AMENDMENTS BROUGHT IN BY THE FINANCE ACT, 2008

AMENDMENTS BROUGHT IN BY THE FINANCE ACT, 2008

DIRECT TAX

INCOME TAX ACT

Rates of Income - Tax for Assessment Year 2009 - 10

1.1 (A) For woman, resident in India and below the age of 65 years at

any time during the previous.

Upto Rs. 1,80,000 Nil

Rs. 1,80,001 to Rs. 3,00,000 10%

Rs. 3,00,001 to Rs. 5,00,000 20%

Above Rs. 5,00,000 30%

1.1 (B) For an individual (man or woman), resident in India who is of the

age of 65 years or more at any time during the previous year.

Upto Rs. 2,25,000 Nil

Rs. 2,25,001 to Rs. 3,00,000 10%

Rs. 3,00,001 to Rs. 5,00,000 20%

Above Rs. 5,00,000 30%

1.1 (C) Individuals, [other than those mentioned in para 1.1(A) and (B)

above] HUF, AOP/BOI (other than co-operative societies, whether

incorporated or not)

Upto Rs. 1,50,000 Nil

Rs. 1,50,001 to Rs. 3,00,000 10%

Rs. 3,00,001 to Rs. 5,00,000 20%

Above Rs. 5,00,000 30%

Surcharge

10,00,000.

Education Cess (EC

surcharge shall be levied.

Secondary and Higher Education Cess (SHEC)

surcharge, called the “Secondary and Higher Cess (SHEC) on income-tax: at the

rate of 1% of income-tax and surcharge (not including the “Education Cess on

income-tax”) in all cases shall be levied.

Marginal Relief

income-tax payable, including surcharge, on the excess of income over Rs.

10,00,000 is limited to the amount by which the income is more than Rs.

10,00,000.

2

Example:

For men and women For women resident in

resident in India above India below 65 For others

65 years of age years of age

Total Tax Tax Tax Tax Tax Tax

income (including (including (including (including (including

(including

(Rs.) surcharge surcharge surcharge) surcharge) surcharge)

surcharge)

@ 10%) Payable @ 10% payable @ 10% payable

due to due to due to

marginal marginal marginal

relief relief relief

1 2 3 4 5 6 7

10,05,000 2,18,000 2,02,5001 2,23,850 2,07,0003 2,27,150 2,10,0005

10,10,000 2,20,550 2,07,5002 2,25,500 2,12,0004 2,28,800 2,15,0006

10,20,000 2,23,850 2,17,500 2,28,800 2,22,000 2,32,100 2,25,000

10,29,000 2,26,820 2,26,500 2,31,770 2,31,000 2,35,070 2,34,000

10,29,470 2,26,975 2,26,970 2,31,925 2,31,470 2,35,225 2,34,470

10,29,480 2,26,978 2,26,978 2,31,928 2,31,480 2,35,228 2,34,480

(No marginal relief)

10,30,00 2,27,150 2,27,150 2,32,100 2,32,000 2,35,400 2,35,000

(No marginal relief)

Working Notes:

1. Tax on Rs. 10,00,000 Rs. 1,97,500

Add: Income in excess of Rs. 10,00,000 Rs. 5,000

Rs. 2,02,500

2. Tax on Rs.10,00,000 Rs. 1,97,500

Add: Income in excess of Rs.10,00,000 Rs.10,000

Rs. 2,07,500

3. Tax on Rs.10,00,000 Rs. 2,02,000

Add: Income in excess of Rs. 10,00,000 Rs. 5,000

Rs. 2,07,000

4. Tax on Rs. 10,00,000 Rs. 2,02,000

Add: Income in excess of Rs. 10,00,000 Rs. 10,000

Rs. 2,12,000

5. Tax on Rs. 10,00,000 Rs. 2,05,000

Add: Income in excess of Rs. 10,00,000 Rs. 5,000

Rs. 2,10,000

6. Tax on Rs. 10,00,000 Rs. 2,05,000

Add: Income in excess of Rs. 10,00,000 Rs. 10,000

Rs.2,15,000

No marginal relief shall be available in respect of Education Cess (EC) and

secondary and Higher Education Cess (SHEC) and as such tax payable under

columns 3,5 and 7

3

1.(D) Artificial juridical persons:

the case of individuals. However, artificial juridical persons will be required to pay

surcharge @ 10% on tax payable on amount of total income (whether such total

income is less or more than Rs.10,00,000).

For EC and SHEC, see after para 1.G below

1.(E) Firms:

Surcharge on income-tax:

given above, or in section 111A or section 112, in the case of every firm

total income exceeding Rs. 1 crores

calculated at the rate of 10% of such income -tax.

Marginal relief:

as income -tax and surcharge on total income exceeding Rs.1 crore shall not

exceed the total amount payable as income - tax on a total income of Rs. 1 crore

by more than the amount of income that exceeds Rs. crore.

Example:

Total Income Tax including Tax (including surcharge)

(Rs.) surcharge at 10% payable due

to marginal relief

1,01,00,000 33,33,000 31,00,000

1,03,00,000 33,99,000 33,00,000

1,04,00,000 34,32,000 34,00,000

1,04,45,000 34,46,850 34,45,000

1,04,46,000 34,47,180 34,46,000

1,04,47,000 34,47,510 34,47,000

1,04,48,000 34,47,840 34,47,840

No surcharge shall be levied in the case of firms having total income of Rs. 1

crore or less.

For EC and SHEC, see after para 1.G below

1.(F) Companies:

(a) Domestic Companies:

remains at 30%.

(b) Foreign Companies:

existing tax rates and the rate shall continue to be 40%.

Surcharge on income - tax :

accordance with the above rates, or in section 111A or section 112, shall, in the

case of every company having total income exceeding Rs.1 crore, be increased by

a surcharge calculated,

(i) In the case of every domestic company at the rate of 10% of such income

- tax.

(ii) In the case of every company other than a domestic company at the rate

2.5% (instead of 10% in case of domestic companies).

4

Marginal relief :

amount payable as income - tax and surcharge on total income exceeding Rs. 1

crore shall not exceed the total amount payable as income - tax on a total income

of Rs. 1crore by more than the amount of income that exceeds Rs. 1 crore (see

Example below para 1.C above).

No surcharge shall be levied in the case of companies having total income Rs.1

crore or less.

Surcharge shall be levied at the existing rates on tax on fringe benefits,

irrespective of the amount of fringe benefits.

1(G) Co - operative Societies

Upto Rs.10,000 10%

Rs.10,001 to Rs.20,000 20%

Above Rs.20,000 30%

Surcharge:

1(H) Local Authorities:

shall continue to be 30%.

Surcharge:

Education Cess and Secondary & Higher Education Cess

Education Cess: An Education Cess of 2% shall be levied on the income - tax

(including surcharge if any) payable by all corporate or non -corporate assessees.

Secondary and Higher Education Cess :

called the “Secondary and Higher Education Cess on income -tax ”, at the rate of

1% of income - tax and surcharge (not including the “Education Cess on income -

tax ”) in case of all assessees shall be levied.

Amendments relating to DEFINITIONS

2. Widening the scope of “Agricultural Income” [Section 2 (1A)] [W.e.f

A.Y. 2009 - 10]

The Act has amended section 2(1A) so as to provide that any income derived

from saplings or seedlings grown in a nursery shall be deemed to be agricultural

income. Accordingly, irrespective of whether the basic operations have been

carried out on land such income will be treated as agricultural income, thus

qualifying for exemption under section 10(1) of the Act.

3. Streamlining the definition of “Charitable purpose” [Section 2(15)

W.e.f A.Y. 2009-10]

Section 2(15) of the Act defines “charitable purpose” to include relief of the poor,

education, medical relief, and the advancement of any other object of general

public utility.

With a view to limiting the scope of the phrase “advancement of any other object

of general public utility“, the Act has amended section 2(15) so as to provide that

“the advancement of any other object of general public utility” shall

charitable purpose if it involves the carrying on of

(a) Any activity in the nature of trade, commerce or business or,

(b) Any activity of rendering of any service in relation to any trade, commerce

or business,

for a fee or Cess or any other consideration, irrespective of the nature of use or

application of the income from such activity, or the retention of such income, by

the concerned entity.

The purpose of bringing this amendment was that number of entities operating on

commercial lines are claiming exemption on their income either under section

10(23 C) or section 11 of the Act on the ground that they are charitable

institutions. This is based on the argument that they are engaged in the”

advancement of an object of general public utility “ as is included in the fourth

limb of the current definition of “ charitable purpose “. Such a claim, when made

in respect of an activity carried out on commercial lines, is contrary to the

intention of the provision.

Amendments relating to incomes which do not form part of TOTAL

INCOME [Section 10]

4. Exemption to a “Sikkimese” individual [ Section 10(26AAA)] [W.r.e.f.

A.Y.1990 - 91]

The Act has inserted a new clause (26AAA) in section 10 to provide that the

following income, which accrues or arises to a Sikkemese individual, shall be

exempt from income-tax—

(a) Income from any source in the State of Sikkim; or

(b) Income by way of dividend or interest on securities.

It has also been provided that this exemption will not be available to a Sikkimese

woman who, on or after 1 - 4 - 2008, marries a non-sikkimese individual.

For the purpose of the above clause ‘Sikkim’ shall mean:

(i) An individual, whose name is recorded in the register maintained under

the Sikkim Subjects Regulations, 1961 read with the Sikkim Subject

Rules, 1961 (here in after referred to as the “Register of Sikkim

Subjects”), immediately before the 26th day of April, 1975; or

(ii) An individual, whose name is included in the Register of Sikkim Subjects

by virtue of the Government of India Order No. 26030/36/90-I.C.I., dated

the 7th August, 1990 and Order of even number dated the 8th April,

1991; or

(iii) Any other individual, whose name does not appear in the Register of

sikkim Subjects, but it is established beyond doubt that the name of such

individual`s father or husband or paternal grandfather or brother from

the same father has been recorded in that register.

5. Income of Agricultural Produce Marketing Committee or Board to be

exempt [Section 10 (26AAB] [W.e.f. A.Y.2009 -10]

The Finance Act, 2008 has inserted new clauses (26AAB) in section 10 to provide

that any income of an agricultural produce market committee or board

constituted under any law for the time being in force for the purpose of regulating

the marketing of agricultural produce shall be exempt.

6

6. Exemption of income of Coir Board [Section 10(29A)] [W.r.e.f.2002-

03]

Section 10(29A) provides that any income of certain specified commodity boards

and export development authorities shall be exempt from income tax. The Act

has allowed a similar exemption in respect of any income accruing or arising to

the Coir Board established under the Coir Industry Act, 1953.

7. Amendment to give effect to reverse mortgage scheme [Section

10(43) and Section 47 (xvi)] [W.r.e.f.A.Y. 2008 -09]

Regular mortgage vis-a-vis Reverse mortgage:

mortgage’ the borrower makes monthly/yearly repayment to lender whereas in

case of ‘reverse mortgage’, a lender makes payments to the borrower. While

the reverse mortgage loan is outstanding, the borrower owns the house and

holds title to it, without having to make any monthly mortgage payments.

Reverse mortgage scheme in case of senior citizens (62 years of age) was

introduced last year by State Bank of India and Punjab National Bank after the

Budget 2007. In the context of the aforesaid scheme, the following tax issues

arising there from have been resolved by the Act by inserting section 10 (43) and

section 47(xvi)

1.

amounts to income?

capital receipt, but with a view to providing certainty in the tax regime to

the senior citizen, the Act has inserted clause (43) to section 10 of the

Income tax Act to provide that any amount received by an individual as a

loan either in lump sum or in installment in a transaction of reverse

mortgage referred to in section 47 (xvi) shall be exempt.

2.

scheme is transfer within the meaning of the Income - tax Act thereby

giving rise to capital gains?

‘transfer’. Further, ‘transfer’ within the meaning of the Transfer of

Properties Act includes some types of mortgage. Therefore, a mortgage of

property, in certain cases, is a transfer within the meaning of section

2(47) of the Income - tax Act. Consequently, any gain arising upon

mortgage of a property may give rise to capital gains under section 45 of

the Income - tax Act.

a stream of cash flow against the mortgage of a residential house and not

to alienate the property. The Act has therefore inserted a new clause (xvi)

in section 47 of the Income-tax Act to provide that any transfer of a

capital asset in a transaction of reverse mortgage under a scheme made

and notified by the Central Government shall not be regarded as a

transfer and therefore shall not attract capital gains tax.

7

3.Capital gains tax attracted only at the point of alienation of Mortgaged

Property; consequently to the above amendments, a borrower, under a

reverse mortgage scheme, will be liable to income - tax (in the nature of tax

on capital gains) only at the point of alienation of the mortgaged property

by the mortgagee for the purposes of recovering the loan.

8. Tax holiday for units covered under section 10A and 10B extended by

one year [Section 10A and 10B]

The Finance Act, 2008 has extended the deduction available u/s 10A relating to

industrial undertaking in Free Trade Zone, etc and u/s 10B relating to 100%

Export Oriented Undertakings by one year. Hence, now deduction shall be allowed

maximum upto assessment year 2010 -11 instead of assessment year 2009 -10.

“PROFITS AND GAINS OF BUSINESS OR PROFESSION”

9. Weighted deduction for sum paid to a company to be used by such

company for scientific research [Section 35(1) (iia)] [ W.e.f. A.Y. 2009 -

10)

Section 35 (1) (ii) of the Income - tax Act, provides for weighted deduction to a

payer, to the extent of 125% of the sum paid to an approved scientific research

association, approved university, college or other institution to be used for

scientific research subject to certain other specified conditions.

With a view to encouraging outsourcing of scientific research, particularly by

small companies which are handicapped in making lump sum investment for

building in - house scientific facilities, the Act inserted a new clause (iia) in sub -

section (1) of section 35 of the Income - tax Act to allow a weighted deduction of

125% of the amount paid by a person to a company to be used for scientific

research, if such company—

(i) is registered in India;

(ii) has as its main object the scientific research and development;

(iii) is for the time being approved by the prescribed authority in the prescribed

manner; and

(iv) fulfills such other conditions as may be prescribed.

that a company approved under the provision of section 35(1)(iia) will not

be entitled to claim weighted deduction of 150% under section 35 (2AB).

expenditure on scientific research which is available under section 35 (1)

(i) will continue to be allowed.

1. Any person, whether company or not, can avail of the deduction under

the above clause by making payment to any company approved for this

purpose.

2. Further there is no requirement that the scientific research carried on by

such company should be related to the business of the donor.

8

10. Extending the provision relating to amortization of preliminary

expenses to all undertakings [Section 35D] [W.e.f.A.Y.2009 - 10]

Section 35D provides for deduction of certain specified preliminary expenses. The

deduction is allowed of an amount equal to one fifth of such expenditure for five

successive previous years. The preliminary expenses relate either to the period

before the commencement of the business or after. However, if preliminary

expenses relate to a period after the commencement of the business, such

expenses are only allowed if they are in relation to the extension of an industrial

undertaking or setting up of a new industrial unit.

The above amendments seek to substitute the words “industrial undertaking”

with the word “undertaking” and the words “industrial unit” with the word unit.

The intention of the law is to provide the benefit of amortization of post

commencement preliminary expenses to all sectors for extension of an

“undertaking” or the setting up a “new unit”, be it is a service sector or

otherwise.

11. Securities Transaction Tax (STT) to be allowed as a deduction

[Section 36 (1) (xv)] [W.e.f.A.Y.2009 - 10]

At present, the amount of STT paid is allowed as rebate under section 88E of the

Income -tax Act. This rebate is allowed when the income from taxable securities

transactions is included under the head ‘ profits and gains of business or

profession’.

The Act has discontinued the rebate available to such assessee under section 88-

E of the Income -tax Act w.e.f assessment year 2009 -10.

Any amount of securities transaction tax paid by the assessee during the year in

respect of taxable securities transactions entered into in the course of business

shall be allowed as deduction under section 36(1) (

subject to the condition that such income from taxable securities transactions is

included under the head ‘Profits and Gains of Business or Profession’.

Consequently, section 40(a) (ib), which provided that STT is not an allowable

expense, has been omitted.

12. Commodities Transaction Tax to be allowed as a deduction [Section

36 (1)(xvi)] [W.e.f. A.Y. 2009 -10]

The Act has inserted clause (xvi) in sub -section 36 w.e.f A.Y. 2009 -10 to provide

that any amount of commodities transaction tax (CTT) paid by the assessee

during the year in respect of taxable commodities transactions entered into in the

course of business shall be allowed as deduction subject to the condition that

such income from taxable commodities transactions is included under the head

‘profits and gains of business or profession’.

9

13. No disallowance of certain expenses if the TDS for the month of

March is deposited by the due date of filing the return of income [Section

40(a) (ia)]

As per the existing provisions of section 40(a) (ia) any interest, commission or

brokerage, rent, royalty, fees for professional services, fees for technical services,

any amount payable to a resident contractor or sub - contractor shall not be

allowed as a deduction in computing the income chargeable under the head

‘Profits and gains of business or profession’.

The disallowance can be resorted to under the following situations:

(

such tax has not been deducted; or

(

the previous year, or in the subsequently year before the expiry of the

time prescribed under section 200(1)

However, where in respect of any such sum, tax has been deducted in any

subsequent year or, has been deducted in the previous year but paid in any

subsequent year after the expiry of the time prescribed under section 200(1),

Such sum shall be allowed as a deduction in computing the income of the

previous year in which such tax has been paid.

The Finance Act, 2008 has amended the above clause (ia) to section 40,

assessment year 2005 - 06

tax is deductible at source under Chapter XVII -B and such tax has not been

deducted or after deduction has not been paid:

(A) In a case where the tax was deductible and was so deducted during the

last month of the previous year, on or before the due date specified in sub

- section (1) of section 139; or

(B) In any other case, on or before the last day of the previous year, such

expenses shall not be allowed as deduction in the year in which these are

incurred.

However, where in respect of any such sum, tax has been deducted in any

subsequent year, or has been deducted—

(A) During the last month of the previous year but paid after the said due

date; or

(B) During any other month of the previous year but paid the end of the said

previous year, such sum shall be allowed as a deduction in computing the

income of the previous year in which such tax has been paid.

10

It may be observed from the above that if the TDS is deposited after the due date

but in the same previous year in which it is deducted, deduction of the expense

shall be allowable.

However, where the tax was deductible and was deducted during the month of

March of the relevant previous year, and the same is deposited on or before the

due date of filing the return specified under section 139 (1), the deduction shall

be allowed in the previous year in which the expenditure is incurred.

On the other hand, if the tax deducted in the month of March is deposited after

the due date of filing return specified under section 139(1), the deduction of the

expense shall be allowed in the year in which such tax has been deposited.

Example :

SL. Nature of Date of Due date Actual Previous Previous

No. Expenditure payment/ of deposit date of year in year in

credit of TDS deposit deduction of which

expense was

deduction

allowable will be

prior to the allowed

amendment after

amendment

1 2 3 4 5 6 7

1. Job Work 15-10-2007 7-11-2007 15-11-2007 2007-08 2007-08

2. Audit Fee 14-11-2007 7-12-2007 6-12-2007 2007-08 2007-08

3.Interest on 31-1-2008 7-2-2008 28-3-2008 2007-08 2007-08

Loan

4. Commission 31-3-2008 31-5-2008 30-7-2008 2008-09 2007-08

on sale credited

5. Legal fee 15-3-2008 7-4-2008 2-6-2008 2008-09 2007-08

credited

6. Interest 31-3-2008 31-5-2008 2-4-2009 2009-10 2009-10

credited

7. Fee for 15-1-2008 7-2-2008 30-9-2008 2008-09 2008-09

Technical (i.e. due

Service date u/s

139(1))

8. Rent 31-3-2008 31-5-2008 30-9-2008 2008-09 2007-08

credited (i.e. due

date u/s 139(1))

9. Royalty 31-3-2008 31-5-2008 7-6-2008 2008-09 2007-08

credited

It may be noted that although the disallowance of expense shall not be made

under section 40(a) (ia) if the TDS is deposited within the time prescribed in the

new provisions above, but the assessee shall be liable to pay interest under

section 201(1A) for delay, if any, in deposit of tax.

11

14. Amendment to the provisions of section 40A (3) of the Income-tax

Act [Section 40A (3)] [W.e.f. A.Y. 2009-10]

Section 40A(3) provides that any expenditure incurred in respect of which

payment is made in a sum exceeding Rs. 20000 otherwise than by an account

payee cheque drawn on a bank or an account payee draft, shall not be allowed as

a deduction. Section 40A(3)(b) also provides for deeming a payment as profits

and gains of the business or profession if the expenditure is incurred in a

particular year and the payment is made in any subsequent year in a sum

exceeding Rs.20000 otherwise than account payee cheque or account payee

draft.

Section 40A(3) is an anti tax-evasion measure. By requiring payments to be

made by an account payee instrument, it is possible to verify the genuineness of

the transaction thereby mitigating the risk of evasion. However, the provision of

section 40A(3) are being circumvented by splitting a particular high value

payment to a person into several cash payments, each below Rs.20,000. This

splitting is also resorted to for payments made in the course of a single day. The

Orissa High Court in cash of CIT v Aloo Supply Co.(1980) 121 ITR680(Ori) and

the Madras High Court in CIT v Kothari Sanitation & Tiles (p) Ltd.(2006) 282 ITR

117 (Mad) held that where the assessee was doing more than one transaction in

a day but if the amount in each transaction does not exceed the limit prescribed

in section 40A(3), the rigors of section 40A(3) will not apply.

To overcome the splitting of payments

day as referred above and to increase the efficacy of the provision, the

amendment seeks to substitute the present provision to provide that where a

payment or aggregate of payments made to a person in a day, otherwise than by

an account payee cheque drawn on a bank or account payee bank draft, exceeds

Rs.20,000, the disallowance of such expenditure shall be made under the new

sub-section (3) of section 40A.

Similarly,

particular year and the payment of the same is made in any subsequent year in a

sum exceeding Rs.20,000 otherwise than by an account payee cheque or draft,

such payment shall be deemed to be the profits and gains of business or

profession of the previous year in which such payments is made.

Illustration :

B has incurred an expenditure of Rs.30,000. B makes separate payments of

Rs.15,000 Rs.6,000 and Rs.9,000 all by cash, to the person concerned in a single

day. The aggregate amount of payment made to a person in a day, in this case,

is Rs.30,000. Since, the aggregate payment by cash exceeds Rs.20,000

Rs.30,000 will not be allowed as a deduction in computing the total income of R

in accordance with the amendment.

12

The proviso to the new sub - section (3A) provides that in certain prescribed

cases and circumstances the provisions of sub - sections (3) and (3A) shall not

apply.

15. Clarification regarding definition of written down value under section

43(6) [Section 43(6)] [ W.r.e.f. A.Y. 2003 - 04]

Section 32(1)(ii) provides that depreciation shall be allowed at the prescribed

percentage on the written down value (WDV) of any block of assets. Section

43(6) (b) provides that written down value in the case of assets acquired before

the previous year means the actual cost to the assessee less all depreciation

actually allowed to him under the Income -tax Act.

Due to exemption available under section 10 earlier, some persons were exempt

from tax and, therefore, not required to complete their income under the head

“profits and gains of business or profession”.

Upon withdrawal of exemption, such persons became liable to income - tax and

hence, required to compute their income for income - tax purposes. In this

context, dispute has arisen on the basis for allowing depreciation under the

Income -tax Act in respect of assets acquired during the years when it enjoyed

exemption.

The Income -tax Appellate Tribunal has held that since there was no liability to

tax, there was no occasion to compute the income of such person under the

provisions of the Income -tax Act. Therefore, the depreciation provided in the

books in the years when the income was exempt can not be treated as the

depreciation “actually allowed”.

Accordingly, it was held that the actual cost of the asset was the written down

value for the purposes of claiming depreciation under the Income - tax Act in the

previous year in which such person first ceases to enjoy the income - tax

exemption. This interpretation is not in conformity with the intent and purpose of

the provisions of depreciation.

Accordingly, the Act has amended section 43(6) to provide that

(a) The actual cost of an asset shall be adjusted by the amount attributable to

the revaluation of such asset, if any, in the books of account;

(b) The total amount of depreciation on such asset provided in the books of

account of the assessee in respect of such previous year or years preceding

the previous year relevant to the assessment year under consideration shall

be deemed to be the depreciation actually allowed under the Income -tax Act

for the purposes of section 43(6);

(c) The depreciation actually allowed as above shall be adjusted by the amount

of depreciation attributable to such revaluation.

16. Specified date for obtaining and furnishing the tax audit report u/s

44AB advanced to 30th September [Section 44AB] [W.r.e.f assessment

year 2008 -09]

13

W.r.e.f assessment year 2008 -09, the above specified date for obtaining and

furnishing the tax audit report

assessment year

“CAPITAL GAINS”

17. Capital gains on transfer in the context of foreign currency

exchangeable bonds [Section 47(xa) and Section 49(2A)] [W.r.e.f. A.Y.

2008 -09]

In 1992, the Government allowed established Indian companies to issue foreign

currency convertible bonds (FCCB), with special tax regime for non - resident

investors, so as to encourage the flow of foreign exchange to India.

The Government has now allowed established Indian companies to issue foreign

currency exchangeable bond (FCEB). These are bonds expressed in foreign

currency, the principle and interest in respect of which is payable in foreign

currency.

The FCEBs differ from FCCBs in as much as latter can only be converted into

shares of the issuing company, whereas FCEBs can also be converted into or

exchanged for the shares of a group company.

With a view to providing a level playing fields to FCEBs, the Act has inserted

clause (xa) to section 47 to provide that the conversion of FCEBs into shares or

debentures of any company shall not be treated as a ‘transfer’ within the meaning

of Income -tax Act. Further it has substituted sub -section (2A) of section 49 to

provide that the cost of acquisition of the shares received upon conversion of the

bond shall be the price at which the corresponding bond was acquired.

18. Whether mortgage of property for obtaining a loan under the reverse

mortgage scheme is transfer within the meaning of the Income -tax Act

thereby giving rise to capital gains: [Section 47 (xvi)] [W.r.e.f. A.Y. 2008

-09]

See para 7 above

19. Increase in tax rates for Short Term Capital Gains [Section 111A and

115AD] [ W.e.f. A.Y. 2009 -10]

Section 111A and 115AD provide for special tax rate of 10% on short term capital

gain arising from the transfer of a short term capital asset being an equity share

in a company or a unit of an equity oriented fund, where such transaction is

chargeable to securities transaction tax. The Act has increased the rate of tax on

such short -term capital gain to 15%.

DEDUCTIONS under Chapter VIA from GROSS TOTAL INCOME

20. Enlargement of the scope of eligible saving instruments under section

80C [Section 80C(2)] [W.r.e.f.A.Y. 2008 - 09]

The following investments made by assessee, during the previous year, shall also

be eligible for deduction under section 80C within the overall ceiling of

Rs.1,00,000 :-

(i) Deposit in an account under the Senior Citizens Savings Scheme Rules,

2004; and

14

(ii) Five year time deposit in an account under Post Office Time Deposit Rules,

1981

Further, it has been provided that where any amount is withdrawn by the

assessee from such account before the expiry of a period of 5 years from the date

of its deposit, the amount so withdrawn shall be deemed to be income of the

assessee of the previous year in which the amount is withdrawn.

The amount so withdrawn, accordingly, shall be liable to tax in the assessment

year relevant to such previous year. The amount liable to tax shall also include

that part of the amount withdrawn which represents interest accrued on the

deposit.

However if any part of the amount so received or withdrawn (including the

amount relating to interest) has suffered taxation in any of the earlier years, such

amount relating to interest) has suffered taxation in any of the earlier years, such

amount shall not be taxed again.

However, any amount received by the nominee or legal heir of the assessee, on

the death of such assessee (other than interest, if any, accrued thereon which

was not included in the total income in the past years) shall not be taxable in the

hands of he nominee or the legal heir.

21. Additional deduction for health insurance premium paid parents

[Section 80D] [W.e.f. A.Y. 2009 - 10]

Section 80D of the Income - Tax Act provides for a deduction of up to Rs.15,000

to an assessee, being an individual or a Hindu undivided family. The deduction is

allowed for making a payment to effect or keep in force an insurance on.

(a) The health of the assessee or on health of the wife or husband, dependent

parents or dependent children of the assessee where the assessee is an

individual;

(b) The health of any member of the family where the assessee is a Hindu

undivided family.

In case the assessee or any other member of the family, on whose health the

insurance has been effected or kept in force, is a senior citizen, an additional

deduction of Rs.5,000 is allowed. The existing provisions also have the

requirements that the payment must be through a mode other than cash and

should be out of the taxable income of the assessee.

Since health insurance cover for the elderly comes at a relatively higher price, it

is necessary to encourage individual assesses to supplement the efforts of their

parents in getting themselves medically insured. Accordingly, existing section 80D

has been substituted w.e.f assessment year 2008 - 09 to provide as under :—

1. Where the assessee is an individual, the deduction allowed shall be the

aggregate of the following namely :-

15

(a) the whole of the amount paid to effect or keep in force an insurance on

the health of the assessee or his spouse and dependent children as

does not exceed in aggregate Rs.15,000; and

(b) the whole of the amount paid to effect or to keep in force an insurance

on the health of the parent or parents (whether dependent or not ) of

the assessee as does not exceed in aggregate Rs.15,000.

2. Where the assessee is a Hindu undivided family, the deduction allowed shall

be the whole of the amount paid to effect or to keep in force an insurance

on the health of any member of that Hindu undivided family as does not

exceed in aggregate Rs.15,000.

Additional deduction of Rs.5,000

(1)(a) and (b) and clause (2) above is paid to effect or keep in force an

insurance on the health of any person specified therein, and who is a senior

citizen, an additional deduction of Rs.5,000 shall be allowed in each case.

Illustration :

A pays (through any mode other than cash) during the previous year medical

insurance premia as under :—

(i) Rs.14,000 to keep in force an insurance policy on his health and on the

health of his wife and dependent children.

(ii) Rs.17,000 to keep in force an insurance policy on the health of his parents.

Under the new provisions, he will be allowed a deduction of Rs.29,000 (Rs.12,000

+ Rs.15,000) if neither of his parents is a senior citizen. However, if any of his

parents is a senior citizen, he will be allowed a deduction of Rs.31,000 (Rs.14,000

+ Rs.17,000).

Whether the parents are dependent or not, is not a consideration for

deciding the deduction under the new section.

Further, in the above example, if cost of insurance on the health of the parents is

Rs.30,000 out of which Rs.17,000 is paid (by any non - cash mode) by the son

and Rs.13,000 by the father (who is a senior citizen), out of their respective

taxable income, thereon will get a deduction of Rs.17,000 (in addition to the

deduction of Rs.14,000 for the medical insurance on self and family) and the

father will get a deduction of Rs.13,000.

22 . Sunset provision for deduction for refining of mineral oil under

section 80 IB(9) in certain cases [Section 80 -IB (9)]

The Act has inserted a third proviso in section 80 -IB(9) so as to provide that no

deduction under this sub -section shall be allowed to an undertaking engaged in

refining of mineral oil if it begins refining on or after 1 -4 -2009 unless such

undertaking fulfils all the following conditions, namely :—

(i) It is wholly owned by a public sector company or any other company in

which a public sector company or companies hold at least 49% of the voting

rights.

(ii) It is notified by the Central Government in this behalf on or before 31 -5 -

2008 and

16

(iii) It begins refining not later than 31 -3 - 2012

23. Five year tax holiday to hospitals located in certain areas

[Section 80 IB (11C)] [W.e.f. assessment year 2009 -10]

Sub-section (11B) of section 80 - IB provides a tax holiday for five consecutive

assessment years, beginning from the initial assessment year, to undertaking

deriving profits from the business of operating and maintaining a hospital in a

rural area. The undertaking is required to fulfill certain conditions specified in the

said sub -section. One of the conditions is that the hospital is constructed at any

time during the period beginning on 1 -10 2004 and ending on 31 -3 -2008.

With a view to encouraging investment in hospitals in non -metro cities, the Act

has extended the benefit of this sub -section to hospitals located anywhere in

India, other than the excluded area. Hence, the Act has inserted a new sub -

section (11C) in the said section 80 -IB. New sub-section (11C), inter -alia, seeks

to provide that:

(i) 100% tax benefit shall be with respect to the profit derived from the

business of operating and maintaining a hospital for a period of five

consecutive assessment years, beginning from the initial assessment year ;

(ii) The tax benefit will be available to hospital which is constructed and has

started or start functioning at any time during the period beginning on 1 -4

- 2008 and ending on 31-3-2013 ; any where in India other than the

excluded area ;

(iii) The excluded area shall mean an area comprising the urban agglomerations

of Greater Mumbai, Delhi, Kolkata, Chennai, Hyderbad, Bangalore and

Ahmedabad, the districts of Faridabad, Gurgaon, Ghaziabad, Gautam Budh

Nagar and Gandhinagar and the city of Secunderabad.

The area comprising an urban agglomeration shall be the area included in

such urban agglomeration on the basis of the 2001 census;

(iv) The hospital has at least 100 beds for patients;

(v) The construction of the hospital is in accordance with the regulations or

bye-laws of the local authority; and

(vi) The assessee furnishes along with the return of income, a report of audit in

such form and containing such particulars, as may be prescribed, and duly

signed and verified by a chartered accountant certifying that the deduction

has been correctly claimed.

24. Five year tax holiday for hotels located in specified districts having a

World Heritage Site. [Section 80 -ID] ]W.e.f A.Y. 2009 -10]

The existing section 80 -ID of the Income -tax Act provides for a five year tax

holiday to a new hotels of two, three and four star categories and convention

centers provided the hotel or convention centre is located in the specified area

17

viz. as the National Capital Territory of Delhi and the districts of Faridabad,

Gurgaon, Gautam Budh Nagar and Ghaziabad.

With a view to promoting tourism and to attract tourists to certain World Heritage

Sites in India, the Act has extended the scope of 100% tax benefits available in

this section also to new two -star, three -star or four -star category hotels located

in specified districts having a World Heritage Site. Such hotels are required to be

constructed and start functioning at any time during the period beginning on 1 -4

-2008 and ending on 31 - 3- 2013.

Specified districts having a World Heritage Site are the districts of Agra, Jalgaon,

Arungabad, Kancheepuram, Puri, Bharatpur, Chhatarpur (M.P), Thanjavur,

Bellary, South 24 Parganas (excluding areas falling within the Kolkata Urban

Agglomeration on the basis of the 2001 census), Chamoli, Raisen, Gaya, Bhopal,

Panchmahal, Kamrup (Assam), Goalpara (Assam), Nagaon (Assam), North Goa,

South Goa, Darjeeling and Nilgiri.

Other conditions, already specified in this section, shall also be applicable to the

new hotels.

Changes in the provisions relating to STT and rebate u/s 88E

25. Rebate u/s 88E omitted

W.e.f. assessment year 2009 -10 STT shall be allowed as a deduction u/s

36(1)(xv) and as such rebate u/s 88E has been omitted. For details

above.

“MINIMUM ALTERNATIVE TAX”

26. Clarification regarding add back of ‘Deferred Tax’, ‘Dividend

Distribution Tax’, etc. for calculating Book Profit [Section 115JB] [

W.r.e.f A.Y. 2001 -02]

Clause (a) of the

the book profits by income -tax paid or payable and the provisions therefore; if

debited to profit and loss account.

However, section 115JB has not specifically provided for add back of some “below

the line” items like deferred tax, dividend distribution tax, etc. There has been

some ambiguity regarding add back of these items, if debited to profit and loss

account.

E.g. the ITAT in the case of ACIT Kolkata v Balrampur Chini Mills LTD. (2007) 14

SOT 372 (Kol) held that deferred tax amount debited to profit and loss account

was neither income -tax paid or payable nor reserve nor unascertained liability

and not covered by any of the clauses (a) to (g) of the

115JB(2) and therefore not liable to be added to net profit for computing book

profits.

Similarly, it was held that dividend distribution tax payable as per provisions of

section 115 -O of the Act is of similar nature as FBT payable and since FBT is not

to be added back dividend distribution tax should also be not added back.

18

With a view to clarifying the intention, the Finance Act has made the

following amendments:

(a) It has inserted a new clause after clause (g) of the

numbered so as to provide that the book profit

amount of deferred tax and the provision therefore,

and loss account.

(b) It has inserted Explanation 2 to section 115JB to clarify that the amount of

income tax shall include :—

(i) tax on distributed profits under section 115 -O or distributed income

under section 115R;

(ii) Any interested charged under this Act;

(iii) Surcharge, if any, as levied by the provisions of the Central Acts from

time to time;

(iv) Education Cess on income -tax, if any as levied by the Central Acts from

time to time; and

(v) Secondary and Higher Education Cess on income -tax, if any, as levied

by the Central Acts from time to time.

Note :

be added back but interest on FBT shall have to be added back as per

clause (ii) above which states that any interest charged under this Act is to

be added.

(c) It has also inserted clause (viii) to

provide that the profit as per the profit and loss account shall be

by the amount of deferred tax,

profit and loss account.

”DIVIDEND DISTRIBUTION TAX”

27. Amendment of provisions relating to Dividend Distribution Tax

[Section 115 -O] [W.r.e.f. A.Y. 2008 - 09]

Section 115-O relates to tax on distributed profits of domestic companies. Sub -

section (1) of the section provides that tax on distributed profits at the rate of

15% shall be levied on any amount declared, distributed or paid by a domestic

company to its shareholders b way of dividends.

With a view to help domestic companies to efficiently structure their business, it

has been decided to mitigate the cascading effect of dividend distribution tax upto

one level.

Accordingly, the Finance Act has provided that the amount of dividend referred to

in sub -section (1) will be reduced by the amount of dividend received by the

domestic company from its subsidiary, if

(a) The subsidiary has paid tax under sections 115 -O on such dividend, and

(b) The domestic company is not a subsidiary of any other company.

It is also provided that the same amount of dividend shall not be taken into

account for such reduction, more than once. For the purpose of the section, a

company shall be a subsidiary of another company, if such other company holds

more than half in nominal value of the equity share capital of the company.

19

“FRINGE BENEFIT TAX”

28. Rationalization of the provision of the Fringe Benefit Tax [Section

115WB (2)] [W.e.f. A.Y. 2009 - 10]

With a view to rationalizing the provisions of Fringe Benefits Tax, the following

amendments to sub -section (2) of section 115 WB of the Income -tax Act have

been made :

(

also be excluded from the hospitality expenditure for calculation of the value

of fringe benefit. Such electronic meal card should not be transferable,

should be usable only at eating joints or outlets and should fulfill such

conditions, as may be prescribed.

(

incurred or payment made to :—

Shall not be considered as expenditure for employee’s welfare for the

purpose of calculation of the value of fringe benefits.

The above expenditure is in addition to the following three expenditure

which were hitherto not treated as employees welfare expenditure.

Any expenditure incurred or payment made to:

(a) Fulfill any statutory obligation,

(b) Mitigate occupational hazards,

(c) Provide first -aid facilities in the hospital or dispensary run by the

employer.

(iii) Clause (K) has been omitted. Hence, any expenditure on or payment for

maintenance of any accommodation in the nature of guest house shall not

be included for valuation of fringe benefits.

(iv) Clause (c) and clause (d) of sub -section (1) of section 115WC has been

amended so as to provide that the value of fringe benefits on account of

expenditure on festival celebration shall be 20% as against the existing rate

of 50%.

29. Advancement of due date of filing FBT return from 31st October to

30th September in respect of certain categories of assesses [

to section 115WD(1)] [W.r.e.f. assessment year 2008 - 09]

For details

20

30. Time limit for service of notice u/s 115WE (2) [W.r.e.f. assessment

year 2008 - 09]

The Act has amended section 115WE (2) W.r.e.f. assessment year 2008 - 09 to

provide that the notice under section 115WE (2) for scrutiny assessment under

section 115WE(3) shall be served on the assessee within a period of six months

from the end of the financial year in which the return is furnished.

Similar changes have been made in section 143(2)

31. Deemed payment of tax by the employee where FBT on securities

allotted to him is recovered by the employer [Section 115WKB]

[W.r.e.f.A.Y. 2008 - 09]

The Central Board of Direct Taxes (CBDT) had issued Circular Number 9, dated 20

-12 - 2007, clarifying therein certain issues relating to levy of FBT on ESOPs. One

of the clarifications was that if FBT on account of share allotted or transferred

under ESOPs has been paid by the employer, but recovered from an employee, it

shall be deemed that the employee has paid the FBT. Therefore, such an

employee can credit for this deemed payment of FBT in a foreign country.

The new section further seeks to provide that not withstanding anything

contained in this Act, in the above situation, the employee shall not be entitled for

any refund out of such deemed payment of tax; and shall also not be entitled to

claim any credit of such deemed payment of tax against tax liability on other

income or against any other tax liability.

ADMINISTRATIVE AND COMPLIANCE PROCEDURES

32. Advancement of due date from 31st October to 30th September in

respect of certain categories of assesses [

(1) and

The due date for filing the income -tax returns has been prescribed as 31st day of

October of the assessment year for the following categories of assesses :

(

(

under this Act or under any other law for the time being in force; or

(

under this Act or under any other law for the time being in force.

The Act has amended the said clause (a) of the

assessment year 2008 - 09 so as to provide that the due date for filing of return

of income for the above categories of assesses shall be 30th day of September of

the assessment year.

Similarly, the due date for filing of return of fringe benefits, provided in clause (a)

of the

advanced from 31st day of October of the assessment year to 30th day of

September of the assessment year.

21

There is no change in the due date of filing of returns in the case of all other

categories of tax payers.

33. Power to the Assessing Officer to extend the time for completion of

special audit [Section 142 (2C)] [W.r.e.f.A.Y. 2008 - 09]

As per proviso to section 142 (2C), extension of time for furnishing the audit

report in case of special audit directed to be conducted under section 142(2A) can

be made only when an application is made in this behalf by the assessee and

there are good and sufficient reasons for such extension.

The Act amended the said proviso so as to allow the Assessing Officer to extend

this period of furnishing of audit report

Officer shall continue to have power to grant extension on an application made in

this behalf by the assessee and when there are good and sufficient reasons for

such extension, he can also grant such extension on his own.

34. Correction of arithmetical mistakes and adjustment of incorrect claim

under section 143(1)/115 WE (1) through Centralized Processing of

Returns [section 143 (1) and section 115 WE (1)] [W.r.e.f.A.Y. 2008-09]

The scope of the present summary assessment scheme does not contain any

provision allowing

as to whether taxes have been correctly paid on the income returned and there is

no provision for correcting arithmetical mistakes or internal inconsistencies in the

return filed.

With an objective to reduce loss, the Act has amended section 143(1) of the

Income - tax Act to provide that where a return has been made under section

139, or in.

(b) The Central Government may issue a notification in the Official Gazette,

directing that any of the provision of this Act relating to processing of

returns shall not apply or shall apply with such restrictions, modifications

and adoptions as may be specified in the notification. However, such

direction shall not be issued after 31 -3 - 2009.

(c) Every notification shall be laid before each House of Parliament as soon as

such notification is issued. Along with the notification, the scheme referred

above is also required to be laid before each House of Parliament.

Similar amendment has also been made section 115 WE (1) of the Income -tax

Act, relating to fringe benefits.

35. Service of notice and the time limit for issuance of notice under

section 143 (2) of the Income -tax Act [Section 143 (2) and section

292BB] [W.r.e.f. A.Y. 2008 - 09]

Sub-section (2) of section 143 of the Income-tax Act provides that the notice for

scrutiny assessment under this sub - section shall be served on the assessee

within a period of twelve months from the end of the month in which the return is

furnished. Further, the service of such notice must be affected in a manner laid

down in sections 282, 283 and 284 of the Income -tax Act, read with General

Clauses Act.

22

Instances have come to the notice of the department, where notices under sub -

section (2) of section 143, though issued by registered post within twelve months

from the end of the month in which the return was furnished, have been held

‘invalid’ on the ground that the notice was actually received by the assessee after

the limitation date and there was no ‘service’ as postulated under the section.

This is notwithstanding the fact that the assessee has attended the assessment

proceedings in response to the notice served on him.

Instances have also come to notice where the order of the Assessing Officer is

being quashed on the consideration that there is no evidence of issue or service

of notice, even though the assessee and his authorized representative have

attended the hearing before the Assessing Officer during the assessment

proceedings.

Further, the design of the limitation period with reference to the end of the month

leads to administrative inconvenience in as much as the last day of every month

becomes a time barring date.

In order to address these issues and to reduce litigation, the Act has inserted a

new section 292BB

—

(

(

It shall be deemed that any notice under any provision of this Act has been duly

served upon him in time in accordance with the relevant provision of the Act.

Further, such assessee shall be precluded from taking any objection in any

proceeding or inquiry under this Act that the notice was,

(

(

(

Section 292BB -When not applicable

shall not apply where the assessee has raised such objection before the

completion of such assessment or reassessment.

Similar amendment has also been made by inserting section 42 in the Wealthtax.

Time limit for service of notice under section 143(2)

amended

be

financial year in which the return is furnished.

36. Amendments in respect of reassessment proceedings to clarify

correct legislative intention [Section 147 and 151]

The Income-tax Act empowers Assessing Officer to reopen a case under section

147 if he has

23

Adequate safeguards have been provided so that such power of reopening is not

arbitrarily used by the Assessing Officers. The issue of valid reopening of

assessment has been a matter of dispute between the department and the

taxpayers. Some of the judicial interpretations on the subject have been found to

have a bearing on the legality of such reopening.

In order to correctly reflect the legislative intention, the Act has amended:

(i)

assess or reassess an income which is chargeable to tax and has escaped

assessment other than those incomes involving matters which are the

subject matter of any appeal, reference or revision ;

(ii)

the Commissioner of the Chief Commissioner, as the case may be, being

satisfied on the reasons recorded by the Assessing Officer about fitness of a

case for the issue of notice under section 148, need not issue the notice

himself.

Similar amendments have been made in the Wealth-tax Act by inserting third

proviso to section 17(1) and an

The amendments relating to section 147 will take effect form 1-4-2008.

The amendments relating to section 151 will take effect retrospectively

from 1-10-1998.

37. Time limit for completion of assessment or re-assessment [Section

153(4)] and second proviso to

(a) Time limit for completion of assessment or re-assessment which stand

revived under section 153A(2) [Section 153(4)] :

time limit for completion of assessment or reassessment relating to any

assessment year which stands revived under newly inserted section

153A(2) shall be :

(i) one year from the end of the month in which the abated assessment

revives,

(ii) within the period already specified in section 153 or in sub section (1) of

section 153B,

(b) Time limit for completion of assessment or re-assessment if proceeding

before the Settlement Commissioner abate u/s 245HA :

[Second proviso to

abated before the Settlement Commission, the Act has inserted second

proviso to

a minimum time period of

Income tax authority before

application was filed with the Settlement Commission. This time limit is

24

applicable retrospectively with effect from 1st of June 2007. It shall be

deemed that this revised time limit will apply to all cases where settlement

proceedings have abated from 1-6-2007 and thereafter.

38. Provision for assessment in the case of annulment of the proceeding

under section 153A [Section 153A(2), 153(4) and clause (

Explanation to section 153B] [W.r.e.f. 1-6-2003]

Under the Income-tax Act, whenever a search is conducted under section 132 for

books of account or other documents or any assets are requisitioned under

section 132A, provision of section 153A comes into operation.

This section

respect of each assessment year falling within a period of six assessment years

immediately preceding the assessment year relevant to the previous year in

which search is conducted or books of account, etc are requisitioned. Time limit

for completion of such assessment or reassessment is provided in section 153B.

At present, there are a number of questions relating to revival of proceedings and

time limits which remain ambiguous. With the view to providing clarity and

reducing disputes, the Act has amended the Income-tax Act to provide that—

(

reassement made under sub-section (1) of this section has

any appeal or other legal proceeding,

reassessment relating to any assessment year shall stand revived and if

such order of annulment is set aside, such revival shall cease to have effect.

[Section 153A(2)]

(

assessment year which stands revived under section 153A(2) above shall

be : (

assessment revives, or (

or in sub-section (1) of section 153B, whichever is later [Section 153(4)].

(

of assessment or reassessment referred to in sub-section (2) of section

153A till the date of the receipt of the order setting aside the order of such

annulments by the Commissioner shall be excluded in computing the period

of limitation for the purposes of this section. [Clause (

section 153B]

Illustration:

In the case of M, a search proceeding under section 132 is initiated on 15-4-

2007. The last of authorization related to this search is also issued during the

financial year 2007-08. As on the date of the search, assessment for assessment

year 2005-06 was pending. In the given situation,—

(1) of section 153A, the assessment for assessment year 2005-06

shall abate ;

year,

shall be required to be made under first proviso to renumbered subsection

(1) of section 153A; and

25

under clause (

Let us assume that the proceeding under section 153A is annulled in an appeal or

legal proceeding by an order dated 5-8-2007 which is received by the

Commissioner on 29-8-2007. In such a situation,—

assessment year 2002-03 to assessment year 2007-08), if already

completed under first proviso to renumbered sub-section (1) of section

153A, shall automatically become annulled due to this order;

assessment year (from assessment year 2002-03 to assessment year

2007-08) can be made under first proviso to renumbered sub-section (1)

of section 152A as the proceeding under section 153A has been annulled;

under second proviso to renumbered sub-section (1) of section 153A, shall

revive under new sub-section (2); and

31-12-2007 (normal time limit under section 153) or 31-8-2008 [new time

limit under sub-section (4) of section 153], whichever is later.

Let us now assume that this order of annulment has been set aside and such

order has been received by the Commissioner on 5-2-2008. In such a situation,

assessment year 2002-03 to assessment year 2007-08), if already

completed under first proviso to renumbered sub-section (1) of section

153A, shall automatically get revived as the proceeding under section

153A has got revived;

assessment year (from assessment year 2002-03 to assessment year

2007-08), if not already made, can now be made under first proviso to

renumbered sub-section (1) of section 153A as the proceeding under

section 153A has got revived;

which was 31-12-2009 under clause (

153B, shall get extended by a period starting from 3-8-2007 and ending

on 3-2-2008 (

Explanation

new sub-section (2) of section 153A will again get abated due to the

provision of its proviso. If assessment order has already been made with

respect to this assessment proceeding, that assessment order will get

annulled automatically.

26

39. Intimation send under 143(1) shall be deemed to be notice of

demand [Proviso to section 156] [W.r.e.f. A.Y. 2008-09]

The Act has inserted a proviso to section 156 to provide that where any sum is

determined to be payable by the assessee under sub-section (1) of section 143,

the intimation under that sub-section shall be deemed to be a notice of demand

for the purposes of this section.

TAX DEDUCTION AND COLLECTION AT SOURCE

40. Explanation to section 191 substituted [W.r.e.f. 1-6-2003]

The existing

section 200 and the principal officer of the company referred to in section 194,

does not deduct the whole or any part of the tax and such tax has not been paid

by the assessee direct, then, such person, the principal officer of the company

shall, without prejudice to any order consequences which he or it may incur, be

deemed to be an assessee in default as referred to in sub-section (1) of section

201 in respect of such tax.

The said

Section 200 in turn refers to a person deducting any sum in accordance with the

provisions of Chapter XVII-B and who is required to pay within the prescribed

time the sum so deducted to the credit of Central Government. Thus, this

provision leaves room for an interpretation that a person required to deduct tax

at source but not deducting the same will not be deemed an assessee in default

under section 201. Such an interpretation is contrary to legislative intent.

The

that where person is required to deduct tax at source but fails to do so, he shall

also be deemed to be an assessee in default under section 201. The substituted

Explanation

“For the removal of doubts, it is hereby declared that if any person, including the

principal officer of company.—

(

Act; or

(

does not deduct, or after so deducting fails to pay, or does not pay, the whole or

any part of the tax, as required by or under this Act, and where the assessee has

also failed to pay such tax directly, then, such person shall, without prejudice to

any other consequences which he may incur, be deemed to be an assessee in

default within the meaning of sub-section (1) of section 201, in respect of such

tax.”.

27

41. Removal of TDS on Corporate Bonds [Section 193 [W.e.f. 1-6-2008]

In order to facilitate development of the corporate bond market for improving the

availability of finances or infrastructure development, the Act has

on any interest payable to a resident on any security issued by a company where

such

exchange in India

1956 and any rules made there under.

42. Enlargement of scope of TDS under section 194C to cover association

of persons and body of individuals [Section 194C] [W.e.f. 1-6-2008]

A number of Special Purpose Vehicles (SPVs) are being set-up to execute large

works contracts some of these SPVs are structured as Joint Ventures

(JVs)/Consortiums in the nature of an Association of Persons (AOP) or Body of

Individuals (BOI). Since the provisions of section 194C currently do not

specifically require an AOP or BOI do deduct tax at source, there is scope for

leakage of revenue.

Like individuals and HUF, w.e.f 1-6-2008, AOP and BOI [other than “person

specified” under section 194C(1)] will also be required to deduct tax at source

under profession carried on by such AOP and BOI exceed Rs.

40,00,000/10,00,000, as the case may be during the financial year immediately

preceding the financial year in which such sum is credited or paid to the account

of the contractor.

43. Provision for furnishing of information regarding deduction of tax at

source under section 195 [W.e.f.-1-4-2008]

Sub-section (1) of section 195 provides that any person responsible for paying to

a non-resident, not being a company, or to a foreign company, any interest or

any other sum chargeable under the Act shall, at the time of credit of such

income to the account of the payee or at the time of payment thereof in cash or

by the issue of a cheque or draft or by any other mode, whichever is earlier,

deduct income-tax thereon at the rates in force.

The Act has inserted sub-section (6) in section 195

person referred to in sub-section (1) shall furnish the information relating to

payment of any sum in such form and manner as may be prescribed by the

Board.

44. Section 199 relating to credit for tax deducted and section 206C(4)

relating to credit for TCS substituted [Section 199 and 206C(4)]

[W.e.f.A.Y. 2008-09]

The system of allowing credit to the assessee for TDS/TCS needs a certain degree

of flexibility considering the ongoing technological and business process changes.

Providing rigorous conditions regarding the method of giving credit for TDS/TCS

28

in the Act itself, makes the system difficult to restructure and implement

according to the changing technological environment.

In view of this, the Act has substituted section 199 and section 206C(4).

made in accordance with the provisions of Chapter XVII-B and paid to the

Central Government shall be treated as a payment of tax on behalf of the

person from whose income the deduction was made, or of the owner of

the security, or of the depositor or of the owner of property or of the unitholder,

or of the shareholder, as the case may be.

giving credit in respect of tax deducted or tax paid in terms of the

provisions of this Chapter, make such rules as may be necessary,

including the rules for the purposes of giving credit to a person other than

those referred to in sub-section (1) and sub-section (2) and also the

assessment year for which such credit may be given.

to provide that any amount collected in accordance with the provisions of

this section and paid to the credit of the Central Government shall be

deemed to be a payment of tax on behalf of the person from whom the

amount has been collected and credit shall be given to such person for the

amount so collected in a particular assessment year in accordance with the

rules as may be prescribed by the Board from time to time.

45. Consequences of non-deduction of tax at source [Section 201]

[W.r.e.f. A. Y. 1-6-2002]

The amendment seeks to substitute sub-section (1) of section 201 to clarify that

where a person, including the principal officer of a company,—

(

Income-tax Act; or

(

does not deduct, or after so deducting fails to pay, or does not pay, the whole or

any part of the tax, as required by or under the Income-tax Act, he shall be

deemed to an assessee in default under section 201.

A similar amendment has also been carried out in

w.r.e.f. 1-6-2003.

46. Amendments to the provisions of Dematerialization of TDS and TCS

certificates [Section 203(3) and Section 206C(5)] [W.e.f. 1-4-2008]

A scheme for dematerialization of Tax Deducted at Source (TDS)/Tax Collected at

Source (TCS) certificates was introduced through the Finance (No. 2) Act, 2004,

with effect from 1-4-2005 for any deduction or collection of tax at source made

on or after 1-4-2005 which was postponed till 1-4-2008. Since the national level

information technology infrastructure of the Income-tax Department is not yet

operational, the Act has extended the commencement of the scheme to 1-4-

2010.

29

Powers of Commissioner (Appeals) and clarification regarding stay of

demand by Income-tax Appellate Tribunal

47. Power of Commissioner (Appeal) in case of an appeal against the

order of assessment in respect of which the processing before the

Settlement Commission abates [Section 251(1)(

assessment year 2008-09]

In an appeal against the order of assessment in respect of which the proceeding

before the Settlement Commission abates under section 245HA, the

Commissioner (Appeal) may, after taking into consideration all the material and

other information produced by the assessee before, or the results of the inquiry

held or evidence recorded by, the Settlement Commission, in the course of the

proceeding before it and such other material as may be brought on his record,

confirm, reduce, enhance or annul the assessment.

Similar amendments have been made by inserting sub-section (9A) to section

23A of the Wealth-tax Act.

48. Stay or demand by ITAT

As per the existing provisions of section 254(2A), the ITAT can not grant stay

either under the original order or under any subsequent order, beyond the period

of 365 days in aggregate provided the delay is not attributable to the assessee.

The Act has amended section 254 of the Income-tax Act and further provided that

the aggregate of the period originally allowed and the period or periods so

extended or allowed shall not, in any case, exceed 365 days, even if the delay in

disposing of the appeal is not attributable to the assessee.

PENALTY AND PROSECUTION

49. Satisfaction for initiation of penalty under section 271(1)] [Section

271(1)] [W.r.e.f. A.Y. 1989-90]

Sub-section (1) of section 271 of the Income-tax Act empowers the Assessing

Officer to levy penalty for certain offences listed in that sub-section. It is a

requirement that the Assessing Officer is required to be satisfied before such a

penalty is levied.

There is a considerable variance in the judicial opinion on the issue as to

whether the Assessing Officer is required to record his satisfaction

before issue of penalty notice under this sub-section.

authorities have held that such a satisfaction need not be recorded.

Hon’ble Delhi High Court in the case of

(246 ITR 568) has held that such a satisfaction must be recorded by the

Assessing Officer.

Given the conflicting judgements on the issue and the legislative intent, it is

imperative to amend the Income tax Act to unambiguously provide that where

30

any amount is added or disallowed in computing the total income or loss of an

assessee in any order of assessment or reassessment; and such order contains a

direction for initiation of penalty proceedings under clause (

such an order of assessment or reassessment shall be deemed to constitute

satisfaction for the Assessing Officer for initiation of penalty proceedings under

clause (

Similar amendment has also been made in the Wealth-tax Act by inserting subsection

(1A) to section 18.

50. Commissioner empowered to grant immunity from penalty and

prosecution in case of assessment consequent to abatement of

settlement proceedings [Section 273AA and 278AB] [W.e.f. A.Y. 2008-

09]

The Finance Act, 2007 carried out a comprehensive amendment to the scheme of

settlement of cases. This scheme provides for abatement of proceedings before

the Settlement Commission under various circumstances. In order to deal with

the various issues that may arise in the event of abatement of proceedings before

the Settlement Commission, the Act has amended the law to empower the

Commissioner of Income tax to grant immunity from penalty and prosecution in

cases which abate.

Provision regarding immunity from penalty and prosecution and providing a time

limit for assessment relating to abatement of settlement proceedings have been

introduced by the Act by inserting sections 273AA, 278AB and second proviso to

Explanation

(A) Immunity from penalty [Section 273AA]:

scheme for granting immunity from penalty as per section 273AA are as under :

whose case has been abated under section 245HA) to the Commissioner of

Income-tax.

proceedings, then the assessee can approach the commissioner for

immunity at any time.

Settlement Commission then the assessee must make an application for

immunity before the imposition of penalty by the Income tax authority.

proceedings after abatement and has made a full and true disclosure of his

income and the manner in which such income has been derived.

think to impose.

comply with any conditions subject to which the immunity was granted.

satisfied that the assessee had, in the course of proceedings, after

abatement, concealed any particulars from the Income-tax authority or

had given false evidence.

31

(B) Immunity from prosecution [Section 278AB]:

scheme for granting immunity from prosecution as per section 278AB are as

under:

whose case has been abated under section 245HA) to the Commissioner of

Income-tax before institution of the prosecution proceedings after

abatement.

of settlement proceedings, then the assessee can approach the

commissioner for immunity any time. However, if the assessee has

received any notice etc. from the Income tax authority for institution of

prosecution, then they must apply to the commissioner for immunity,

before actual institution of prosecution.

proceedings after abatement and has made a full and true disclosure of his

income and the manner in which such income has been derived.

before 1-6-2007, the Commissioner can also grant immunity from

prosecution for any offence under this Act or under the Indian Penal Code

or under any other Central Act.

think to impose.

comply with any condition subject to which the immunity was granted.

satisfied that the assessee had, in the course of proceedings, of

abatement, concealed any particulars from the Income-tax authority or

had given false evidence.

(C) Time limit for completing assessments where proceedings before

Settlement Commission have abated [Second proviso to

section 153]

For the purpose of making assessment of proceedings which have been abated

before the Settlement Commission the Act has inserted second proviso to

Explanation

period of

before

Settlement Commission. This time limit is applicable retrospectively with effect

from 1st of June 2007. It shall be deemed that this revised time limit will apply to

all cases where settlement proceedings have abated from 1-6-2007 and

thereafter.

Similar amendments have been made in the Wealth-tax Act by inserting section

18BA and 35GA and proviso 2 to

32

MISCELLANEOUS PROVISIONS

51. Consequence of non-filling of appeal in respect of cases where the

tax effect is less than the prescribed monetary limit [Section 268A]

[W.r.e.f. A.Y. 1999-2000]

The Hon’ble Supreme Court in

appeal Nos. 1081 to 1083 of 2004) has held that if the revenue has not

challenged the correctness of the law laid down by the High Court and has

accepted it in the case of one assessee, then it is not open to the Revenue to

challenge the correctness in the case of other assessees without just cause.

With a view to protecting the Revenue’s right to file or not to file an

appeal

authorities, fixing such monetary limits as it may deem fit. Such fixing of

monetary limit is to be for the purpose of regulating filing of appeal or

application for reference by any income tax authority under the provisions

of this Chapter.

reference on any issue in the case of an assessee for any assessment

year, due to abovementioned order/instruction/direction of the Board,

such authority shall not be precluded from filing and appeal or application

for reference on the same issue in the case of:

tax authority pursuant to the above mentioned

orders/instructions/directions of the Board, it shall not be lawful for an

assessee to contend that the income tax authority has acquiesced in the

decision on the disputed issue by not filing an appeal or application for

reference in any case.

orders/instructions/directions of the Board and the circumstances under

which such appeal or application for reference was filed or not filed in

respect of any case.

fixing monetary limits for filling an appeal or application for reference shall

be deemed to have been issued under sub-section (1) of this new section

and all the provision of this section shall apply to such

order/instruction/direction.

52. Authentication of documents/notices/letters [Section 282A]

[W.e.f. 1-6-2008]

A

where any notice or other document is required to be issued, served or given, it

shall be deemed to have been authenticated if the name an office of a designate

income-tax authority is printed, stamped or otherwise written thereon. It is also

provided that for the purpose of this section, a designated income tax authority

shall mean any income tax authority authorized by the Board for this purpose.

33

53. Notice deemed to be valid in certain circumstances [Section 292BB]

[W.e.f. A.Y. 2008-09]

54. Presumption as to books of accounts, other documents, etc. in case

of a survey [Section 292C] [W.r.e.f. A.Y. 1-6-2002]

The Act has amended section 292C of the Income-tax Act, so as to extended the

presumption regarding the books of account, other documents, etc., found in the

possession or control of any person in the course of a survey operation as is

available in case of a search under section 132.

Further, the Act has amended the said section so as to extend this presumption

also to books of account, other documents or assets which have been delivered to

the requisition officer in accordance with the provisions of section 132A.

amendment will take effect retrospectively from 1-10-1975.

The Act has also amended section 42D of the Wealth-tax Act to extend this

presumption to books of account, other documents or assets which have been

delivered to the requisitioning officer in accordance with the provisions of section

37B of the Wealth-tax Act.

from 1-10-1975.

(B) SECURITIES TRANSACTION TAX (STT)

55. Rationalization of provision of Securities Transaction Tax [W.e.f. 1-6-

2008]

Section 98 of Chapter VII or Finance (No. 2) Act, 2004, provides for charge of

securities transaction tax (STT). It is provided that in the case of sale of a

derivative, where the transaction of such sale is entered into in a recognized

stock exchange, the securities transaction tax will be at the rate of 0.017% and

will be payable by the seller.

The Act has amended sections 98 and 99 so as to provide that, —

(

0.017% of the option premium and shall be paid by the seller;

(

be levied at the rate of 0.15% of settlement price and shall be paid by the

purchaser; and

(

shall be payable by the seller.

34

(C) COMMODITIES TRANSACTION TAX

56. Introduction of Commodities Transaction Tax

A new tax called Commodities Transaction Tax (CTT) has been levied on taxable

commodities transactions entered in a recognized association.

The Act has defined

of purchase or sale in recognized association of—

(

(

(

The tax is to be levied at the rate, given in the Table below, on taxable

commodities transactions undertaken by the seller or the purchaser, as the case

may be as indicated hereunder :

Taxable commodities transaction Rate Payable by

1. Sale of an option in goods or an 0.017% on option Seller

option in commodity derivative premium

2. Sale of an option in goods or an 0.125%onthe

option in commodity derivative settlement price

of the option. Purchaser

3. Sale of any other commodity 0.017% of the price at Seller

derivative. which the commodity

derivative is sold.

The provisions with regard to collection and recovery of CTT, furnishing of

returns, assessment procedure, power of Assessing Officer, chargeability of

interest, levy of penalty, institution of prosecution, filing of appeal, power to the

Central Government, etc. have also been provided.

This tax is to be levied from the date on which Chapter VII of the Finance Act,

2008 comes into force by way of notification in the Official Gazette by the Central

Government.

(D) BANKING CASH TRANSACTION TAX

57. Discontinuation of Banking Cash Transaction Tax [W.e.f. 1-4-2009]

The Act has introduced a sunset clause by inserting a new sub-section (3) in

section 95 of the Finance Act, 2005. The new sub-section provides that no BCTT

shall be charged in respect of any taxable banking transaction after 31-3-2009.

35

WEALTH TAX

SECTION SUBJECT EFFECTIVE

DATE

CHANGES

17

Escaping

Assessment

17A

completion of

assessment

01.06.2007

proceeding before the Settlement

Commission abates under section

22HA, the period of limitation

referred to in this section available

to the Assessing Officer for making

an order of assessment or

reassessment, as the case may be,

shall, after the exclusion of the

period under sub-section (4) of

section 22HA, be not less than one

year; and where such period of

limitation is less than one year, it

shall be deemed to have been

extended to one year.”

18

disallowed in computing the net

wealth of an assessee in any order

of assessment or reassessment and

the said order contains a direction

for initiation of penalty proceedings

under sub-section (1), such an

order of assessment or

reassessment shall be deemed to

constitute satisfaction of the

Assessing Officer for initiation of

the penalty

18BA

Commissioner

to grant

immunity from

penalty

01.04.2008

35GA

01.04.2008

42

to be valid in

certain

circumstances

01.04.2009

36

42D

account, other documents

or assets have been delivered to

the requisitioning officer in

accordance with the provisions of

section 37B, then, the provisions of

subsection (1) shall apply as if such

books of account, other documents

or assets which had been taken

into custody from the person

referred to in clause (a) or clause

(b) or clause (c), as the case may

be, of sub-section (1) of section

37B, had been found in the

possession or control of that person

in the course of a search under

section 37A

37

INDIRECT TAX

SERVICE TAX

Rate of service tax

• No change in service tax rates.

• Works contract composition rate increased from 2 percent to 4 percent

(Effective 1 March 2008).

Introduction of New Taxable Services:

• Management of investments by life insurers under Unit Linked Insurance Plan.

• Information technology software service for use in the course, or furtherance, of

business or commerce.

• Services provided by recognized stock exchange in relation to securities.

• Services provided by a recognized association or a registered association

(commodity exchange) in relation to sale or purchase of any goods or forward

contracts.

• Services provided by a processing and clearing house in relation to processing,

clearing and settlement of transactions in relation to securities, goods or forward

contracts.

• Supply of tangible goods without transferring right of possession and effective

control of such goods.

• Internet telephony service substituted by internet telecommunication service

and the scope of the said category expanded to include:

- Internet backbone services, including services by one internet service provider

to another

- Internet access services.

Expansion of scope of existing services (effective from a date to be

notified upon enactment of Finance Bill, 2008):

Service Category To Include

Banking and other financial services Purchase and sale of foreign currency,

including money changing by an

authorized dealer or an authorized

money changes

Foreign exchange broker service Purchase and sale of foreign currency,

including money changing by an

authorized dealer or an authorized

money changes

Business auxiliary service Information technology service

Consulting engineer service Computer software engineering

consultancy

Cargo handling service Packing together with transportation of

cargo or goods with or without services

like loading, unloading, unpacking

Technical testing and analysis service Testing or analysis of information

technology software

Technical inspection and certification

service

Inspection, examination and

certification of information technology

software

Tour operator service Journey from one place to another in a

contract carriage vehicle and not just a

tourist vehicle

38

Clarification (by way of explanation) regarding the scope of existing

services:

Service category Clarification

Business auxiliary service Includes service provided in relation to

promotion or marketing of games of

chance(including lottery),organized,

conducted or promoted by the client

Management, maintenance or repair “properties” covered under the said

category to include information

technology software

Renting of immovable property Includes allowing or permitting the use

of space in an immovable property,

irrespective of whether transfer of

possession or control of such

immovable property takes place

Exemptions from service tax (effective from 1 March, 2008):

• Service provided by a person located outside India in relation to booking of a

hotel in India for a person located outside India.

• Unconditional exemption of 75 percent of gross amount charged as freight, for

services provided in relation to transport of goods by a Goods Transport Agency

(GTA). Definition of ‘output service’ amended to specifically exclude from its

scope, the services provided by a GTA.

Amendments in provisions regarding export/ import of services

(effective from 1 March, 2008):

• The Export of Services Rules, 2005 have been amended to clarify that the

following services provided through internet or any electronic/ computer network

would be treated as export of services (irrespective of whether the services are

performed in India or outside India), if these services are rendered in relation to

goods or any immovable property, as the case may be, situated outside India at

the time of provision of service:

– Management, maintenance or repair

– Technical testing and analysis service

– Technical inspection and certification service.

Similar amendment made in Taxation of Services (provided from outside India

and received in India) Rules, 2006 (the Import Rules).

Valuation for transactions between ‘associated enterprises’ (effective

from enactment of Finance Bill, 2008):

• Transaction between ‘associated enterprises’ liable to tax even if no payment is

received and the taxable value is recognized as revenue/ expenditure in the

books of the person who is liable to pay service tax. In other words, service tax in

case of transaction between ‘associated enterprises’ to be paid on receipt of

payment or crediting/ debiting of the amount in the books of accounts whichever

is earlier.

39

Amendments in CENVAT Credit Rules, 2004 (effective from 1 April,

2008):

• Removal of capital goods outside the premises of the service provider permitted

without any time restriction provided the same are being used for provision of

output service.

• Provider of output services using common inputs or input services for providing

taxable and exempted services and opting not to maintain separate books of

accounts may:

- Either pay an amount equal to 8 percent of the value of the exempted services

or

- pay amount equivalent to credit attributable to inputs and input services used

for providing exempted services (to be calculated in the manner prescribed).

• Provision introduced for taking of credit on inputs and capital goods in respect

of which purchase invoices are received by an office or any other premises of the

output service provider desirous of taking credit. Such credit allowed on the basis

of invoice/ bill/ challan issued by the office/ premises receiving purchase invoice.

OTHER PROPOSALS

Effective from 1 March, 2008:

• Facility of payment of service tax in advance and adjustment against service tax

for the subsequent period extended to all service providers (earlier the facility

was available only to service providers having centralised registration).

• Limit for self-adjustment of excess service tax paid increased from the present

level of INR 0.05 million to INR 0.1 million.

• Time limit for filing revised return increased from 60 days to 90 days.

Effective from 1 April, 2008:

• The exemption limit for small service providers increased from the present level

of INR 0.8 million to INR 1 million.

CUSTOMS DUTY

Amendments (effective from 1 March, 2008)

• No change in peak rate of Basic Customs Duty (BCD) on non-agricultural

products. However, effective Customs Duty stands reduced from 34.13 percent to

31.70 percent due to reduction in Additional Duty of Customs (ADC).

• BCD on Project Imports reduced from 7.5 percent to 5 percent on specified

industrial projects, power transmission, sub-transmission and distribution

projects, etc.

• Exemption of ADC of 4 percent withdrawn for power generation projects (other

than mega power projects), transmission, sub-transmission and distribution

projects, and specified goods for high voltage transmission projects.

• Benefit of 5 percent BCD expanded to include MP3/ MP4 and MPEG player with

or without audio and video reception facility.

• Exemption from BCD extended to specified parts of set-top boxes, raw

materials /inputs used in manufacture of specified electronic/ IT products.

• Customs Duty on export of chromium ores and concentrates increased from INR

2,000 PMT to INR 3,000 PMT.

• National Calamity Contingent Duty (NCCD) of 1 percent has been imposed on

mobile phones. This duty shall be levied as ADC under Section 3 (1) of Customs

Tariff Act, 1975.

• NCCD of Customs removed on specified synthetic filament yarn.

• BCD on specified raw materials for use in sports goods for export exempt

subject to specified conditions.

• Maximum period of re-export of leased equipment and machinery, temporarily

imported for use in projects increased to 18 months. Such goods would be

40

subject to customs duty ranging from 5 percent to 40 percent of applicable duty

depending on their period of stay.

• The maximum period for duty drawback on re-export of goods reduced to 18

months.

Illustrative Changes in BCD rates:

Proposed amendments (effective from enactment of Finance Bill, 2008)

• All Gazetted Customs officers empowered to issue summons.

• Penalty for violations of Customs provisions not expressly mentioned in the law

increased from INR 10,000 to INR 100,000.

• Difference in opinion within the committee of commissioners of customs

regarding appealing against an order to be referred to jurisdictional Chief

Commissioner of customs for his decision.

CENTRAL EXCISE

Amendments (effective from 1 March, 2008)

• Excise duty reduced from 16 percent to 14 percent. Other ad valorem rates of

24 percent, 12 percent and 8 percent remain unchanged.

• National Calamity Contingent Duty (NCCD) of 1 percent imposed on mobile

phones.

• Benefit of 8 percent Excise Duty expanded to include MP3/ MP4 and MPEG

player with or without audio and video reception facility.

• Effective Excise Duty for clearances from 100 percent Export Oriented Unit

(‘EOU’) to Domestic Tariff Area (‘DTA’) to be computed on 50 percent BCD and

applicable ADC.

• Excise Duty on unbranded Motor Spirit changed from 6 percent (advalorem)

plus INR 13 per Litre (specific rate) to specific rate of INR 14.35 per Litre.

• Excise Duty on unbranded High Speed Diesel changed from 6 percent

(advalorem) plus INR 3.25 per Litre (specific rate) to specific rate of INR 4.60 per

Litre.

• Abatement rates for maximum retail price (‘MRP’) products realigned due to

reduction in Excise Duty.

• Rules notified for determination of MRP to be applicable in specific cases.

Reduction in excise duty (effective from 1

Increase in Excise Duty (effective from 1

Amendments (effective from 1 April 2008)

• Manufacturer of dutiable and exempted goods has the option to take full credit

and pay either 10 percent of the value of exempted goods or reverse the credit

attributable to the exempted goods.

Proposed amendments (effective from enactment of Finance Bill 2008)

• Explanation inserted in Section 2 of the Central Excise Act to clarify that goods

include any article capable of being bought and sold and deemed to be

marketable.

• Government empowered to charge duty on the basis of capacity of production

for certain specified products.

• Refund of interest paid on excise duty to be made available to an assessee.

• Interest to be paid to assessee on delayed refund of pre-deposit by department.

41

CENTRAL SALES TAX (CST)

• CST rate to be reduced from 3 percent to 2 percent with effect from 1 April,

2008.

• Once agreement is reached about compensation for losses, new rate would be

notified.

GOODS & SERVICE TAX (GST)

According to the Finance Minister, considerable progress has been made in the

preparation of introducing GST from 1 April, 2010. However, no concrete

roadmap has been unveiled.