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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: The amount of income - tax computed in accordance with the above
provisions or in section 111A or section 112A shall, in the case of every individual
or Hindu undivided family or association of persons or body of individuals having
a total income exceeding Rs. 10,00,000, be increased by a surcharge for
purposes of the Union calculated at the rate of 10% of such income - tax.
No surcharge is to be levied if the total income does not exceed Rs.
10,00,000.
Education Cess (EC): Education Cess at the rate of 2% on income-tax and
surcharge shall be levied.
Secondary and Higher Education Cess (SHEC): Further, an additional
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: Marginal relief would be provided to ensure that the additional
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.
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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 shall be increased by an EC @ 2% and SHEC @ 1%.
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1.(D) Artificial juridical persons: The rates of tax are same as given above in
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: In case of firms, the rate of tax remains at 30%.
Surcharge on income-tax: The amount of income-tax computed at the rate
given above, or in section 111A or section 112, in the case of every firm having
total income exceeding Rs. 1 crores shall be increased by surcharge
calculated at the rate of 10% of such income -tax.
Marginal relief: Marginal relief shall be available and the total 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. 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: In case of domestic companies, the rate of tax
remains at 30%.
(b) Foreign Companies: As regards foreign companies there is no change in the
existing tax rates and the rate shall continue to be 40%.
Surcharge on income - tax : The amount of income - tax computed in
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).
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Marginal relief : Marginal relief shall be available and, in such cases, the total
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: There will be no surcharge in case of co -operative societies.
1(H) Local Authorities: There is no change in the existing rates and the rate
shall continue to be 30%.
Surcharge: There will be no surcharge in case of local authorities also.
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 : Further, an additional surcharge,
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 not be a
charitable purpose if it involves the carrying on of5
(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.
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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: In case of ‘regular
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. Whether the loan received under a reverse mortgage scheme
amounts to income?
Although the receipts of loan under reverse mortgage is in the nature of a
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.Whether mortgage of property for obtaining a loan under the reverse
scheme is transfer within the meaning of the Income - tax Act thereby
giving rise to capital gains?
Section 2(47) of the Income - tax Act provides an inclusive definition of
‘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.
However, in the context of a reverse mortgage, the intention is to secure
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.
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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.
With a view to avoid multiple claims for deduction, the Act has provided
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).
Deduction to the extent of 100% of the sum spends as revenues
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.
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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) (xv) of the Income -tax Act
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’.
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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:
(i) Where in respect of such sum tax is deductible under Chapter XVII -B and
such tax has not been deducted; or
(ii) Where in respect of such sum tax has been deducted but not paid during
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, w.r.e.f
assessment year 2005 - 06 to provide that in case of above expenses on which
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.
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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.
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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 to the same person made during a
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, as per new section 40A(3A), if an expenditure is incurred in a
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.
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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]
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W.r.e.f assessment year 2008 -09, the above specified date for obtaining and
furnishing the tax audit report shall be 30th September of the relevant
assessment year instead of 31st October.
“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: Where the sum specified in clause
(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
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(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 see para 11
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 Explanation to section 115JB, inter -alia, provides for increasing
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 Explanation 1 to section
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 Explanation 1 as so
numbered so as to provide that the book profit shall be increased by
amount of deferred tax and the provision therefore, if debited to profit
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 : Though as per Circular No. 8/2005, dated 29 -8 -2005, FBT is not to
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 Explanation 1 to section 115JB to
provide that the profit as per the profit and loss account shall be reduced
by the amount of deferred tax, if any such amount is credited to the
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 :
(i) Any expenditure on or payment through pre -paid electronic meal card shall
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.
(ii)Explanation to clause (E) has been amended to provide that any expenditure
incurred or payment made to :—
provide creche facility for the children of the employee; or
sponsor a sportsman, being an employees; or
organize sports events for employees,
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 [Explanation
to section 115WD(1)] [W.r.e.f. assessment year 2008 - 09]
For details see para 32 below.
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 [Explanation 2 to section 139
(1) and Explanation to section 115WD (1)] [W.r.e.f. A.Y 2008 - 09]
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 :
(i) a company;
(ii) a person (other tan a company) whose account are required to be audited
under this Act or under any other law for the time being in force; or
(iii) a working partner of a firm whose accounts are required to be audited
under this Act or under any other law for the time being in force.
The Act has amended the said clause (a) of the Explanation 2, w.r.e.f.
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 Explanation to sub - section (1) of section 115 WD, has also been
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 suo motu. Hence, while the assessing
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 prima facie adjustments. Its scope is limited only to checking
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 in the Income -tax Act to provide that where an assessee has
—
(a) Appeared in any proceeding related to an assessment or reassessment, or
(b) Co-operated in any inquiry related to an assessment or reassessment,
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,
(a) Not served upon him; or
(b) Not served upon him in time; or
(c) Served upon him in an improper manner.
Section 292BB -When not applicable: The above provisions of section 292 BB
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) : The Act has also
amended section 143(2)(ii) to provide that the notice under section 143(2) 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.
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 reason to believe that any income has escaped assessment.
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) Section 147 of the Income-tax Act to provide that the Assessing Officer may
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) Section 151 of the Income-tax Act to provide that the Joint Commissioner,
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 Explanation to section 17(1B).
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 Explanation 1 of section 153.
(a) Time limit for completion of assessment or re-assessment which stand
revived under section 153A(2) [Section 153(4)] :
The Act has inserted sub-section (4) to section 153 to provide that the
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, or
(ii) within the period already specified in section 153 or in sub section (1) of
section 153B, whichever is later.
(b) Time limit for completion of assessment or re-assessment if proceeding
before the Settlement Commissioner abate u/s 245HA :
[Second proviso to Explanation 1 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 to section 153 of the Income tax Act so as to allow
a minimum time period of one year for completion of assessment to the
Income tax authority before whom the case was pending when the
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 (vii) of
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 inter alia, provides for assessment or reassessment of total income in
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—
(i) if any proceeding initiated under section 153A or any order of assessment or
reassement made under sub-section (1) of this section has been annulled in
any appeal or other legal proceeding, the abated assessment or
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)]
(ii) that time limit for completion of assessment or reassessment relating to any
assessment year which stands revived under section 153A(2) above shall
be : (a) one year from the end of the month in which the abated
assessment revives, or (b) within the period already specified in section 153
or in sub-section (1) of section 153B, whichever is later [Section 153(4)].
(iii) the period commencing from the date of annulment of a proceeding or order
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 (vii) of Explanation to
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,—
In accordance with the provision of second proviso to renumbered subsection
(1) of section 153A, the assessment for assessment year 2005-06
shall abate ;
Assessment or reassessment with respect to each of the six assessment
year, i.e., from assessment year 2002-03 to assessment year 2007-08
shall be required to be made under first proviso to renumbered subsection
(1) of section 153A; and
25
The time limit for completion of these assessments shall be 31-12-2009
under clause (a) of sub-section (1) of section 153B.
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,—
The assessment with respect to any of the six assessment year (from
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;
No order of assessment or reassessment with respect to any of the six
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;
The proceeding for assessment year 2005-06 which has been abated
under second proviso to renumbered sub-section (1) of section 153A, shall
revive under new sub-section (2); and
The order in respect of this assessment can be made at any time before
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,
The assessment with respect to any of the six assessment year (from
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;
Order of assessment or reassessment with respect to any of the six
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;
The time limit for making such order of assessment or reassessment,
which was 31-12-2009 under clause (a) of sub-section (1) of section
153B, shall get extended by a period starting from 3-8-2007 and ending
on 3-2-2008 (i.e., six months) under the provision of new clause (vii) in
Explanation occurring after sub-section (1) of section 153B; and
The proceeding for assessment year 2005-06 which had got revived under
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 Explanation to section 191 provides that if any person, referred to in
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 Explanation thus covers in its ambit persons referred to in section 200.
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 amendment therefore, seeks to substitute the said Explanation to clarify
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 is as under:
“For the removal of doubts, it is hereby declared that if any person, including the
principal officer of company.—
(a) who is required to deduct any sum in accordance with the provisions of this
Act; or
(a) referred to in sub-section (1A) of section 192, being an employer,
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 removed TDS
on any interest payable to a resident on any security issued by a company where
such security is in dematerialized form and is listed on a recognized stock
exchange in India in accordance with the Securities Contracts (Regulation) Act,
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 so as to provide that the
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).
Sub-section (1) of section 199 seeks to provide that any deduction
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.
Sub-section (2) seeks to provide that the Board may, for the purposes of
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.
The Act has substituted sub-section (4) to section 206C relating to TCS
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,—
(i) who is required to deducted any sum in accordance with the provisions of
Income-tax Act; or
(ii) referred to in sub-section (1A) of section 192, being an employer,
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 Explanation to section 191.
w.r.e.f. 1-6-2003. See para 40.
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)(aa)] [W.r.e.f.
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. Some judicial
authorities have held that such a satisfaction need not be recorded.
Hon’ble Delhi High Court in the case of CIT v Ram Commercial Enterprises Ltd.
(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 (c) of sub-section (1),
such an order of assessment or reassessment shall be deemed to constitute
satisfaction for the Assessing Officer for initiation of penalty proceedings under
clause (c) of sub-section (1).
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 to section 153 of the Act.
(A) Immunity from penalty [Section 273AA]: The salient features of the
scheme for granting immunity from penalty as per section 273AA are as under :
The application for the immunity must be made by the assessee (person
whose case has been abated under section 245HA) to the Commissioner of
Income-tax.
If penalty was levied before or during the pendency of settlement
proceedings, then the assessee can approach the commissioner for
immunity at any time.
If no penalty was levied till the time of abatement of proceedings before
Settlement Commission then the assessee must make an application for
immunity before the imposition of penalty by the Income tax authority.
Immunity can be granted by the Commissioner on his satisfaction.
The satisfaction is required to be that the assessee has cooperated in the
proceedings after abatement and has made a full and true disclosure of his
income and the manner in which such income has been derived.
Immunity can be subject to such conditions as the Commissioner may
think to impose.
The immunity granted shall stand withdrawn, if such assessee fails to
comply with any conditions subject to which the immunity was granted.
The immunity granted may be withdrawn by the Commissioner, if he is
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]: The salient features of the
scheme for granting immunity from prosecution as per section 278AB are as
under:
The application for the immunity must be made by the assessee (person
whose case has been abated under section 245HA) to the Commissioner of
Income-tax before institution of the prosecution proceedings after
abatement.
If prosecution proceedings were instituted before or during the pendency
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.
Immunity can be granted by the Commissioner on his satisfaction.
The satisfaction is required to be that the assessee has cooperated in the
proceedings after abatement and has made a full and true disclosure of his
income and the manner in which such income has been derived.
Where application for settlement under section 245C had been made
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.
Immunity can be subject to such conditions as the Commissioner may
think to impose.
The immunity granted shall stand withdrawn, if such assessee fails to
comply with any condition subject to which the immunity was granted.
The immunity granted may be withdrawn by the Commissioner, if he is
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 Explanation 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 to section 153 of the Income tax Act so at o allow a minimum time
period of one year for completion of assessment to the Income tax authority
before whom the case was pending when the application was filed with the
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 Explanation 1 after section 17A(4).
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 Berger Paints India Ltd. v CIT, Kolkata, (Civil
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, the Act has inserted a new section 268A so as to provide that—
The Board may issue orders, instructions or directions to other income tax
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.
Where an income-tax authority has not filed any appeal or application for
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:
the same assessee for any other assessment year; or
any other assessee for the same or any other assessment year.
Where no appeal or application for reference has been filed by an income
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.
The Appellate Tribunal or Court shall have regard to the above mentioned
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.
Every order/instruction/direction which has been issued by the Board
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 new section 282A has been inserted in the Income-tax Act to provide that
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] See para 35.
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. This
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. This amendment will take effect retrospectively
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, —
(i) in case of sale of a option in securities, STT shall be levied at the rate of
0.017% of the option premium and shall be paid by the seller;
(ii) in case of sale of an option in securities, where option is exercised, STT shall
be levied at the rate of 0.15% of settlement price and shall be paid by the
purchaser; and
(iii) in case of sale of a futures in securities, STT shall be levied at 0.017% 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 ‘Taxable commodities transaction’ to mean a transaction
of purchase or sale in recognized association of—
(i) option in goods; or
(ii) option in commodity derivative; or
(iii) any other commodity derivative,
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 Wealth
Escaping
Assessment
Assessing Officer may assess or
reassess such net wealth, other
than the net wealth which is
the subject matter of any appeal,
reference or revision, which is
chargeable to tax and has
escaped assessment
17A Time Limit for
completion of
assessment
01.06.2007 ‘‘Provided further that where a
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 Penalty 01.04.1989 Where any amount is added or
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 Power of
Commissioner
to grant
immunity from
penalty
01.04.2008
New Section
35GA
Power of
Commissioner
to grant
immunity
from
prosecution
01.04.2008 New Section
42 Notice deemed
to be valid in
certain
circumstances
01.04.2009 New Section
36
42D 01.04.2009 New Clause: Where any books of
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.
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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
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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.
Helicopter simulators 10% Nil
Crude and unrefined 2%
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 1st March 2008)
Increase in Excise Duty (effective from 1st March 2008)
Item
%Cement clinker INR 350
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.
in.kpmg.com
Mumbai
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