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CONTRIBUTORS:

Mr. K. K. Ramani, Advocate, High Court

Mr. N. C. Jain, Former Chief Commissioner of Income Tax

Mr. Sunil K. Ramani, Advocate, High Court

Mr. K. R. Lakshminarayanan, Advocate, High Court

Mr. M. S. Varadarajan, Chartered Accountant

Mr. Vasu Harwani, Chartered Accountant

Mr. Vinay Sinha, Advocate, High Court

Mr. Nitin Tabhane, Advocate, High Court

Ms. Raina Bhagatwala, Advocate, High Court

Ms. Chitrakshi Shettigar, Chartered Accountant

__________________Analysis of Budget 2016 by K. K. Ramani & Co___________________

1

Analysis of

BUDGET - 2016

CONTENTS

Sr.

No

Topic Page No.

Foreword 3-6

Budget at a Glance 7

Receipts 8

Expenditure 9-10

Income Tax Proposals 11-12

1. Rates of Income Tax for A.Y. 2017-2018 13

2. Capital Asset – Gold Monetization Scheme 13

3. Hearing 13

4. Income – Section 2(24) 13

5. Residence of Company 13-14

6. Income Deemed to arise in India – Section 9 14

7. Offshore Funds 14

8. Special Economic Zones 14

9. Income which do not from part of total income 15

10. Salary 15

11. Income from House Property 15-16

12. Non-Compete Fee 16

13. Additional Depreciation 16

14. Deduction for Scientific Research 17-18

15. Bad and Doubtful Debts 18

16. Amounts not deductible 18

17. Deduction only on Actual Payment 18

18. Computation of Income of Professionals 18-19

19. Presumptive taxation Scheme for persons having business Income 19-20

20. Transactions not Considered as Transfer 20-21


2

21. Stamp Duty Valuation 21

22. Deductions under Chapter VI A

i. National Pension Scheme

ii. Interest on Loan

iii. Rents Paid

iv. Infrastructure Development

v. SEZ

vi. Start-up business

vii. Housing projects up to 30/60 sq. mtr.

22-24

23. Employment of New Workmen - Deduction 24-25

24. Transfer Pricing 25

25. Capital Gain 26

26. Tax Rate for New Companies 26-27

27. Tax on Dividend Received from Domestic Companies 27

28. Taxation of Income from Patents 27

29. Dividend Distribution Tax 28

30. Tax on Distributed income 28

31. Dividend Distributed to Securitization Trust 29

32. Tax Where Charitable Institution Ceases to Exist or Converts itself into

Non-Charitable Organization

29-30

33. Procedural Provisions 30-31

34. Filing of Return of Income 31-32

35. Time Limit of Completion of Proceedings 32

36. Time Limit in Assessment of Search Cases 32-33

37. Tax Deduction at Source 33-35

38. Sec. 206AA – Requirement to furnish PAN 35-36

39. Sec. 206C – Collection at Source 36

40. Sec. 211 – Installments of Advance Tax and Due Date 36-37

41. Time Limit for Disposing Application for waiver of Interest u/s 273 A ,

273AA and 220(2)

37

42. Payment of Interest on Refund 38

43. Rationalization of Penalty Provisions 38-41

44. Immunity from Penalty and Prosecution in Certain Cases 41

45. The Direct Tax Dispute Resolution Scheme 2016 41-44


3

FOREWORD

1. Amidst heightened expectations of growth oriented measures the Budget 2016 has a

special significance in establishing sincerity and capability of the Government in

carrying through its much talked about and propagated programmes mainly “make in

India” campaign. Eyes were focused on measures to ease doing business in India by

making investment rules easier, dismantling exist barriers, providing a stable,

predictable and investor friendly tax regime and initiating robust economic reforms to

instill sense of confidence among potential investors. In doing so, the Finance Minister

was faced with challenges and opportunity. Amidst greater economic turmoil all around

the globe, the country could proudly claim having achieved 7.6 % growth in 2015-16

and became the fastest growing economy outpacing even China which grew at 6.9 %

only. The projected growth rate of 7 to 7.75 % in 2016-17, though all admirable

optimism, poses a challenge in view of global meltdown impacting the economy

developments in China, seventh pay commission, OROP commitment and depleting

strength of banking sector calling for recapitalization needs to restore the health of their

balance sheets and other promised welfare programmes.

2. Sharply falling crude oil prices presents an opportunity as well as challenge.

Substantial saving in oil import bill accounting for 7.5 % GDP has been instrumental in

keeping the fiscal deficit down and keeping the retail inflation rate to 4.5% with

projection to retain the same in 2016-17. On the other hand, it might lead to sluggish

exports adversely affecting the growth potential. It will be a challenging task to turn the

challenge into an opportunity.

3. In the area of fiscal reforms great hopes are centered around the introduction of Goods

and Service Tax which has become a matter of political management to get the

introduced legislation passed. An important future reform was announced by the FM in

his budget 2015 to reduce the corporation tax rate from existing 30 % to 25 % over a

period of four years. Simultaneously, several tax incentives were to be eliminated

which created suspense as to the tax props on which the axe was to fall and how the

same will be taken by the industry which is used to enjoying the benefits for so long. In

the matter of international taxation, investment friendly step was taken by accepting the

High Court judgment in Vodafone case dealing with application of transfer pricing

provision in respect of issue of shares to AEs. Another much awaited step taken outside


4

legislation was undertaking given to the Supreme Court not to apply MAT provision to

FIIs which had become a subject of great discontentment among foreign investors. The

undertaking was to be legalized by appropriate amendment in the Act. Although lot has

already been done by administrative actions, much still needs to be done to enthuse

foreign investors to consider India as the most preferred nation for investment. With

the solemn assurances made to provide congenial atmosphere for FDI, the budget was

anticipated to be an opportunity to fulfill them. In matter of personal taxation, as usual

there was a demand for higher exemption limit and greater tax exemptions in keeping

with the inflationary price rise and it was to be seen as to whether, and if so to what

extent such demand is met.

4. The budget has, therefore, to be viewed in the background of expectations and need of

the hour. To justify the catchy promise of ‘Acche Din’ and workability of laudable

programmes like ‘Digital India’, ‘Skill India’, ‘Start up India’ resources have to be

garnered which may not go well with the prime objective of development. To what

extent the budget has been able to unveil measures to boost investment, spin jobs and

multiply income and what has been done to make India remain the world’s fastest

growing economy, a haven of stability and an outpost of opportunity will be matter of

individual judgment. No wonder, a day before the presentation of budget, the P.M.

termed it as his exam and expressed confidence to come out successfully.

5. As expected, the budget makes heightened provisions for development of infrastructure,

rural development, improving the health of the banking sector and incentivise the start

up and skill development incentives. Social objectives, job creation, skill development

and education have been given due attention and measures introduced for better

governance and ease of doing business. Exemption granted to start-up undertakings for

3 out of 5 consecutive years is a measure which will boost up the sector as per the

“start-up India” campaign launched by the PM.

6. In the sphere of tax regime particularly direct taxes regime, the budget focuses on

removing irritants by rationalising provisions leading to disputes and thereby reducing

litigation. Remaining true to his assurance given earlier, the FM has not only avoided

any retrospective amendment but has also taken care to reduce the rigor of retrospective

amendment already made cases based on transfer of underlying assets are to be looked

into by a committee before the proceedings are initiated.


5

7. In continuation of his promise made in last year’s budget to reduce the corporate tax

rate from 30% to 25% with withdrawal of exemptions, steps have been taken to subject

the domestic companies to tax at 25% provided they do not claim any incentive by way

of accelerated depreciation, investment allowance etc. Tax rate for other companies

with turnover not exceeding Rs. 5 Crore, has been reduced to 29%. As a necessary step

towards such reduction, certain tax holidays have been subjected to sunset clauses and

not to adversely affect the entities which have already made the investment, such sunset

clauses apply by way of time limits within which they should start production or

commence business. Mention in this connection may be made of infrastructure

companies, companies developing SEZ, enterprises other than infrastructure companies

and others.

8. Long awaited steps have been taken to reduce the mounting numbers of pending

appeals by introducing Direct Tax Dispute Resolution Scheme. Penalty provisions have

also been rationalised to create the class of cases for differential minimum and

maximum penalty leviable. This will provide the required flexibility and discretion to

the authorities to deal with the individual cases based on their facts and circumstances.

9. Provision of affordable and low income housing which is the crying need of the hour,

has rightly received due attention by incentive to builders by 100 % exemption in

respect of profit from the construction of residential units upto 30 sq. mtrs in the

metropolitan cities and 60 sq. mtrs. in other places and to the purchasers of such units

by exemption from service tax. Further incentive is provided by additional deduction

for interest on housing loan if the cost of the unit does not exceed Rs. 50 Lakh and the

loan amount does not exceed Rs. 35 Lakh. Exemption from the dividend Distribution

Tax granted to Real Estate Investment Trusts will also go a long way in incentivising

investment in real estate through the instrument of such trusts.

10. In the matter of personal taxation, the FM has desisted from making any change in the

exemption limit or tax slabs. A small relief is provided to persons with income upto Rs.

5 Lakh whose liability will come down by Rs. 3,000/- as a result of higher rebate under

Section 87A effectively granting total tax exemption to persons with income upto Rs.5

Lakh. Other proposals that will allow relief is the exemption of 40 % of the amount

received from the National Pension Scheme on retirement. The same will apply to 40

% of the corpus created out of contribution made on or after 1.4.2016 to superannuation

fund and recognised provident fund including EPF. Relief by way of deduction for


6

interest on housing loan of amount upto Rs. 35 Lakh and raising of deduction for rent

from 24000 to 60000 to employees not getting house rent allowance is also welcome.

Presumptive tax schemes for professionals with receipts upto Rs.50 Lakh will go a long

way in easing compliance and reducing litigation.

11. On the other side reintroduction of tax on dividend received in excess of Rs. 10 Lakh by

any assessee may be termed as a negative measure. The reiteration of the earlier stand

to apply General Anti-Avoidance Rules w.e.f. 1.4.2017 will may have a negative effect

on the investors.

12. This work is an attempt to analyse and explain in a simple way the provisions of the

Finance Bill insofar as they relate to the Direct Taxes. It is for the readers to form a

view as to the efficacy of the proposed amendments in the context of the expectations

raised and need of the hour.

K. K. Ramani & Co. (Advocates) 1st March, 2016 K. K. Ramani & Associates Laws 4 India Consultants Pvt. Ltd. 1st Road, Bandra (West)

Mumbai 400 050.

Email – [email protected]

Tel: – 9122- 26516611


7

BUDGET AT A GLANCE (Figures In Crore of Rupees)

2014-2015

Actuals

2015-2016

Budget

Estimates

2015-2016

Revised

Estimates

2016-2017

Budget

Estimates

1. Revenue Receipts 1101472 1141575 1206084 1377022

2. Tax Revenue (net to Centre) 903615 919842 947508 1054101

3. Non-tax Revenue 197857 221733 258576 322921

4. Capital Receipts (5+6+7)$ 562201 635902 579307 601038

5. Recoveries of Loans 13738 10753 18905 10634

6. Other Receipts 37737 69500 25312 56500

7. Borrowings and other Liabilities* 510725 555649 535090 533904

8. Total Receipts (1+4)$ 1663673 1777477 1785391 1978060

9. Non-plan Expenditure 1201029 1312200 1308194 1428050

10.On Revenue Account of which, 1109394 1206027 1212669 1327408

11.Interest Payments 402444 456145 442620 492670

12.On Capital Account 91635 106173 95525 100642

13.Plan Expenditure 462644 465277 477197 550010

14.On Revenue Account 357597 330020 335004 403628

15.On Capital Account 105047 135257 142193 146382

16.Total Expenditure (9+13) 1663673 1777477 1785391 1978060

17.Revenue Expenditure (10+14) 1466992 1536047 1547673 1731037

18. Of Which, Grants for creation of

Capital Assets 130760 132472 132004 166840

19.Capital Expenditure (12+15) 196681 241430 237718 247023

20.Revenue Deficit (17-1) 365519

(2.9)

394472

(2.8)

341589

(2.5)

354015

(2.3)

21. Effective Revenue Deficit (20-18)

234759

(1.9)

268000

(2.0)

209585

(1.5)

187175

(1.2)

22.Fiscal Deficit {16-(1+5+6)}

510725

(4.1)

555649

(3.9)

535090

(3.9)

533904

(3.5)

23.Primary Deficit (22-11) 108281

(0.9)

99504

(0.7)

92469

(0.7)

41234

(0.3)

Note :

1. GDP for BE 2016-2017 has been projected at Rs. 15065010 crore assuming 11%

growth over the Advance Estimates of 2015-16 (Rs. 13567192 crore) released by CSO.

2. Individual items in this document may not sum up to the totals due to rounding off.


8

Receipts (Figures In Crore of Rupees)

2014-2015

Actuals

2015-2016

Budget

Estimates

2015-2016

Revised

Estimates

2016-2017

Budget

Estimates

Revenue Receipts

1. Tax Revenue

Gross Tax Revenue 1244885 1449490 1459611 1630888

Corporation Tax 428925 470628 452970 493923

Taxes on Income 265733 327367 299051 353174

Wealth Tax 1086 --- --- ---

Customs 188016 208336 209500 230000

Union Excise Duties 189952 229808 284142 318670

Service Tax 167969 209774 210000 231000

Taxes of Union Territories 3204 3577 3948 4121

Less – NCCD Transferred to the National

Calamity Contingency Fund / National

Disaster Response Fund

3461 5690 5910 6450

Less – States Share 337808 523958 506193 570337

1 (a) Centre’s Net Tax Revenue 903615 919842 947508 1054101

2. Non Tax Revenue

Interest Receipts 23804 23600 23142 29620

Dividend and Profits 89833 100651 118271 123780

External Grants 1600 1774 2937 2862

Other Non-Tax Revenue 81258 94412 112937 165320

Receipt of Union Territories 1362 1296 1289 1339

Total Non Tax Revenue 197857 221733 258576 322921

Total Revenue Receipts (1a+2) 1101472 1141575 1206084 1377022

3. Capital Receipts

A. Non-debt Receipts

Recoveries of Loans and Advances 13738 10753 18905 10634

Miscellaneous Capital Receipts 37737 69500 25312 56500

Total 51475 80253 44217 67134

B. Debt Receipts

Market Loans 453075 456405 440608 425181

Short Term Borrowings 9179 30063 68665 16649

External Assistance (Net) 12933 11173 11485 19094

Securities issued against small Savings 32226 22408 53418 22108

State Provident Fund (Net) 11920 10000 11000 12000

Other Receipts (Net) -86360 13559 -28002 25677

Total 432973 543608 557174 520709

Total Capital Receipts (A+B) 484448 623861 601391 587854

4. DRAW-DOWN OF CASH

BALANCE -77752 12041 -22084 13195

Total Receipts (1a+2+3+4)

1663672 1777477 1785391 1978060

Financing of Fiscal Deficit (3B+4) 510725 555649 535090 533904

Receipts under MSS (Net) --- 20000 --- 20000

@ excludes recoveries of short-term loans

and advances from States, loans to

Government senvats, etc. 12808 11961 22011 11861


9

EXPENDITURE

2014-

2015

Actuals

2015-2016

Budget

estimates

2015-2016

Revised

Estimates

2016-2017

Budget

Estimates

1 NON-PLAN EXPENDTIURE

A. Revenue Expenditure

1. Interest payments and

prepayment premium

402444

456145

442620

492670

2. Defence services 136807 152139 143236 162759

3. Subsidies 258258 243811 257801 250433

4. Grants to States and U.T.

Governments

77125

108552

108233

118356

5. Pensions 93611 88521 95731 123368

6 Police 47767 51791 52681 59796

7. Assistance to States from

National Disaster response Fund

(NDRF)

3461

5690

5910

6450

8. Other General Services (Organs

of State, tax collection, external

affairs etc.

26147

30936

30345

35003

9 Social Services (Education,

Health, Broadcasting etc.)

25829

29143

32149

32134

10. Economic Services (Agricultural,

industry, Power, Transport,

Communications, Science &

Technology etc.)

26632

28984

33722

34266

11. Postal Deficit 6121 6665 6749 8416

12. Expenditure of Union Territories

without Legislature

4833

4998

5109

5677

13. Amount met from National

Disaster Response Fund (NDRF)

-3461

-5690

-5910

-6450

14. Grants to Foreign Governments

3820

4342

4293

4530

Total Revenue Non-plan Expenditure

1109394

1206027

1212669

1327408

B. Capital Expenditure

1 Defence Services 81887 94588 81400 86340

2 Non-plan Capital Outlay

8180

10582

13187

13348

3 Loans to Public Enterprises 650 954 668 898

4 Loans to State and U.T.


10

Governments 73 79 79 81

5 Loans to Foreign Governments

---

158

158

---

6 Others 845 -188 33 -45

Total Capital Non-Plan Expenditure

91635

106173

95525

100642

Total non-plan Expenditure 1201029 1312200 1308194 1428050 2. PLAN EXPENDITURE A Revenue Expenditure 1. Central Plan 100061 139660 133245 176076 2. Central Assistance for State &

Union Territory Plans

States Plans

Union Territory Plan

257536

25798

4738

190359

184208

6151

201759

196051

5708

227551

221816

5735

Total Revenue Plan Expenditure 357597

330019

335004

403628

B. Capital Expenditure

1. Central Plan

2. Central Assistance for State &


State Plans


91754

13293

11927

1366

120833

14425

12535

1890

127843

14349

12536

1813

132033

14349

12550

1799

Total Capital Plan Expenditure 105047

135258

142193

146382

Total – Plan Expenditure 462644

465277

477197

550010

Total Budget Support for Central Plan

191814

260493

261089

308110 Total Central Assistance for

State and UT Plans

270829

204784

216108

241900 TOTAL EXPENDITURE

1663673

1777477

1785391

1978060 DEBT SERVICING 1 Repayment of debt 207517 225574 250709 284694 2 Total Interest payments

402444

456145

442620

492670 3 Total Debt Servicing (1+2)

609961

681719

693329

777634 4. Revenue Receipts 1101473 1141575 1206084 1377022 5 Percentage of 2 to 4 36.54% 39.96% 36.70% 35.78%


11

INCOME TAX PROPOSALS Rates of Income Tax for A.Y. 2017-2018

A. Rates for individuals / HUFs/AOPs/BOIs General Assessee

Basic exemption Rs.2,50,000/-

Tax Rate Between 2,50,001/- and 5,00,000/- 10%

Between 5,00,001/- and 10,00,000/- 20%

Above 10,00,000/- 30%

Senior Citizens – Resident (Age 60 Yrs & above but below 80 Years)


Tax Rate

Between 3,00,001/- and 5,00,000/- 10%

Between 5,00,001/- and 10,00,000/- 20%

Above 10,00,000/- 30%

Senior Citizens – Resident (Age 80 Yrs & above )


Tax Rate

Between 5,00,001/- and 10,00,000/- 20%

Above 10,00,000/- 30%

A REBATE OF TAX UPTO RS. 5000/- IS ALLOWED TO PERSON WHOSE TOTAL

INCOME DOES NOT EXCEED RS. 5 LAKH. SURCHARGE WILL BE LEVIABLE AT 15% IN ALL THE ABOVE CASES WHERE INCOME IS

EXCEEDING RS. 1 CRORE

However, the total amount payable as income-tax and surcharge on total income exceeding

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

one crore rupees by more than the amount of income that exceeds one crore rupees.

B. CO-OPERATIVE SOCIETIES:

The rates of income-tax for Assessment Year 2017-2018 are the same as were applicable to

Assessment Year 2016-2017.

The amount of income-tax shall be increased by a surcharge at the rate of twelve per cent of

such income-tax in case of a co-operative society having a total income exceeding one crore

rupees.




C. FIRMS:

The rates of income tax for Assessment Year 2017-2018 are the same as were applicable to



such income-tax in case of a firm having a total income exceeding one crore rupees.




12


D. LOCAL AUTHORITIES:

The rates of income tax for Assessment Year 2017-2018 are the same as were applicable to



such income-tax in case of a local authority having a total income exceeding one crore

rupees.




E. COMPANIES:

The rates of income tax for the Assessment Year 2017-2018 are the same as were applicable

to Assessment Year 2016-2017. The existing surcharge of seven per cent in case of a

domestic company shall continue to be levied if the total income of the domestic company

exceeds one crore rupees but does not exceed ten crore rupees. The surcharge at the rate of

twelve percent shall be levied if the total income of the domestic company exceeds ten crore

rupees. In case of companies other than domestic companies, the existing surcharge of two

per cent. shall continue to be levied if the total income exceeds one crore rupees but does not

exceed ten crore rupees. The surcharge at the rate of five percent shall be levied if the total

income of the company other than domestic company exceeds ten crore rupees.


one crore rupees but not exceeding ten crore rupees, shall not exceed the total amount

payable as income-tax on a total income of one crore rupees, by more than the amount of

income that exceeds one crore rupees. The total amount payable as income-tax and surcharge

on total income exceeding ten crore rupees, shall not exceed the total amount payable as

income-tax and surcharge on a total income of ten crore rupees, by more than the amount of

income that exceeds ten crore rupees.

In other cases (including sections 115-O, 115QA, 115R or 115TA) the surcharge shall be

levied at the rate of twelve percent.

For financial year 2016-17, additional surcharge called the “Education Cess on income-tax”

and “Secondary and Higher Education Cess on income-tax” shall continue to be levied at the

rate of two percent and one percent respectively, on the amount of tax computed, inclusive of

surcharge (wherever applicable), in all cases. No marginal relief shall be available in respect

of such cess.


13

CAPITAL ASSET - Section 2(14)(VI)

Deposit certificate issued under Gold Monetisation Scheme 2015 has been included in the

definition of Capital Asset.

“Hearing” has been defined to include communication of data and documents through

electronic mode - Section 2(23C).

INCOME - Section 2(24) According to existing provisions income is defined to include subsidy, grant of cash incentive

etc. received from Central/State Government etc. but excludes such subsidy grant etc. which

has been taken into account to determine actual cost u/s. 43(1). It is proposed in addition to

exclude subsidy/grant by the Central Government for the purpose of corpus of a Trust.

RESIDENCE OF COMPANY

By an amendment made in Section 6 of the Act, a company is resident in India in any

previous year if it is an Indian company or its place of effective management (POEM) in that

year is in India. The POEM has been defined to mean a place where key management and

commercial decisions that are necessary for the conduct of business of any entity as a whole

are in substance made.

The determination of place of effective management being a new concept in Indian law is

likely to create disputes in initial years particularly in matters relating to advance tax

payment and TDS provisions where company claims to be a foreign company but in course

of assessment it is held to be resident based on POEM.

Considering the problem involved, the amendment seeks to :

(a) defer the applicability of POEM based residence test by one year and the

determination of residence based on POEM shall be applicable from 01/04/17.

(b) provide a transition mechanism for a company which is incorporated outside India

and has not earlier been assessed to tax in India. The Central Government is proposed

to be empowered to notify exception, modification and adaptation subject to which,

the provisions of the Act relating to computation of income, treatment of unabsorbed

depreciation, setoff or carry forward and setoff of losses, special provision relating to

avoidance of tax and the collection and recovery of taxes shall apply in a case where a

foreign company is said to be resident in India due to its POEM being in India for the

first time and the said company has never been resident in India before.

(c) provide that these transition provisions would also cover any subsequent previous

year upto the date of determination of POEM in an assessment proceedings. However,

once the transition is complete, then normal provision of the Act would apply.


14

(d) provide that in the notification, certain conditions including procedural conditions

subject to which these adaptations shall apply can be provided for and in case of

failure to comply with the conditions, the benefit of such notification would not be

available to the foreign company.

(e) provide that every notification issued in exercise of this power by the Central

Government shall be laid before each house of the Parliament.

The amendment will be effective from 1.4.2017 and shall apply from assessment year 2017-

18 onward.

Income deemed to arise in India - Section 9 provides that income will be deemed to arise in

India if the income is derived from a business connection in India Foreign Mining Company

(FMC) through Special Notified Zone (SNZ) are enabled to simply display rough diamonds

without any sale taking place in India. In order to Facilitate MNCS to display the diamonds

without fear of business connection, section 9 is proposed to be amended to provide that

income will not arise due to such activities.

OFF SHORE FUNDS - Section 9A Section 9A of the Act provides for a special regime in respect of offshore funds. It provides

that in the 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. Further, an eligible investment fund 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. The benefit under section 9A is available subject to

the conditions provided in sub-sections (3), (4) and (5) of this section.

It is proposed to modify the conditions to provide that the eligible investment fund for

purposes of section 9A, shall also mean a fund established or incorporated or registered

outside India in a country or a specified territory notified by the Central Government in this

behalf. It is also proposed to provide that the condition of fund not controlling and managing

any business in India or from India shall be restricted only in the context of activities in

India.

The amendments will take effect from 1st April, 2017 and shall apply to the assessment year

2017-18 and subsequent assessment years.

SPECIAL ECONOMIC ZONES - Section 10AA It is proposed to provide that no deduction shall be available to units commencing

manufacture or article on an after 01-04-2020.


15

INCOME WHICH DO NOT FROM PART OF TOTAL INCOME – Section 10(12) Provides that accumulated balance in PPF is exempt. It is proposed to exclude any amount

accumulated balance, attributable to any contributions made on or after the 1st day of April,

2016 by an employee other than an excluded employee, exceeding forty per cent. of such

accumulated balance due and payable in accordance with provisions of rule 8 of Part A of the

Fourth Schedule.

Payment from National Pension System Trust - Section 10(12A) – It is proposed to insert

new clause as under:

“(12A) any payment from the National Pension System Trust to an employee on closure of

his account or on his opting out of the pension scheme referred to in section 80CCD, to the

extent it does not exceed forty per cent of the total amount payable to him at the time of such

closure or his opting out of the scheme.

Commutation of Annuity provision - Section 10(13) – It is proposed to insert following

proviso:

Provided that any payment in lieu of or in commutation of an annuity purchased out of

contributions made on or after the 1st day of April, 2016, where it exceeds forty per cent of

the annuity, shall be taken into account in computing the total income

Taxation of Dividend Income - Section 10(34) - It is proposed to provide that any income

by way of dividend in excess of Rs. 10 lakh shall be chargeable to tax in the case of an

individual, Hindu undivided family (HUF) or a firm who is resident in India, at the rate of ten

percent. The taxation of dividend income in excess of ten lakh rupees shall be on gross basis.

SALARY - Section 17(2)(vii)

According to the existing provisions, the different kinds of perquisites contained in section

17(2) will not be applicable to any employee whose salary (exclusive of perquisites) does not

exceed Rs. 1 lakh. It is proposed to increase the said limit from Rs. 1 lakh to Rs. 1,50,000/-.

[w.e.f. 01-04-2017]

INCOME FROM HOUSE PROPERTY - Section (24)(b)

According to existing provisions, while computing income from House Property deduction of

interest paid on Capital borrowed to acquire the property is allowed if the property is

constructed within 3 years from the end of Financial Year in which Capital was borrowed. It

is proposed to extend the period from 3 years to 5 years. [w.e.f. 01-04-2017]


16

Arrears of Rent and unrealized rent - Section 25(A) – Will be substituted in place of

existing Sections 25-A, 25-AA & 25-B which deal with arrears of rent and unrealized rent of

earlier years which is received in the present assessment year. [w.e.f. 01-04-2017]

It is proposed that arears of rent received from a tenant or unrealized rent realized

subsequently from a tenant will be deemed to be the income of the House Property in the

Financial Year in which it is received whether or not assesse is the owner of the property in

the year of receipt. A deduction of 30% will be allowed from such rent.

NON-COMPETE FEE - Section 28(va)

According to existing provisions any sum received under an agreement not to carry on any

activity in relating to a business will be chargeable to tax as business income.

It is proposed that any such sum received in respect of a profession also will be chargeable to

tax as income from profession. [w.e.f. 01-04-2017]

ADDITIONAL DEPRECIATION - Section 32(1)(iia)

Under the existing provisions of section 32(1)(iia) of the Act, additional depreciation of 20%

in addition to normal depreciation is allowed in respect of the cost of new plant or machinery

acquired and installed by certain assessees engaged in the business of generation and

distribution of power but such benefit of additional depreciation is not available to

transmission of power. It is proposed to provide that an assessee engaged in the business of

transmission of power shall also be allowed such additional depreciation at the rate of 20%.

[w.e.f. 01-04-2017]

Section 32 AC – According to existing provisions, depreciation at 15% is admissible to a

manufacturing company in respect of new asset exceeding cost of Rs. 25 crores acquired and

installed during the previous year. It is proposed to restrict the eligibility of allowance to the

machinery installed on or before 31-03-2017.

It is also proposed that where the instillation of such machinery is in a year other than the

year of acquisition, the depreciation will be allowed in the year of installation.


17

DEDUCTION FOR SCIENTIFIC RESEARCH - Section 35(1)(ii)

According to existing provisions, deduction at 1 ¾ of the sum paid to certain research

Associations/university/college is admissible. It is proposed to scale down the deduction from

1 ¾ to 1 ½ of the said sum. [w.e.f. 01-04-2018]

It is further proposed that deduction will be equivalent to the sum paid after 01-04-2021.

Section 35(1)(iia) & (iii) – It is proposed to restrict the deduction in respect of any sum paid

to the specified company/ research association from the existing rate of 1 ¼ to the sum

actually paid.

Section 35(2AA) – According to the existing provision deduction at two times of the sum

paid to National Laboratory or IIT etc. is admissible. It is proposed to reduce the deduction to

1 ½ times of the said sum.

It is further proposed that in respect of the sum paid after 01-04-2021 the deduction will be

restricted to the sum paid.

Section 35(2AB) – According to the existing provisions, if a company engaged in the

business of Biotechnology incurs any expenditure on scientific research it will be allowed

deduction at two times of the expenditure.

It is proposed to reduce the deduction to 1 ½ times.

It is further proposed that in respect of such expenditure incurred after 01-04-2021. The

deduction will be restricted to the expenditure incurred.

Section 35(ABA) – New section is proposed to be introduced to provide deduction at

appropriate fraction as prescribed of the expenditure of Capital nature actually incurred in

acquiring right to USD spectrum for telecommunication services either before or after

Commencement of Business.

It is proposed to substitute the term license used in subsection (2) to (8) of Section 35(ABB)

by the term spectrum [w.e.f. 01-04-2017].

Section 35(AC) – It is proposed to delete this section w.e.f. 01-04-2017. This section

provided for deduction of expenditure paid to Public Sectors Company for social

development project.


18

Section 35(AD) – In the case of a cold chain facility for storage of agricultural produce,

hospital goods, deduction on account of Capital expenditure is proposed to be reduced to

100% from existing 150%.

Section 35 CCD – It is proposed to reduce the weighted deduction which is at present 150%

of the expenditure incurred by a company on any notified skill development project to 100%

from 1.04.2020.

BAD AND DOUBTFUL DEBTS - Section 36 (1)(viia)(d)

At present in computing the profits of public financial institutions, State Financial

Corporations etc. deduction not exceeding 5% of gross total income is allowed in respect of

provision for bad debts. It is proposed to insert this sub clause to provide that bad debts to the

extent of an amount not exceeding 5% of the total income of a non-banking financial

company will be allowed. [w.e.f. 01-04-2017]

AMOUNT NOT DEDUCTIBLE - Section 40(a)(ib)

It is proposed to insert a new sub clause to disallow any consideration paid to the to a Non-

Resident for a specified service from which tax has not been deducted or has not been paid to

the government Treasury before the due date specified u/s 139(1).

If however the fee is paid in subsequent year or deducted in this year but paid after the due

date u/s. 139(1), it will be allowed in the year of payment. [w.e.f. 01-06-2016]

DEDUCTION ONLY ON ACTUAL PAYMENT - Section 43B(f)

It is proposed to amend the sub clause to provide that sum payable to the credit of

employee/employees in lieu of any leave to their credit will be disallowed.

It is also proposed that any payment due to the railways for use of the railway assets, will be

disallowed if not paid on due date.

COMPUTATION OF INCOME OF PROFESSIONALS

Presumptive Taxation Scheme is extended to professional carrying on legal, medical,

engineering, architectural or accountancy or technical consultancy, interior decorator or any

other profession notified by the board in official gazette.


19

Under the existing provisions of section 44AB of the Act every person carrying on a

profession is required to get his accounts audited if the total gross receipts in a previous year

exceed twenty five lakh rupees.

In order to reduce the compliance burden, it is proposed to increase the threshold limit of

total gross receipts, specified under section 44AB for getting accounts audited, from twenty

five lakh rupees to fifty lakh rupees in the case of persons carrying on profession.

These amendments will take effect from 1st April, 2017 and will, accordingly, apply to the

assessment year 2017-18 and subsequent assessment years.

PRESUMPTIVE TAXATION SCHEME FOR PERSONS HAVING BUSINESS

INCOME.

The existing provisions of section 44AD provide for a presumptive taxation scheme for an

eligible business. Where in case of an eligible assessee engaged in eligible business having

total turnover or gross receipts not exceeding rupees one crore, a sum equal to eight per cent

of the total turnover or gross receipts, or as the case may be, a sum higher than the aforesaid

sum shall be deemed to be profits and gains of such business chargeable to tax under the head

"Profits and gains of business or profession". Under the scheme, the assessee will be deemed

to have been allowed the deduction under sections 30 to 38 of the Act. Further, the eligible

assessee can report income less than the deemed income of eight per cent. of the total

turnover or gross receipts not exceeding rupees one crore provided he maintains books of

accounts as per section 44AB. Further in the case of an eligible assessee, so far as the eligible

business is concerned, the provisions of Chapter XVII-C shall not apply.

In order to reduce the compliance burden of the small tax payers and facilitate the ease of

doing business, it is proposed to increase the threshold limit of one crore rupees specified in

the definition of "eligible business" to two crore rupees.

It is also proposed that the expenditure in the nature of salary, remuneration, interest etc. paid

to the partner as per clause (b) of section 40 shall not be deductible while computing the

income under section 44AD as the said section 40 does not mandate for allowance of any

expenditure but puts restriction on deduction of amounts , otherwise allowable under section

30 to 38.

It is also proposed that where an eligible assessee declares profit for any previous year in

accordance with the provisions of this section and he declares profit for any of the five

consecutive assessment years relevant to the previous year succeeding such previous year not


20

in accordance with the provisions of sub-section (1), he shall not be eligible to claim the

benefit of the provisions of this section for five assessment years subsequent to the

assessment year relevant to the previous year in which the profit has not been declared in

accordance with the provisions of sub-section(1). For example, an eligible assessee claims to

be taxed on presumptive basis under section 44AD for Assessment Year 2017-18 and offers

income of Rs. 8 lakh on the turnover of Rs. 1 crore for assessment year 2017-18 and

subsequent years.

For Assessment Year 2018-19 and Assessment Year 2019-20 also he offers income in

accordance with the provisions of section 44AD. However, for Assessment Year 2020-21, he

offers income of Rs.4 lakh on turnover of Rs. 1 crore. In this case since he has not offered

income in accordance with the provisions of section 44AD for five consecutive assessment

years, after Assessment Year 2017-18, he will not be eligible to claim the benefit of section

44AD for next five assessment years i.e. from Assessment Year 2021-22 to 2025-26.

Further as the turnover limit of presumptive taxation scheme has been enhanced to rupees

two crore, it is proposed to provide that eligible assessee shall be require to pay advance tax.

However, in order to keep the compliance minimum in his case, it is proposed that he may

pay advance tax by 15th March of the financial year.

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in

relation to the assessment year.

NOT CONSIDERED TRANSFER - Section 47 (vii b) A new clause is proposed to be introduced to provide that any transfer of Sovereign Gold

Bond issued by the RBI under the Sovereign Gold Scheme by way of redemption by an

individual assesse will not be considered as transfer for the purpose of capital gain.

Section 47 (xix) – It is proposed to introduce a new clause to provide that any transfer by a

unit holder of a capital asset, being a unit or units, held by him in the consolidating plan of a

mutual fund scheme, made in consideration of the allotment to him of a capital asset, being a

unit or units, in the consolidated plan of that scheme it will not be considered as a transfer for

the purpose of capital gain. (w.e.f 01.04.2017)

Section 48 – It is proposed to substitute the third proviso by the following provisos:

“provided also that nothing contained in the second proviso shall apply to the long term

capital gain arising from the transfer of a long term capital asset, being a bond or debenture

holder other than –


21

(a) Capital indexed bonds issued by the Government or;

(b) Sovereign Gold Bond issued by the RBI under the Sovereign Gold Bond Scheme,

2015;

Provided also that in case of an assesse being non- resident, any gains arising on

account of appreciation of rupee against a foreign currency at the time of redemption

of rupee denominated bond of an Indian company subscribed by him, shall be ignored

for the purpose of computation of full value of consideration under this section. [w.e.f.

01-04-2017]

STAMP DUTY VALUATION - Section 50C It is proposed to provide that where the date of agreement transferring a property and the date

of the Registration of the said agreement are not the same the Stamp Duty Value on the date

of agreement will be taken as the true value provided the consideration for the transfer is paid

by account payee cheque. [w.e.f. 01-04-2017]

Section 54EE – It is proposed to introduce a new section in respect of long term capital gains

arising on account of transfer of units, notified and issued before 01-04-2019 by the Central

Government on the lines of existing section 54EC. [w.e.f. 01-04-2017]

Section 54GB – At present the section provides for exemption to the Capital Gains arsing on

transfer of residential property made prior to 31-03-2017 if the same is invested in Equity

Shares of eligible company under Specified Conditions.

It is proposed to extend the Time Limit from 31-03-2017 to 31-03-2019.

Section 55(1)(b) – At present, the cost of improvement is right to carry on business with Nil

cost. It is proposed to extend the ambit of cost of improvement to cover right to carry on

profession. [w.e.f. 01-04-2017]

Section 56 – The existing provisions hold that when shares of a company are acquired, due to

demerger or amalgamation of a company, by a firm or company in excess of value of Rs.

50,000/- it will be deemed as income of recipient.

It is proposed to apply this provision to Individual and HUF along with Firm or Company.


22

DEDUCTIONS UNDER CHAPTER VIA

1. Payment out of National Pension Scheme – Sec. 80CCD

Under the existing provisions where any amount standing to the credit of assessee in his

account under a pension scheme is received by him or his nominee and deduction has

been allowed in respect of contribution, the amount received is taxable. The amendment

seeks to provide that in case the amount is received by the nominee on the death of the

assessee on account of closure of the account, the same shall not be taxable in the hands

of the nominee. ( Effective from 01.04.2017)

2. Deduction in respect of Interest on Loan –Sec. 80EE

This is a new section introduced in substitution of the existing section 80EE.

The section allows deduction of an amount not exceeding Rs.50,000/- in respect of

interest payable on loan taken by the assessee from any financial institution for the

purpose of acquisition of residential property.

It is necessary that the loan is sanctioned during the period from 01.04.2016 to

31.03.2017 and the amount of loan does not exceed Rs.35,00,000/- for the property

valuing not exceeding Rs.50,00,000/-. It is also necessary that the assessee does not own

any residential property on the date the loan is sanctioned.

The deduction is allowable for and from the assessment year 2017 -18.

3. Deduction in respect of Rents paid –Sec.80GG

Under the existing provision an assessee who or whose spouse or minor child is not

owing any property and who is not in receipt of house rent allowance is entitled to a

deduction not exceeding to Rs.2000/- per month or 25% of his total income, whichever is

less in respect of the rent paid by him.

The amendment seeks to raise the limit of Rs.2000/- per month to Rs.5000/- per month

with the result that the assessee will be entitled to a deduction not exceeding Rs.5000/-

per month or 25% of total income whichever is less in respect of rent of any furnished or

un-furnished accommodation.

4. Deduction in respect of profit of Industrial undertaking engaged in Infrastructure

Development - Sec 80IA


23

Under the existing provisions an enterprise engaged in the Infrastructure Development is

entitled to a deduction for 10 consecutive years out of 15 years from the year in which

undertaking begins to operate infrastructure facility. The deduction is allowable equal to

100% of the profit derived from such business.

In keeping with the FM’s announcement to phase out the exemptions and deductions

available to the companies the amendment proposes to introduce a sunset clause

providing that the deduction shall not be available to any enterprise which starts the

development or operation and maintenance of infrastructure facility on or after

01.04.2017.

5. Deduction in respect of profits of Enterprise engaged in development of SEZ – Sec.

80IAB

Under the existing provisions 100% deduction is allowable to an undertaking from the

business of developing SEZ. The deduction is allowable for 10 consecutive years out of

15 years from the year in which SEZ is notified.

The amendment introduces a sunset clause whereby no deduction shall be allowable to a

developer where the development of SEZ begins on or after 01.04.2017

6. Deduction in respect of profit from Start- up business – Sec.80IAC

A new section is proposed to be introduced with effect from 01.04.2007 providing for

100% deduction in respect of profit from an eligible start-up business for a period of

consecutive 3 assessment years out of 5 years from the year in which the eligible start-up

is incorporated.

Eligible business has been defined to mean a business which involves innovation,

development, deployment or commercialization of new products, processes or services

driven by technology or intellectual property. In order to be eligible for deduction the

company should be incorporated on or after 01.04.2016 but before 31.03.2021.

7. Deduction in respect of Profit of industrial undertaking other than infrastructure

development undertaking - Sec-80IB


24

Under the existing provisions deduction is allowed to an undertaking located in North

eastern region which begins commercial production of mineral oil after 1st day of April

1997 the deduction is equal to 100% of the profit for a period of 7 consecutive years.

The amendment seeks to provide a sunset clause whereby the deduction will be allowed

only if the undertaking begins the production not later than the 31st day of March 2017.

Similarly, deduction is allowed to undertaking engaged in production of Natural gas

which begins commercial production on or after 01.04.2009. The amendment seeks to

provide a sunset clause whereby deduction will not be allowed if the production

commences after 31.03.2017.

8. Deduction in respect of profit from housing projects: Section 80IBA

This is a new provision introduced to provide incentive for construction of low

income houses by allowing 100 % deduction to a builder in respect of profit derived

from the project of constructing residential units with built up area of 30 square

meters in metropolitan cities and 60 square meters in other places. Metropolitan area

is Chennai, Delhi, Kolkata, Mumbai or an area within 25 Kilometers from the

municipal limits of these cities. To be eligible for deduction the project should be

approved by the competent authority after 1.6.2016 but before 31st March, 2019.

Further, it should be on a plot of land measuring at least 1000 sq.mtrs. where the

project is located in metropolitan areas or 25 kilometers from the municipal limits

thereof and 2000 square meters where the plot is in other place. The built up area of

the shops and commercial establishments within the housing project should not

exceed 3 % of the aggregate built up area.

The provision is effective from 1.4.2017 i.e. Assessment year 2017-18.

9. Deduction in respect of employment of workmen – Sec 115JJAA.

Under the existing provisions a deduction of 30 % for additional wages paid to new

regular workmen is allowed for three years if the workmen are employed for not less

than three hundred days in a previous year.

As a measure of employment generation in all sectors, a new section is proposed to be

substituted for the existing Section providing for deduction in respect of cost incurred

on any employee whose total emoluments are less than or equal to twenty five

thousand rupees per month.


25

The existing condition of number of days of employment of 300 days is proposed to

be relaxed to make it 240 days. Also the condition of 10 % increase in number of

employees every year is proposed to be done away with in the new provision.

It is also proposed to provide that in the first year of a new business, thirty percent of

all emoluments paid or payable to the employees shall be allowed as a deduction.

The provision is effective from 1.4.2017 i.e. assessment year 2017-18.

TRANSFER PRICING

1. Extension of time limit to Transfer Pricing Officer in certain cases :

As per the existing provisions, the Transfer Pricing Officer (TPO) has to pass his order sixty

days prior to the date on which the limitation for making assessment expires. It is noted that

at times seeking information from foreign jurisdictions becomes necessary for determination

of arm's length price by the TPO and at times proceedings before the TPO may also be stayed

by a court order.

It is proposed to amend sub-section (3A) of section 92CA to provide that where assessment

proceedings are stayed by any court or where a reference for exchange of information has

been made by the competent authority, the time available to the Transfer Pricing Officer for

making an order after excluding the time for which assessment proceedings were stayed or

the time taken for receipt of information, as the case may be, is less than sixty days, then such

remaining period shall be extended to sixty days.

The amendment will take effect from 1st day of June, 2016.

2. Keeping of information and documents:

Sections 92 to 92F of the Act contain provisions relating to transfer pricing regime. Under

provision of section 92D, there is requirement for maintenance of prescribed information and

document relating to the international transaction and specified domestic transaction.

A proviso is sought to be introduced in Section 92D consequent to OECD Report on Action

13 of BEPS Action plan whereby a person being a constituent entity of an international

group, shall also keep and maintain such information and document in respect of an

international group as may be prescribed.

A constituent entity will have the meaning assigned to it in Section 286 (9)(d) and

international group shall have the meaning assigned to it Section 289(9)(g).


26

CAPITAL GAIN

Clarification regarding the definition of the term 'unlisted securities' for the purpose of

Section 112 (1) (c)

Existing provisions of clause (c) of sub-section (1) of section 112 provide tax rate of ten per

cent for long-term capital gain arising from transfer of securities, whether listed or unlisted.

The expression "securities" for the purpose of the said provision has the same meaning as in

clause (h) of section 2 of the Securities Contracts (Regulations) Act, 1956 (32 of

1956)('SCRA'). A view has been taken by the courts that shares of a private company are not

"securities".

With a view to clarify the position so far as taxability is concerned, it is proposed to amend

the provisions of clause (c) of sub-section (1) of section 112 of the Income- tax Act, so as to

provide that long -term capital gains arising from the transfer of a capital asset being shares

of a company not being a company in which the public are substantially interested, shall be

chargeable to tax at the rate of 10 per cent.

These amendments are proposed to be made effective from the 1st day of April, 2017 and

shall accordingly apply in relation to assessment year 2017-18 and subsequent years.

TAX RATE FOR NEW COMPANIES

Income tax on domestic companies is thirty percent. In case of domestic company total turn

over or gross receipts of which in the previous year 2014-15 does not exceed five crore

rupees, the rate of tax is twenty nine per cent.

In order to provide relief to newly setup domestic companies engaged solely in the business

of manufacture or production, the amendment seeks to insert a new section 115BA to provide

that the income tax payable by such company for any previous year relevant to assessment

year 2017-18 or afterwards shall be computed at twenty five per cent at the option of the

company. This is subject to the following conditions :

(i) the company has been setup and registered on or after 1st day of March, 2016;

(ii) the company is engaged in the business of manufacture or production of any article or

thing and is not engaged in any other business;

(iii)the company while computing its total income has not claimed any benefit under

section 10AA, benefit of accelerated depreciation, benefit of additional depreciation,

investment allowance, expenditure on scientific research and any deduction in respect

of certain income under Part-C of Chapter-VI-A other than the provisions of section

80JJAA; and

(iv) the option is furnished in the prescribed manner before the due date of furnishing of


27

income.

In addition a surcharge at the rate of seven per cent is to be levied if the total income of the

domestic company exceeds one crore but does not exceeds ten crore. In case it exceeds ten

crore surcharge is levied at twelve per cent.

This provision is effective from 1.4.2017 i.e. Assessment year 2017-18.

TAX ON DIVIDEND RECEIVED FROM DOMESTIC COMPANIES

Under the existing provisions of clause (34) of section 10 of the Act, dividend which suffer

dividend distribution tax (DDT) under section 115-O is exempt in the hands of the

shareholder. Under section 115-O dividends are taxed only at the rate of fifteen percent at the

time of distribution in the hands of company declaring dividends. This creates vertical

inequity amongst the tax payers as those who have high dividend income are subjected to tax

only at the rate of 15% whereas such income in their hands would have been chargeable to

tax at the rate of 30%.

With a view to rationalise the tax treatment provided to income by way of dividend, it is

proposed to amend the Income-tax Act so as to provide that any income by way of dividend

in excess of Rs. 10 lakh shall be chargeable to tax in the case of an individual, Hindu

undivided family (HUF) or a firm who is resident in India, at the rate of ten percent. The

taxation of dividend income in excess of ten lakh rupees shall be on gross basis.

These amendments are proposed to be made effective from the 1st day of April, 2017 and

shall accordingly apply in relation to assessment year 2017-18 and subsequent years.

TAXATION OF INCOME FROM PATENTS

A new section 115BBF is proposed to be inserted to encourage indigenous research and

development activities and to make India a global R & D hub by concessional tax regime for

patents. The new section provides that where the total income of the eligible assessee

includes income by way of royalty in respect of a patent developed and registered in India,

then such royalty shall be taxable at the rate of ten per cent plus applicable surcharge and

cess on the gross amount. The amendment is consequent to the recommendation of the

Organisation for Economic Cooperation and Development in Base Erosion and Profit

Shifting project.

The eligible assessee means a person resident in India who is a patentee.

Amendment is also proposed to be made in the provision contained in section 115 JB relating

to MAT. It provides that for the purpose of MAT ‘book profit’ shall be computed by

increasing the profit worked out as per P & L Account by the amount of expenditure relatable

to income by way of royalty in respect of patent which is chargeable to tax under Section

115BBF. The profit as per P & L Account for purposes of MAT is to be reduced by the

amount of income by way of royalty in respect of such patent.

The provision is effective from 1.4.2017.


28

DIVIDEND DISTRIBUTION TAX

The scheme of taxation of Real Estate Investment Trust (REIT) involve a pass through status

in respect of its income. In respect of assets held through an SPV, if SPV is a company, it

pays normal corporate tax and thereafter when the income is distributed to the REIT it suffers

DDT which is paid by the SPV. Thereafter the income is exempt both in the hands of REIT

as well as investors.

In order to rationalize the taxation regime for such trusts and their investors, it is proposed to

provide a special dispensation and exemption from levy of DDT. The salient features of

proposed dispensation are:

(a) exemption from levy of DDT in respect of distributions made by SPV to the business

trust;

(b) such dividend received by the business trust and its investor shall not be taxable in the

hands of trust or investors;

(c) the exemption from levy of DDT would only be in the cases where the business trust

either holds 100% of the share capital of the SPV or holds all of the share capital

other than that which is required to be held by any other entity as part of any direction

of any Government or specific requirement of any law to this effect or which is held

by Government or Government bodies; and

(d) the exemption from the levy of DDT would only be in respect of dividends paid out of

current income after the date when the business trust acquires the shareholding

referred in (c) above in the SPV. The dividends paid out of accumulated and current

profits upto this date shall be liable for levy of DDT as and when any dividend out of

these profits is distributed by the company either to the business trust or any other

shareholder.

The amendment will take effect from 1st June, 2016.

TAX ON DISTRIBUTED INCOME

Under the existing provisions of section 115QA there is an additional income tax payable at

twenty per cent of the distributed income on account of buyback of unlisted shares by a

company. The distributed income has been defined to mean the consideration paid by the

company on buyback as reduced by the amount which was received by the company for issue

of such shares.

Disputes arose in regard to the effect of buybacks under different provisions of the

Companies Act. There was lack of clarity in the manner of determination of consideration

received by the company. In order to provide clarity the amendment seeks to provide that

the provisions of this section shall apply to any buyback of unlisted share undertaken by the

company in accordance with the provisions of the law. It is further provided that for the

purpose of computing distributed income, the amount received by the company in respect of

shares being bought back shall be determined in the prescribed manner.

The amendment takes effect from 1st June, 2016.


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DIVIDEND DISTRIBUTED BY SECURITISATION TRUSTS

Under the preset regime of taxation of Securitisation trust, the income distributed by the trust

is exempt in the hands of the investors but the same is subject to additional income tax on

distributed income in the hands of the trust. The additional income tax is at the rate of twenty

five per cent if the income is distributed to an individual or HUF. It is thirty per cent on

income distributed to any other person.

With a view to rationalize the tax regime, amendments are proposed to be made substituting

the existing regime by a new regime which is as under :

(i) The new regime shall apply to securitisation trust being an SPV defined under

SEBI (Public Offer and Listing of Securitised Debt Instrument) Regulations, 2008

or SPV as defined in the guidelines on securitisation of standard assets issued by

RBI or being setup by a securitisation company or a reconstruction company in

accordance with the SARFAESI Act;

(ii) The income of securitisation trust shall continue to be exempt. However,

exemption in respect of income of investor from securitisation trust would not be

available and any income from securitisation trust would be taxable in the hands

of investors;

(iii) The income accrued or received from the securitisation trust shall be taxable in the

hands of investor in the same manner and to the same extent as it would have

happened had investor made investment directly in the underlying assets and not

through the trust;

(iv) Tax deduction at source shall be effected by the securitisation trust at the rate of

25% in case of payment to resident investors which are individual or HUF and @

30% in case of others. In case of payments to non-resident investors, the

deduction shall be at rates in force;

(v) The facility for the investors to obtain low or nil deduction of tax certificate would

be available; and

(vi) The trust shall provide breakup regarding nature and proportion of its income to

the investors and also to the prescribed income-tax authority.

Further, it is proposed to provide that the current regime of distribution tax shall cease to

apply in case of distribution made by securitisation trusts with effect from 01.06.2016.

These amendments will take effect from 1st June, 2016.

TAX WHERE CHARITABLE INSTITUTION CEASES TO EXIST OR CONVERT

ITSELF INTO NON-CHARITABLE ORGNISATION.

Under the existing section 11 and 12 exemption is provided in respect of income derived

from property held under trust subject to various conditions provided therein. Whereas, there

are provisions providing for application of income for charitable purposes and lay down

consequences in case of failure to do so, ambiguity exists in regard to the treatment of assets


30

of such institutions built up by income over period of time in cases where the trust or the

institution carrying on charitable activity voluntarily wind up its activities or merge with

other charitable or non-charitable institution or convert itself into a non-charitable

organization. In order that such practices are not adopted without tax consequences, it is

proposed to insert a new chapter consisting of sections 115TD, 115TE, 115TF which provide

for levy of additional income tax in case of conversion, merger or transfer of assets to the

non-charitable institution. These provisions are summed up as under :

(i) The accretion in income (accreted income) of the trust or institution shall be taxable

on conversion of trust or institution into a form not eligible for registration u/s 12

AA or on merger into an entity not having similar objects and registered under

section 12AA or on non-distribution of assets on dissolution to any charitable

institution registered u/s 12AA or approved under section 10(23C) within a period

twelve months from dissolution.

(ii) Accreted income shall be amount of aggregate of total assets as reduced by the

liability as on the specified date. The method of valuation is proposed to be

prescribed in rules. The asset and the liability of the charitable organisation which

have been transferred to another charitable organisation within specified time will

be excluded while calculating accreted income.

(iii) The taxation of accreted income shall be at the maximum marginal rate.

(iv) This levy shall be in addition to any income chargeable to tax in the hands of the

entity.

(v) This tax shall be final tax for which no credit can be taken by the trust or institution or

any other person, and like any other additional tax, it shall be leviable even if the

trust or institution does not have any other income chargeable to tax in the

relevant previous year.

(vi) In case of failure of payment of tax within the prescribed time a simple interest @ 1%

per month or part of it shall be applicable for the period of non-payment.

(vii) For the purpose of recovery of tax and interest, the principal officer or the trustee

and the trust or the institution shall be deemed to be assessee in default and all

provisions related to the recovery of taxes shall apply. Further, the recipient of

assets of the trust, which is not a charitable organisation, shall also be liable to be

held as assessee in default in case of non-payment of tax and interest. However,

the recipient's liability shall be limited to the extent of the assets received.


PROCEDURAL PROVISIONS 1. Assumption of jurisdiction of Assessing Officer : The existing sub-section (3) of the

section 124, inter-alia, provides that no person shall be entitled to call in question the

jurisdiction of an Assessing Officer in a case where return is filed under section 139,

after the expiry of one month from the date on which he was served with a notice

issued under sub-section (1) of section 142 or sub-section (2) of section 143 or after

the completion of the assessment, whichever is earlier.


31

Even though order passed under Section 153A or 153C are orders read with Section

143(3) of the Act, jurisdiction of an assessing officer in such cases is being called into

question at the appellate stages. In order to remove any ambiguity the amendment

seeks to provide that cases where search is initiated under section 132 or books of

accounts, other documents or any assets are requisitioned under section 132A, no

person shall be entitled to call into question the jurisdiction of an Assessing Officer

after the expiry of one month from the date on which he was served with a notice

under sub-section (1) of section 153A or sub-section (2) of section 153C or after the

completion of the assessment, whichever is earlier.

The amendment is effective from 1st June, 2016.

2. Enabling provision for extending electronic processing: In order to expedite

verification and analysis of the information and documents received in exercise of

powers under section 133C, it is proposed to amend this section to provide legislative

backing for processing of information so obtained and making the outcome thereof

available to the assessing officer for necessary action. Amendment has also been

made to enable the AO to reopen the cases on the basis of information.

Further, the amendment also proposes to expand the scope of adjustments that can be

made at the time of processing of returns under section 143(1). It is proposed that

such adjustments can be made based on the data available with the department in the

form of tax audit report, returns of earlier years, 26AS statement, form 16 and form

16A after an intimation to the assessee in writing or through electronic mode.

The amendment takes effect from 1st June, 2016.

FILING OF RETURN OF INCOME The amendments in Section 139 seeks to rationalize the time allowed for filing of returns,

completion of proceedings and realization of revenue in order to promote the culture of

compliance. The following amendments are proposed to be made :

i. sixth proviso to section 139(1) is proposed to be amended to include that a

person earning tax exempt income under Section 10(38) will also be liable to

file his return if his income without giving effect to such exemption exceeds

the maximum amount which is not chargeable to tax.

ii. Sub-section (4) is proposed to be substituted to provide that any person who

has not furnished the return within the time allowed under section 139(1) may

furnish the return for any previous year at any time before the end of relevant

assessment year or before the completion of assessment whichever is earlier.

iii. Sub-section (5) is proposed to be substituted to provide that if a person having

furnished return under sub-section (1) or (4) or a return in response to notice

under Section 142(1) discovers any omission, he may furnish a revised return

at any time before the expiry of one year from the end of relevant assessment

year or before the completion of assessment, whichever is earlier.

iv. Explanation (aa) to sub-section (9) is proposed to be omitted to provide that a


32

return which is otherwise valid would not be treated defective merely because

self assessment tax and interest has not been paid on or before the date of

furnishing the return.

v. Under the existing provision, processing of return under section 143(1) is not

necessary where a notice under section 143(2) has been issued. It is proposed

to amend the provision to provide that before making an assessment order

under section 143(3) the return has to be processed.

These amendments will take effect from 1.4.2017 and apply to assessment years

2017-18 onwards.

TIME LIMITS FOR COMPLETION OF PROCEEDINGS

The following time limits are proposed to be reset keeping in view the technology used and

enhanced efficiency of the department in handling the workload.

Details Existing Limit Proposed Limit

For completion of

assessment.

Two years from the end of

assessment year.

21 months from the end of

assessment year.

Completion of assessment

under Section 147

One year from the end of

financial year in which notice

is served.


financial year in which notice

is served.

Completion of fresh

assessment to give effect to

tribunal’s appellate orders

and revision orders.

One year from the end of

financial year in which order

is received.


financial year in which order

is received.

Giving effect to appellate

orders, revision orders and

settlement commission’s

order.

- Three months from the end

of the month in which order

is received.

Completion of assessment to

give effect to orders

otherwise than by appeal

- 12 months from the end of

the month in which order is

received.

Assessment on partner of the

firm in consequence of

assessment under Section 147

of the firm.

- 12 months from the end of

the month in which firm’s

order is passed.

Note: Consequential amendments have been made in time limit for completion of assessment

in accordance with extension of time limit provided to the TPO.

TIME LIMIT IN ASSESSMENT OF SEARCH CASES

Details Existing Limit Proposed Limit

Completion of assessment

under section 153A

2 years from end of the

financial year in which last of

authorization was executed.

21 months from end of the


authorization was executed.

Completion of assessment in 2 years from end of the 21 months from end of the


33

case of other person referred

to in Section 153C


authorization was executed

or

1 year from the end of the

financial year in which books

etc. seized were handed over

under Section 153C.


authorization was executed

or

9 months from the end of the

financial year in which books

etc. seized were handed over

under Section 153C.

The amendment will take effect from 1.6.2016.

TAX DEDUCTION AT SOURCE

TDS U/S 192A OF IT ACT As per Section 192A, the trustees of Employees Provident Fund Scheme 1952 or any person

authorized under the scheme, where employee is participating in a Recognized Provident

Fund shall deduct income tax at the rate of 10% at the time of payment of the accumulated

balance due to employee. However no deduction of income tax under section 192A is

required to be made if the amount of payment or aggregate amount of such payment to the

payee is less than Rs.30,000/-.

It is proposed to increase the limit of Rs.30,000/- to Rs.50,000/- for non-deduction of TDS

w.e.f. 01.06.2016

TDS U/S 194BB OF IT ACT

Any person, being book maker or a person to whom license has been granted for horse racing

and responsible for paying to any person by way of winning from horse races exceeding

Rs.5000/- shall deduct income tax at the rate in force i.e., 30%

It is proposed to increase the limit of Rs.5000/- to Rs.10,000/- w.e.f.01.06.2016

PAYMENT TO CONTRACTORS U/S 194C OF IT ACT

Under existing sub-section 5 of Section 194C, where the aggregate of amount of such sum

credited or paid or likely to be credited or paid during the financial year exceeds Rs.75,000/- ,

the person responsible for such sum shall be liable to deduct income tax under the section.

It is proposed to increase the limit of Rs.75,000/- to Rs.1,00,000/- w.e.f. 01.06.2016


34

TDS U/S 194D OF IT ACT Any person responsible for paying to resident any income by way of remuneration or

commission for procuring insurance business shall deduct income tax at the rate of 10%

where the aggregate amount paid or credited to the payee exceeds Rs.20,000/- .

It is proposed to substitute Rs.15,000/- in place of Rs.20,000/- w.e.f 01.06.2016

TDS U/S 194DA OF IT ACT

Any person responsible for paying to a resident any sum under Life insurance Policy

including bonus on such policy , other than amount not includible in total income shall

deduct income tax at the rate of 2% where such payment during the financial year is not less

than Rs.1,00,000/- .

It is proposed to deduct income tax at the rate of 1% instead of 2%. w.e.f. 01.06.2016

TDS U/S 194EE OF IT ACT

Any person responsible for paying to any person any amount under section 80CCA (2) shall

deduct income tax at the rate of 20% but no deduction being made where the aggregate

amount of such payment is less than Rs.2500/-.

It is proposed to reduce the income tax TDS rate from 20% to 10% w.e.f 01.06.2016

TDS U/S 194G OF IT ACT

Any person responsible for paying to any person for stocking, distributing, purchasing ,

selling lottery tickets, any income by way of commission on such tickets of amount

exceeding Rs.1000/- shall deduct income tax at the rate of 10% at the time of credit or

payment.

It is proposed to increase the limit of Rs.1000/- to Rs. 15,000/- and TDS be made at the rate

of 5% instead of 10% w.e.f 01.06.2016

TDS U/S 194H OF IT ACT

Any person not being an individual or HUF responsible for paying to a resident any income

by way of commission (other than insurance commission referred in section 194D) shall

deduct income tax at the rate of 10% and no deduction shall be made where the aggregate

amount of such income credited or paid does not exceed Rs.5000/- .

However an individual or HUF shall be liable to deduct income tax during the financial year

where they are liable for audit under section 44AB of IT Act immediately preceding the

financial year.


35

It is proposed to deduct income tax at the rate of 5% instead of 10% and where the aggregate

amount of such income credited or paid does not exceed Rs.15,000/ w.e.f 01.06.2016.

TDS u/s 194K of IT Act in respect income of Units of Mutual fund payable to residents shall

be omitted w.e.f 01.06.2016.

TDS u/s 194L of IT Act in respect of payment of compensation on acquisition of capital asset

shall be omitted w.e.f. 01.06.2016

TDS U/S 194LA OF IT ACT

Any person responsible for paying to a resident any sum being compensation or enhanced

compensation on acquisition of certain immovable property shall deduct income tax at the

rate of 10% of such sum. However no deduction shall be made where the aggregate amount

of such payment during the financial year does not exceed Rs.200,000/-

It is proposed to increase the limit to Rs.2,50,000/- instead of Rs.2,00,000/- w.e.f 01.06.2016.

TDS U/S 194LBB OF IT ACT

Where any income other than that portion of income which is of the same nature as income

referred to in section 10(23FBB) is payable to unit holder in respect of units of an Investment

fund specified in explanation 1(a) of section 115UB, the person responsible for making

payment shall, at the time of credit of such income or at the time of payment deduct income

tax at the rate of 10%.

It is proposed, income tax at the rate of 10% be deducted where the payee is resident and

where the payee is non-resident or foreign company at the rates in force w.e.f. 01.06.2016

A new section inserted: TDS u/s 194LBC of IT Act

Where any income is payable to any investor being resident in respect of investment in

securitization trust is specified in clause (d) of the explanation occurring after section

115TCA, shall deduct income tax at the time of credit or payment whichever is earlier at the

rate of 25% if the payee is an individual or HUF and 30% if the payee is other person.

However, where the payment is being made to an investor being non-resident (not being a

company) or a foreign company deduct income tax at the rate in force on such income

w.e.f.01.06.2016.

SECTION 206AA – REQUIREMENT TO FURNISH PERMANENT ACCOUNT

NUMBER

Notwithstanding anything contained in any other provisions of the Act, any person entitled to

receive any sum or income on which tax is deductible under chapter XVIIB, shall furnish its

Permanent Account Number to the person responsible for deducting such tax.


36

However, proviso sub-section (7) stipulates that this section shall not apply in respect of

payment of interest on long term bonds as referred to in section 194LC to a non-resident not

being company or to a foreign company.

It is proposed the provisions of this section shall not apply to non-resident not being company

or to a foreign company in respect of –

i) Payment of interest on long term bonds as referred to in section 194LC and

ii) Any other payment subject to such conditions as may be prescribed

w.e.f. 01.06.2016

SECTION 206C – COLLECTION AT SOURCE

It is proposed to insert serial no (viii) in sub-section (1) after serial no (vii)

“every person being a seller at the time of debiting of the amount payable by the buyer to the

account of the buyer or at the time of receipt of the amount, collect from the buyer a sum

equal to 1% of Motor vehicle value exceeding Rs. 10,00,000/- ”

In sub-section (1D) of Section 206C it is proposed to insert:

“or any other goods (other than bullion or jewellery) or providing any service, after the words

“ or jewellery” exceeding Rs.200,000/- and no tax shall be collected at source under this sub-

section on any amount on which TDS has been made under chapter XVIIB. However sub-

section (1D) will not apply to such clause of buyers who fulfill such conditions as may be

prescribed.

(w.e.f.01.06.2016)

SECTION 211- INSTALLMENT OF ADVANCE TAX AND DUE DATES

It is proposed to amend sub section (1) of section 211 :

“ Advance tax on current income calculated in the manner laid down in section 209 shall be

payable by all the assessees in 4 installments during each financial year as table below-

Due date of Installment Amount Payable

On or before the 15th June Not less than 15% of such

advance tax


37

On or before the 15th September Not less than 45% of such

advance tax , as reduced by the

amount, if any, paid in earlier

installment.

On or before the 15th December Not less than 75% of such

advance tax , as reduced by the

amount or amounts, if any, paid

in earlier installment or

installments

On or before the 15th March The whole amount of such

advance tax, as reduced by the

amount or amounts, if any, paid

in earlier installment or

installments

However, the above provision shall not apply to an eligible business referred to in section

44AD of Income tax to the extent of the whole amount of such advance tax on or before the

15th March and advance tax paid on or before 31st March shall also be treated as advance tax

paid for all the purposes of this Act.

TIME LIMIT FOR DISPOSING APPLICATION FOR WAIVER OF INTEREST UNDER SECTION 273A, 273AA, 220(2)

The following amendments are proposed:

Under the existing provisions no time limit has been provided regarding the passing of orders

either under section 220 or sections 273A or 273AA. Further, these provisions do not

specifically mandate that assessee be given an opportunity of being heard in case such

application is rejected by an authority. Therefore, in order to rationalise the provisions and

provide for specific time-line, amendment to the existing provisions have been proposed.

It is proposed to amend section 220 to provide that an order accepting or rejecting application

of an assessee shall be passed by the concerned Principal Chief Commissioner, Chief

Commissioner, Principal Commissioner or Commissioner within a period of twelve months

from the end of the month in which such application is received.

It is further proposed to amend section 273A and section 273AA to provide that an order

accepting or rejecting the application of an assessee shall be passed by the Principal

Commissioner or Commissioner within a period of twelve months from the end of the month

in which such application is received.

It is also proposed to provide that no order rejecting the application of the assessee under

section 220 or 273A, 273AA shall be passed without giving the assessee an opportunity of

being heard. However, in respect of applications pending as on 1st day of June, 2016, the

order under said sections shall be passed on or before 31st May, 2017.



38

PAYMENT OF INTEREST ON REFUND

Section 244A inter alia provides that an assessee is entitled to interest on refund arising out of

excess payment of advance tax, tax deducted or collected at source. It also provides that the

period for which the interest is paid on such excess payment of tax begins from the 1st April

of the assessment year and ends on the date on which refund is granted.

In order to ensure filing of return within the due date it is proposed to amend section 244A to

provide that in cases where the return is filed after the due date, the period for grant of

interest on refund may begin from the date of filing of return.

In the interest of fairness and equity, it is further proposed to provide that an assessee shall be

eligible to interest on refund of self-assessment tax for the period beginning from the date of

payment of tax or filing of return, whichever is later, to the date on which the refund is

granted. For the purpose of determining the order of adjustment of payments received against

the taxes due, the prepaid taxes i.e. the TDS, TCS and advance tax shall be adjusted first.

It is also proposed to provide that where a refund arises out of appeal effect being delayed

beyond the time prescribed under sub-section (5) of section 153, the assessee shall be entitled

to receive, in addition to the interest payable under sub-section (1) of section 244A, an

additional interest on such refund amount calculated at the rate of three per cent per annum,

for the period beginning from the date following the date of expiry of the time allowed under

sub-section (5) of section 153 to the date on which the refund is granted. It is clarified that in

cases where extension is granted by the Principal Commissioner or Commissioner by

invoking proviso to sub-section (5) of section 153, the period of additional interest, if any,

shall begin from the expiry of such extended period.

These amendments will take effect from 1st day of June, 2016.

RATIONALISATION OF PENALTY PROVISIONS

It is proposed that section 271 shall not apply to and in relation to any assessment for the

assessment year commencing on or after the 1st day of April, 2017 and subsequent

assessment years and penalty be levied under the newly inserted section 270A with effect

from 1st April, 2017. The new section 270A provides for levy of penalty in cases of under

reporting and misreporting of income.

i. Sub-section (1) of the proposed new section 270A seeks to provide that the Assessing

Officer, Commissioner (Appeals) or the Principal Commissioner or Commissioner

may levy penalty if a person has under reported his income.

ii. It is proposed that a person shall be considered to have under reported his income if,-

(a) the income assessed is greater than the income determined in the return

processed under clause (a) of sub-section (1) of section 143;

(b) the income assessed is greater than the maximum amount not

chargeable to tax, where no return of income has been furnished;

(c) the income reassessed is greater than the income assessed or reassessed

immediately before such re-assessment;


39

(d) the amount of deemed total income assessed or reassessed as per the

provisions of section 115JB or 115JC, as the case may be, is greater

than the deemed total income determined in the return processed under

clause (a) of sub-section (1) of section 143;

(e) the amount of deemed total income assessed as per the provisions of

section 115JB or 115JC is greater than the maximum amount not

chargeable to tax, where no return of income has been filed.

(f) the income assessed or reassessed has the effect of reducing the loss or

converting such loss into income.

2. The amount of under-reported income is proposed to be calculated in different

scenarios as discussed herein. In a case where return is furnished and assessment is

made for the first time the amount of under reported income in case of all persons

shall be the difference between the assessed income and the income determined under

section 143(1)(a). In a case where no return has been furnished and the return is

furnished for the first time, the amount of under-reported income is proposed to be:

(i) for a company, firm or local authority, the assessed income;

(ii) for a person other than company, firm or local authority, the difference

between the assessed income and the maximum amount not chargeable to tax.

In case of any person, where income is not assessed for the first time, the amount of

under reported income shall be the difference between the income assessed or

determined in such order and the income assessed or determined in the order

immediately preceding such order.

3. It is further proposed that in a case where under reported income arises out of

determination of deemed total income in accordance with the provisions of section

115JB or section 115JC, the amount of total under reported income shall be

determined in accordance with the following formula-

(A - B) + (C - D)

where,

A = the total income assessed as per the provisions other than the provisions

contained in section 115JB or section 115JC (herein called general

provisions);

B = the total income that would have been chargeable had the total income

assessed as per the general provisions been reduced by the amount of under

reported income;

C = the total income assessed as per the provisions contained in section 115JB

or section 115JC;

D = the total income that would have been chargeable had the total income


40

assessed as per the provisions contained in section 115JB or section 115JC

been reduced by the amount of under reported income.

However, where the amount of under reported income on any issue is considered both

under the provisions contained in section 115JB or section 115JC and under general

provisions, such amount shall not be reduced from total income assessed while

determining the amount under item D.

4. It is clarified that in a case where an assessment or reassessment has the effect of

reducing the loss declared in the return or converting that loss into income, the

amount of under reported income shall be the difference between the loss claimed and

the income or loss, as the case may be, assessed or reassessed.

5. Calculation of under-reported income in a case where the source of any receipt,

deposit or investment is linked to earlier year is proposed to be provided based on the

existing Explanation 2 to sub-section (l) of section 271 (1).

It is also proposed that the under-reported income under this section shall not include

the following cases:

(i) where the assessee offers an explanation and the income-tax authority is

satisfied that the explanation is bona fide and all the material facts have been

disclosed;

(ii) where such under-reported income is determined on the basis of an estimate, if

the accounts are correct and complete but the method employed is such that

the income cannot properly be deducted therefrom;

(iii) wheretheassesseehas,onhisown,estimatedaloweramountofadditionordisallowan

ceontheissueandhasincluded such amount in the computation of his income

and disclosed all the facts material to the addition or disallowance;

(iv) where the assessee had maintained information and documents as prescribed

under section 92D, declared the international transaction under Chapter X and

disclosed all the material facts relating to the transaction;

(v) where the undisclosed income is on account of a search operation and penalty

is leviable under section 271AAB.

6. It is proposed that the rate of penalty shall be fifty per cent of the tax payable on

under-reported income. However in a case where under reporting of income results

from misreporting of income by the assessee, the person shall be liable for penalty at

the rate of two hundred per cent of the tax payable on such misreported income. The

cases of misreporting of income have been specified as under:

(i) misrepresentation or suppression of facts;

(ii) non-recording of investments in books of account;

(iii) claiming of expenditure not substantiated by evidence;

(iv) recording of false entry in books of account;

(v) failure to record any receipt in books of account having a bearing on total

income;


41

(vi) failure to report any international transaction or deemed international

transaction under Chapter X.

7. It is also proposed that in case of company, firm or local authority, the tax payable on

under reported income shall be calculated as if the under-reported income is the total

income. In any other case the tax payable shall be thirty per cent of the under-reported

income.

8. It is also proposed that no addition or disallowance of an amount shall form the basis

for imposition of penalty, if such addition or disallowance has formed the basis of

imposition of penalty in the case of the person for the same or any other assessment

year.

These amendments will take effect from 1st day of April, 2017 and will, accordingly apply in

relation to assessment year 2017-2018 and subsequent years.

IMMUNITY FROM PENALTY AND PROSECUTION IN CERTAIN CASES

It is proposed to provide that an assessee may make an application to the Assessing Officer

for grant of immunity from imposition of penalty under section 270A and initiation of

proceedings under section 276C, provided he pays the tax and interest payable as per the

order of assessment or reassessment within the period specified in such notice of demand and

does not prefer an appeal against such assessment order. The assessee can make such

application within one month from the end of the month in which the order of assessment or

reassessment is received in the form and manner, as may be prescribed.

It is proposed that the Assessing Officer shall, on fulfilment of the above conditions and after

the expiry of period of filing appeal as specified in sub-section (2) of section 249, grant

immunity from initiation of penalty and proceeding under section 276C if the penalty

proceedings under section 270A has not been initiated on account of the following,

namely:—

(a) misrepresentation or suppression of facts;

(b) failure to record investments in the books of account;

(c) claim of expenditure not substantiated by any evidence;

(d) recording of any false entry in the books of account;

(e) failure to record any receipt in books of account having a bearing on total

income; or

(f) failure to report any international transaction or any transaction deemed to be

an international transaction or any specified domestic transaction to which the

provisions of Chapter X apply.

THE DIRECT TAX DISPUTE RESOLUTION SCHEME, 2016

Litigation has been a major area of concern in direct taxes. In order to reduce the huge

backlog of cases and to enable the Government to realise its dues expeditiously, it is proposed

to bring the Direct Tax Dispute Resolution Scheme, 2016 in relation to tax arrear and

specified tax. The salient features of the proposed scheme are as under:


42

• The scheme be applicable to "tax arrear" which is defined as the amount of

tax, interest or penalty determined under the Income-tax Act or the Wealth-tax

Act, 1957 in respect of which appeal is pending before the Commissioner of

Income-tax (Appeals) or the Commissioner of Wealth-tax (Appeals) as on the

29th day of February, 2016.

• The pending appeal could be against an assessment order or a penalty order.

• The declarant under the scheme be required to pay tax at the applicable rate

plus interest upto the date of assessment. However, in case of disputed tax

exceeding rupees ten lakh, twenty-five percent of the minimum penalty

leviable shall also be required to be paid.

• In case of pending appeal against a penalty order, twenty-five percent of

minimum penalty leviable shall be payable alongwith the tax and interest

payable on account of assessment or reassessment.

• Consequent to such declaration, appeal in respect of the disputed income and

disputed wealth pending before the Commissioner (Appeals) shall be deemed

to be withdrawn.

In addition to the above, the scheme proposes that person may also make a declaration in

respect of any tax determined in consequence of or is validated by an amendment made with

retrospective effect in the Income-tax Act or Wealth-tax Act, as the case may be, for a period

prior to the date of enactment of such amendment and a dispute in respect of which is

pending as on 29.02.2016 (referred to as specified tax). For availing the benefit of the

Scheme, such declarant shall be required to withdraw any writ petition or any appeal filed

against such specified tax before the Commissioner (Appeals) or the Tribunal or High Court

or Supreme Court, before making the declaration and shall also be required to furnish a proof

of such withdrawal. Further if any proceeding for arbitration conciliation or mediation has

been initiated by the declarant or he has given any notice under any law or agreement entered

into by India, whether for protection of investment or otherwise, he shall be required to

withdraw such notice or claim for availing benefit under this Scheme.

It is proposed that person making declaration in respect of specified tax shall be required to

furnish an undertaking in the prescribed form and verified in the prescribed manner, waiving

the right, whether direct or indirect, to seek or pursue any remedy or claim in relation to the

specified tax which otherwise be available to them under any law, in equity, by statute or


43

under an agreement, whether for protection of investment or otherwise, entered into by India

with a country or territory outside India. It is proposed that no appellate authority or

Arbitrator or Conciliator or Mediator shall proceed to decide an issue relating to the specified

tax in the declaration in respect of which an order is made by the designated authority or in

respect of the payment of the sum determined to be payable.

It is proposed that where the declarant violates any of the conditions referred to in the

scheme or any material particular furnished in the declaration is found to be false at any

stage, it shall be presumed as if the declaration was never made under this Scheme and all the

consequences under the Income-tax Act or Wealth-tax Act under which the proceedings

against declarant were or are pending, shall be deemed to have been revived.

The declarant under the scheme shall get immunity from institution of any proceeding for

prosecution for any offence under the Income-tax Act or the Wealth-tax Act. In case of

specified tax the declarant shall also get immunity from imposition of penalty under the

Income-tax Act or the Wealth-tax Act. However, in case of tax arrears immunity from

penalty is proposed to be of the amount that exceeds the penalty payable as per the scheme.

The scheme provides waiver of interest under the Income-tax Act or the Wealth-tax Act in

respect of specified tax. However, waiver of interest in respect of tax arrears is to the extent

the interest exceeds the amount of interest referred in the scheme.

In the following cases a person shall not be eligible for the scheme:-

(i) Cases where prosecution has been initiated before 29.02.2016.

(ii) Search or survey cases where the declaration is in respect of tax

arrears.

(iii) Cases relating to undisclosed foreign income and assets.

(iv) Cases based on information received under Double Taxation

Avoidance Agreement under section 90 or 90A of the Income-tax Act

where the declaration is in respect of tax arrears.

(iv) Person notified under Special Courts Act, 1992.

(v) Cases covered under Narcotic Drugs and Psychotropic Substances Act,

Indian Penal Code, Prevention of Corruption Act or Conservation of

Foreign Exchange and Prevention of Smuggling Activities Act, 1974.

A declaration under the scheme may be made to the designated authority not below the rank

of Commissioner in such form and verified in such manner as may be prescribed. The

designated authority shall within sixty days from the date of receipt of the declaration

determine the amount payable by the declarant. The declarant shall pay such sum within

thirty days of passing such orders and furnish proof of payment of such sum. Any amount


44

paid in pursuance of a declaration shall not be refundable under any circumstances.

No matter covered by order of designated authority shall be reopened in any other proceeding

under the Income-tax Act, 1961 or Wealth-tax Act, 1957. The designated authority shall

subject to the conditions provided in the scheme grant immunity from instituting any

proceeding for prosecution for any offence under the two Acts in respect of matters covered

in the declaration.

Nothing contained in this Scheme shall be construed as conferring any benefit, concession or

immunity on the declarant in any proceedings other than those in relation to which the

declaration has been made.

It is proposed that the Central Government may be given the power to issue such orders,

instructions and directions for the proper administration of this Scheme to persons employed

in the execution of this Scheme shall observe and follow such orders, instructions and

directions of the Central Government. In case any difficulty arises in giving effect to the

provisions of this Scheme, the Central Government may by order not inconsistent with the

provisions of this Scheme remove the difficulty. However, no such order shall be made after

the expiry of a period of two years from the date on which the provisions of this Scheme

come into force. Every such order, as soon as may be after it is made, be laid before each

House of Parliament.

It is proposed that the Central Government may, by notification in the Official Gazette, make

rules for carrying out the provisions of this Scheme. Every rule made under this Scheme be

laid, as soon as may be after it is made, before each House of Parliament in the manner

specified in the scheme.

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