DIRECT TAX OR INCOME TAX IN finance bill 2015

PVSS Prasad, [email protected]

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FINANCE BILL 2015 DIRECT TAX

PROPOSALS

PVSS Prasad, [email protected]

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Hyderabad Branch of

SIRC of ICAI

11th March, 2015

HIGHLIGHTS of FINANCE BILL 2015

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1. Income Tax Slab rates 17. Threshold for SDT- Sec 92BA

2. Definition of Charitable purpose -Sec 11 18. Deferment of GAAR

3. Residency status of companies -Sec 6 19. Second Proviso to 111A(1)

4. Interest Payments to Foreign Bank -Sec9 20. Royalty/FTS- Sec 115A

5. Sukanya Samriddhi Scheme- Sec 80C 21. Rationalisation of 115JB

6. Tax benefits – 80G & 10(23C) 22. Procedure for Appeal-Sec 158AA

7. Return for accumulation of income- Sec 11&Form 10

23. Rationalisation of TDS/TCS provisions

8. 50% Additional Depreciation-Sec 32(1)(iia)

24. Payment to Contractors- Sec 194C

9. Addl. Investment Allowance- Sec 32AD 25. TDS on interest to FII/QFI - 194LD

10. Conditions for In-house R&D- Sec 352AB)

26. Form 15G/15H

11. Limit raised for 80CCC 27. Obtaining TAN-Sec 203A

12. Additional Deduction for Pension Scheme- S.80CCD

28. Settlement Commission-Sec 245

13. Limits for Health Insurance Premia- Sec 80D

29. Rationalisation of TDS/TCS procedures

14. Limits for 80DD and 80U 30. Taxation of REITs and INVITs

15. Medical Treatment 80DDB 31. Indirect Transfers-Sec 9

16. Deduction for New Workmen- Sec 80JJA 32. Orders u/s. 10(23C) appealable before ITAT- S.253

HIGHLIGHTS of FINANCE BILL 2015

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33. Single Member Bench- Sec 255(3) 37. Fund Managers and Business Connection- Sec 9

34. Revision of Orders- Sec.263 38. “Accountant”– Sec 288

35. 269SS & 269T 39. Foreign Tax Credit –Sec 295(2)

36.Tax Sought to evaded- Sec 271(1)(c) 40. Abolition of Wealth Tax

1. INCOME TAX SLAB RATES NO CHANGE – Clause 2

Individuals, HUF, AOP, BOI and AJP:

Senior Citizen:

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Existing Proposed as per Finance

BillRate

<2,50,000 <2,50,000 Nil

2,50,000-5,00,000

2,50,000-5,00,000

10%

5,00,000-10,00,000

5,00,000-10,00,000

20%

Above 10,00,000 Above 10,00,000

30%

Existing Proposed as per Finance

BillRate

<3,00,000 <3,00,000 Nil

3,00,000-5,00,000

3,00,000-5,00,000

10%

5,00,000-10,00,000

5,00,000-10,00,000

20%

Above 10,00,000 Above 10,00,000

30%

1. INCOME TAX SLAB RATES – Clause 2

Companies:

The corporate tax rate is proposed to be reduced from 30% to 25% over the next 4 years accompanied by rationalization and removal of various kinds of tax exemptions and incentives.

Surcharge:

Surcharge is increased by 2% in case of a person having a total income exceeding one crore rupees.

Therefore the surcharge will now be 12% for individuals having income exceeding one crore rupees, domestic companies having total income exceeding ten crore rupees, payments made to Non-residents (other than companies) exceeding one crore rupees

Surcharge will now be 7% for domestic companies having total income exceeding one crore rupees.

Surcharge in case of a company other than a domestic company remains unchanged.

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2. DEFINITION OF CHARITABLE PURPOSE - Sec 2(15) – Clause 3

Rationalization of definition of charitable purpose in the Income Tax Act: Existing:Section 2(15) of the Income Tax Act, defines Charitable Purpose to include relief of the poor, education, medical relief and the advancement of any other object of general public utility.

However, the Act also states that advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on of – (a)any activity in the nature of trade, commerce or business; or (b)any activity of rendering any service in relation to any trade, commerce or business;

for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity. Proposed:With a view to remove hardships on organisations which undertake genuine charitable activities,YOGA is proposed to be included as a specific category in the definition of charitable purpose on the lines of education amendment is proposed to change the meaning of advancement of any other object of general public utility as follows:

(Contd).

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2. DEFINITION OF CHARITABLE PURPOSE- Sec 2(15) – Clause 3

(Contd). Rationalization of definition of charitable purpose in the Income Tax Act:

advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless,-

(a) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

(b) the aggregate receipts from such activity or activities, during the previous year, do not exceed twenty percent. of the total receipts, of the trust or institution undertaking such activity or activities, for the previous year .

Effective Date: 01st April, 2016

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3. RESIDENCY OF FOREIGN COMPANIES - Sec.6(3) – Clause 4

Amendment to the conditions for determining residency status in respect of Companies

Existing: As per the provisions of Sec.6(3) a company is said to be resident in India in any

previous year, if-(i) it is an Indian company; or(ii) during that year, the control and management of its affairs is situated wholly in

India.

Proposed: It is proposed to amend Sec.6(3) to provide that a person being a company shall be

said to be resident in India in any previous year, if-(i) it is an Indian company; or(ii) its place of effective management, at any time in that year, is in India .

Place of effective management (POEM) would mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made.

The above modification is made to align with the DTAA and to curb the creation of shell companies which are incorporated outside India and managed from India.

Effective date: 01st April,2016 ;AY 2016-17

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4. TAXABILITY of INTEREST PAYMENTS to a FOREIGN BANK by it’s INDIAN BRANCHES –Clause 5

Clarity regarding source rule in respect of interest received by the non-resident in certain cases (Sec. 9)

Existing The existing provisions of Sec.9 provides for Income which is deemed to accrue or

arise in India. Section 9(1)(v) relates specifically to Interest Income. The CBDT, in its Circular No. 740 dated 17/4/1996 had clarified that branch of a

foreign company in India is a separate entity for the purpose of taxation under the Act and accordingly TDS provisions would apply along with separate taxation of interest paid to head office or other branches of the non-resident, which would be chargeable to tax in India.

The Special Bench of the ITAT in the case of Sumitomo Mitsui Banking Corporation [136 ITD- 66 TBOM] had mentioned that there are instances of other countries providing for specific provisions in their domestic law which allows for the taxability of interest paid by a permanent establishment to its head office and other branches and had pointed out absence of such a specific provision in the Income-tax Act.

Proposed It is proposed to amend the Act to provide that Indian branch of foreign banks shall

be deemed to be a separate and independent person from its head office or offshore branches. The payer branch in India will withhold income tax on such payments made to its head office i.e., Interest

Effective date: 1st April, 2016 ;AY 2016-17

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5. SUKANYA SAMRIDDHI SCHEME - 80C – Clause 7&15

Tax benefits u/s. 80C for the girl child under the Sukanya Samriddhi Account Scheme:

A special small savings instrument for the welfare of the girl child has been introduced under the Sukanya Samriddhi Account Rules, 2014.The following are the proposed features of the scheme:

Deduction to be allowed to the parent or the legal guardian of the girl child in whose name such sum is paid or deposited


Particulars Tax benefit

Investments made u/s. 80C

Interest accruing on deposits Exempt from income tax

Withdrawal from the scheme Exempt from income tax

Any payment from the account

New clause (11A) to be inserted in section 10 to provide for non-inclusion of such payment in total income of the assessee

6. TAX BENEFITS for SWACHH BHARAT KOSH and CLEAN GANGA FUND – Clause 7&21

Tax benefits for Swachh Bharat Kosh and Clean Ganga Fund S.80G & 10(23C)

Section 80G is proposed to be amended so as to provide that donations made by any donor to the Swachh Bharat Kosh and donations made by domestic donors to Clean Ganga Fund will be eligible for a deduction of 100 % from the total income.

However, any sum spent in pursuance of Corporate Social Responsibility under sub-section (5) of section 135 of the Companies Act, 2013, will not be eligible for deduction from the total income of the donor.

Further the existing provisions of section 10(23C) of the Act is also proposed to be amended so as to exempt the income of Swachh Bharat Kosh and Clean Ganga Fund from income-tax.

Effective date: Retrospectively from 1st April, 2015 ;AY 2015-16

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7. RETURN TO BE FILED FOR ACCUMULATION OF INCOME- 11 – Clause 8&9

Rationalization of provisions of Section 11 relating to accumulation of Income by charitable trusts and institutions: Existing:Section 11 of the Act provides that upto 85% of income of the Charitable trusts and institutions can only be accumulated for a period not exceeding 10 years subject to the conditions and the same is not to be included in the computation of income of the said Charitable trust or institution.

For this benefit to be available the said trust or institution has to file Form 10 to the assessing officer

Proposed:

It is now proposed to amend the Act to reduce period of accumulation to 5 years.

It is now proposed to amend the Act to provide that the said Form 10 shall be filed before the due date of filing return of income for availing the benefit of accumulation.

Further the benefit of accumulation would also not be available if return of income is not furnished before the due date of filing return of income.


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8. ADDITIONAL DEPRECIATION-32(1)(iia) – Clause 10

Allowance of balance 50% additional depreciation: Existing:Section 32(1)(iia) of the Act provides for additional depreciation of 20% on the cost of new plant or machinery over and above the general depreciation allowance.

The additional depreciation was restricted to 50% if the plant or machinery was put to use for less than 180 days in the year of purchase. Proposed:

50% of the depreciation is allowed in the year of purchase if the machinery is put to use for less than 180 days.

A new proviso is inserted to the section wherein the balance 50% which has not been allowed in the year of purchase shall be allowed in the immediately succeeding previous year

Additional Depreciation, for the backward areas to be notified in states of Telangana and Andhra Pradesh, is proposed @ 35% in respect of new plant and machinery acquired and installed after 01st April, 2015 but before 01st April, 2020- by inserting a new proviso.


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9. ADDITIONAL INVESTMENT ALLOWANCE-32AD – Clause 11

Additional Investment Allowance: New Section:

Any assessee who sets up an undertaking for manufacture or production of any article or thing on or after 01st April, 2015 in any notified backward areas of the states of Andhra Pradesh and Telangana and Acquires and installs any Plant & Machinery during the period 01st April, 2015 but before 01st April, 2020.

Shall be allowed a deduction of a deduction of a sum equal to 15% of the actual cost of Plant & Machinery in the previous year in which it is installed

• restriction on transfer of such plant & machinery within a period of 5 years from the date of it’s installation.

• amalgamation or demerger or re-organisation of business is not to be treated as transfer.

Issue: Whether this is over and above the existing deduction u/s. 32AC ?• Memorandum explains as an additional benefit whereas the text of section 32AD

doesn’t provide so.


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10. CONDITIONS TO BE FULFILLED BY IN-HOUSE R&D-35(2AB) – Clause 12

Prescribed conditions relating to maintenance of accounts, audit etc to be fulfilled by the approved in-house R&D facility: Existing:Section 35(2AB) of the Act provides for weighted deduction of 200% to a company engaged in specified business for the expenditure incurred on scientific research carried out in an approved in-house research and development facility.

The company is required to maintain separate books of account for approved R&D facility and is also required to get the accounts audited. However, the copy of audit report is required to be submitted to the Department of Scientific and Industrial Research (DSIR) only.

Proposed:

It is proposed to amend the provisions of section 35(2AB) to provide that deduction under the said section shall be allowed if the company enters into an agreement with the prescribed authority for cooperation in such research and development facility and fulfills prescribed conditions with regard to maintenance and audit of accounts and also furnishes prescribed reports.

(Contd).

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10. CONDITIONS TO BE FULFILLED BY IN-HOUSE R&D-35(2AB) – Clause 12

(Contd). Prescribed conditions relating to maintenance of accounts, audit etc to be fulfilled by the approved in-house R&D facility: Proposed:

It is also proposed to insert reference of the Principal Chief Commissioner or Chief Commissioner in section 35(2AA) and section 35(2AB) of the Act so that the report referred to therein may be sent to the Principal Chief Commissioner or Chief Commissioner having jurisdiction over the company claiming the weighted deduction under the said section.

Effective Date: 01st April 2016

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11. LIMIT UNDER SECTION 80CCC – Clause16

Raising of limit of deduction under 80CCC:

Under sub-section (1) of the section 80CCC, an assessee, being an individual is allowed a deduction upto one lakh rupees of an amount paid or deposited by him to effect or keep in force a contract for any annuity plan of LIC or any other insurer for receiving pension from a fund set up under a pension scheme.

Proposed:This limit is proposed to be raised to 1,50,000, within the overall limit provided in section 80CCE.

Effective Date: 1st April 2016 ; A.Y. 2016-17

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Existing limit under section 80CCC

Proposed limit

1,00,000 1,50,000

12. ADDITIONAL DEDUCTION UNDER SECTION 80CCD – Clause17

Additional Deduction under 80CCD

Under Sub section (1) of Section 80CCD an individual who has paid or deposited any amount in a previous year in his account under a notified pension scheme, a deduction of such amount not exceeding(a) ten per cent. of his salary in the case of an employee and(b)ten per cent. of the gross total income in case of any other individual is allowed as a deduction

Existing:Sub section 1A of Section 80CCD provided that the amount of deduction under subsection (1) shall not exceed 1 Lakh Rupees.

Proposed:It is proposed to omit sub section (1A).Further, Subsection 1B is proposed to be inserted so as to provide for a deduction of upto Rs. 50,000 [in addition to the deduction allowed under sub-section (1)], for contributions made under the NPS.

(Contd).

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12. ADDITIONAL DEDUCTION UNDER SECTION 80CCD – Clause17

(Contd). Additional Deduction under 80CCD

Proposed:

Effective Date: 1st April,2016 ; A.Y. 2016-1720

Sub section Particulars

Existing provisions

Proposed

1A Limit on contribution to NPS

1,00,000/10% of GTI or Salary

10% of GTI or Salary

1BAdditional deduction (in addition to deduction allowed u/s. 80CCD(1))

NIL 50,000

13. HEALTH INSURANCE PREMIA- 80D – Clause 18

Amendment in section 80D relating to deduction in respect of health insurance premia:

Section 80D is available to Individual and HUF for payment of Mediclaim Insurance paid by such persons.


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Previous limits Proposed limits

Rs. 15,000 for the assessee Rs. 25,000 for the assessee

Rs. 20,000 if the assessee or if the contribution is made w.r.to a Senior Citizen

Rs. 30,000 if the assessee or if the contribution is made w.r.to a Senior Citizen

14. LIMIT UNDER SECTION 80DD AND 80U – Clause19 & 23

Raising of limit of deduction under section 80DD and 80U for persons with disability and severe disability:Section 80DD

This section provides for a deduction to an individual or HUF, who is a resident in India, who has incurred—(a) Expenditure for the medical treatment (including nursing), training and

rehabilitation of a dependant, being a person with disability as defined under the said section; or

(b) paid any amount to LIC or any other insurer in respect of a scheme for the maintenance of a disabled dependant.

Section 80UThis section provides for a deduction to an individual, being a resident, who is certified by the medical authority to be a person with disability.

Existing:The existing limit for deduction under section 80DD and 80U for in respect of a person with disability is 50,000 and 1,00,000 for severe disability

ProposedThe limit is proposed to be raised to 75,000 in respect of a person with disability and

1,25,000 for severe disability

Effective Date: 1st April 2016 ; A.Y. 2016-17

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15. MEDICAL TREATMENT- 80DDB – Clause 20

Raising the limit of deduction under section 80DDB: Existing:Section 80DDB is available to Individual and HUF as a deduction for the medical treatment of certain chronic and protracted diseases.

The earlier limits for deduction was Rs.40,000/- for the expenditure incurred and Rs.60,000/- in case expenditure is incurred towards a senior citizen Such deduction was available only if a certificate in the prescribed form from the specialist working in a Government Hospital was obtained.

Proposed:

It is now proposed to amend the section to provide that the assessee will be required to obtain a prescription from a specialist doctor and such specialist need not be from a Government Hospital.

A higher limit of deduction upto Rs. 80,000/- is proposed for expenditure incurred in respect of very senior citizens i.e. who is of the age of eighty years or more.

Effective Date: 01st April, 2016 23

16. DEDUCTION FOR EMPLOYMENT OF NEW WORKMEN-80JJAA – Clause22

Deduction for employment of new workmen:

Existing:

Section 80JJAA provides for deduction to an Indian company equal to 30% of additional wages paid to the new regular workmen employed by the assessee for 3 Assessment years.Clause (a) of sub-section (2) of 80JJAA, provides that no deduction shall be available if the factory is hived off or transferred from another existing entity or acquired by the assessee company as a result of amalgamation with another company. Additional wages means the wages paid to the new regular workmen in excess of 100 employed during the previous year.

Proposed:

It is proposed to omit the word “Indian Company” to extend the benefit to all assesses having manufacturing units rather than restricting it to corporate assessees only.In order to enable the smaller units to claim this incentive, it is proposed to extend the benefit under the section to units employing even 50 instead of 100 regular workmen.

Effective Date: 1st April 2016; AY 2016-17 24

17. THRESHOLD FOR SDT- 92BA – Clause 24

Raising the threshold for specified domestic transaction:

Section 92BA of the Act define “Specified Domestic Transaction” in case of an assessee to mean any of the specified transactions, not being an international transaction, where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of five crore rupees.


Previous threshold limit Proposed threshold limit

5 CRORES 20 CRORES

18. DEFERMENT of GAAR – Clause 25

Deferment of provision relating to General Anti Avoidance Rule (“GAAR”):

With a view to implement Measures to promote domestic manufacturing and improving the Investment Climate, the Government has reviewed implementation of GAAR and the date of implementation has further been deferred by two years.

Investments made up to 31/03/2017 are proposed to be protected from the applicability of GAAR


Previous Date of Implementation as per the Finance Act, 2013

Proposed Date of Implementation as per Finance Bill 2015

01/04/2015 i.e. from Assessment Year 2016-17 and subsequent years

01/04/2017 i.e. from Assessment Year 2018-19 and subsequent years

19. SECOND PROVISO TO SECTION 111A(1) – Clause 26

Omission of Second Proviso to Section 111A(1):

Subsection (1) of Section 111A provides that any income arising from transfer of short term capital assets in the form of equity shares or units of mutual funds where STT has been paid, shall be taxed @ 15%.

The second proviso to this section provides that subsection (1) of shall not apply in respect of any income arising from transfer of units of a business trust which were acquired by the assessee in consideration of a transfer as referred to in clause (xvii) of section 47 i.e, any transfer of a capital asset, being share of a SPV to a business trust in exchange of units allotted by that trust to the transferor.

Proposed: It is now proposed to omit the second proviso to subsection (1) of section 111A and the benefit of concessional tax regime of tax @15 % on STCG shall be available to the sponsor on sale of units received in lieu of shares of SPV subject to levy of STT


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20. REDUCTION IN TAX RATE u/s. 115A – Clause 27

Reduction in rate of tax on Income by way of Royalty and Fees for technical services in case of Non-residents:

The existing provisions provide for withholding tax rate @ 25% where the total income includes any income by way of Royalty and Fees for technical services (FTS) received by such non-resident from Government or an Indian concern and which is not effectively connected with permanent establishment, if any, of the non-resident in India.


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Previous withholding tax rate as per the Finance Act, 2013

Proposed withholding tax rate as per Finance Bill 2015

25% 10%

21. RATIONALISING SECTION 115JB – Clause 29

Rationalising the Provisions of Section 115JB:

Proposed: Share of a member of an AOP:• New clause (iib) to be inserted in Explanation 1 to provide that the share of a member

of an AOP, in the income of the AOP, on which no income–tax is payable in accordance with the provisions of section 86 of the Act, should be excluded while computing the MAT liability of the member under 115JB of the Act.

• New clause (fa) in Explanation 1 is to be inserted to provide that the expenditures, if any, debited to the profit loss account, corresponding to such income are also proposed to be added back to the book profit for the purpose of computation of MAT.

Income from transactions in securities arising to a FII:• New clause (iic) to be inserted in Explanation 1 to provide that the income from capital

gains arising on transactions in securities (other than short term capital gains arising on transactions on which securities transaction tax is not chargeable) to a Foreign Institutional Investor, shall be excluded from the chargeability of MAT and the profit corresponding to such income shall be reduced from the book profit.

• New clause (fa) in Explanation 1 is to be inserted to provide that the expenditures, if any, debited to the profit loss account, corresponding to such income are also proposed to be added back to the book profit for the purpose of computation of MAT.


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22. PROCEDURE FOR APPEAL-158AA – Clause 39

Procedure for appeal by revenue when an identical question of law in pending before Supreme Court: Existing:The assessee has an option to submit a claim before the Assessing Officer or Appellate authorities to keep the proceedings in abeyance and apply the decision of the High Court/Supreme Court when such order is issued in the assessee’s own case for previous years. There are no corresponding provisions for tax authorities to not file an appeal for subsequent years where the department is in appeal on the same question of law for an earlier year. Proposed:

It is proposed that the tax authorities can file an application with the Tribunal (with acceptance from the tax payer) in prescribed form stating that the appeal may be filed when the decision on the identical question of law pending before the Supreme Court becomes final.

Further, where the order of the Commissioner of Income Tax (Appeals) is not in conformity with the final order of the Supreme Court (Supreme Court decides in favour of the Department), the tax authorities can file an appeal before the Tribunal within 60 days from the date of communication of the order to the tax authorities.

(Contd).

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22. PROCEDURE FOR APPEAL-158AA – Clause 39

(Contd). Procedure for appeal by revenue when an identical question of law in pending before Supreme Court: Proposed:

If the acceptance is not received from the tax payer, the tax authorities can file the appeal before the Tribunal in the normal course of an appeal.

Effective Date: 01st June 2015

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23. RATIONALIZATION OF TDS / TCS PROVISIONS -Clause 42

Rationalisation of provisions relating to deduction of tax on interest (other than interest on securities) [Clause 42]

Threshold limits for TDS on interest payable to depositors to be applied at an entity level for banking company/co-operative society/ public company where core banking solutions have been adopted instead of branch level.

TDS applicable in respect of any payment of interest on time deposits by the co-operative bank to its member.

TDS on interest on the compensation awarded by the Motor Accident Claim Tribunal Compensation, applicable only at the time of payment where such payments exceeds INR50,000 in the financial year.

Effective date: 01st June, 2015

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24. PAYMENTS TO CONTRACTORS (Sec.194C) – Clause 43

Clarification regarding deduction of tax from payments made to transporters

Existing Under the existing provisions of Sec. 194C(6) no deduction of TDS u/s 194C needs

to be made on payment to contractors during the course of business of plying, hiring or leasing goods carriages on furnishing of PAN irrespective of their size.

Proposed It is proposed to amend Section 194C of the Act to expressly provide that the

relaxation under section 194C(6) of the Act for non-deduction of tax shall only be applicable to the payment in the nature of transport charges (whether paid by a person engaged in the business of transport or otherwise) made to an contractor who is engaged in the business of transport i.e. plying, hiring or leasing goods carriage and who is eligible to compute income as per the provisions of section 44AE of the Act (i.e a person who is not owning more than 10 goods carriage at any time during the previous year) and who has also furnished a declaration to this effect along with his PAN.


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25. CONCESSIONAL RATE u/s 194LD – Clause 47

Extension of eligible period of concessional tax rate under Section 194LD:

The existing provisions provide for withholding tax rate @ 5% in case of interest payable to FIIs and QFIs on their investments in Government securities and rupee denominated corporate bonds

Effective Date: 01st June, 2015 34

Existing time period for payment of interest @ 5%

Proposed extension of time period for payment of interest @ 5%

01st June 2013 to 31st May 2015 01st June 2015 to 30th June 2017

26. FILING OF FORM 15G/15H – Clause 49

Enabling of filing of Form 15G/15H for payment under life insurance policy:

Section 194DA provides for deduction of tax at source at the rate of 2% from payments under life insurance policy, which are chargeable to tax, when aggregate amount exceeds Rs. 1,00,000.

It is proposed to amend the provisions of Section 197A to include recipients of payments referred to in section 194DA, making them eligible for filing self-declaration in Form No.15G/15H for non-deduction of tax at source in accordance with the provisions of section 197A.

When the tax payable on recipient’s total income, including the payment made under life insurance, is nil, no tax shall be deducted if the recipient furnishes a self-declaration in prescribed form no.15G/15H declaring that the tax on his estimated total income of the relevant previous year would be nil.

Effective Date: 1st June,2015

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27. REQUIREMENT OF OBTAINING TAN-203A – Clause 52

Relaxing the requirement of obtaining TAN for certain deductors:Under the provisions of section 203A of the Act, every person deducting tax (deductor) or collecting tax (collector) is required to obtain TAN and quote the same for reporting of TDS/TCS.

Proposed:It is proposed to amend the provisions of section 203A of the Act so as to provide that the requirement of obtaining and quoting of TAN shall not apply to the notified deductors or collectors.;

For reporting of tax deducted for payment under section 194-IA (Acquisition of immovable property from a resident transferor ,other than rural agricultural land) the deductor is not required to obtain and quote TAN and he is allowed to report the tax deducted by quoting his PAN

This amendment is to reduce the compliance burden of deductors in a one time transaction like acquisition of immovable property from non resident on which tax is deductible u/s 195.

Effective Date: 1st June,2015

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28. SETTLEMENT COMMISSION – Clause 35, 57, 58, 59, 60&61

Settlement Commission:

Proposed:

1. Notice for assessment:Where a notice under section 148 is issued for any assessment year, the assessee can approach Settlement Commission for other assessment years as well even if notice under section 148 for such other assessment years has not been issued. However, a return of income for such other assessment years should have been furnished under section 139 of the Act or in response to notice under section 142 of the Act.

2. Commencement of Proceedings:Amend clause (iv) of the Explanation to provide that a proceeding for any assessment year, other than the proceedings of assessment or reassessment referred to in clause (i) or clause (iii) or clause (iiia), shall be deemed to have commenced from the date on which a return of income is furnished under section 139 or in response to notice under section 142 and concluded on the date on which the assessment is made or on the expiry of two years from the end of relevant assessment year, in a case where no assessment is made.

(Contd).

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(Contd). Settlement Commission:Proposed:3. Rectifying mistake apparent from record:Amend sub-section (6B) of section 245D of the Income-tax Act to provide that the Settlement Commission may, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (4),- (a) at any time within a period of six months from the end of month in which the order was passed; (b) on an application made by the Principal Commissioner or Commissioner before the end of period of six months from the end of month in which the order was passed, at any time within a period of six months from the end of month in which such application was made.

4. Immunity from prosecution:Amend sub-section (1) of section 245H of the Income-tax Act so as to provide that the Settlement Commission while granting immunity to any person shall record the reasons in writing in the order passed by it.

5. Adjustment of Assets seized:Asset seized under section 132 or requisitioned under section 132A may also be adjusted against the amount of liability arising on an application made before the Settlement Commission under sub-section (1) of section 245C.

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(Contd). Settlement Commission:Proposed:6. Abatement:Amend Sub-section (1) of section 245HA to provide that where in respect of any application made under section 245C, an order under sub-section (4) of section 245D has been passed without providing the terms of settlement the proceedings before the Settlement Commission shall abate on the day on which such order under sub-section (4) of section 245D was passed.

7. Immunity from prosecution:any person related to the person who has already approached the Settlement Commission once, also cannot approach the Settlement Commission subsequently. Definition of related person to be perused.

Effective Date: 01st June, 2015

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29. RATIONALIZATION OF TDS / TCS PROCEDURES

Rationalisation of provisions relating to Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) [Clauses 37, 38, 40, 48, 50, 51, 53, 54, 55, 62,73, 74 & 75]

Similar to the provisions dealing with processing of Withholding Tax Returns, the Finance Bill proposes to introduce provisions to facilitate furnishing of correction statement, processing of such statements, rectification and appeal against orders/ intimations in respect of TCS.

It is proposed to amend the definition of ‘time deposits’ u/s 194A to include recurring deposits within its scope subject to a TDS threshold of Rs.10,000/-

Employer required to obtain specified documents from employees, towards expenses/losses claimed, while computing tax deductible at source from salary u/s 192 in the form to be prescribed.

Levy of fee for default relating to delay in filing of TDS/TCS quarterly statement to be determined during processing of such statement.

Finance bill proposes amendment to Sec. 203A and relax the requirement of obtaining and quoting TAN in case of deductors and collectors to be notified by the CBDT.

(Contd.)

40


(Contd.) Rationalisation of provisions relating to Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) [Clauses 37, 38, 40, 48, 50, 51, 53, 54, 55, 62,73, 74 & 75]

Withholding Tax Obligation on Payment Made to a Non-Resident [Sec. 195(6)]

Existing

The person referred to in section 195 (1) shall furnish the information relating to payment of any sum to a non-resident, in such form and manner as may be prescribed by the Board

Proposed

It is proposed to substitute the existing provisions to provide that the person responsible for paying any sum to a non-resident, not being a company, or to a foreign company, whether or not chargeable under the provisions of this Act, shall furnish the information relating to payment of such sum, in such form and manner, as may be prescribed

41


(Contd.) Rationalisation of provisions relating to Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) [Clauses 37, 38, 40, 48, 50, 51, 53, 54, 55, 62,73, 74 & 75]

Penalty for failure to furnish information or furnishing inaccurate information under section 195 [ Section – 271I ]

Existing There is no provision for levying of penalty for non submission/inaccurate submission

of the prescribed information in respect of remittance to non-resident.

Proposed

For ensuring submission of accurate information in respect of remittance to non-resident, Section 271-I has been newly inserted so as to provide that if a person, who is required to furnish information under section 195(6), fails to furnish such information; or furnishes inaccurate information, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of Rs. 1,00,000

It is also proposed to amend the provisions of section 273B of the Act to provide that no penalty shall be imposable under section 271-I if it is proved that there was reasonable cause for non-furnishing or incorrect furnishing of information under section 195(6) of the Act.

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30. TAXATION OF REITs AND INVITS - Clause 3,7,26,31,44 & 45

Taxation Regime for Real Estate Investment Trusts (REIT) and Infrastructure Investment Trusts (Invit)

Capital gains on transfer of units of Invits and REITs by sponsor

At the time of disposal (under an IPO listing or sale thereafter) of the units of the REIT/Invit (i.e. Business Trust), the sponsor of REITs/Invit would be eligible for concessional STT-based capital gains tax regime on par with other investors (i.e. LTCG on transfer of units would be exempt and STCG would be taxable at the rate of 15 percent provided STT at 0.2 per cent is paid on the sale of such units).

Tax treatment of the rental income arising to REIT from real estate property directly held by the REIT

The rental income arising to REIT from the real estate property directly held by the REIT eligible for pass through status. Accordingly, such income will be exempt for the REIT and chargeable to tax in the hands of the REIT unit holders on distribution. The tenant or lessee is not required to withhold tax on payment of rent to the REIT, but the REIT in turn would withhold tax at 10 per cent on distribution of such income to the resident unit holders and at applicable rates on the distribution to the non-resident unit holders.

Effective date: 01st April,2016

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31. INDIRECT TRANSFERS - S.9(1) & 271GA - Clauses 5, 13, 14, 72, 75 & 76

The following amendments are proposed in the provisions of section 9 relating to indirect transfer:

- the share or interest of a foreign company or entity shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India, if on the specified date, the value of Indian assets,-

a. exceeds the amount of Rs. 10 crores ; andb. represents at least 50% of the value of all the assets owned by the company or entity

- any income on transfer of a share or interest deriving, directly or indirectly, its value substantially from assets located in India will be on proportional basis, when all of the underlying assets of such company or entity are not located in India

However, the aforesaid provision will not apply and no income shall be deemed to accrue or arise to the non-resident if the transferor neither holds the right to management or control in relation to such company or entity, nor holds voting power or share capital or interest exceeding 5 percent of the total voting power or total share capital or total interest of such company or entity, directly or indirectly.

(Contd.)

44

31. INDIRECT TRANSFERS - S.9(1), 271GA - Clauses 5, 13, 14, 72, 75 & 76

(Contd.)

Penalty [Section – 271GA]

The Indian entity is obligated to furnish information relating to the offshore transaction having the effect of directly or indirectly modifying the ownership structure or control of the Indian company or entity. In case of any failure on the part of Indian concern in this regard a penalty shall be leviable.

The proposed penalty for non-compliance shall be – a) sum equal to two percent of the value of the transaction; orb) a sum of five hundred thousand rupees; as the case may be

Effective date: 01st April,2016, AY 2016-17 45

32. ORDERS PASSED u/s 10(23c) (vi) and (via) APPEALABLE BEFORE ITAT - Clause 63

Existing

Section 253 (1) of the Income-tax specify orders that are appealable before ITAT. Order passed by the prescribed authority under sub-clauses (vi) and (via) of clause (23C) of section 10 is not included in this sub-section.

Proposed

It is proposed to amend Section 253(1) so as to provide that an assessee aggrieved by the order passed by the prescribed authority under sub-clause (vi) or (via) of section 10(23C) may appeal to the Appellate Tribunal.

Effective Date : 01st June, 2015

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33. INCOME LIMIT FOR SINGLE MEMBER BENCH-255(3) – Clause 64

Raising the income limit of the cases that may be decided by single member bench of ITAT:

Section 255(3) of the Income Tax Act states that, the President or any other member of the Appellate Tribunal authorised in this behalf by the Central Government may, sitting singly, dispose of any case which has been allotted to the Bench which pertains to an assessee whose total income as computed by the assessing officer does not exceed five lakh rupees.


47

Previous income limit for single member bench to

dispose of a case

Proposed income limit for single member bench to

dispose of a case

5 Lakh Rupees 15 Lakh Rupees

34. REVISION OF ORDERS PREJUDICIAL TO INTEREST OF REVENUE (Sec.263) – Clause 65

Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue

Under the provisions of Sec.263(1) the interpretation of expression “erroneous in so far as it is prejudicial to the interests of the revenue” has been a contentious one.

In order to provide clarity on the issue it is proposed to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,—

(a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim;

(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or

(d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.

Effective date: 1st June,2015

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35. MEASURES TO CURB BLACK MONEY- 269SS & 269T – Clause 66,67,69 & 70

Section 269SS and Section 269 T amended to transfer of Immovable Property:


Section Particulars

269SS

The earlier provisions of accepting any loan or deposit or any sum of money, whether as advance or otherwise from any person, otherwise than by an account payee cheque or account payee bank draft or by electronic clearing system through a bank account, amounting to twenty thousand rupees or more has now been amended to include transactions in relation to transfer of an immovable property.

269T

Similarly, the earlier provisions of repayment of any loan or deposit otherwise than by an account payee cheque or account payee bank draft or by electronic clearing system through a bank account, amounting to twenty thousand rupees or more has now been amended to include loan or deposit and any specified advance received by it, the specified advance meaning any sum of money in the nature of an advance by whatever name called in relation to transfer of an immovable property.

Penal provisions amended

Consequential amendments to be made in: 271D and 271E

to provide penalty for failure to comply with the amended provisions of Section 269SS and 269T respectively.

36. DEFINITION OF TAX SOUGHT TO BE EVADED-271(1)(c ) – Clause 68

Amount of tax sought to be evaded for the purposes of penalty for concealment of income under clause (iii) of sub-section (1) of section 271:

Existing:271(1)(c) of the Act provides for penalty for concealment of income or furnishing inaccurate particulars of income which is levied on the “amount of tax sought to be evaded”, Amount of tax sought to be evaded has been defined as the difference between the tax due on the income assessed and the tax which would have been chargeable had such total income been reduced by the amount of concealed income. Income can be computed under the Normal provisions of the Act and under section 115JB or 115JC of the ActUnderstatement of income and the tax liability thereon under general provisions results in larger amount of such credit becoming available to the assessee for set off in future years.Further, courts have held that penalty under section 271(1)(c) cannot be levied in cases where the concealment of income occurs under the income computed under general provisions and the tax is paid under the provisions of section 115JB or 115JC of the Act.

(Contd).

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36. DEFINITION OF TAX SOUGHT TO BE EVADED-271(1)(c ) – Clause 68

(Contd). Amount of tax sought to be evaded for the purposes of penalty for concealment of income under clause (iii) of sub-section (1) of section 271: Proposed:

It is proposed to amend section 271 of the Act so as to provide that the amount of tax sought to be evaded shall be the summation of tax sought to be evaded under the general provisions and the tax sought to be evaded under the provisions of section 115JB or 115JC.

However, if an amount of concealment of income on any issue is considered both under the general provisions and provisions of section 115JB or 115JC then such amount shall not be considered in computing tax sought to be evaded under provisions of section 115JB or 115JC.

Further, in a case where the provisions of section 115JB or 115JC are not applicable, the computation of tax sought to be evaded under the provisions of section 115JB or 115JC shall be ignored.


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37. FUND MANAGERS AND BUSINESS CONNECTION – Clause 6, 71&75

Fund Managers in India not to constitute business connection of offshore funds:

Existing:In the present scenario, in the case of off-shore funds, the presence of a fund manager in India may constitute a business connection in India.Also, if the fund manager in India undertakes fund management w.r.to investment outside India, the profits made will be liable to tax in India due to the location of fund manager in India.

Proposed: The following proposals have been made:1. To facilitate location of fund managers (subject to fulfillment of certain conditions):(i) the tax liability in respect of income arising to the Fund from investment in India would be neutral to the fact as to whether the investment is made directly by the fund or through engagement of Fund manager located in India; and (ii) that income of the fund from the investments outside India would not be taxable in India solely on the basis that the Fund management activity in respect of such investments have been undertaken through a fund manager located in India.

(Contd). 52

37. FUND MANAGERS AND BUSINESS CONNECTION – Clause 6, 71&75

(Contd). Fund Managers in India not to constitute business connection of offshore funds:

Proposed:2. In case of an eligible investment fund: 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 it shall not be said to be resident in India merely because the eligible fund manager

undertaking fund management activities on its behalf is located in India.

3. Conditions to be satisfied for specific exception from the general rules for determination of business connection and ‘resident status’ of off-shore funds and fund management activity undertaken on its behalf:

a) offshore fund shall be required to fulfill the conditions during the relevant year for being an eligible investment fund

b) fund manager shall be required to fulfill the conditions for being an eligible fund manager

4. A penalty of Rs. 5 Lakh shall be levied u/s. 271FAB on the fund if it does not furnish within ninety days from the end of the financial year a statement in the prescribed form to the prescribed income-tax authority containing information relating to the fulfillment of the above conditions or any information or document which may be prescribed.


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38. CERTAIN ACCOUNTANTS NOT TO GIVE REPORTS/CERTIFICATE (Sec.288 Amended) – Clause 77

Certain Accountants not to give reports/certificatesExisting Provisions such as Sec. 44AB, 80-IA, 92E, 115JB, etc. of the IT Act mandate the

taxpayers to furnish audit reports and certificates issued by an ‘accountant’. Sec.288(2) of the existing provisions defines ‘accountant’ as a chartered accountant

within the meaning of Chartered Accountants Act, 1949 (including a person eligible to be appointed as auditor under section 226(2) of the Companies Act, 1956, of the companies registered under any State).

Proposed Section 288 of the Income Tax Act is proposed to be amended to provide that an

auditor who is not eligible to be appointed as auditor of a company as per the provisions of Section 141(3) of the Companies Act, 2013 shall not be eligible for carrying out any audit or furnishing of any report/certificate under any provisions of the Act in respect of that company.

The above ineligibility shall not make an accountant ineligible for attending income-tax proceeding referred to section 288(1) of the Act as authorised representative on behalf of that assessee. Further the person convicted by a court of an offence involving fraud shall not be eligible to act as authorised representative for a period of 10 years from the date of such conviction.


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39. RULES FOR FOREIGN TAX CREDIT-295(2) – Clause 78

Enabling the Board to notify rules for giving Foreign Tax Credit: Existing: Section 295 of the Income Tax Act gives powers to the Board to make rules for the purposes of carrying out the purposes of this Act.

Section 295(2) of the Act includes rules which may provide for matters such as ascertainment and determination of any class of income, The authority to be prescribed for any of the purposes of this Act, class of persons required to furnish return in electronic form etc.

Proposed: It is now hereby proposed to amend Section 295(2) so as to provide that CBDT may make rules to provide the procedure for granting relief or deduction of any income tax paid in any country or specified territory outside India u/s. 90 or 90A or 91, against the income tax payable under the Act


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40. ABOLITION OF WEALTH TAX – Clause 79

Abolition of levy of wealth tax under Wealth Tax Act 1957:

Due to non-significant growth in collection, disproportionate compliance by the assessees, administrative burden on the department it is proposed to abolish the levy of wealth tax under the Wealth Tax Act 1957.

Instead an additional surcharge of 2% is proposed to be levied on high net wealth person which would be easy to collect and monitor.

The details regarding assets would be captured by the Government by making suitable modifications to the income tax return.


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DIRECT TAX OR INCOME TAX IN finance bill 2015