshore banking unit of IFSC as referred in section 80LA (1A). Such exempt income shall include only that amount which has been charged to tax in the hands of the IFSC Banking unit u/s 115AD.

Amortisation of Preliminary Expenditure - Section 35D

• The section inter-alia provides that the work in connection with the preparation of feasibility report or the project report or the conducting of market survey or of any other survey or the engineering services would need to be carried out either by the assessee himself or by a concern which is approved by the Board.
• In order to ease the process of claiming amortization of these preliminary expenses it is proposed to amend section 35D of the Act to remove the condition of activity in connection with these expenses to be carried out by a concern approved by the Board. Instead, the assessee shall be required to furnish a statement containing the particulars of this expenditure within prescribed period to the prescribed income-tax authority in the prescribed form and manner.

Tax Audit Related changes

• Tax Audit Limit u/s 44AD is increased from Rs. 2 crores to Rs. 3 Crores in respect of eligible businesses subject to condition that cash receipts/payments do not exceed 5% of the Total Turnover or Gross Receipts during the previous year;
• Tax Audit Limit u/s 44ADA is increased from Rs. 50 Lakhs to Rs. 75 Lakhs of the Total gross receipts in respect of specified professionals as specified u/s 44AA of the Income Tax Act subject to condition that cash receipts/payments do not exceed 5% during the previous year;
• Old provisions Section 44AB continue without any changes other than those specified above.
• To avoid misuse of presumptive scheme of taxation, amendment has been proposed by inserting a new sub-section to section 44BB and to section 44BBB of the Act to provide that notwithstanding anything contained in subsection (2) of section 32 and sub-section (1) of section 72, where an assessee declares profits and gains of business for any previous year in accordance with the provisions of presumptive taxation, no set off of unabsorbed depreciation and brought forward loss shall be allowed to the assessee for such previous year. (Comment: It is a Fair proposition to plug the loophole)

Section 43B Changes

• Payments to MSME Enterprises as provided under section of 15 MSME Act are now included for the purpose of disallowing u/s 43B of the Income Tax Act 1961 for all the assessees (whether tax audit is applicable or not) which essentially means that if payment to such supplier is not done as per timelines specified then it would be compulsorily disallowed but allowed to be deducted on payment basis only.
• In my view as the proposed amendment to section 43B of the Act will allow the payment as deduction only on payment basis, it will be allowed on accrual basis only if the payment is within the time mandated under section 15 of the MSMED Act.
• Liability outstanding as on 31st March of the previous year shall be allowed as deduction only if paid within 15/45 days (which period shall expire any time after 31st March), as the case may be.
• For the balance, only on payment basis in the respective financial years.
• (Comment: Will the taxpayer/assessee need to streamline to capture such classification? Does the tax auditor need to verify all such instances before issuing Tax Audit Report? Whether business enterprises may elect to stop dealing with MSME suppliers in view of the above compliance-demanding amendment? Will such change challenge the principle of "Ease of doing business?" Whether it is pragmatically possible to verify every MSME Certificate of each supplierand verify the authenticity and genuineness of such certificate? Whether such process will reduce cost of compliance or increase the same?)

Section 43B Changes applicable to NBFC Companies

• Section 43B of the Act provides, inter-alia, that any sum payable by the assessee as interest on any loan or borrowing from a Deposit taking Non-Banking Financial Company and Systemically Important Non-Deposit taking Non-Banking Financial Company shall be allowed as deduction on payment basis. It can be allowed on accrual basis if it is actually paid on or before the due date of furnishing the return of income of the relevant previous year.
• Section 43D of the Act provides, inter-alia, for special provision in case of income of deposit-taking Non-Banking Financial Company and Systemically Important Non-Deposit taking Non-Banking Financial Company. Interest income in relation to certain categories of bad or doubtful debts received by such deposit-taking Non-Banking Financial Company and Systemically Important Non-Deposit taking Non-Banking Financial Company, shall be chargeable to tax in the previous year in which it is credited to its profit and loss account for that year or actually received, whichever is earlier.
• Section 43B and section 43D of the Act currently use two erstwhile categories of NBFC namely Deposit taking Non-Banking Financial Company and Systemically Important Non-Deposit taking Non-Banking Financial Company. Such classification for non-banking financial companies is no longer followed by the Reserve Bank of India for the purposes of asset classification.
• In view of the above, it is proposed to amend section 43B and section 43D of the Act, to substitute the words, "a deposit taking non-banking financial company or systemically important non-deposit taking non-banking financial company" by the words "such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf".

(Comment: Positive for NBFC)

Providing clarity on benefits and perquisites in cash

• Section 28 of the Act provides for income that shall be chargeable to income-tax under the head "Profits and gains of business or profession". Clause (iv) of this section brings to chargeability the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. This provision was inserted through the Finance Act 1964 and the Circular no 20D dated 7th July 1964 was issued to explain the provisions of this Act, which stated clearly that the benefit could be in cash or in kind. Therefore, the intention of the legislation while introducing this provision was also to include benefit or perquisite whether in cash or in kind. However, Courts have interpreted that if the benefit or perquisite are in cash, it is not covered within the scope of this clause of section 28 of the Act.
• In order to align the provision with the intention of legislature, it is proposed to amend clause (iv) of section 28 of the Act to clarify that provisions of said clause also applies to cases where benefit or perquisite provided is in cash or in kind or partly in cash and partly in kind. (Ref. Cir No 12 dated 16.06.22)

Income Computation and Disclosure Standards

Inventories - ICDS II

• Section 142 has been amended to value inventory only from aCost Accountant.
• To enable the Assessing Officer to direct the assessee to get the inventory valued by a Cost Accountant, nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in this behalf. Assessee is then required to furnish the report of inventory valuation in the prescribed form duly signed and verified by such Cost Accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require.
• To provide that the expenses of, and incidental to such inventory valuation (including remuneration of the cost accountant) shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the prescribed guidelines and that the expenses so determined shall be paid by the Central Government.
• To provide that except where the assessment is made under section 144 of the Act, the assessee will be given an opportunity of being heard in respect of any material gathered on the basis of such inventory valuation which is proposed to be utilized for assessment.
• To define "cost accountant" to mean a cost accountant as defined in clause (b)of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 (23 of1959) and who holds a valid certificate of practice under sub-section (1) of section 6of that Act.
• Consequential amendment is made in section 153 to exclude the period for inventory valuation through the cost accountant for the purposes of computation of time limitation.
• Consequential amendment is made in section 295 also to make rules for such reporting of inventory and its valuation.

Rationalisation of Provisions

Excluding non-banking financial companies (NBFC) from restriction on interest Deductibility

• Section 94B (3) has been amended to provide a carve out to certain class of NBFCs and to provide that nothing contained in sub-section (1) of section 94B of the Act shall apply to:
• (i) an Indian company or a permanent establishment of a foreign company which is engaged in the business of banking or insurance; or
• (ii) such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf;

(Comment: Welcome amendment which would provide a level playing field between banks and NBFCs.)

Specifying time limit for bringing consideration against export proceeds into India

• It is proposed to insert a new sub-section to provide that the deduction under section 10AA of the Act shall be available for such unit, if the proceeds from sale of goods or provision of services is received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf.
• It is proposed that the export proceeds from sale of goods or provision of services shall be deemed to have been received in India where such proceeds from sale of goods or provision of services are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India.
• It is proposed to substitute clause (i) of Explanation 1 of the said section to define the term "convertible foreign exchange" and give reference to new sub section (4A) in the definition of "Export Turnover".
• It is also proposed to make consequential amendment in sub-section (11A) of section 155 of the Act, to insert section 10AA to allow the Assessing Officer to amend the assessment order later where the export earning is realized in India after the permitted period.

(Comment: Applicable only if deduction u/s 10AA is claimed by the Assessee, otherwise not applicable)

TDS changes

• TDS limit u/s 194N (TDS on cash withdrawals) in respect of a Co-operative society is increased from "Rs. 1 Crore" to "Rs. 3 crores" w.e.f 1.4.23.
• Now Lower Deduction certificate (LDC) can be applied u/s 197 of the Income Tax Act 1961 electronically in the cases where TDS is deducted u/s 194LBA which provides for TDS in respect of interest income of non-resident unit holders of business trust.
• TDS on Interest on listed Debentures u/s 193 would be applicable @ 10% from 01.04.23.
• Limit of Rs.10000/- u/s 194B (any income by way of winnings from any lottery or crossword puzzle or card game and other game of any sort further now it would include "gambling or betting of any form or nature whatsoever" within its scope & exclude online games from the purview of the said section from the 1st day of July, 2023, since a new section 194BA is proposed to be introduced for deduction of tax at source on winnings from online games from that date) or u/s 194BB (horse racing in any race course or for arranging for wagering or betting in any race course) has been amended to provide that deduction of tax under these sections shall be on the amount or aggregate of the amounts exceeding ten thousand rupees during the financial year; (Comment: It is a fair proposition to plug the loophole)
• TDS on online gaming u/s 194BA w.e.f July 1,2023,which provides for TDS deduction @ 30% u/s section 115BBJ which is newly introduced for determining levies on person responsible for paying, who shall ensure to pay the tax if there is any inadequacy - which is similar to provisions introduced u/s 194R of the Income Tax Act 1961.

Tax treaty relief at the time of TDS under section 196A of the Act

• In order to provide the relief requested by taxpayers, it is proposed to insert a proviso to sub-section (1) of section 196A of the Act. This proviso seeks to provide that the TDS would be at the rate which is lower of the rate of 20% and the rate or rates provided inagreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A of the Act, in case of a payee to whom such agreement applies and such payee has furnished the Tax Residency Certificate referred to in sub-section (4) of section 90 or sub-section (4) of section 90A of the Act.

TDS on payment of accumulated balance due to an employee

It was observed that many low-paid employees do not have PAN(is it possible practically? PAN Number is allotted within 24 hours!) and thereby TDS isbeing deducted at the maximum marginal rate in their cases under section 192A. Hence, itis proposed to omit the second proviso to section 192A of the Act, so that in case of failureto furnish PAN by the person relating to payment of accumulated balance due to him,tax will be deducted at the rate of 20% as in other non-PAN cases in accordance withsection 206AA of the Act, instead of at the maximum marginal rate.(Comment: It is really surprising to notice that employees don’t have PAN Number as PAN number is mandatory for availing PF emoluments)

Facilitating TDS credit for income already disclosed in the return of income of past year (Welcome amendment)

Representations have been received that in many instances, tax is deducted by the deductorin the year in which the income is actually paid to the assessee. However, following accrualmethod, the assessees may have already disclosed this income in earlier years in their returnof income. This results in TDS mismatch, since the corresponding income has alreadybeen offered to tax by the assessee in earlier years, however, TDS is only being deductedmuch later when actual payment is being made. The assessee cannot claim the credit ofTDS in the year in which tax is deducted since income is not offered to tax in that year. Itmay also not be possible to revise the return of past year in which the correspondingincome was included, since time to revise the return of income for that year may havelapsed. This results in difficulty to the assessee in claiming credit of TDS.

In order to remove this difficulty, it is proposed to insert a new sub-section (20) insection 155 of the Act. This new sub-section applies where any income has been includedin the return of income furnished by an assessee under section 139 of the Act for anyassessment year (hereinafter referred to as the "relevant assessment year") and tax has beendeducted at source on such income and paid to the credit of the Central Government inaccordance with the provisions of Chapter XVII-B in a subsequent financial year.In such acase the assessee can make an application in the prescribed form to the Assessing Officerwithin two years from the end of the financial year in which such tax was deducted atsource. Then Assessing Officer shall amend the order of assessment or any intimationallowing credit of such tax deducted at source in the relevant assessment year. It has beenfurther provided that the provisions of section 154 of the Act shall, so far as may be, applythereto, and the period of four years specified in sub-section (7) of that section shall bereckoned from the end of the financial year in which such tax has been deducted. Further,credit of such tax deducted at source shall not be allowed in any other assessment year.

Amendment has also been proposed in section 244A of the Act to provide that theinterest on refund arising out of above rectification shall be for the period from the date ofthe application to the date on which the refund is granted.

(Comment: In my view, if credit for taxes in such a situation could have been granted based on the documentary evidence(subject to verification) instead of providing the above option, credit for TDS by way of prepaid taxes could have been granted in a simpler way through the mechanism of regular returns filed under section 139(1)/139(4)/139(5)/148. This would have led to quicker processing of ITR in the regular course.Then, it would have been win-win situation for all)

Relief from special provision for higher rate of TDS/TCS for non-filers of income-tax returns

There may be certain persons who are not required to furnish the return of income. It isnot the intention to include such persons in the category of non-filers. Hence, in order toprovide relief in such cases, it is proposed to amend the definition of the "specified person"in sections 206AB and 206CCA of the Act so as to exclude a person who is not required tofurnish the return of income for the assessment year relevant to the said previous year andwho is notified by the Central Government in the Official Gazette in this behalf.

(Comment: Welcome amendment - moot question how to identity such person easily as electronic processing of the returns automatically issues demand for non-compliance)

Amendments in consequence to new provisions of TDS

• Presently, the provisions for penalty and prosecution do not clearly mandate a penalty or prosecution for a person who does not pay or fails to ensure that tax has been paid in a situation where the benefit or perquisite is passed in kind. Therefore, to enable such penalty and prosecution, it is proposed to amend section 271C inserting two new subclauses under clause (b) in sub-section (1) providing reference to the first proviso to section 194R and the first proviso to section 194S. Similar amendments are also proposed in section 276B. Drafting changes are also proposed in the section to align the language with the parent provisions.

TCS changes w.e.f July 1,2023

• Overseas Tour Packages now would attract TCS @ 20% without any threshold limit as against 5% without any limits.
• Any other remittances like Gift, Overseas Investments etc. now would attract TCS @ 20% without any threshold limit as against 5% of the amount or the aggregate of the amount in excess of Rs.7 Lakhs.
• Such TCS collected can be claimed as prepaid taxes while filing return of income as per the provisions of the Income Tax Act 1961 and based on determination and the ascertainment of the total income, tax to be determined as per the provisions of the Income Tax Act 1961.
• It appears that TCS rate is increased to 20% to detect the revenue leakages in general.

Anti-Abuse Provisions

• Penalty for Cash Loan/transactions against primary co-operatives u/s 269SS would be leviable if such loan or deposit exceeds Rs. 2 Lakhs in place of Rs.20000 in the case of members of PACS (Primary Agricultural Credit Societies)& PCARD (Primary Co-operative Agricultural & Rural Development Bank). (Comment: Fair proposition)
• For all other class of assessee other than above as provided u/s 269SS, limit of Rs.20000/- still maintained and continued.
• Section 9(1) (viii) has been amended to extend this deeming provision to sum of money exceeding fifty thousand rupees, received by a not ordinarily resident, without consideration from a person resident in India as NROs were not paying taxes on such monies received.(Comment: Fair proposition to plug the loophole)
• To avoid misuse of presumptive scheme of taxation, amendment has been proposed by inserting a new sub-section to section 44BB and to section 44BBB of the Act to provide that notwithstanding anything contained in subsection (2) of section 32 and sub-section (1) of section 72, where an assessee declares profits and gains of business for any previous year in accordance with the provisions of presumptive taxation, no set off of unabsorbed depreciation and brought forward loss shall be allowed to the assessee for such previous year. (Comment: Fair proposition to plug the loophole)
• A proviso has been inserted after clause (ii) of the section 48 so as to provide that the cost of acquisition or the cost of improvement shall not include the amount of interest claimed under section 24 or Chapter VIA. (Comment: Fair proposition)
• For defining the term ‘cost of acquisition’ and ‘cost of improvement’ of such assets, it is proposed to amend the provisions of sub-clause (1) of the Clause (b) of the subsection (1) and clause (a) of sub-section (2) of section 55 so as to provide that the ‘cost of improvement’ or ‘cost of acquisition’ of a capital asset being any intangible asset or any other right ( other than those mentioned in the said sub-clause or clause, as the case may be) shall be ‘Nil’. (Comment: Earlierthe SCjudgement of B C Srinivas Shetty 128 ITR 294 could be invoked whereby computation mechanism would fail ascost of acquisition and cost of improvements were not defined u/s 55, such gainswere not subject to levy of tax. But now, with this amendment all such transactions would be subject to levy of capital gain tax- e.g., TDR Rights allotted to the Society by Central Govt or Statement due to changes in FSI or DC Rules etc.)

Capital Gains

• Conversion of Gold into Electronic Gold receipt and vice versa shall not be termed as Transfer as provided u/s 2(47) of the Income Tax Act 1961.(Comment: Fair proposition- welcome relief)
• Consequential changes are provided u/s 49 - to provide that where an Electronic Gold Receipt issued by a Vault Manager, became the property of the person as consideration of a transfer, as referred in the newly inserted clause in section 47, the cost of acquisition of the asset for the purpose of the said transfer, shall be deemed to be the cost of gold in the hands of the person in whose name Electronic Gold Receipt is issued. Similarly, where the gold released against an Electronic Gold Receipt, which became the property of the person as consideration for a transfer, as referred in the newly inserted clause in section 47, the cost of acquisition of the asset (being gold) for the purposes of the said transfer shall be deemed to be the cost of the Electronic Gold Receipt in the hands of such person.(Comment: Fair proposition)
• Holding period changes provided u/s 2(42A).
• Limit of deduction u/s 54 as well as 54F to save capital gains is restricted to Rs.10 Crores - will impact HNI assessees but clarity about the computation of investment amounting to Rs.10 crores needs to be provided by the Govt.(Comment: Unfair proposition)
• Limit of Rs.10 Crores is applicable for each previous year relevant to assessment year.
• In view of restrictions provided u/s 54& 54F, consequential changes are proposed to be made in the Capital Gains Unit Scheme 1988.
• Market Linked Debentures would be termed as short-term capital gain only by ignoring period of holding as per the modes of computation provided u/s 49 as per new section 50AA inserted.
• Section 45(5A) has been amended to provide that the full value of consideration shall be taken as the stamp duty value of the share as increased by any consideration received in cash or by a cheque or draft or by any other mode. (Comment: Fair proposition)

Carry forward and accumulated losses

• Time limit for carrying forward and setting of losses in increased from "7 years "to "10 Years u/s 79 (1) only for eligible startups.(Comment: Fair proposition)
• Section 72AA of the Act has been amended to allow carry forward of accumulated losses and unabsorbed depreciation allowance in the case of amalgamation of one or more banking company with any other banking institution or a company subsequent to a strategic disinvestment, if such amalgamation takes place within 5 years of strategic disinvestment w.e.f 01.04.2023.(Comment: Fair proposition)

Income from Other Sources

Business Trust u/s 115UA

Business trusts u/s 115UA distribute sums to their unit holders which fall in the following four categories:

(a) Interest;

(b) Dividend;

(c) Rental income;

(d) Repayment of debt.

Unit holders were paying taxes appropriately in respect of incomes as stated in (a)(b) & (c) (supra) by enjoying pass through status but repayment of debt escaped the levy of income. Thus, the following amendment has been introduced.

Section 115UA is sought to be amended to make such sum received by unit holder taxable in the Unit holder’s his hands. However, provision is also proposed for a situation when the sum received by unit holder represents redemption of unit held by him. Hence it is proposed to amend the Act by way of:

(i) insertion of clause (xii) in sub-section (2) of section 56 of the Act to provide that income chargeable to income-tax under the head "income from other sources" shall also include any sum, received by a unit holder from a business trust, which-

(a) is not in the nature of income as referred to in clause (23FC) or clause (23FCA) of section 10 of the Act; and

(b) is not chargeable to tax under sub-section (2) of section 115UA of the Act;

(ii) insertion of a proviso to the said clause to provide that where the sum received by a unit holder from a business trust is for redemption of unit or units held by him, the sum received shall be reduced by the cost of acquisition of the unit or units to the extent such cost does not exceed the sum received;

(iii)insertion of sub-section (3A) in section 115UA of the Act to provide that the provisions of sub - sections (1), (2) and (3) of this section, shall not apply in respect of any sum, as referred to in clause (xii) of sub-section (2) of section 56 of the Act, received by a unit holder from a business trust;

(iv) insertion of sub-clause (xviic) in clause (24) of section 2 of the Act to provide that income shall include any sum referred to in clause (xii) of sub-section (2) of section 56 of the Act.(Comment: Fair proposition)

Bringing the non-resident investors within the ambit of section 56(2) (viib) to eliminate the possibility of tax avoidance

Section 56(2) (xviib) has been proposed to include the consideration received from a non- resident also under the ambit of clause (viib) by removing the phrase ‘being a resident’ from thesaid clause. This will make the provision applicable for receipt of consideration for issue ofshares from any person irrespective of his residency status.(Comment: Fair proposition)

Income Tax Returns

Clarification regarding advance tax while filing Updated Return

In order to clarify the provisions of the sub-section (4) of section 140B of theAct, an amendment has been proposed in the said sub-section that interest payable undersection 234B shall be computed on an amount equal to the assessed tax as reduced by theamount of advance tax, the credit for which has been claimed in the earlier return, if any.(Comment: Fair proposition- welcome clarification)

Tax Administration

Extension of time for disposing pending rectification application by Interim Board for settlement

Section 245D (9) (iv) is proposed to be substituted with a new clause to provide that where the time-limit for amending an order or for making an application under sub-section (6B) expires on or after 01.02.2021 but before 01.02.2022, such time-limit shall stand extended to 30.09.2023(Comment: Fair proposition- welcome relief)

Introduction of Authority of Joint Commissioner (Appeals)

Section 246 of the Act to provide for appeals to be filed before Joint Commissioner (Appeals). Further it has been provided that an order referred in Section 246(1) can not be filed which is passed by or with the approval of an income tax authority above the rank of deputy commissioner.

Board may transfer appeal from CIT (Appeals) to Joint Commissioner (Appeals) and vice versa too.(Comment: Fair proposition- welcome relief)

Reducing the time provided for furnishing TP Report

Reduced from 30 Days to 10 days

The Assessing Officer or the Commissioner (Appeals) may, in the course of any proceeding under the Act, require any person referred to in clause (i) of sub-section (1) of section 92D of the Act i.e., who has entered into an international transaction or specified domestic transaction, to furnish any information or document referred therein within a period of ten days from the date of receipt of a notice issued in this regard; and

The Assessing Officer or the Commissioner (Appeals) may, on an application made by such person who has entered into an international transaction or specified domestic transaction, extend the period of ten days by a further period not exceeding thirty days.

(Comment: Fair proposition but time limit of 30 days should have been maintained)

Rationalisation of Appeals to the Appellate Tribunal

To reduce litigation and provide for natural justice, following amendments are made

Section 253 has been amended to provide that appeal against penalty orders passed by Commissioner (Appeals) under the sections 271AAB, 271AAC and 271AAD shall be made to the Appellate Tribunal. (Comment: Fair proposition- welcome relief)

Section 253 has been amended to provide so that appeal against an order passed under section 263 of the Act by Principal Chief Commissioner or Chief Commissioner or an order passed under section 154 of the Act in respect of any such order shall be made to the Appellate Tribunal.(Comment: Fair proposition- welcome relief)

Amendment to section 253(4) to enable filing of memorandum of cross-objections in all classes of cases against which appeal can be made to the Appellate Tribunal. For example, where the assessee files an appeal to the appellate tribunal against an order passed by the Assessing Officer in consequence of an order of the Dispute Resolution Panel the Assessing Officer would be able to file a cross objection to such appeal which cannot be filed presently.(Comment: Fair proposition- welcome relief)

Assistance to authorised officer during Search and Seizure

Section 132 is sought to be amended to provide that during the course of search the authorised officer may requisition the services of any other person or entity, as approved by the Principal Chief Commissioner or the Chief Commissioner, the Principal Director General or the Director General, in accordance with the procedure prescribed by the Board in this regard, to assist him for the purposes of the search. Similarly, in during and post search enquiries, the authorised officer may make reference to any person or entity or any valuer registered by or under any law for the time being in force, who shall estimate the fair market value of the property in the manner prescribed and submit a report of the estimate to the authorised officer or the Assessing Officer within sixty days from the receipt of such reference.

The timelines for completing assessment or reassessment in search cases is linked to the execution of the last of the authorisations during such procedure, in order to establish the day of conclusion of search proceedings, and what constitutes as last authorisation is provided in section 153B. As the provisions of section 153B are no longer applicable, it is proposed to provide the meaning of execution of last authorisation under section 132 itself.(Comment: Fair proposition)

Provisions related to Business Reorganisation

It is proposed to substitute section 170A, to provide that notwithstanding anything contained in section 139, in a case of business reorganisation, where prior to the date of order of the Tribunal or the High Court or Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016, any return of income has been furnished for any assessment year relevant to a previous year, by an entity to which such order applies, the successor shall furnish, within a period of six months from the end of the month in which the said order was issued, a modified return in the form and manner, as may be prescribed, in accordance with and limited to the said order. This would also enable modification of the returns filed by the predecessor wherever required

There was no provision of the procedure to be followed by the Assessing Officer after the modified return is furnished by the successor entity. It is therefore being provided that, if proceedings of assessment or reassessment for the relevant assessment year have been completed on the date of furnishing of modified return under sub-section (1), the Assessing Officer shall pass an order modifying the total income of the relevant assessment year in accordance with the order of the business reorganisation and taking into account the modified return so furnished. Where proceedings of assessment or reassessment for the relevant assessment year are pending on the date of furnishing of modified return under sub-section (1), the Assessing Officer shall pass an order assessing or reassessing the total income of the relevant assessment year in accordance with the order of the business reorganisation and taking into account the modified return so furnished (Comment: Fair proposition)

Rationalisation of the provisions of PBPT Act, 1988

Timelines determination for appeal filing

It is proposed that the provisions of section 46 of the PBPT Act may be amended to allow the filing of appeal against the order of the Adjudicating authority within a period of 45 days from the date when such order is received in the office of the Initiating Officer or the aggrieved person as the case may be. Similar change is also proposed with reference to the order passed by an Authority under section 54A of the PBPT Act.(Comment: Fair proposition)

Determination of High Court Jurisdiction

To enable the determination of High Court jurisdiction for the non-resident appellants or respondents, it is proposed to amend section 2(18) of the PBPT Act to modify the definition of ‘High Court’ by inserting a proviso so as to provide that where the aggrieved party does not ordinarily reside or carry on business or personally work for gain in the jurisdiction of any High Court or where the Government is the aggrieved party and any of the respondents do not ordinarily reside or carry on business or personally work for gain in the jurisdiction of any High Court, then the High Court shall be such within whose jurisdiction the office of the Initiating Officer is located.(Comment: Fair proposition)

Time Limits u/s 153

Assessment relating to the assessment year commencing on or after the 1st day of April, 2022 shall be twelve months from the end of the assessment year in which the income was first assessable.

The time available for completion of assessment proceedings in the case of an updated return is also proposed to be increased to 12 months from the end of the financial year in which such return is furnished.

It is proposed that a new sub-section (3A) may be inserted in section 153 of the Act to provide that where an assessment or reassessment is pending on the date of initiation of search under section 132 or making of requisition under section 132A, the period available for completion of assessment or reassessment, as the case may be, under the said sub-sections (1), (1A), (2) and (3) of the said section shall be extended by twelve months in a case of an assessee where such search is initiated under section 132 or such requisition is made under section 132A or in the case of an assessee to whom any money, bullion, jewellery or other valuable article or thing seized or requisitioned belongs to or in the case of an assessee to whom any books of account or documents seized or requisitioned pertains or pertain to, or any information contained therein, relates to.

(Comment: Fair proposition)

Reassessment Proceedings u/s 147/148/149/148A

Amendments have been proposed in the provisions relating to conduct of reassessment proceedings under the Act to further streamline them and facilitate their conduct and completion in a seamless manner. It has been proposed that the section 148 of the Act may be amended to provide that a return in response to a notice under section 148 of the Act shall be furnished within three months from the end of the month in which such notice is issued, or within such further time as may be allowed by the Assessing Officer on a request made in this behalf by the assessee. However, any return which is furnished beyond the period allowed in the section 148 to furnish such return of income shall not be deemed to be a return under section 139 of the Act. As a result, the consequential requirements viz. notice under sub-section (2) of section 143 etc. would not be mandatory for such returns.

It is also proposed to insert another proviso in the section 149 of the Act to provide that in cases where the information deemed to be with the Assessing Officer emanates from a statement recorded or documents impounded under summons or survey, as the case may be, on or before the 31st day of March of a financial year, in consequence of, a search initiated or last of the authorization executed under section 132 or a requisition made under section 132A, after the 15th day of March of such financial year, a period of fifteen days shall be excluded for the purpose of computing the period of limitation for issuance of notice under section 148 and the show cause notice issued under clause (b) of section 148A in such case shall be deemed to have been issued on the 31st day of March of such financial year. It has also been provided that the impounding or the recording of the statement in consequence of the search or the search itself should be before the 31st March only. Only extension has been provided for the time consumed in the procedure for issuance of notice under section 148 or 148A, as the case may be.

At the same time, to give further clarity with regards to the specified authority a proviso is proposed to be inserted in the section 151 to provide that while computing the period of three years for the purposes of determining the specified authority the period which has been excluded or extended as per the provisos in section 149 of the Act from the time limit for issuance of notice under section 148 of the Act shall be taken into account.

(Comment: Fair proposition)

Penalty for furnishing inaccurate statement of financial transaction or reportable account

A new sub clause (2) has been inserted in Section 285BA which shall provide that if there is any inaccuracy in the statement of financial transactions submitted by a prescribed reporting financial institution and such inaccuracy is due to false or inaccurate information submitted by the account holder, a penalty of five thousand rupees shall be imposable on such institution, in addition to the penalty leviable on such financial institution in the said section, if any. This penalty shall be levied by the income tax authority prescribed under sub-section (1) of section 285BA of the Act. Further, the reporting financial institution may recover the amount so paid on behalf of the account holder or retain out of any moneys that may be in its possession or may come to it from every such reportable account holder.(Comment: Fair proposition)

Amendments in consequence to new provisions of TDS

Presently, the provisions for penalty and prosecution do not clearly mandate a penalty or prosecution for a person who does not pay or fails to ensure that tax has been paid in a situation where the benefit or perquisite is passed in kind. Therefore, to enable such penalty and prosecution, it is proposed to amend section 271C inserting two new subclauses under clause (b) in sub-section (1) providing reference to the first proviso to section 194R and the first proviso to section 194S. Similar amendments are also proposed in section 276B. Drafting changes are also proposed in the section to align the language with the parent provisions.(Comment: Fair proposition)

Income Tax Refunds

Set off and withholding of refunds in certain cases

It is proposed to integrate the two sections by substituting section 245, so as to provide that where under any of the provisions of this Act, a refund is due to any person, the Assessing Officer or Commissioner or Principal Commissioner or Chief Commissioner or Principal Chief Commissioner, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against any sum remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section.

It is also proposed to provide that where a part of the refund has been set off under subsection (1) or where no amount is set off, and refund becomes due to a person, then, the Assessing Officer, having regard to the fact that proceedings of assessment or reassessment are pending in such case and grant of refund is likely to adversely affect the revenue, and for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, may withhold the refund till the date on which such assessment or reassessment is made.

Consequentially Section 241A is omitted.

(Comment: Stringent provision)

NGOs and Trusts (Plethora of amendments continued)

• Application by a charitable or religious trust before 01-04-2021 out of corpus, loans or borrowings shall not be allowed when such amount is deposited back or invested in the corpus, or the loan or borrowing is repaid. (Sections-10(23C)/11)
• Repayment of loan or investment/depositing back into corpusshall be considered an application for charitable or religious purposes onlywithin 5 years of application from the corpus or loan (Sections- 10(23C)/11) (Comment: Fair proposition)
• The donations by a trust or institution to another trust or institutionshall be treated as the application of up to 85% of such donations. (Sections- 10(23C)/11)
• Three name-based funds (Jawaharlal Nehru Memorial Fund, Indira Gandhi Memorial Trust, and Rajiv Gandhi Foundation) have been removed from the list of eligible funds for a deduction under Section 80G.
• The trusts and institutions that have commenced the activities shall make the application directly for regular registration instead of provisional registration(Sections-10(23C)/12AB/80G) (Comment: Fair proposition & welcome change)
• The submission of an application for registration containing false or incorrect information, or if it is incomplete, shall be considered a specified violationand result in the cancellation of the registrationof trusts or institutions by PCIT/CIT.(Comment: Fair proposition)
• The provisions of accreted tax under Section 115TD are extended to trusts or institutions if they fail to apply for re-registration(Sections- 10(23C)/12AA/12AB/80G) (Comment: Fair proposition)
• To claim accumulation of income, the trusts or institutions shall file Form 9A and Form 10 at least 2 months before the due date of filing of return of income. (Sections-10(23C)/11/139(1)) (Comment: Fair proposition but NGOs and Trust need to finalise their accounts well in advance)
• The trusts or institutions cannot claim the benefit of exemption provisions by filing an updated return of income.(Sections- 10(23C)/12A/139(8A)) (Comment: Fair proposition)

Tax Slabs (old schema)- Individuals - Taxable Income upto Rs.5 Lakhs

Tax Slabs(old Schema) - Individuals - Taxable Income above Rs.5 Lakhs

Tax Slabs (old schema) - Women Assessee below 60 years

Tax Slabs (old schema) - Senior Individual Citizens above 60 years

Tax Slabs(old schema) - Senior Individual Citizens above 80 years

Note:

• When Income exceeds Rs. 50 Lakhs but less than One Crore additional surcharge @ 10% is payable on Total Tax Payable by all the category of the Assessee
• When Income exceeds Rs. 1 (One) Crore but less than Rs.2 crores then additional surcharge @ 15% of such tax payable by all the category of the Assessee
• When Income exceeds Rs. 2 Crores but less than Rs.5 crores then additional surcharge @ 25% of such tax payable by all the category of the Assessee
• When Income exceeds Rs. 5 Crores then additional surcharge @ 37% of such tax payable by all the category of the Assessee

Note: Additional 4% cess payable in respect of all categories.

New Schema Income Tax for Individuals and HUF

New Tax Slabs (New schema optional)- Individuals - Taxable Income above Rs.5 Lakhs up to AY 23/24

Note:

• When Income exceeds Rs. 50 Lakhs but less than One Crore additional surcharge @ 10% is payable on Total Tax Payable by all the category of the Assessee
• When Income exceeds Rs. 1 (One) Crore but less than Rs.2 crores then additional surcharge @ 15% of such tax payable by all the category of the Assessee
• When Income exceeds Rs. 2 Crores but less than Rs.5 crores then additional surcharge @ 25% of such tax payable by all the category of the Assessee
• When Income exceeds Rs. 5 Crores then additional surcharge @ 37% of such tax payable by all the category of the Assessee

Note: Additional 4% cess payable in respect of all categories.

Disadvantages of opting for new schema of Taxation

1. All Exemptions eligible u/s Chapter XVII-B viz. 80C, 80D, 80G, 80TTA etc. need to be given up.
2. For Salaried employee, benefits of Standard deduction, House Rent Allowance, LTA, Education allowance etc. all need to be given up.
3. For Pensioners, deduction available u/s 56 amounting to Rs.15000/- need to be given up.
4. In respect of House Property Income, benefit of interest on monies borrowed for purchase of such property need to be given up.
5. In case of business enterprises or professionals or entrepreneurs, deductions available u/s section 32, 32AB, 35AB etc. need to be given up.

Thus, considering above whether to go for new schema of taxation or not has to be computed to decide whether it is beneficial or not.

New Tax Slabs (New schema by default if not opted out on or before the time limits specified u/s 139(1) of the Income Tax Act 1961)- Individuals - Taxable Income above Rs.7 Lakhs up from AY 24/25

Note:

• When Income exceeds Rs. 50 Lakhs but less than One Crore additional surcharge @ 10% is payable on Total Tax Payable by all the category of the Assessee
• When Income exceeds Rs. 1 (One) Crore but less than Rs.2 crores then additional surcharge @ 15% of such tax payable by all the category of the Assessee
• When Income exceeds Rs. 2 Crores but less than Rs.5 crores then additional surcharge @ 25% of such tax payable by all the category of the Assessee
• When Income exceeds Rs. 5 Crores, then additional surcharge @ 25% of such tax is payable by all the categories of the specified assessees under new tax regime only

Note: Additional 4% cess payable in respect of all categories.

Disadvantages of opting for new schema of Taxation

1. All Exemptions eligible u/s Chapter XVII-B viz. 80C, 80D, 80G, 80TTA etc. All would need to be given up.
2. For Salaried employee, House Rent Allowance, LTA, Education allowance etc. all has to be given up completely but such an employee can claim standard deduction of Rs.50000/-.
3. For Pensioners, deduction available u/s 56 amounting to Rs.15000/- is allowed which was not allowed earlier
4. Deduction with respect to amount deposited in Agniveer Corpus

Fund

1. In respect of House Property Income, benefit of interest on monies borrowed for purchase of such property would need to be given up.
2. In case of business enterprises or professionals or entrepreneurs, deduction available u/s section 32, 32AB, 35AB etc. would need to be given up.

Thus, considering above, whether to opt for new schema of taxation or not is a proposition that the Assessee needs to prudently evaluate - whether it is beneficial or not.

Note: All readers are requested intelligently to read & study the provisions on this publication. We have tried to compile the information to the best of our ability and understanding.Suggestions to improve the publication is always welcome with folded hands. This information has been shared only for educational purposes for the benefit of all.