THE UNION BUDGET 2017-18 Select Direct Tax Proposals · The Union Budget 2017 B.D. Jokhakar & Co. Chartered Accountants Page 1 Sr. No. Particulars Pg. No. 1. Preface 2 2. Rates of

THE UNION BUDGET 2017-18 Select Direct Tax Proposals

INDEX

The Union Budget 2017

B.D. Jokhakar & Co. Chartered Accountants Page 1

Sr. No.

Particulars Pg. No.

1. Preface 2

2. Rates of Tax 3-5

3. Exemptions relating to Section 10,11,12 & 13 6-7

4. Income from House Property 8-8

5. Profits and Gains from Business and Profession 8-11

6. Capital Gains 12-13

7. Income from Other Sources 14-15

8. Carry forward and set off of losses 15-15

9. Deductions 15-17

10. Minimum Alternate Taxation 17-18

11. Tax Deducted at Source 18-20

12. Domestic Taxation 20-21

13. Return of Income 21-22

14. Assessment/Appellant Proceedings 22-27

15. International Taxation 28-29

16. Other Provisions 30-30



1. PREFACE: This note highlights select budget proposals related to direct taxes put forth by the Finance Minister while presenting Budget 2017 on 01st February, 2017. This note summarizes only issues considered of importance to our clients and associates. This note is for private circulation amongst clients and associates of B. D. Jokhakar & Co. This should not be relied upon for taking or not taking any action before taking professional advice specific to your situation. This note contains proposals which may be modified before they are enacted. This note is prepared on the basis of material available in public domain such as budget documents extracted from the website of Finance Ministry. Even though every care is exercised to present this note in an error- free manner, we assume no responsibility for any errors/ omissions or otherwise for any loss which may be sustained by anyone by relying upon the same. Mumbai 06th February, 2017



2. RATES OF TAX

2.1 Individuals, HUFs, Association of persons, Body of Individuals and Artificial

Juridical person.

(i) The rates of income tax slab in the case every individual (other than those mentioned in (ii) and (iii) or Hindu undivided family or every association of persons or body of individuals, whether incorporated or not or every artificial juridical person :- Income Slab Rate of Tax Upto Rs.2,50,000 Nil Rs.2,50,000 to Rs.5,00,000 5% Rs.5,00,000 to Rs.10,00,000 20% Above Rs.10,00,000 30% (ii) In the case of every individual, being resident in India , who is of the age of sixty years or more but less than eighty years at any time during the previous year:- Income Slab Rate of Tax Upto Rs.3,00,000 Nil Rs.3,00,000 to Rs.5,00,000 5% Rs.5,00,000 to Rs.10,00,000 20% Above Rs.10,00,000 30% (ii) In the case of every individual, being resident in India , who is of the age of eighty years or more at any time during the previous year:- Income Slab Rate of Tax Upto Rs.5,00,000 Nil Rs.5,00,000 to Rs.10,00,000 20% Above Rs.10,00,000 30% Surcharge is to be levied at the rate of 10%, if total income exceeds Rs.50 lakhs up to Rs.1 crore. Surcharge continues to remain at 15%, if total income exceeds Rs.1 crore. Education cess shall be continued to be levied @ 3% and is leviable on the amount of income-tax and surcharge, if any. A rebate under section 87A has been reduced to Rs. 2,500 or income tax whichever is lower for resident individuals with total income up to Rs.3, 50,000.



2.2 Co-operative societies, Partnership Firms and Local Authorities

The income tax slab rates remain unchanged. Surcharge at the rate of 12% on amount of income-tax for income exceeding 1 crore for Co-operative societies, Partnership Firms and Local Authorities.

2.3 Corporate Tax Rates 2.3.1 Rates of corporate tax remain unchanged for both domestic and foreign

companies except the following:

In case of domestic company, the rate of corporate tax shall be 25% plus surcharge and cess if the total turnover or gross receipts in the financial year ending March,2016 does not exceed Rs.50 crore and in all other cases the rate of 30% has remain unchanged.

New manufacturing companies incorporated on or after 01.03.2016 to be given an option to be taxed at 25% + surcharge and cess provided they do not claim profit linked or investment - linked deductions and do not avail investment allowance and accelerated depreciation. The option is required to be furnished in the prescribed manner before the due date of furnishing of income. (Section 115BA)

2.3.2 Minimum Alternate Tax (MAT) on Companies

Type of Company

Domestic Companies Foreign Companies

Total Income

Upto 1 crore

1 crore to 10 crore

Above 10 crore

Upto 1 crore

1 crore to 10 crore

Above 10 crore

Rate of Tax 18.5% 18.5% 18.5% 18.5% 18.5% 18.5% Surcharge - 7% 12% - 2% 5% Education Cess

3% 3% 3% 3% 3% 3%

Effective rate

19.06% 20.39% 21.34% 19.06% 19.44% 20.01%



2.3.3 Alternate Minimum Tax (AMT) on entities other than Companies

Type of Entity

Other than Firm, Local Authority and Co-operative Society

Firm, Local Authority and Co-operative Society

Total Income

Less than or equal to Rs.50 lakh

Exceeds Rs.50 lakh but not more than Rs.1crore

Above Rs.1 crore

Less than or equal to Rs.50 lakh

Above Rs.1 crore

Rate of Tax

18.5% 18.5% 18.5% 18.5% 18.5%

Surcharge - 12% 15% - 15% Education Cess

3% 3% 3% 3% 3%

Effective rate

19.055% 21.3416% 21.9325% 19.055% 21.3416%

2.3.4 Tax on distributed profits of Indian companies-Dividend

Particulars Dividend Distribution under section 115-0 Rate of tax 15% Surcharge 12% Education cess 3% Effective rate 20.36 %

2.3.5 Tax on distributed profits of Indian companies-Buy back of shares

Particulars Buy-back of shares(unlisted) by domestic companies

Rate of tax 20% Surcharge 12% Education cess 3% Effective rate 23.07%



3. EXEMPTIONS RELATING TO SECTION 10, 11, 12 & 13 3.1 Tax-exemption to partial withdrawal from National Pension System (NPS)

The existing provision of section 10(12A) provides that payment from National Pension System (NPS) Trust to an employee on closure of his account or opting out shall be exempt up to 40% of total amount payable to him.

In order to provide further relief to an employee subscriber of NPS, it is proposed to amend the said section so as to provide exemption to partial withdrawal not exceeding 25% of the contribution made by an employee in accordance with the terms and conditions specified under Pension Fund Regulatory and Development Authority Act, 2013 and regulations made thereunder.

3.2 Special provision for newly established units in SEZ

Deduction under section 10AA to be allowed from the total income of the assessee computed in accordance with the provisions of the Income-tax Act, before giving effect to the provisions of section 10AA and the deduction under section 10AA not to exceed such total income of the assessee.

3.3 Exemption of income of Foreign Company from sale of leftover stock of crude oil

from strategic reserves at the expiry of agreement or arrangement

Income accruing or arising to a foreign company on account of sale of leftover stock of crude oil, from any facility in India after the expiry of the agreement or arrangement of storage and sale of crude oil, to be exempt subject to the conditions to be notified.

3.4 Exemption of long term capital gains tax u/s 10(38)

Any income arising from transfer of long-term capital asset, being equity share in a company acquired or on after 1st day of October, 2004 (date when STT was introduced for the first time) shall be available only if the acquisition of share is chargeable to Securities Transaction Tax (STT). This provision is an anti-abuse provision perhaps to counter off -market deals. It is also provided that an exception will be made so as to allow an exemption in respect of Purchases of Equity shares in IPO, FPO, Bonus or Rights. Surprisingly, examples given in Memorandum do not mention ESOP.



3.5 Restriction on exemption in case of corpus donation by exempt entities to other exempt entities

Any amount credited or paid out of income of any fund or trust or institution being voluntary contribution made to another charitable trust with a specific direction that such donation shall form part of the corpus of the trust or institution, not to be treated as application of income to the objects for which such fund/trust/institution is established.

3.6 Fresh registration to be obtained in case of modifications of the object of the trust

It is proposed that in case a charitable trust or institution, which has been granted registration under section 12A/ 12AA, adopts or undertakes modifications of its objects that do not conform to the conditions of registration, it would be required to obtain fresh registration under such section within a prescribed timeline.

3.7 Requirement of filing the return of income by the trust within the prescribed

timeline to claim exemption

It is proposed to insert an additional condition that a charitable trust or institution would be required to file its Return of Income within the time prescribed under the Act in order to claim exemption under section 11 of the Act.

3.8 Transparency in Electoral Funding

It proposed to amend the provisions of section 13A to provide for additional conditions for availing the benefit of the said section which are as under: (i) No donations of Rs.2,000/- or more as against Rs.20,000/- erstwhile is received otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through electoral bonds. (ii) Political party furnishes a return of income for the previous year in accordance with the provisions of section 139(4B) on or before the due date under section 139. Further, in order to address the concern of anonymity of the donors, it is proposed to amend the said section to provide that the political parties shall not be required to furnish the name and address of the donors who contribute by way of electoral bond.



4. INCOME FROM HOUSE PROPERTY 4.1 No notional income for house property held as stock-in-trade

No income to be taxed on notional basis with respect to a house property consisting of any building and land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period upto one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority.

5. PROFITS & GAINS FROM BUSINESS & PROFESSION 5.1 Increase in deduction limit in respect of provision for bad and doubtful debts

The existing provisions of sub-clause (a) of section 36(1) (viia) of the Act provides that a scheduled bank (not being a bank incorporated by or under the laws of a country outside India) or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank will be allowed a deduction of an amount up to 7.5% of the total income (computed before making this deduction and deduction under Chapter VIA) in respect for bad and doubtful debts. It is proposed to enhance the aforesaid deduction limit from 7.5% to 8.5% of the amount of the total income with the earlier conditions being continued.

5.2 Disallowance of depreciation under section 32 and capital expenditure under

section 35AD on cash payment

Expenditure incurred on acquisition of any asset, in respect which 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 or use of electronic clearing system through a bank account exceeds Rs.10, 000/- , to be ignored for the purposes of determination of actual cost of such asset under section 43 and consequently no depreciation under section 32 will be available on. It is further proposed to amend section 35AD of the Act to provide that any expenditure in respect of which payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account, exceeds Rs.10, 000/-, no deduction shall be allowed in respect of such expenditure.



5.3 Measures to discourage cash transactions In order to discourage cash transactions, it is proposed to amend the provisions of section 40A of the Act to provide the following: (i) To reduce the existing threshold of cash payment to a person from Rs.20,000/- to Rs.10,000/- in a single day; i.e. any payment in cash above Rs.10,000/- to a person in a day, shall not be allowed as deduction in computation of Income from "Profits and gains of business or profession"; (ii) Deeming a payment as profits and gains of business of profession if the expenditure is incurred in a particular year but the cash payment is made in any subsequent year of a sum exceeding Rs.10,000/- to a person in a single day; And (iii) Further, expand the specified mode of payment under respective sub-section of section 40A from an account payee cheque drawn on a bank or account payee bank draft to by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account.

5.4 Restriction on cash transactions It is proposed to insert a new section 269 ST, which will provide that no person shall receive an amount of Rs.3,00,000/- or more:

(a) In aggregate from a person in a day;

(b) In respect of a single transaction; or (c) In respect of transactions relating to one event or occasion from a person

otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account. However, provisions of this section shall not apply to:

Any receipt by Government, any banking company, post office savings bank or co-operative bank.

Any other persons or class of persons or receipts, which may be notified by the Central Government.

Transactions of the nature of loans, deposits and specified sum referred to in section 269SS are proposed to be excluded from the scope of the said section.



It is also proposed to insert a new section 271DA to provide for the levy of penalty on a person who receives a sum in contravention of the provisions of the proposed section 269ST. The penalty is proposed to be equal to the amount of such receipt. The said penalty shall however not be levied if the person proves that there were good and sufficient reasons for such contravention.

5.5 Extension of scope of section 43D to Co-operative Banks Under the existing provisions of the Act, any interest income received by certain institutions, banks or corporations in relation to certain categories of bad and doubtful debts shall be chargeable to tax when such interest is credited to the profit and loss account or when such interest is actually received, whichever is earlier. It is now proposed to extend the scope of the above provision to co-operative banks (other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank) in order to have a level playing field between the co-operative banks and scheduled banks.

5.6 Scope of deductions allowable on actual payment basis proposed to be widened

Under the existing provisions of section 43B of the Act, any sum payable by a taxpayer as interest on any loan and advances from a scheduled bank is allowed as a deduction only on actual payment of such interest. It is proposed to extend the scope of said provisions on the interest payable by the taxpayer on the loans and advances obtained from co-operative banks ( other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank).

5.7 Increasing the threshold limit for maintenance of books of accounts in case of

Individuals and Hindu undivided family

The existing provisions of clause (i) and clause (ii) of sub-section (2) of section 44AA of the Act cast an obligation on every person carrying on business or profession to maintain such books of accounts and documents in the previous year to enable the Assessing Officer to compute his total income in accordance with the provisions of Act, provided that the income and total sales or turnover or gross receipts, etc specified in said clauses exceeds Rs.1,20,000/-and Rs.10,00,000/-. In order to reduce the compliance burden, it is proposed to amend the provisions of section 44AA to increase monetary limits of income and total sales or turnover or



gross receipts, etc specified in said clauses for maintenance of books of accounts from Rs.1,20,000/-to Rs.2,50,000/- and from Rs.10,00,000/-to Rs.25,00,000/- respectively in the case of Individuals and Hindu undivided family carrying on business or profession.

5.8 Exclusion of certain specified person from requirement of audit of accounts under

section 44AB Presently, every individual carrying on a business or profession shall get his its accounts audited under section 44AB, if the total sales, turnover or gross receipts exceed Rs.1 crore. A press release dated 20 June, 2016 was issued by the CBDT clarifying that if an eligible individual opts for the presumptive taxation scheme as per section 44AD (1) of the Act, he/ she shall not be required to get his/ her accounts audited if the total turnover or gross receipts of the relevant previous year does not exceed Rs.2 crore. It is now proposed to incorporate the above press release in law through an amendment to section 44AB of the Act.

5.9 Measures for promoting digital payments in case of small unorganized businesses

Under the existing provisions of section 44AD of the Act, in case of certain assesses (i.e. an individual, HUF or a partnership firm other than LLP), carrying on any business (other than transportation, agency, brokerage and commission) and having a turnover of Rs.2 crore or less, the profit is deemed to be 8% of the total turnover or gross receipts. The CBDT, in a press release dated 19 December, 2016, mentioned that to achieve the Government's mission of moving towards a less cash economy and to encourage small traders/ businesses to proactively accept digital payments, it has been decided to reduce the existing rate of deemed profit of 8% under section 44AD of the Act to 6% in respect of the amount of total turnover or gross receipts received through the banking channel/ digital means for the financial year 2016-17. However, the existing rate of deemed profit of 8% referred to in section 44AD of the Act shall continue to apply in respect of total turnover or gross receipts received in cash. The press release also clarified that the legislative amendment in this regard shall be carried out through the Finance Bill, 2017. It is now proposed to amend the law to give effect to the above press release.



6. CAPITAL GAINS 6.1 Shift in Base Year

The base year for computation of capital gains shifted from 1st April,1981 to 1st

April,2001. Accordingly, cost of acquisition of assets acquired before 1st April,2001 could be

considered as fair market value as on 1st April,2001. Consequently, the cost of improvement shall be only those capital expenses

which are incurred after 1st April,2001. 6.2 Incentives for Promoting Investment in immovable property

The holding period in respect of immovable properties being land or building or both to qualify as long-term capital asset has been proposed to be reduced to 24 months from 36 months.

6.3 Cost of Acquisition in certain cases

The conversion of preference shares into equity shares not to be regarded as

transfer and not subject to capital gain tax. The cost of acquisition of equity shares deemed to be the cost of acquisition of preference shares. Period of holding of equity shares to include period of holding of the preference shares.

The transfer of shares of an Indian company between two foreign companies pursuant to the tax-neutral demerger, the cost of acquisition of such shares for resulting foreign company shall be the same as it was in the hands for demerged foreign company.

The transfer of units pursuant to consolidation or merger of mutual fund plans within a scheme, the cost of acquisition and period of holding of the units in the consolidating plan of mutual fund scheme shall be considered while determining the cost of units and period of holding of the units in the consolidated plan of mutual fund scheme.

The transfer of capital asset in joint development project in the form of land or building or both in the hands of the land owner, the cost of acquisition shall be equal to the amount of full value of consideration in the hands of land owner (i.e the stamp duty value of land or building in the project on the date of issuing of said certificate of completion as increased by any monetary consideration) received. The capital gains shall be chargeable to income-tax as income of the



previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority.

It is also proposed to insert a new section 194-IC in the Act so as to provide that

in case of any monetary consideration which is payable under the specified agreement, tax at the rate of 10% shall be deductible from such payment.

6.4 Extension of capital gain exemption to Rupee Denominated Bonds (Popularly known as Masala Bonds )

Transfer of rupee- denominated bonds of an Indian company between two non- residents issued outside India by a non-resident to another non-resident shall not be regarded as transfer.

6.5 Expanding the scope of long-term bonds under 54EC

Section 54 EC allows for an exemption from long-term capital gains in respect of investments made in certain specified bonds i.e., NHAI or RECL. It is now proposed to extend the exemption in respect of investments to be made in certain other bonds to be notified by the central government.

6.6 Valuation in case of transfer of unquoted shares

It is proposed to insert a new section 50CA to provide that where consideration for transfer of share of a company (other than quoted share) is less than the Fair Market Value (FMV) of such share determined in accordance with the prescribed manner, the FMV shall be deemed to be the full value of consideration for the purposes of computing income under the head "Capital gains”.

6.7 Clarification regarding the applicability of section 112

With a view to clarify the amendment made by Finance Act,2016 concessional rate of tax of 10% shall also apply to the period from 1st April,2013 to 31st March,2017 , it is proposed to amend section 50 of the Finance Act,2016 so as to provide that the effective date amendment made to section 112(1)( c)(iii) shall be 01.04.2013 instead of 01.04.2017.



7. INCOME FROM OTHER SOURCES 7.1 Proposed amendments to tax receipt of cash or property without adequate

consideration Currently, the anti-abuse provisions of section 56(2) for receipt of money or property without consideration or inadequate consideration are applicable only to Individuals, HUF and in some specific cases, to firms and companies. In order to cover all types of assesses under the scope of this section, it is proposed to insert a new clause (x) to provide that receipt of the sum of money or the property by any person from any other person without consideration or inadequate consideration in excess of Rs.50,000/- shall be chargeable to tax in the hands of the recipient under the head “Income from other sources.” Exceptions are provided in respect of specified situations similar to those covered in current section 56(2)(vii), such as receipt of money from relative, under the will, etc. It is proposed to widen exception (as compared to section 56(2)(vii)) by including receipts by certain trusts or institutions.

7.2 Disallowance of payment made to residents for non-deduction of tax while computing income from other sources Under the existing provisions of section 58 of the Act, certain amounts are not deductible in computing the income under the head "income from other sources.” A disallowance of 30% of the expenditure is made for non-deduction of tax from payment to the resident under section 40(a) (ia) of the Act while computing income under the head “profits and gains of business and profession.” In order to improve the tax deduction compliance, it is proposed to extend the aforesaid disallowance (30% of the expenditure) for non-deduction of tax on payment to the resident under section 40(a)(ia) of the Act to the computation of income under the head "income from other sources.”

7.3 Rationalization of taxation of income by way of dividend Under the existing provisions of section 115BBDA, income by way of dividend in excess of Rs. 10 lakh is chargeable to tax at the rate of 10% on gross basis in case of a resident individual, Hindu undivided family or firm.



With a view to ensuring horizontal equity among all categories of taxpayers deriving income from dividend, it is proposed to amend section 115BBDA so as to provide that the provisions of said section shall be applicable to all resident assessees other than specified assesses. Specified assesses will include domestic company and certain funds, trusts, institutions, etc covered u/s 10(23C) and Trusts registered u/s 12AA.

8. CARRY FORWARD AND SET OFF OF LOSSES 8.1 Restriction on set- off of loss from House Property

Section 71 of the Act relates to set-off of loss from one head against income from another. It is proposed to insert sub-section (3A) in the said section to provide that set-off of loss under the head "Income from house property" against any other head of income shall be restricted to Rs.2,00,000/- for any assessment year. However, the unabsorbed loss shall be allowed to be carried forward for set-off in subsequent years in accordance with the existing provisions of the Act.

8.2 Extending the period for claiming deduction by start-ups

Eligible start-ups are entitled to claim deduction with respect to profit

and gains derived from their business for the period of three consecutive years out of seven years (instead of five years) from its incorporation.

In case of an eligible start-up company, the losses of initial 7 years can be

carried forward so long as all the shareholders carrying voting power on the last day of year of loss continue to hold such shares on the last day of the year of change in shareholding and the condition of 51% beneficial voting shareholder to remain the same as applicable to closely held companies relaxed.

9. DEDUCTIONS 9.1 Rationalization of deduction under section 80CCD for self-employed individual

The existing provision of section 80CCD provides that employee or other individuals shall be allowed a deduction for the amount deposited in National Pension System trusts (NPS). The deduction under section 80CCD (1) cannot exceed 10% of the salary in case of an employee or 10% of gross total income in case of other individuals. However, under the provisions of section 80CCD (2) of the Act, further deduction to an employee in respect of contribution made by his employer is allowed up to 10% of salary of the employee.



Thus, in the case of an employee, the deduction allowed under section 80CCD adds up to 20% of salary whereas, in the case of other individuals, the total deduction under section 80CCD is limited to 10% of gross total income. In order to provide parity between an individual who is an employee and an individual who is self-employed, it is proposed to amend section 80CCD so as to increase the upper limit of ten per cent of gross total income to 20% in case of individual other than the employee.

9.2 Restricting cash donations

In order to provide cashless economy and transparency, it is proposed to amend section 80G so as to provide that no deduction shall be allowed under section 80G in respect of donation of any sum exceeding Rs.2,000/- erstwhile limit of Rs.10,000/- only if such sum is paid by any mode other than cash.

9.3 Rationalization of deduction under section 80CCG.

Under section 80CCG, deduction from total income was allowed to new retail investors for investment in listed equity shares or listed units of an equity-oriented fund for a period of three consecutive years, subject to various conditions and up to a maximum amount of Rs.25,000/- per year. Deduction under section 80CCG is no longer available to new retail investors from AY 2018–19 onwards. New retail investors who had claimed deduction for AY 2017–18 or prior years will continue to be entitled to deduction until AY 2019–20 if otherwise eligible.

9.4 Rationalization of Provisions of Section 80-IBA to promote Affordable Housing The existing provisions of section 80-IBA provide for 100% deduction in respect of the profits and gains derived from developing and building certain housing projects subject to specified conditions. In order to promote the development of affordable housing sector, it is proposed to amend section 80-IBA so as to provide the following relaxations:—



(i) The size of a residential unit shall be measured by taking into account the "carpet area" and not the "built-up area". (ii) The restriction of 30 square meters on the size of residential units shall not apply to the place located within a distance of 25 kms from the municipal limits of the Chennai, Delhi, Kolkata or Mumbai. (iii) The condition of the period of completion of the project for claiming deduction under this section shall be increased from existing three years to five years.

9.5 Exemption of income of Chief Minister's Relief Fund or the Lieutenant

Governor's Relief Fund Under the extant provision,the exemption is provided in respect of certain funds that inter alia include the Prime Minister’s National Relief Fund. Similar exemption is proposed to be extended to the Chief Minister’s Relief Fund and Lieutenant Governor’s Relief Fund retrospectively, with 1 April, 1998, being the date from which payment to these funds is allowed as a deduction under section 80G of the Act.

10. MINIMUM ALTERNATE TAX 10.1 Rationalisation of Provisions relating to tax credit for Minimum Alternate Tax

and Alternate Minimum Tax

MAT credit u/s 115JAA and AMT credit u/s 115JD to be eligible to be carry forward for 15 assessment years immediately succeeding assessment years in which such credit tax credit becomes allowable as against 10 assessment years.

It is also proposed to amend section 115JAA and 115JD so as to provide that the amount of tax credit in respect of MAT/ AMT shall not be allowed to be carried forward to subsequent year to the extent such credit relates to the difference between the amount of foreign tax credit (FTC) allowed against MAT/ AMT and FTC allowable against the tax computed under regular provisions of Act than the provisions relating to MAT/AMT.

10.2 Rationalisation of provisions of section 115JB in line with Indian Accounting

Standard (Ind-AS)



Under the existing provisions of section 115JB, book profit is computed by making certain prescribed adjustments to the net profit in the profit and loss account drawn up as per Indian GAAP. Since Ind AS has been introduced and is applicable to certain companies and the book profit based on an Ind AS compliant financial statement is likely to be different from that based on existing Indian GAAP, the Finance Bill, 2017 has proposed introduction of certain provisions for computing book profit in case the financial statements of a company are prepared as per Ind AS. As Ind AS is required to be adopted by certain companies from the year ending March,2017, these amendments will take effect from 1st April,2017 and will accordingly apply to the assessment year 2017-18 and subsequent years.

11. TAX DEDUCTED AT SOURCE

11.1 Section 194-IB

Section 194-IB is proposed to be inserted in the Act requiring withholding tax at the rate of 5% on rent payments exceeding Rs.50,000 per month, or part thereof, by an individual or an HUF (other than those covered under section 194-I). Such tax is to be deducted at the time of credit of rent, for the last month of the previous year or the last month of tenancy (if such property is vacated during the year), or at the time of payment of such rent, whichever is earlier. If the tax is required to be deducted under section 206AA (where the deductee does not furnish PAN), such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of tenancy, as the case may be. Further, such deductor is not required to obtain any tax deduction account number as per section 203A of the Act.

11.2 Section 194J

It is proposed to amend section 194J to reduce the rate of deduction of tax at source to 2% from 10% in case of payments received or credited to a payee who is engaged only in the business of operation of the call center.



11.3 SECTION 194LA

It is proposed to amend section 194LA that no deduction of tax at source shall be made under this section where such payment is made in respect of any award or agreement which has been exempted from levy of income tax under Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act,2013.

11.4 SECTION 194LC

TDS @ 5% extended to the payment of interest on loans in foreign currency as well as on loan by way of long-term bond including long-term infrastructure bond, borrowed before July 1, 2020. Similar benefit of concessional TDS @ 5% also extended to amount borrowed way of issue of rupee-denominated bonds before July 1,2020.

11.5 SECTION 194LD

The benefit of concessional TDS @ 5% on the payment of interest to Foreign Institution Investor or Qualified Foreign Investor extended to the payment of such interest before July 1, 2020.

11.6 Person responsible for paying TDS- Section 195(6)

In order to bring clarity to the meaning of 'person responsible for paying' in case of payment by a resident to a non-resident in accordance with section 195(6) of the Act, it is proposed to amend the said section of the Act to provide that in the case of furnishing of information relating to payment to a non-resident, not being a company, or to a foreign company, of any sum, whether or not chargeable under the provisions of this Act, 'person responsible for paying' shall be the payer himself, or, if the payer is a company, the company itself including the principal officer thereof.



TAX COLLECTED AT SOURCE

Sellers receiving consideration for sale of motor vehicle exceeding Rs.10,00,000/-

exempted from tax collection at source for the sale to central government, state government , an embassy , a High Commission, legation, commission, consulate and trade representation of a foreign state ,specified local authority , or a public sector company engaged in the business of carrying passengers.

Jewellary has been removed from the purview of TCS provisions in view of the restriction on cash transaction above Rs.3,00,000/- .

12. DOMESTIC TAXATION

12.1 Non-payment of advance tax – interest thereon

Vide Finance Act, 2016, presumptive taxation was extended to professionals also (Section 44ADA). Such professionals will be required to pay advance tax in one installment on or before 15th March of every Financial Year and in such case, they will not be liable for interest under section 234C.

Similarly, Finance Act, 2016 introduced Section 115BBDA with effect from 1st April, 2017 to tax dividend received in excess of Rs. 10,00,000/-. Considering uncertainty involved with declaration and receipt of dividend income, it is not possible to estimate dividend income correctly during the Financial Year. It is now, therefore, proposed that in case a person is in receipt of income referred to in Section 115 BBDA, interest under section 234C will not be charged subject to fulfillment of the conditions.

12.2 Processing of Return of Income Issuance of Refunds

As per the provisions of section 143 (1D), it was necessary to process the return where the notice is issued under section 143(2). Finance Act, 2016 provided that the processing of return u/s 143(1) was necessary before passing of the assessment order.

However, from AY 2017-18 onwards, processing of the Return of Income under similar circumstances i.e. where returns are taken in scrutiny, shall not be necessary.



12.3 Withholding of Refunds

It is proposed to insert a new section 241A to provide that, for the returns furnished for assessment year commencing on or after 1st April, 2017, where refund of any amount becomes due to the assessee under section 143(1) and the Assessing Officer is of the opinion that grant of refund may adversely affect the recovery of revenue, he may, for the reasons recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, withhold the refund upto the date on which the assessment is made.

(These amendments will take effect from 1st April, 2017 and will, accordingly, apply to returns furnished for the assessment year 2017-18 and subsequent years.)

12.4 Interest on Refunds issued

It is proposed to insert a new section 244(1B) to provide that, where refund of any amount becomes due to the deductor, such person shall be entitled to receive, in addition to the refund, simple interest on such refund, calculated at the rate of one-half percent for every month or part of a month comprised in the period, from the date on which claim for refund is made in the prescribed form or in case of an order passed in appeal, from the date on which the tax is paid, to the date on which refund is granted.

It is also proposed to provide that the interest shall not be allowed for the period for which the delay in the proceedings resulting in the refund is attributable to the deductor.

(This amendment will take effect from 1st April, 2017).

13. RETURN OF INCOME 13.1 Filing of return

A simplified tax return form(one page) is proposed to introduced for individuals having taxable income (other than business income) upto Rs.5,00,000/-.

13.2 Mandatory furnishing of return by certain exempt entities

The requirement of mandatorily filing the return of income extended to:- Person as referred to in section 10(23AAA) Investor Protection fund section 10(23EC) or 10(23ED)



Core Settlement Guarantee Fund section 10(23EE) Any Board or Authority referred to in section 10(29A)

13.3 Reduction in time-limit for revising return of income The existing provision of Section 139(5) allows the taxpayer to revise return of income at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. In order to expedite assessment, the above time frame for filing revised return has been curtailed. It is now proposed that the taxpayer would be eligible to revise its tax return only up to the end of the assessment year or before the completion of assessment, whichever is earlier.

13.4 Fee for delayed filing of return In order to penalize the taxpayers for non-filing of the return within the due date, it is proposed to levy a fee on such defaulters in respect of return of income related to AY 2018-19 onwards. The fees would be levied in the following manner:

Rs.1,000/- where total income does not exceed Rs.5,00,000/- . In other cases, Rs.5,000/- where the return is not filed by 31st December of

the relevant AY; else, Rs.10,000/-. Consequently, it is provided that penalty enshrined in section 271F shall no longer be effective.

14. ASSESSMENT /APPELLATE PROCEEDINGS

14.1 Other Proceedings

Power to call for information in respect of any inquiry or proceeding under the Income-tax Act is extended to the Joint Director, the Deputy Director and the Assistant Director.

To expedite verification and analysis of the information and the documents received, the Central Board of Direct Taxes empowered to make a scheme for centralized issuance of notice, for processing of information/documents and making available the outcome of the processing to the Assessing Officer



14.2 Search & Seizure

Income-tax authority not obliged to disclose reason to believe or reason to suspect for carrying out search and seizure to any person, authority or the Appellate Tribunal (applicable with retrospective effect from 1st April, 1962).

Similarly, the income-tax authority not obliged to disclose reason to believe for making a requisition to any person, authority, or the Appellate Tribunal (applicable with retrospective effect from October 1, 1975).

Effective from 1st April, 2017 , the Authorised Officer, during the course of a search or seizure or within a period of sixty days from the date on which the last authorizations for the search was executed:

is authorized to provisionally attach any property belonging to the assessee with

the prior approval of Principal Director General or Director General or Principal Director or Director), for a period of 6 months from the date of the order of such attachment.

is empowered to make a reference to a Valuation Officer for the purpose of estimation of the fair market value of property.

14.3 Survey Income-tax authorities are now empowered to carry out the survey at places at which an activity for the charitable purpose is carried on.



14.4 Time Limit for Completion of Assessment

Particulars Existing Time Limit Proposed Time Limit Completion of Assessment u/s 143 or section 144 where no reference to TPO has been made for Assessment Year 2018-19

21 months from the end of the assessment year in which income was first assessable.


Completion of Assessment u/s 143 or section 144 where no reference to TPO has been made for Assessment Year 2019-20 and onwards.



Completion of Assessment u/s 147 where no reference to TPO has been made and notice served under section 148 on or after the 1st Day of April, 2019

9 months from the end of the Financial year in which notice u/s 148 is served.

12 months from the end of the Financial year in which notice u/s 148 is served.

Completion of fresh assessment in pursuance of an order if ITAT, or revision order by CIT, setting aside or cancelling an assessment where such order passed or received in the financial year 2019-20 and onwards.

9 months from the end of the Financial year in which order is received by the Pr. CIT/CIT

12 months from the end of the Financial year in which order is received by the Pr. CIT/CIT

Giving effect to order of CIT(A), ITAT, High Court, Supreme Court, or revision of an order,the order of settlement commission otherwise than by fresh assessment/reassessment, on or after 1st June, 2016.

9 months from the end of the financial year in which order under section 254 is received or order under section 263 or 264 is passed by the authority referred therein.

12 months from the end of the financial year in which order under section 254 is received or order under section 263 or 264 is passed by the authority referred therein.



Notice u/s 142(1) or 143(2) or 148 issued before 01/06/2016 and assessment or reassessment has not been completed due to limitations as provided in Explanation to section 153(9).

Time limit prescribed in Section 153 provided before its substitution by the Finance Act, 2016.

Note: Where reference is made to TPO, time limit to be increased by 12 months

14.5 Time Limit for Completion of Assessment in search action cases

Particulars Existing Time Limit Proposed Time Limit In case of assessment under section 153A (in case of search or requisition) to assess or reassess the total income of six assessment years but not later than ten assessment years immediately preceding the assessment year in which search is conducted; or, in respect of assessment year in which search is conducted; or, Requisition u/s 132A is executed during the financial year 2018-19.

21 months from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section132A was executed. [To be increased by a period of 12 months where reference is made to TPO]

18 months from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed. [To be increased by a period of 12 months where reference is made to TPO]



In case of assessment under section 153A (in case of search or requisition) to assess or reassess the total income of six assessment years but not later than ten assessment years immediately preceding the assessment year in which search is conducted; or, in respect of assessment year in which search is conducted; or, requisition u/s 132A is executed in the financial year 2019-20.



In case of other person referred to in section 153C for financial year 2018-19.

21 months from the end of the financial year in which the last of the authorizations for search under section 132 or for requisition under section 132A was executed or 9 months from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later. [To be increased by a period of 12 months where reference is made to TPO].

18 months from the end of the financial year in which the last of the authorizations for search under section 132 or for requisition under section 132A was executed or 12 months from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later [To be increased by a period of 12 months where reference is made to TPO].



In case of other person referred to in section 153C for financial year 2019-20.



Notice u/s 153A/153C has been issued prior to June 1, 2016 and assessment have not been completed by such date due to exclusion of time referred to in the explanation.

Assessment to be completed in accordance with the provisions of section as provided before its substitution by the Finance Act, 2016.

Where a proceeding before the Settlement Commission abates under section 245HA, the period of limitation available for assessment or reassessment, shall after the exclusion of the period of limitation 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.

Authority for Advance Ruling (AAR)

The AAR for Income-tax, Central Excise, Customs and Service Tax to be merged.



Certain other changes to the structure/relating to the administration also proposed

Appeal to ITAT

An order passed by the prescribed authority being CIT (Exemption) dealing with a grant of approval for the exemption to public religious/ charitable trusts or institutions to be appealable to the Appellate Tribunal.



15. INTERNATIONAL TAXATION

15.1 Indirect Transfer Provisions

Explanation 5 in section 9(1)(i) which states that that an asset or capital asset, being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.

The Finance Bill 2017 clarified that the Explanation 5 shall not apply to any asset or capital asset mentioned therein being investment held by non-resident, directly or indirectly, in a Foreign Institutional Investor, as referred to in clause (a) of the Explanation to section 115AD, and registered as Category-I or Category II Foreign Portfolio Investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992, as these entities are regulated and broad based. This negates circular number 41 of 2016 which was issued very recently.

(This amendment will take effect retrospectively from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13 and subsequent years.)

15.2 Special taxation for Off Shore Funds

Section 9A(3) provides that the eligible investment fund referred to in sub-section (1) the fund management activity carried out through an eligible fund manager acting on behalf of such fund shall not constitute business connection in India of the said fund; means a fund established or incorporated or registered outside India, which collects funds from its members for investing it for their benefit and fulfils the certain conditions enumerated therein.

In respect of corpus of the fund, the condition is that the monthly average of the corpus of the fund shall not be less than Rs.100 crore except where the fund has been established or incorporated in the previous year in which case, the corpus of fund shall not be less than one hundred crore rupees at the end of such previous year.

In order to rationalize the regime and to address the concerns of the stakeholders, it is proposed to provide that in the previous year in which the fund is being wound up, the condition that the monthly average of the corpus of the fund shall not be less than Rs.100 crore, shall not apply. (This amendment will take effect retrospectively from 1st April, 2016 and shall apply to the assessment year 2016-17 and subsequent years.)



15.3 Secondary Adjustments – Transfer Pricing cases

The provisions of secondary adjustments are internationally recognized and are already part of the transfer pricing rules of many leading economies in the world. In order to align transfer pricing provisions in line with OECD TP guidelines and International Best Practices, a new section 92CE is proposed to inserted to provide that an assessee shall be required to carry out secondary adjustment where the primary adjustment to transfer price has been made:

Suo motu by the assessee in his return of income By the assessing officer and has been accepted by the assessee By an Advanced Pricing Agreement (APA) By Safe Harbour Rules (SHR) By arising as a result of Resolution of an assessment by way of Mutual

Agreement Procedure (MAP)

It is not proposed that where as a result of primary adjustment to the Transfer Price, there is an increase in the Total Income or Reduction in the Loss, the excess money which is available with its Associated Enterprise (AE), if not repatriated to India within the time prescribed, shall be deemed as an advance by an assessee to its Associated Enterprise and interest on such advance shall be computed as income of the assessee in the manner to be prescribed.

A threshold limit of an amount of Rs. 1crore of the primary adjustment is also provided for.

15.4 Specified Domestic Transactions

It is proposed to curtail the scope of Specified Domestic Transactions and accordingly it is proposed to provide that expenditure in respect of which payment has been made by the assessee to a person referred to in under section 40A(2)(b) are to be excluded from the scope of section 92BA of the Act.

(These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years)

15.5 Provisions related to Authority for Advanced Rulings

With a view to promoting ease of doing business, it has been decided by the Government to merge the Authority for Advance Ruling (AAR) for income-tax, central excise, customs duty and service tax. It is further proposed to amend the qualifications for appointment as revenue Member of the AAR. An amendment has been proposed to section 245Q which relates to the application for an advance ruling.



16. OTHER PROVISIONS

16.1 Lower/NIL Tax Deduction at Source for Insurance Commission

With effect from 1st June, 2017, Individuals/HUF earning insurance commission can file Form 15G/15H as a way of Self Declaration if their tax on estimated income is NIL.

This will enable them to earn income from commission agency at the Insurance Company without deduction of Tax at Source.

16.2 Empowering Board to issue directions in respect of penalty for failure to deduct or collect tax at source

Section 119(2) of the Income Tax Act, 1961; empowers the Board to issue orders setting forth directions or instructions (not being prejudicial to assessees) to be followed by subordinate authorities in the work relating to assessment or collection of revenue or the initiation of proceedings for the imposition of penalties.

Reference to Section 271 C (Penalty for failure to deduct tax at source) and Section 271CA (Penalty on failure to collect tax at source) is proposed to be inserted in order to empower the Board to issue directions or instructions in respect of the said sections.

16.3 Proposed amendment to tax income from transfer of carbon credits

Under the existing provisions, there is no clarity on taxability of income from transfer of carbon credits. While the tax authorities seek to tax such income as business income at applicable tax rates, there are divergent judicial rulings on this aspect. In order to provide clarity on the taxation of income from transfer of such carbon credits, it is proposed to insert a new section 115BBG, which provides that the income from transfer of carbon credits will be taxable at 10% and no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision for computation of such income. Carbon credit is also proposed to be defined.

Documents

THE UNION BUDGET 2017-18 Select Direct Tax Proposals · The Union Budget 2017 B.D. Jokhakar & Co. Chartered Accountants Page 1 Sr. No. Particulars Pg. No. 1. Preface 2 2. Rates of